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 May 2,August 1, 2020

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 001-37404

5430 Ferrier

Mount-Royal, Québec, Canada, H4P 1M2

(Address of principal executive offices) (zip code)

(888) 873-0006

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 of the Exchange Act.

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 July 27,September 17, 2020, 26,103,47726,208,129 common shares of the registrant were outstanding.

DAVIDsTEA Inc.

TABLE OF CONTENTS

DAVIDsTEA Inc. (the “Company”), a corporation incorporated under the Canada Business Corporations Act, qualifies as a foreign private issuer in the United States for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a foreign private issuer, the Company has chosen to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the United States Securities and Exchange Commission (“SEC”) instead of filing the reporting forms available to foreign private issuers, although the Company is not required to do so.

On March 4, 2020, the SEC issued an order (Release No. 34-88318) under Section 36 of the Exchange Act, granting exemptions from specified provisions of the Exchange Act and certain rules thereunder. On March 25, 2020, the order was modified and superseded by a new SEC order (Release No. 34-88465) that provides conditional relief to public companies that are unable to timely comply with their filing obligations as a result of the COVID-19 outbreak (the “Order”).

The Company is filing this Quarterly Report on Form 10-Q for the quarter ended May 2, 2020 (the “Quarterly Report”) in reliance on the Order due to circumstances related to the COVID-19 pandemic. In particular, the Company could not file this Quarterly Report within the time period specified under the Exchange Act due to significant disruption of its business by the COVID-19 pandemic and related mitigation efforts, such as instituting remote work arrangements, which have negatively impacted the Company’s ability to prepare its Quarterly Report.

Pursuant to the requirements of the Order, the Company filed a Current Report on Form 8-K with the SEC on June 15, 2020 indicating our intention to rely upon the Order with respect to the filing of this Quarterly Report, which would have otherwise been required to have been filed by June 16, 2020. This Quarterly Report is being filed within the 45-day extension period provided by the Order.

In this Quarterly Report, unless otherwise specified, all monetary amounts are in Canadian dollars, all references to “$,” “C$,” “CAD,” “CND$,” “Canadian dollars” and “dollars” mean Canadian dollars and all references to “U.S. dollars,” “US$” and “USD” mean U.S. dollars.

On July 24,September 17, 2020, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New YorkCanada closing average exchange rate was US$1.00 = CAD$1.3425.

1.3200

PARTPart I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED BALANCE SHEETS

[Unaudited and in thousands of Canadian dollars]

See accompanying notes.

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF LOSSINCOME (LOSS) AND COMPREHENSIVE LOSSINCOME (LOSS)

[Unaudited and in thousands of Canadian dollars, except share and per share information]

See accompanying notes.

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

[Unaudited and in thousands of Canadian dollars]

See accompanying notes.

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)(DEFICIENCY)

[Unaudited and in thousands of Canadian dollars]

See accompanying notes.

DAVIDsTEA Inc.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three-monththree and six-month periods ended May 2,August 1, 2020 and May 4,August 3, 2019 [Unaudited]

[Amounts in thousands of Canadian dollars except share and per share amounts]

1. CORPORATE INFORMATION

The unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary (collectively, the “Company”) for the three-month periodthree and six-month periods ended May 2,August 1, 2020 were authorized for issue in accordance with a resolution of the Board of Directors on July 30,September 21, 2020. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the Nasdaq Global Market under the symbol “DTEA”. The registered office is located at 5430 Ferrier St., Town of Mount-Royal, Quebec,Québec, Canada, H4P 1M2.

 We areThe Company is a branded retailer and growing mass wholesaler of specialty tea, offering a differentiated selection of proprietary loose-leaf teas, pre-packaged teas, tea sachets and tea-related gifts and accessories through its e-commerce platform at the date hereof,www.davidstea.com and in 18 Company-owned and operated retail stores in Canada, as well as our e-commerce platform at www.davidstea.com.Canada.  A selection of DAVIDsTEA products is also available in more than 2,500 grocery stores and pharmacies across Canada. The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. Sales fluctuate from quarter to quarter. Sales are traditionally higher in the fourth fiscal quarter due to the year-end holiday season and tend to be lowest in the second and third fiscal quarters because of lower customer engagement during the summer months.

