FORM 10-Q

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 October ~~30, 2021~~29, 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 001-37404

DAVIDsTEA Inc.

(Exact name of registrant as specified in its charter)

Canada

98-1048842

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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:

Title of

Each Class

Name of Each Exchange on

Which Registered

Trading Symbol

for Each Class

Common shares, no par value per share

NASDAQ

Global Market

DTEA

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 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, 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated ~~filer~~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 ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of December ~~10, 2021, 26,359,969~~9, 2022, 26,571,035 common shares of the registrant were outstanding.

The brand, service or product names or marks referred to in this Quarterly Report are trademarks or services marks, registered or otherwise, of DAVIDsTEA Inc. and our wholly-owned subsidiary, DAVIDsTEA (USA) Inc.

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.

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

On December ~~10, 2021,~~9, 2022, the Bank of Canada ~~closing average~~ exchange rate was US$1.00 = CAD$~~1.2714.~~1.3630.

Table of Contents

Part 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]

As at

October 30,

January 30,

2021

2021

$

$

ASSETS

Current

Cash

13,367

30,197

Accounts and other receivables

4,602

6,212

Inventories

39,802

23,468

Prepaid expenses and deposits

4,835

14,470

Total current assets

62,606

74,347

Property and equipment

[Note 5]

1,169

2,309

Intangible assets

2,638

3,929

Right-of-use assets

[Note 5]

3,345

657

Total assets

69,758

81,242

LIABILITIES AND EQUITY

Current

Trade and other payables

13,958

4,152

Deferred revenue

5,559

7,080

Liabilities subject to compromise

[Note 6]

0

100,550

Current portion of lease liabilities

780

396

Total current liabilities

20,297

112,178

Non-current portion of lease liabilities

2,720

355

Total liabilities

23,017

112,533

Commitments and contingencies

Equity

Share capital

[Note 7]

113,406

113,167

Contributed surplus

2,199

1,747

Deficit

(71,726 )

(148,068 )
Accumulated other comprehensive income

2,862

1,863

Total equity (deficiency)

46,741

(31,291 )
Total liabilities and equity

69,758

81,242

		As at
		October 29,			January 29,
		2022			2022
		$			$
ASSETS
Current
Cash			16,131			25,107
Accounts and other receivables			3,937			3,209
Inventories			29,985			31,048
Prepaid expenses and deposits			6,137			4,142
Total current assets			56,190			63,506
Property and equipment			576			775
Intangible assets			1,818			2,234
Right-of-use assets			9,990			12,087
Total assets			68,574			78,602
LIABILITIES AND EQUITY
Current
Trade and other payables			14,445			12,300
Deferred revenue			5,472			5,434
Current portion of lease liabilities			2,540			2,364
Total current liabilities			22,457			20,098
Non-current portion of lease liabilities			8,290			10,189
Total liabilities			30,747			30,287
Commitments and contingencies
Equity
Share capital	[Note 4]		113,892			113,534
Contributed surplus			2,838			2,507
Deficit			(82,164	)		(70,671	)
Accumulated other comprehensive income			3,261			2,945
Total equity			37,827			48,315
Total liabilities and equity			68,574			78,602

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME ~~(LOSS)~~ AND COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

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

		For the three months ended						For the nine months ended
		October 30,			October 31,			October 30,			October 31,				For the three-months ended						For the nine-months ended
		2021			2020			2021			2020				October 29,			October 30,			October 29,			October 30,
		$			$			$			$				2022			2021			2022			2021
															$			$			$			$
Sales	[Note 13]		22,203			26,225			64,195			81,497		[Note 10]		16,176			22,203			51,670			64,195
Cost of sales			13,587			15,399			36,816			47,409				9,894			13,587			30,116			36,816
Gross profit			8,616			10,826			27,379			34,088				6,282			8,616			21,554			27,379
Selling, general and administration expenses	[Note 9]		10,242			7,120			28,521			35,883		[Note 5]		10,925			10,242			32,784			28,521
Restructuring plan activities, net	[Note 10]		195			(10,743	)		(76,964	)		24,017		[Note 6]		—			195			—			(76,964	)
Results from operating activities			(1,821	)		14,449			75,822			(25,812	)			(4,643	)		(1,821	)		(11,230	)		75,822
Finance costs			71			35			104			3,260				194			71			532			104
Finance income			(28	)		(53	)		(118	)		(361	)			(120	)		(28	)		(236	)		(118	)
Net income (loss) before income taxes			(1,864	)		14,467			75,836			(28,711	)			(4,717	)		(1,864	)		(11,526	)		75,836
Recovery of income taxes	[Note 8, 10]		0			0			(1,000	)		0		[Note 6]		—			—			—			(1,000	)
Net income (loss)			(1,864	)		14,467			76,836			(28,711	)
Net (loss) income																(4,717	)		(1,864	)		(11,526	)		76,836

Other comprehensive income (loss):
Other comprehensive income:
Cumulative translation adjustment			(13	)		209			999			191				286			(13	)		316			999
Other comprehensive income (loss), net of tax			(13	)		209			999			191
Total comprehensive income (loss)			(1,877	)		14,676			77,835			(28,520	)
Net earnings (loss) per share:
Other comprehensive income, net of tax																286			(13	)		316			999
Total comprehensive (loss) income																(4,431	)		(1,877	)		(11,210	)		77,835
Net (loss) earnings per share:
Basic	[Note 11]		(0.07)			0.55			2.92			(1.10)		[Note 7]		(0.18	)		(0.07	)		(0.44	)		2.92
Fully diluted	[Note 11]		(0.07)			0.54			2.79			(1.10)		[Note 7]		(0.18	)		(0.07	)		(0.44	)		2.79
Weighted average number of shares outstanding:
Basic	[Note 11]		26,359,969			26,214,573			26,300,289			26,143,963		[Note 7]		26,566,441			26,359,969			26,493,484			26,300,289
Fully diluted	[Note 11]		26,359,969			26,767,470			27,584,128			26,143,963		[Note 7]		26,566,441			26,359,969			26,493,484			27,584,128