In March 2020, the outbreak of a novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization and on March 17, 2020, in response to the COVID-19 pandemic, the Company announced the temporary closure of all of its retail stores in Canada and the United States. On August 21, 2020, the Company re-opened 18 stores across Canada.

The Company qualifies for the Canada Emergency Wage Subsidy (“CEWS”) under the COVID-19 Economic Response Plan of the Government of Canada. During the first quarterand second quarters of Fiscal 2020, the Company recognized payroll subsidies totalingof $0.8 million and $1.2 million respectively under this wage subsidy program as a reduction in the associated wage costs which the Company incurred, which were recognized in Selling, general and administrativeadministration expenses. Subsequent to the first quarter, the Company received the above-mentioned $0.8 million and also received an additional $0.5 million under the CEWS program.

On July 8, 2020, the Company announced that it is implementing a restructuring plan (the “Restructuring Plan”) under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) in order to accelerate its transition to predominantly an online retailer and wholesaler of high-quality tea and accessories and that during the restructuring process, the Company willwould continue to operate its online business through its e-commerce platform at www.davidstea.com and its wholesale distribution channel, through which it sells a selection of DAVIDsTEA products in grocery stores and pharmacies across Canada.  Following a careful review of available options to stem the losses from its brick-and-mortar footprint, the Company’s management and Board of Directors determined that a formal restructuring process was the best option in the context of an increasingly challenging retail environment, further exacerbated by the COVID-19 pandemic.

On July 8, 2020, the Company obtained an Initial Order pursuant to the CCAA from the QuebecQuébec Superior Court in order to implement the Restructuring Plan (the “Initial Order”).

On July 9, 2020, the United States Bankruptcy Court for the District of Delaware entered an order in favor of the Company under Chapter 15 of the United States Bankruptcy Code. The order of the United States Bankruptcy Court provisionally recognized the proceedings under the CCAA and enforced the Initial Order, in effect providing protection to the Company from creditor action against its assets in the United States.

As part of its Restructuring Plan and further to obtaining the Initial Order, the Company, on July 10, 2020, sent notices to terminate leases for 82 of its stores in Canada and all 42 stores in the United States. These lease terminations were effective on August 9, 2020.

On July 16, 2020, the Company obtained an Amended and Restated Initial Order from the QuebecQuébec Superior Court, extending to September 17, 2020 the application of the Initial Order. The Amended and Restated Initial Order also dealt with certain administrative matters, particularly with regards to the lease terminations.

On July 30, 2020, the Company sent notices to terminate leases for an additional 82 of its stores in Canada and continues to negotiate with landlords for the remaining 18 stores.  TheCanada. These lease terminations will take effectwere effective on August 9 , 2020 for the initial 82 stores and August 29, 2020, for the additional 82 stores.2020.

On September 17, 2020, the Québec Superior Court extended the stay of all proceedings against the Company to December 15, 2020 and issued a Claims Process Order establishing the claims procedures for the Company’s creditors under the CCAA.  This Order, among other things sets November 6, 2020 as the time by which creditors must submit their claims to PwC, the Court-appointed Monitor.

2. BASIS OF PREPARATION AND GOING CONCERN UNCERTAINTY

These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). Accordingly, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended February 1, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. In management’s opinion, the unaudited condensed interim consolidated financial statements reflect all the adjustments that are necessary for a fair presentation of the results for the interim period presented. These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in note 3 of the consolidated financial statements for the year ended February 1, 2020, other than as disclosed in note 3 below.

Going Concern Uncertainty

In December 2019, a novel strain of coronavirus, responsible for COVID-19, was first reported and was subsequently declared a pandemic by the World Health Organization in March 2020. The measures adopted by the federal, provincial and state governments in order to mitigate the spread of the outbreak required the Company to close all of its retail locations across North America effective March 17, 2020. On August 21, 2020, until further notice. As of the date of this report, the Company has not re-opened any18 of its stores.stores throughout Canada.

On July 8, 2020, the Company announced that it was implementing the Restructuring Plan under applicable laws in both Canada and in the United States in order to accelerate its transition to predominantly an online retailer and wholesaler of high-quality tea and accessories. As part of the Restructuring Plan, the Company sent notices to terminate leases for 82 of its stores in Canada and all 42 of its stores in the United States. On July 30, 2020, the Company sent notices to terminate leases for an additional 82 of its stores in Canada and continues to negotiate with landlords for the remaining 18 stores.