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

[Unaudited and in thousands of Canadian dollars]

		For the three months ended						For the nine months ended							For the three-months ended						For the nine-months ended
		October 30,			October 31,			October 30,			October 31,				October 29,			October 30,			October 29,			October 30,
		2021			2020			2021			2020				2022			2021			2022			2021
		$			$			$			$				$			$			$			$
OPERATING ACTIVITIES
Net income (loss)			(1,864	)		14,467			76,836			(28,711	)
Net (loss) income																(4,717	)		(1,864	)		(11,526	)		76,836
Items not affecting cash:
Depreciation of property and equipment			398			237			1,193			1,781				90			398			254			1,193
Amortization of intangible assets			403			420			1,290			1,503				138			403			415			1,290
Amortization of right-of-use assets			242			189			536			2,882				656			242			1,975			536
Gain on modification of lease liabilities			0			(20,385	)		0			(75,121	)
Gain (loss) on liabilities subject to compromise	[Note 10]		0			2,633			(79,861	)		71,653
Impairment of property and equipment and right-of-use assets																258			—			258			—
Gain on liabilities subject to compromise, including the recovery of income taxes														[Note 6]		—			—			—			(79,861	)
Interest on lease liabilities			50			29			83			3,216				156			50			490			83
Loss on disposal of property and equipment and right-of-use assets			0			18			0			1,560
Impairment of property and equipment and right-of-use assets			0			0			0			39,960
Amortization of Financing Fees																31			—			31			—
Stock-based compensation expense			392			198			937			778				355			392			1,063			937
Sub-total			(379	)		(2,194	)		1,014			19,501				(3,033	)		(379	)		(7,040	)		1,014
Net change in other non-cash working capital balances related to operations			1,932			(9,822	)		(17,233	)		(39,397	)
Cash flows provided by (used in) operating activities			1,553			(12,016	)		(16,219	)		(19,896	)
Net change in non-cash working capital balances related to operations																869			1,932			463			(17,233	)
Cash flows (used in) provided by operating activities																(2,164	)		1,553			(6,577	)		(16,219	)
FINANCING ACTIVITIES
Proceed from issuance of common shares pursuant to exercise of stock options			0			0			0			3
Payment of lease liabilities			(237	)		(250	)		(559	)		(5,824	)			(753	)		(237	)		(2,271	)		(559	)
Cash flows used in financing activities			(237	)		(250	)		(559	)		(5,821	)			(753	)		(237	)		(2,271	)		(559	)
INVESTING ACTIVITIES
Additions to property and equipment			0			(91	)		(52	)		(402	)			—			—			(128	)		(52	)
Additions to intangible assets			0			(3	)		0			(320	)
Repayment of loan from a Company controlled by an executive employee			0			0			0			2,026
Cash flows provided by (used in) investing activities			0			(94	)		(52	)		1,304
Increase (decrease) in cash during the period			1,316			(12,360	)		(16,830	)		(24,413	)
Cash flows used in investing activities																—			—			(128	)		(52	)
(Decrease) increase in cash during the period																(2,917	)		1,316			(8,976	)		(16,830	)
Cash, beginning of the period			12,051			34,285			30,197			46,338				19,048			12,051			25,107			30,197
Cash, end of the period			13,367			21,925			13,367			21,925				16,131			13,367			16,131			13,367
Supplemental Information
Cash paid for:
Interest (other than lease liabilities)																—			—			—			—
Income taxes (classified as operating activity)																—			—			—			—
Cash received for:
Interest			7			50			101			329				92			7			203			101
Income taxes (classified as operating activity)			0			0			0			870				—			—			—			—

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY)

[Unaudited and in thousands of Canadian dollars]

									Accumulated													Accumulated
									Other		Total											other		Total
	Share		Contributed						Comprehensive		Equity			Share		Contributed						comprehensive		equity
	Capital		Surplus			Deficit			Income (loss)		(Deficiency)			capital		surplus			Deficit			income		(deficiency)
	$		$			$			$		$			$		$			$			$		$
Balance, January 29, 2022															113,534		2,507			(70,671	)		2,945		48,315
Net loss for the nine months ended October 29, 2022															—		—			(11,526	)		—		(11,526	)
Other comprehensive income															—		—			—			316		316
Total comprehensive income															—		—			(11,526	)		316		(11,210	)
Common shares issued on vesting of restricted stock units															358		(732	)		33			—		(341	)
Stock-based compensation expense															—		1,063			—			—		1,063
Balance, October 29, 2022															113,892		2,838			(82,164	)		3,261		37,827

Balance, January 30, 2021		113,167		1,747			(148,068	)		1,863		(31,291	)		113,167		1,747			(148,068	)		1,863		(31,291	)
Net income for the nine months ended October 30, 2021		0		0			76,836			0		76,836			—		—			76,836			—		76,836
Other comprehensive income		0		0			0			999		999			—		—			—			999		999
Total comprehensive income		0		0			76,836			999		77,835			—		—			76,836			999		77,835
Issuance of common shares		0		0			0			0		0
Common shares issued on vesting of restricted stock units		239		(485	)		(494	)		0		(740	)		239		(485	)		(494	)		—		(740	)
Stock-based compensation expense		0		937			0			0		937			—		937			—			—		937
Balance, October 30, 2021		113,406		2,199			(71,726	)		2,862		46,741			113,406		2,199			(71,726	)		2,862		46,741

Balance, February 1, 2020		112,843		1,577			(92,278	)		1,207		23,349
Net income for the nine months ended October 31, 2020		0		0			(28,711	)		-		(28,711	)
Other comprehensive loss		0		0			0			191		191
Total comprehensive loss		0		0			(28,711	)		191		(28,520	)
Issuance of common shares		4		(1	)		0			0		3
Common shares issued on vesting of restricted stock units		292		(593	)		153			0		(148	)
Stock-based compensation expense		0		778			0			0		778
Balance, October 31, 2020		113,119		1,761			(120,836	)		1,398		(4,538	)

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and nine-month periods ended October ~~30, 2021~~29, 2022 and October ~~31, 2020~~30, 2021 [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 DAVIDsTEA (USA) Inc., (collectively, the “Company”) for the three and nine-month periods ended October 29, 2022 and October 30, 2021 were authorized for issue ~~in accordance with a resolution of~~by the Board of Directors on December 13, ~~2021.~~2022. 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, Québec, Canada, H4P 1M2.