Although the Company continues to offer its products directly to consumers through its online store and in supermarkets and drugstores across Canada, it is unlikely that customers will purchase its products at previous volumes through these alternative channels. Furthermore, the duration and impact of the COVID-19 pandemic is unknown and may influence consumer shopping behavior and consumer demand including online shopping. Notwithstanding that the Company expects to emerge from the restructuring process as a leaner organization, there is no assurance that the Restructuring Plan will be successful and that all relevant and required regulatory, creditor and court approvals will be obtained.

For the quarterthree and six-month periods ended May 2,August 1, 2020, the Company reported a net income of $2.6 million and incurred a net loss of $45.8 million.$43.2 million, respectively. The Company’s current liabilities total $43.0$86.6 million as at May 2,August 1, 2020. As at May 2,August 1, 2020, the Company held cash and accounts and other receivables of $43.7$41.0 million. The Company does not currently have any third-party financing available with which to meet any future financial obligations.

The Company’s ability to continue as a going concern is dependent on its ability to stabilize its business from unfavorable trend lines, strengthening its business by focusing on how to grow its product portfolio including sales and customer service execution, and effectively optimizingstructuring its North American retail footprintoperations to emerge asensure it successfully emerges with a leaner, more sustainable physical presence that complements a growing world-class online and grocery business, all supported by a right-sized support organization.

Management believes that there is material uncertainty surrounding the Company’s ability to execute the strategy necessary to return to profitability in the current environment, including the unpredictability surrounding the recovery from the COVID-19 pandemic, changes in consumer behavior and the ability to successfully emerge from the Restructuring Plan process.

As a result, these events and conditions indicate that a material uncertainty exists that raises substantial doubt about the Company’s ability to continue as a going concern and, therefore, realize its assets and discharge its liabilities in the normal course of business.

These interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. These interim condensed consolidated financial statements as at and for the three monthsand six-month periods ended May 2,August 1, 2020 do not include any adjustments to the carrying amounts and classification of assets, liabilities and reported expenses that may otherwise be required if the going concern basis was not appropriate. Such adjustments could be material.

3. CHANGES IN ACCOUNTING POLICIES

Recently Issued Accounting Pronouncements

On May 28, 2020, the IASB issued an amendment to IFRS 16, Leases to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions.

The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021.

The amendment is effective as of June 1, 2020 but can be applied immediately in any financial statements—interim or annual—not yet authorisedauthorized for issue. The Company applied the practical expedient to all rent concessions meeting the criteria as set-outset out in the amendment.amendment, as of February 2, 2020.  With respect to rent concessions not meeting the definition of a lease modification, the Company elected to account for such concessions by continuing to account for the lease liability and right-of-use asset using the rights and obligations of the existing lease and recognisingrecognizing a separate lease payable in the period thatin which the allocated lease cash payment is due. As a result of the Initial Order obtained from the Québec Superior Court on July 8, 2020, any rent concessions provided by landlords are accordingly nullified.

As rent concessions were also received in the three-month period ending August 1, 2020, the Company expects there to be further impacts in the second quarter.  The Company is in the process of assessing the impact of the amendment to IFRS 16 on the second quarter ending August 1, 2020. 

4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of condensed interim consolidated financial statements requires management to make estimates and assumptions using judgmentjudgments that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense during the reporting period. Estimates and other judgments are continually evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates.

In preparing these unaudited condensed interim consolidated financial statements, critical judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in note 5 of the consolidated financial statements for the year ended February 1, 2020.As of February 2, 2020, other thanthe Company also considered the impacts related to COVID-19 and the Restructuring Plan to its use of estimates and judgments, as disclosed below.appropriate, within its unaudited interim condensed consolidated financial statements. Estimates and assumptions are subject to inherent uncertainty, which may result in actual amounts differing from reported amounts.

Key sources of estimation uncertainty

Lease termination

As a result of the termination of leases pursuant to the Restructuring Plan in the second quarter of 2020, the Company has recorded an estimate for allowed claim in the amount of $42.9 million.  The estimate for allowed claim is based on the Company’s best estimate and is determined based on the total undiscounted lease liability offset by an estimate of the losses that affected landlords will be able to successfully mitigate. Accordingly, an expense of $42.9 million was recorded in Restructuring plan activities, net in the unaudited interim consolidated statement of income (loss).  This provision is subject to significant estimation uncertainty, as proceedings are in a preliminary stage.  Changes to the provision in future periods may be material and will be recorded through earnings.