The Company offers a specialty branded selection of high-quality proprietary loose-leaf teas, pre-packaged teas, tea sachets, tea-related accessories and gifts through its e-commerce platform at www.davidstea.com and the Amazon Marketplace, its wholesale customers which include over ~~3,300~~3,800 grocery stores and pharmacies, and 18 ~~company-owned~~Company-owned stores across Canada. The Company offers primarily proprietary tea blends that are exclusive to the Company, as well as traditional single-origin teas and herbs. Our passion for and knowledge of tea permeates our culture and is rooted in an excitement to explore the taste, health and lifestyle elements of tea. With a focus on innovative flavours, wellness-driven ingredients and organic tea, the Company launches seasonally driven “collections” with a mission of making tea fun and accessible to all.

Sales fluctuate from quarter to quarter. Sales are traditionally highest 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 and Canada Emergency Rent Subsidy under the COVID-19 Economic Response Plan of the Government of Canada. The Company recognized payroll subsidies for the three and nine-month periods ended October 30, 2021 of $0.6 million and $3.4 million, respectively (October 31, 2020 - $1.4 million and $3.4 million, respectively). The Company recognized rent subsidies for the three and nine-month periods ended October 30, 2021 of $0.2 million and $1 million, respectively (October 31, 2020 – $nil and $nil, respectively). The wage and rent subsidy program benefits were recognized in Selling, general and administration expenses.

~~CCAA Proceedings~~

On July 8, 2020, the Company announced that it was 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 would continue to operate its online business through its e-commerce platform and the Amazon Marketplace as well as its wholesale distribution channel. 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 the formal Restructuring Plan 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 Québec 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 of its 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 Québec 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. These lease terminations were effective on August 29, 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 (the “Claims Process Order”) establishing the claims procedures for the Company’s creditors under the CCAA. The Claims Process Order, among other things, set November 6, 2020 (the “Claims Bar Date”) as the time by which creditors had to submit their claims to PricewaterhouseCoopers (“PwC”), the Court-appointed Monitor.

~~Table of Contents~~

On December 15, 2020, the Québec Superior Court extended the stay of all proceedings against the Company to March 19, 2021. The Court also approved a retention plan for certain key employees (“KERP”) and created a priority charge over the debtors’ assets for the KERP in addition to extending the Claims Bar Date for certain Canadian employees until December 31, 2020.

~~On March 19, 2021, the Québec Superior Court extended the stay of all proceedings against the Company to June 4, 2021, and addressed certain administrative matters.~~

On May 7, 2021, the Company obtained an order from the Québec Superior Court authorizing the Company to file its plan of arrangement (the “Plan of Arrangement” or the “Plan”) under the CCAA and to call a creditors’ meeting to be held on June 11, 2021. The Court order also extended to July 16, 2021 the stay of all proceedings against the Company under the CCAA.

At the creditors’ meeting held on June 11, 2021, the Plan of Arrangement was approved by the requisite majorities of creditors of DAVIDsTEA Inc. and its subsidiary, DAVIDsTEA (USA) Inc., respectively, in accordance with the CCAA, that is, a simple majority of creditors of DAVIDsTEA Inc. and of DAVIDsTEA (USA) Inc., voting separately, whose claims were affected by the Plan of Arrangement, representing in each case at least two-thirds in dollar value of all such claims duly filed in accordance with the CCAA proceedings.

The Plan of Arrangement approved by the Company’s creditors on June 11, 2021 required that DAVIDsTEA Inc. distribute an aggregate amount of approximately $17.6 million to its creditors and those of DAVIDsTEA (USA) Inc. in full and final settlement of all claims affected by the Plan of Arrangement.

On June 16, 2021, the Company was granted a sanction order (the “Sanction Order”) for the Plan of Arrangement from the Québec Superior Court and obtained recognition of the Sanction Order from the United States Bankruptcy Court for the District of Delaware under Chapter 15 of the United States Bankruptcy Code.

On June 18, 2021, the Monitor issued a Certificate of Implementation in accordance with paragraph 16 of the Sanction Order, in which it certified that all the conditions precedent to the implementation of the Plan, as set forth in section 7.2 of the Plan, had been fulfilled or waived by the debtors;

Upon issuance of the Certificate of Implementation, the Monitor began distributing funds to the creditors who had duly proven their claims as part of the claims process. On September 9, 2021, the Monitor filed a Certificate of Termination with the Québec Superior Court in accordance with paragraph 24 of the Sanction Order and declared the CCAA proceedings were terminated without further act or formality.

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 January ~~30, 2021,~~29, 2022, 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 January ~~30, 2021.~~29, 2022.

~~Going Concern Uncertainty~~

~~In December 2019, a novel strain of coronavirus, responsible for COVID-19, was first reported~~Certain comparatives figures related to current 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~~prior year’s quarters have been reclassified to ~~mitigate the spread of the outbreak required the Company to temporarily close all of its retail locations across North America effective March 17, 2020.~~

On July 8, 2020, the Company announced that it was implementing the Restructuring Plan under applicable laws in both Canada and 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, in July 2020, the Company sent notices to terminate leases for 164 of its stores in Canada and all 42 of its stores in the United States.On August 21, 2020, the Company re-opened 18 of its stores throughout Canada.

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.

~~Table of Contents~~

The Plan of Arrangement required approximately $17.6 million to be paid to the Company’s creditors in order to legally emerge from the formal restructuring process. This is expected to place increased risk on the Company’s available liquidity, especially considering the Company does not currently have access to any debt or financing arrangements.

For the three and nine-month period ended October 30, 2021, the Company reported a net loss of $1.9 million and net income of $76.8 million, respectively which includes a gain on settlement of $77.7 million for the nine-month period ended October 30, 2021. The Company’s current liabilities total $20.3 million as at October 30, 2021. As at October 30, 2021, the Company held cash and accounts and other receivables of $18.0 million. The Company does not currently have any third-party financing availableconform 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, and by focusing on how to grow its product portfolio including sales and customer service execution. The Company transitioned to a digital-first organization with a leaner, more sustainable physical presence that complements a growing world-class online and grocery business, 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 sustained profitability in~~ the current ~~environment, including the unpredictability surrounding the recovery from the COVID-19 pandemic, and changes in consumer behavior.~~

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 and nine-months ended October 30, 2021 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.quarter’s presentation.

3. ~~CHANGES IN ACCOUNTING PRINCIPLES~~

~~Change in the pattern of consumption of intangible assets~~

Intangible assets are initially recorded at cost. Intangible assets with finite lives are amortized over their useful economic life. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

In the first quarter of 2021 the Company reviewed the pattern of consumption of its intangible assets. The Company previously used the declining method at the rate of 30% per annum. The Company changed the method of depreciation for intangible assets to a straight-line basis over the assets’ useful economic life to better reflect the underlying pattern of consumption.

~~Recently Issued Accounting Pronouncements~~

~~Costs necessary to sell inventories (IAS 2) agenda decision~~

At its June 2021 meeting, the IFRS Interpretations Committee finalised an agenda decision about the costs an entity includes as the “estimated costs necessary to make the sale” when determining the net realizable value of inventories. The IFRS Interpretations Committee concluded that when determining the net realizable value of inventories, an entity estimates the costs necessary to make the sale in the ordinary course of business, which requires the exercise of judgment. The company does not expect any impact on it results.

~~Table of Contents~~

~~COVID-19 related rent concessions~~

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. In April 2021, the IASB extended the relief to cover rent concessions that reduce lease payments due on or before June 30, 2022.

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 was effective as of June 1, 2020 but could be applied immediately in any financial statements; interim or annual, not yet authorized for issue. The Company applied the practical expedient to all rent concessions meeting the criteria as set out in the 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 recognizing a separate lease payable in the period in 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 were accordingly nullified.

4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of condensed interim consolidated financial statements requires management to make estimates and assumptions using ~~judgment~~judgments 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 January ~~30, 2021.~~

~~5. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS~~

As a result of the impairment assessment and the Company’s decision to implement its Restructuring Plan and to accelerate its transition to predominately an online retailer, the Company recorded an impairment loss of $nil and $13.2 million for the three and nine-month periods ended October 31, 2020, respectively, related to property and equipment, and $nil and $26.8 respectively, related to right of use assets.

Included in the amount above of $40 million, $37.4 million relates to the 206 stores permanently closed as a result of the Restructuring Plan, and is recorded in Restructuring Plan activities, net (Note 10) in the interim consolidated statement of income (loss) and comprehensive income (loss).

The remaining $2.6 million of impairment loss was determined by comparing the carrying amount of the cash-generating units’ net assets with their respective recoverable amounts based on value in use, and is recorded in Selling, general and administration expenses (Note 9) in the interim consolidated statement of income (loss) and comprehensive income (loss). For these stores, a value in use of $791 was determined based on management’s best estimate of expected future cash flows from use over the remaining lease terms, considering historical experience and economic conditions, including the expected reopening date and the timeframe to foot traffic recovery in those locations, and was then discounted using a pre-tax discount rate of 13.0%.

Depreciation of property and equipment for the three and nine-month periods ended October 30, 2021 was $398 and $1,193, respectively (October 31, 2020 - $237 and $1,781, respectively), and is recorded in Selling, general and administration expenses (Note 9) in the interim consolidated statement of income (loss) and comprehensive income (loss).

Amortization of right-of-use assets for the three and nine-month periods ended October 30, 2021 was $242 and $536 respectively (October 31, 2020 - $189 and $2,882, respectively), and is recorded in Selling, general and administration expenses (Note 9) in the interim consolidated statement of income (loss) and comprehensive income (loss).29, 2022.

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~~6. LIABILITIES SUBJECT TO COMPROMISE~~4. SHARE CAPITAL

Authorized

An unlimited number of common shares.

Issued and outstanding

	October 29,		January 29,
	2022		2022
	$		$
Share Capital - (26,571,035) Common shares (January 29, 2022 - 26,423,717)		113,892		113,534

During the three and nine-month periods ended October 29, 2022, 9,291 and 147,318 common shares, respectively (October 30, 2021 – nil and 125,387 common shares, respectively), were issued in relation to the vesting of restricted stock units (“RSU”), resulting in an increase in share capital of $30 and $358, net of tax (October 30, 2021 – $nil and $239, net of tax, respectively) and a reduction in contributed surplus of $62 and $732, respectively (October 30, 2021 – $nil and $485, respectively).

Stock-based compensation

As ~~a result~~at October 29, 2022, 397,974 (October 30, 2021, 777,709) common shares remain available for issuance under the 2015 Omnibus Plan.

No stock options were granted during the three and nine-month periods ended October 29, 2022 and October 30, 2021. A summary of the ~~Initial Order obtained on~~status of the Company’s stock option plan and changes during the nine-month periods is presented below.

For the nine-months ended

October 29,

October 30,

2022

2021

Weighted

average

Options

exercise

Options

exercise

outstanding

price

outstanding

price

Outstanding and exercisable - beginning and end of period

3,490

14.39

9,490

8.01

A summary of the status of the Company’s RSU plan and changes during the nine-month periods are presented below.