Recoverability and impairment of non-financial assets

The temporary store closures as a result of COVID-19, as well as the associatedpermanent closure of a majority of our retail stores resulting from the Restructuring Plan, and the related reduction in operating income during the first quarterand second quarters of fiscal 2020 and the Restructuring Plan are considered to be indicators of impairment and the Company performed an assessment of recoverability for the property and equipment and right-of-use assets associated with its retail locations.

Key judgments in applying accounting principles

Valuation of leaseLease liabilities

The temporary store closures as a result of COVID-19, and the resulting non-payment of rent for the months of April, May, June and June,part of July as well as the Restructuring Plan led the Company to make significant judgmentsjudgements with respect to the impacts of these events on the lease liabilities as of May 2, 2020, includingAugust 1, 2020. These include considerations such as the accounting for rent concessions, and the timing of recognitiontermination of provisions related to defaults of leases and store closures. leases.

5. INVENTORIES

During the quarterthree and six-month periods ended May 2,August 1, 2020, inventories recognized as cost of sales amounted to $8,656 (May 4,$6,104 and $14,760, respectively [August 3, 2019 - $11,994)$11,623 and $23,617, respectively]. TheDuring the three and six-month periods ended August 1, 2020, the cost of inventory includes write-downs of nil and $560, (May 4,respectively [August 3, 2019 - nil)– reversals of write downs of $493 and $493, respectively] recorded as a result of net realizable value being lower than cost.

6. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS

For the three months ended May 2, 2020, anAn assessment of impairment indicators was performed which caused the Company to review the recoverable amount of the property and equipment, and right-of-use assets for certain cash generating units (“CGUs”) with an indication of impairment. CGUs reviewed included stores to be permanently closed upon the completionas part of the Restructuring Plan and the remaining stores that are now expected to perform below the Company’s previous projections.

As a result, of the impairment assessment and the Company’s decision to implement its Restructuring Plan and to accelerate its transition to an online retailer, the Company recorded an impairment loss of $ 13.0$13.0 million [May 4, 2019 – nil]and nil in the first and second quarters of its2020 respectively, related to property and equipment.equipment, [first and second quarter of 2019, respectively, nil and nil] and $27.0 million and nil in the first and second quarters of 2020, respectively, related to right of use assets [first and second quarter of 2019, respectively, nil and $5.0 million].

Included in the amount above, for property and equipment, is an impairment loss of $12.8 million for the 206 stores to be permanently closed after the completionas part of the Restructuring Plan. The remaining $0.2 million of impairment loss was determined by comparing the carrying amount of the CGU’s net assets with their respective recoverable amounts based on value in use for 7 of the 18 stores that will remain open.

For these stores, a value in use of $791 [May 4, 2019 – nil] was determined based on management’s best estimate of expected future cash flows from use over the remaining lease terms, considering historical experience as well as current economic conditions, including the expected reopening date and the timeframe to foot traffic recovery in those location, and was then discounted using a pre‑tax discount rate of 13.0% [May 4, 2019 – nil].

For the three-month period ended May 2, 2020, the depreciation expense was $1,243 [May 4, 2019 - $1,325]; with $1,040 recorded in the Canada segment [May 4, 2019 - $1,157], $53 recorded in the U.S. segment [May 4, 2019 - $41], and $150 recorded in corporate selling, general and administration expenses [May 4, 2019 - $127]. Depreciation expense, and impairment losses are reported in the consolidated statement of loss and comprehensive loss under Selling, general and administration expenses (Note 10). 

7. LEASES

For the three months ended May 2, 2020, an assessment of impairment indicators was performed which caused the Company to review the recoverable amount of the right-of-use assets for certain cash generating units (“CGUs”) with an indication of impairment. CGUs reviewed included stores to be permanently closed upon the completion of the Restructuring Plan and remaining stores that are now expected to perform below the Company’s previous projections.