For the nine-months ended

October 29,

October 30,

2022

2021

Weighted

average

RSUs

fair value

RSUs

fair value

outstanding

per unit (1)

outstanding

per unit (1)

Outstanding, beginning of period

1,282,790

2.60

1,306,101

1.70

Granted

833,764

1.99

727,217

4.55

Forfeitures

(43,857

)

1.66

(174,041

)

(2.56

)

Vested

(147,318

)

2.40

(125,387

)

(1.91

)

Vested, withheld for tax

(153,382

)

2.40

(130,562

)

(1.91

)

Outstanding, end of period

1,771,997

2.35

1,603,328

2.86

_____________

(1)	Weighted average fair value per unit as at date of grant.

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During the three and nine-month periods ended October 29, 2022, the Company recognized a stock-based compensation expense of $355 and $1,063, respectively (October 30, 2021 – $392 and $937, respectively).

5. SELLING, GENERAL AND ADMINISTRATION EXPENSES

The Company qualified in Fiscal 2021 for the Canada Emergency Wage Subsidy and the Canada Emergency Rent Subsidy under the COVID-19 Economic Response Plan of the Government of Canada. During the three and nine-month periods ended October 29, 2022, the Company recognized payroll and rent subsidies of $nil (October 30, 2021 - $0.8 and $4.4 million, respectively).

	For the three-months ended					For the nine-months ended
	October 29,		October 30,			October 29,		October 30,
	2022		2021			2022		2021
	$		$			$		$
Wages, salaries and employee benefits		3,542		3,589			10,493		10,413
IT ongoing expenses		1,726		1,815			5,017		4,639
Marketing expenses		1,229		1,618			4,893		4,263
Software implementation and configuration costs		1,142		641			3,222		3,095
Credit card fees		329		447			1,006		1,426
Director & officer and other insurance		214		362			904		927
Professional and consulting fees		477		380			1,153		1,635
Depreciation of property and equipment		90		398			254		1,193
Amortization of intangible assets		138		403			415		1,290
Amortization right-of-use asset		656		242			1,975		536
Impairment of property and equipment and right-of-use assets		258		—			258		—
Stock-based compensation		355		392			1,063		937
Other selling, general and administration		769		713			2,131		2,521
Sub-total		10,925		11,000			32,784		32,875
Government emergency wage and rent subsidy		—		(758	)		—		(4,354	)
		10,925		10,242			32,784		28,521

6. RESTRUCTURING PLAN ACTIVITIES, NET

On July 8, 2020, the Company announced that it was 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 ~~subsequent amendments (Note 1),~~wholesaler of high-quality tea and accessories. At the ~~payment of liabilities owing as of July 8, 2020 was stayed, and~~creditors’ meeting held on June 11, 2021, the ~~outstanding liabilities, as well as any additional outstanding claims by creditors were subject to compromise pursuant to the Company’s~~ Plan of ~~Arrangement.~~

~~Obligations for goods and services provided to~~Arrangement was approved by the requisite majorities of creditors of the Company. As a result, the Company ~~after~~was required to and paid approximately $17.6 million to its creditors in full and final settlement and recorded a net gain of $76.9 million in the ~~filing date~~second quarter of ~~July 8, 2020 are discharged based on negotiated terms and are excluded from liabilities subject to compromise.~~Fiscal 2021.

The Plan of Arrangement was approved by the Company’s creditors on June 11, 2021 and required that the Company distribute an aggregate amount of approximately $17.6 million to its creditors in full and final settlement of all claims affected by the Plan of Arrangement. On June 18, 2021, the Monitor issued a Certificate of Implementation in which it certified that all the conditions precedent to the implementation of the Plan, including, among other things, remittance of funds to the Monitor for distribution to creditors, had been fulfilled or waived by the debtors. As a result of the final settlement, the Company recorded in the three-month ended July 31, 2021 a gain on the settlement of liabilities subject to compromise of $77.7 million which was reduced by $1.2 million of professional fees in connection with the CCAA proceedings. This net gain is presented in the second quarter and nine months ended October 30, 2021 interim consolidated statements of income (loss) and comprehensive income (loss) in Restructuring Plan activities, net and Recovery of income taxes as a net gain of $76.7 million and $1.0 million, respectively.

On September 9, 2021, the Monitor filed a Certificate of Termination with the Québec Superior Court in accordance with paragraph 24 of the Sanction Order and declared the CCAA proceedings were terminated without further act or formality.

~~As a result there are no liabilities subject to compromise as of July 31, 2021 and October 30, 2021.~~

Disclaimed and modified leases

Trade and other payables

Severance Costs

Liabilities subject to compromise

$

$

$

$

Balance as at January 30, 2021

75,310

20,699

4,541

100,550

Reversals

(1,771 )

(377 )

0

(2,148 )
Balance as at May 1, 2021

73,539

20,322

4,541

98,402

Adjustments

(1,309 )

(2,558 )

0

(3,867 )
Additions

0

742

0

742

Reversals

(72,230 )

(18,506 )

(4,541 )

(95,277 )
Balance as at July 31, 2021 & October 30, 2021

0

0

0

0

~~7. SHARE CAPITAL~~

~~Authorized~~

~~An unlimited number of common shares.~~

~~Issued and outstanding~~

	~~October 30,~~		~~January 30,~~
	~~2021~~		~~2021~~
	$		$
~~Share Capital - 26,359,969 Common shares (January 30, 2021 - 26,234,582)~~		~~113,406~~		~~113,167~~

During the ~~three and~~three-and nine-month periods ended October 30, 2021, ~~nil~~the Company recorded a net (loss) gain on the settlement of liabilities subject to compromise of negative $195 and ~~125,387 common shares,~~$76,964, respectively ~~(October 31, 2020 – 8,431~~net of professional fees in connection with the CCAA proceedings of $195 and ~~126,398 common shares, respectively) were issued in relation to~~$1,897, respectively and before a gain from the ~~vesting~~recovery of ~~restricted stock units (“RSU”), resulting in an increase in share capital~~income taxes of $nil and ~~$239,~~$1,000, respectively. This net gain is presented in the interim consolidated statement of ~~tax (October 31, 2020 — $20~~income (loss) and ~~$292,~~comprehensive income (loss) in Restructuring Plan activities, net and Recovery of ~~tax respectively) and a reduction in contributed surplus of $nil and $485, respectively (October 31, 2020 — $39 and $593, respectively).~~income taxes.

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~~Stock-based compensation~~

~~As at October 30, 2021, 777,709 (October 31, 2020, 1,088,729) common shares remain available for issuance under the 2015 Omnibus Plan.~~

No stock options were granted during the three and nine-month periods ended October 30, 2021 and October 31, 2020. A summary of the status of the Company’s stock option plan and changes during the nine-month periods are presented below.

For the nine months ended

October 30,

October 31,

2021

2020

Weighted

Weighted

average

average

Options

exercise

Options

exercise

outstanding

price

outstanding

price

#

$

#

$

Outstanding, beginning of year

17,490

6.32

76,350

8.96

Exercised

-

-

(4,000 )

0.77

Forfeitures

(8,000 )

4.31

-

-

Outstanding, end of period

9,490

8.01

72,350

9.41

Exercisable, end of period

9,490

8.01

72,350

9.41

~~A summary of the status of the Company’s RSU plan and changes during the nine-month periods are presented below.~~

For the nine months ended

October 30,

October 31,

2021

2020

Weighted

Weighted

average

average

RSUs

fair value

RSUs

fair value

outstanding

per unit (1)

outstanding

per unit (1)

#

$

#

$

Outstanding, beginning of year

1,306,101

1.70

749,522

2.17

Granted

727,217

4.55

1,177,222

1.44

Forfeitures

(174,041 )

(2.56)

(313,229 )

(1.67)
Vested

(125,387 )

(1.91)

(126,398 )

(2.28)
Vested, withheld for tax

(130,562 )

(1.91)

(128,760 )

(2.31)
Outstanding, end of period

1,603,328

2.86

1,358,357

1.63

~~_____________~~

~~(1)~~

~~Weighted average fair value per unit as at date of grant.~~

~~During the three and nine-month periods ended October 30, 2021, the Company recognized a stock-based compensation expense of $392 and $937, respectively (October 31, 2020 — $198 and $778).~~

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~~8. INCOME TAXES~~

~~Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full fiscal year.~~

~~A reconciliation of the statutory income tax rate to the effective tax rate is as follows:~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

%

$

%

$

%

$

%

$

Income tax provision (recovery) statutory rate

26.4

(492 )

26.8

3,878

26.4

20,020

26.8

(7,694 )
Increase (decrease) in income tax provision (recovery) resulting from:

Non-deductible items

(5.7 )

105

0.4

54

0.3

255

(0.6 )

180

Unrecognized deferred income tax assets

(20.7 )

387

(27.2 )

(3,932 )

(26.7 )

(20,275 )

(26.2 )

7,514

Recovery of income taxes

-

-

-

-

(1.3 )

(1,000 )

-

-

Income tax provision (recovery) effective tax rate

-

-

-

-

(1.3 )

(1,000 )

-

-

~~9. SELLING, GENERAL AND ADMINISTRATION EXPENSES~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

$

$

$

$

Wages, salaries and employee benefits

3,804

3,496

10,917

15,879

Depreciation of property and equipment

398

237

1,193

1,781

Amortization of intangible assets

403

420

1,290

1,503

Amortization right-of-use asset

242

189

536

2,882

Marketing expenses

1,564

1,209

3,928

2,848

Stock-based compensation

392

198

937

778

Government emergency wage and rent subsidy

(758 )

(1,446 )

(4,354 )

(3,445 )
Software implementation costs

641

0

3,095

0

IT expenses

1,612

736

4,192

2,191

Credit card fees

447

547

1,426

1,736

Professional fees

236

611

1,131

1,682

Other selling, general and administration

1,261

923

4,230

5,487

Impairment of property and equipment and right-of-use assets

0

0

0

2,561

10,242

7,120

28,521

35,883

~~10. RESTRUCTURING PLAN ACTIVITIES~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

$

$

$

$

Liabilities subject to compromise

0

(20,385 )

(78,861 )

(75,121 )
Professional fees

195

856

1,897

1,829

Income tax recovery

0

0

(1,000 )

0

Lease terminations

0

6,710

0

49,588

Loss on disposal of property and equipment and right-of-use assets

0

18

0

1,560

Severance costs

0

(337 )

0

4,832

Interest and penalties related to unpaid occupancy charges

0

146

0

1,147

Store closure related costs

0

2,249

0

2,783

Impairment of property and equipment and right-of-use assets

0

0

0

37,399

195

(10,743 )

(77,964 )

24,017

Presented in:

Restructuring plan activities, net

195

(10,743 )

(76,964 )

24,017

Recovery of income taxes

0

0

(1,000 )

0

195

(10,743 )

(77,964 )

24,017

~~Table of Contents~~

~~11.~~7. NET (LOSS) EARNINGS ~~(LOSS)~~ PER SHARE

Basic Net (loss) earnings ~~(loss)~~ per share (“EPS”) amounts are calculated by dividing the ~~net~~Net (loss) income ~~(loss)~~ for the period attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS amounts are calculated by dividing the ~~net~~Net (loss) income ~~(loss)~~ attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares, unless these would be anti‑dilutive.