As a result of the impairment assessment and the Company’s decision to implement its Restructuring Plan and to accelerate its transition to an online retailer, the Company recorded an impairment loss of $27.0 million related to the right-of-use assets based on the same assumptions as the impairment loss recorded for the property and equipment (See Note 6).

Included in the amount above, for right of use assets, is an impairment loss of $24.6 million for the 206 stores to be permanently closed after the completion of the Restructuring Plan and the remaining impairment loss of $2.4 million pertain to 7 of the 18 stores that the Company expects to remain open.

For these stores, a value in use of $791 for the first quarter of 2020, [August 3, 2019 – $3,924] was determined based on management’s best estimate of expected future cash flows from use over the remaining lease terms. This determination considered historical experience as well as current economic conditions, including the expected reopening date and the timeframe to foot traffic recovery in those location, and was then discounted using a pre‑tax discount rate of 13.0% for the first quarter of 2020 [August 3, 2019 – 11.9%].

For the three and six-month periods ended August 1, 2020, the depreciation expense was $301 and $1,544 respectively [August 3, 2019 - $1,359 and $2,684, respectively]; with $1,186 recorded in the Canada segment [August 3, 2019 - $2,318], $358 recorded in the U.S. segment [August 3, 2019 - $366], and $305 recorded in corporate selling, general and administration expenses [August 3, 2019 - $257]. Depreciation expense, and impairment losses are reported in the consolidated statement of loss and comprehensive loss under Selling, general and administration expenses (Note 11).

Depreciation expense and impairment losses related to right-of-use assets have been recorded in Selling, general and administration expenses (Note 10)11) in the consolidated statement of loss and comprehensive loss.

The Company recognized variable lease payments of $49For Right-of-use assets, for the three-month periodthree and six-month periods ended May 2, 2020. In addition, expenses related to leases of low-value assets were $5. These expenses areAugust 1, 2020, the depreciation expense was $454 and $2,693 respectively  [August 3, 2019 - $3,114 and $6,216, respectively]; with $2,416 recorded in Selling, generalthe Canada segment [August 3, 2019 - $5,059], and administrative expenses (Note 10)$277 recorded in the U.S. segment [August 3, 2019 - $1,157].

7. RESTRUCTURING PLAN

(a) Liabilities subject to compromise

As a result of the Initial Order obtained on July 8, 2020 and subsequent amendments (note 1), the payment of liabilities owing as of July 8, 2020 is stayed, and the outstanding liabilities, as well as any additional outstanding claims by creditors are subject to compromise pursuant to a plan of arrangement that is expected to be presented to creditors.  Obligations for goods and services provided to the Company after the filing date of July 8, 2020 are discharged based on negotiated terms and conditions.

As of August 1, 2020, liabilities subject to compromise amounted to $68.0 million and are made up of trade and other payables, provisions related to lease terminations and severance. These liabilities may also be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims or other events.

(b) PROVISIONS

Leases

During the second quarter of 2020, in connection with the termination of leases pursuant to the Restructuring Plan, the Company reduced its lease liabilities by $54.7 million, resulting in a gain on the modification of lease liabilities reported in Restructuring plan activities, net (note 8). 

In addition, as a result of the termination of leases pursuant to the Restructuring Plan in the second quarter of 2020, the Company has recorded an estimate for allowed claim in the amount of $42.9 million.  The estimate for the allowed claim is based on the Company’s best estimate and is determined based on the total undiscounted lease liability offset by an estimate of the losses that affected landlords will be able to successfully mitigate. Accordingly, an expense of $42.9 million was recorded in Restructuring plan activities, net in the unaudited interim consolidated statement of income (loss).  This provision is subject to significant estimation uncertainty, as proceedings are in a preliminary stage.  Changes to the provision in future periods may be material and will be recorded through earnings.

The Company sent notices to terminate leases for an additional 82 of its stores in Canada on July 30, 2020 which were effective on August 29, 2020.  The Company expects to record an additional gain on the modification of this lease liability of $16.6 million and an estimate for allowed claim in the amount of $18.0 million in the third quarter ending October 31, 2020. This estimate is based on the same assumptions used for the lease modifications recorded in the second quarter of 2020.  The actual amount recorded in the third quarter of 2020 may differ as the Restructuring Plan proceedings evolve.

8. RESTRUCTURING PLAN ACTIVITIES, NET