The following reflects the ~~net earnings~~Net (loss) income and share data used in the basic and diluted EPS computations:

	For the three months ended					For the nine months ended					For the three-months ended						For the nine-months ended
	October 30,			October 31,		October 30,		October 31,			October 29,			October 30,			October 29,			October 30,
	2021			2020		2021		2020			2022			2021			2022			2021
	$			$		$		$			$			$			$			$
Net earnings (loss) for basic EPS		(1,864	)		14,467		76,836		(28,711	)
Net (loss) income for basic EPS												(4,717	)		(1,864	)		(11,526	)		76,836
Weighted average number of shares outstanding:
Basic		26,359,969			26,214,573		26,300,289		26,143,963			26,566,441			26,359,969			26,493,484			26,300,289
Fully diluted		26,359,969			26,767,470		27,584,128		26,143,963			26,566,441			26,359,969			26,493,484			27,584,128
Net earnings (loss) per share:
Net (loss) earnings per share:
Basic		(0.07)			0.55		2.92		(1.10)			(0.18	)		(0.07	)		(0.44	)		2.92
Fully diluted		(0.07)			0.54		2.79		(1.10)			(0.18	)		(0.07	)		(0.44	)		2.79

~~12.~~8. RELATED PARTY DISCLOSURES

Transactions with related parties are measured at the exchange amount, being the consideration established and agreed to by the related parties.

During the three and nine-month periods ended October ~~30, 2021,~~29, 2022, the Company purchased merchandise for resale amounting to $92 and $136, respectively (October 30, 2021 - $77 and $306, ~~respectively (October 31, 2020 - $50 and $76,~~ respectively) and provided infrastructure and administrative services of $2 and $12, respectively (October 30, 2021 - $11 and $23, ~~respectively (October 31, 2020 - $5 and $80,~~ respectively) to a company controlled by one of its executive employees. As of October ~~30, 2021,~~29, 2022, an amount of ~~$41~~$4 was outstanding and presented in Accounts and other receivables. As of October 29, 2022, an amount of $118 was outstanding and presented in Trade and other payables.

9. REVOLVING LINE OF CREDIT

On August 23, 2022, a revolving line of credit on demand with the Bank of Nova Scotia was established for up to $15.0 million, less a reserve of $0.5 million for credit cards based on eligible accounts receivable and inventory balances and subject to financial covenants required to be calculated and met starting January 28, 2023. The ~~Company did not have~~credit facility will bear interest at the prime rate plus 1%, renewable annually at the lender’s option. In addition, Investissement Québec has provided a loan loss guarantee under its “Loan Loss Program”, securing 50% of any ~~spending for~~loss incurred by the ~~three and nine-month periods (October 31, 2020 — $nil and $53, respectively) for consulting services from a related party~~Bank of Nova Scotia with respect to the ~~principal shareholder.~~recovery of indebtedness under the line of credit.

~~Loan to a Company controlled by one of the Company’s executive employees~~

During the second quarter of 2019, the Company entered into a secured loan agreement with Oink Oink Candy Inc., doing business as “Squish,” as borrower, and Rainy Day Investments Ltd. (“RDI”), as guarantor pursuant to which the Company agreed to lend to Squish an amount of up to $4.0 million, amended on September 13, 2019 to reflect a maximum amount available under the facility of $2.0 million. RDI guaranteed all of Squish’s obligations to the Company and, as security in full for the guarantee, gave a movable hypothec (or lien) in favor of the Company on its shares of the Company. Squish is a company controlled by Sarah Segal, the Chief Executive Officer and Chief Brand Officer of the Company and a member of the Board of Directors. RDI, the principal shareholder of the Company, is controlled by Herschel Segal, Strategic Advisor of the Company and recently retired Chairman of the Board of Directors. The Company and Squish previously entered into a Collaboration and Shared Services Agreement pursuant to which they collaborate on and share various services and infrastructure.

~~During the first quarter of 2020, the loan of $2.0 million and accrued interest of $45, including $19 which was earned in the first quarter of 2020, was fully repaid.~~

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~~13.~~10. SEGMENT INFORMATION

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. ~~During the year ended January 30, 2021, the Company reviewed its operations and determined that its operating segments are geographic components.~~ The Company ~~has concluded that it~~ has two operating segments, Canada, and the ~~United States,~~U.S., that derive their revenues from ~~the~~various distribution channels including online, retail and ~~wholesale sale of tea, tea accessories and food and beverages.~~wholesale. The Company’s Chief Executive and Brand Officer and President, Chief Financial and ~~Operations~~Operating Officer (the chief operating decision makers or “CODM”) make decisions about resources to be allocated to the segments and assesses performance, ~~of these segments. In the prior year the operating segments were the retail premises,~~ and ~~the reportable segments were Canada and the United States (the “U.S.”). As a result, there~~for which discrete financial information is ~~no impact on prior period information as reportable segments were previously Canada and the U.S.~~available.

The Company derives revenue from the following products:

For the three months ended

For the nine months ended

For the three-months ended

For the nine-months ended

October 30,

October 31,

October 30,

October 31,

October 29,

October 30,

October 29,

October 30,

2021

2020

2021

2020

2022

2021

2022

2021

Tea

19,054

22,989

55,192

69,004

14,084

19,054

45,159

55,192

Tea accessories

2,723

3,183

8,129

10,868

1,859

2,723

5,442

8,129

Food and beverages

426

874

1,625

233

426

1,069

874

22,203

26,225

64,195

81,497

16,176

22,203

51,670

64,195

~~Property~~All property and equipment, ~~right-of-use~~right-of-used assets and intangible assets ~~by country~~ are ~~as follows:~~located in Canada.

October 30,

January 30,

2021

2021

$

$

Canada

7,152

6,895

US

0

0

7,152

6,895

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Results from operating activities before corporate expenses per country are as follows:

For the ~~three months~~three-months ended

For the ~~nine months~~nine-months ended

October ~~30, 2021~~29, 2022

Canada

Consolidated

Canada

Consolidated

~~Sales~~

~~17,949~~

~~4,254~~

~~22,203~~

~~51,124~~

~~13,071~~

~~64,195~~$

~~Cost of sales~~

~~10,891~~

~~2,696~~

~~13,587~~

~~29,480~~

~~7,336~~

~~36,816~~$

~~Gross profit~~

Sales

~~7,058~~

~~1,558~~

~~8,616~~

~~21,644~~

~~5,735~~

~~27,379~~12,899

~~Selling, general and administration expenses (allocated)~~

~~3,096~~3,277

~~422~~16,176

~~3,518~~42,302

~~7,818~~9,368

~~1,465~~

~~9,283~~51,670

Cost of sales

7,968

1,926

9,894

24,539

5,577

30,116

Gross profit

4,931

1,351

6,282

17,763

3,791

21,554

Selling, general and administration expenses (allocated)

2,818

377

3,195

9,156

1,364

10,520

Results from operating activities before corporate expenses

~~3,962~~2,113

~~1,136~~974

~~5,098~~3,087

~~13,826~~8,607

~~4,270~~2,427

~~18,096~~11,034

Selling, general and administration expenses (non-allocated)

~~6,724~~7,730

~~19,238~~22,264

~~Restructuring plan~~

Results from operating activities ~~net~~

~~195~~

(~~76,964~~

)

~~Results from operating activities~~

~~(1,821~~

)

~~75,822~~

~~Finance costs~~

~~104~~

~~Finance income~~

~~(28~~4,643

)

(~~118~~11,230

)

~~Net~~

Finance costs

194

532

Finance income ~~(loss) before income taxes~~

(~~1,864~~120

)

~~75,836~~(236

)

For the three months ended

For the nine months ended

October 31, 2020

October 31, 2020

Canada

US

Consolidated

Canada

US

Consolidated

$

$

$

$

$

$

Sales

20,465

5,760

26,225

61,497

20,000

81,497

Cost of sales

11,994

3,152

15,399

36,851

10,558

47,409

Gross profit

8,471

2,608

10,826

24,646

9,442

34,088

Selling, general and administration expenses (allocated)

2,699

272

3,252

14,357

3,661

18,018

Impairment of property and equipment and right-of-use assets

0

2,561

2,561

Results from operating activities before corporate expenses

5,772

2,336

7,574

7,728

5,781

13,509

Selling, general and administration expenses (non-allocated)

3,868

15,304

Restructuring plan activities, net

(10,743 )

24,017

Results from operating activities

14,449

(25,812 )
Finance costs

35

3,260

Finance income

(53 )

(361 )
Net income (loss) before income taxes

14,467

(28,711 )

~~14. FINANCIAL RISK MANAGEMENT~~

~~The Company’s activities expose it to a variety of financial risks, including risks related to foreign exchange, interest rate, liquidity and credit.~~

~~Currency Risk — Foreign Exchange Risk~~

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Given that some of its purchases are denominated in U.S. dollars, the Company is exposed to foreign exchange risk. The Company’s foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars. The Company is exposed to currency risk through its cash, accounts receivable and accounts payable denominated in U.S. dollars.

Assuming that all other variables remain constant, a revaluation of these monetary assets and liabilities due to a 5% rise or fall in the Canadian dollar against the U.S. dollar would have resulted in an increase or decrease to net income (loss) in the amount of $218 (October 31, 2020 - $587).

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~~The Company’s foreign exchange exposure is as follows:~~

	~~October 30,~~Net loss before income taxes			~~January 30,~~
	~~2021~~			~~2021~~
	~~US$~~			~~US$~~
~~Cash~~		~~536~~(4,717	)			~~630~~
~~Accounts and other receivables~~		~~368~~			~~465~~
~~Prepaid expenses and deposits~~		~~226~~			~~5,394~~
~~Trade and other payables~~	(11,526	~~5,486~~)			~~750~~

~~The Company’s U.S. subsidiary’s transactions are denominated in U.S. dollars.~~

	For the three-months ended							For the nine-months ended
	October 30, 2021							October 30, 2021
	Canada		US		Consolidated			Canada		US		Consolidated
	$		$		$			$		$		$
Sales		17,948		4,255		22,203			51,124		13,071		64,195
Cost of sales		10,891		2,696		13,587			29,480		7,336		36,816
Gross profit		7,057		1,559		8,616			21,644		5,735		27,379
Selling, general and administration expenses (allocated)		3,129		430		3,559			8,020		1,519		9,539
Results from operating activities before corporate expenses		3,928		1,129		5,057			13,624		4,216		17,840
Selling, general and administration expenses (non-allocated)						6,683							18,982
Restructuring plan activities, net						195							(76,964	)
Results from operating activities						(1,821	)						75,822
Finance costs						71							104
Finance income						(28	)						(118	)
Net (loss) income before income taxes						(1,864	)						75,836

~~Market Risk — Interest Rate Risk~~

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial instruments that potentially subject the Company to cash flow interest rate risk include financial assets and liabilities with variable interest rates and consist primarily of cash on hand.

~~Liquidity Risk~~

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s approach to managing liquidity risk is to ensure, to the extent possible, that it will always have sufficient liquidity to meet liabilities when due. The Company’s liquidity follows a seasonal pattern based on the timing of inventory purchases and capital expenditures. The Company is exposed to this risk mainly in respect of its trade and other payables, lease and purchase obligations.

~~As at October 30, 2021, the Company had $13.4 million in cash.~~

The Company expects to finance its working capital needs and investments in infrastructure through cash flows from operations and cash on hand. At October 30, 2021, trade and other payables amounted to $14.0 million (January 30, 2021 - $4.2 million) and purchase obligations amounted to $5.9 million, net of $0.3 million of advances (January 30, 2021 - $14.1 million, net of $6.8 million of advances). All trade and other payables are expected to be paid according to negotiated vendor terms.

~~Refer to Note 2 for details with respect to the going concern uncertainty.~~

~~Credit Risk~~11. CONTINGENCIES

The Company is ~~exposed~~subject to ~~credit risk resulting~~a claim amounting to $350,000 from a third-party service provider for which services were rendered prior to July 8, 2020, when the ~~possibility that counterparties may default on their financial obligations~~Company announced it was implementing the Restructuring Plan under the Companies’ Creditors Arrangement Act. At this stage, it is too early to determine whether the Company. The Company’s maximum exposure to credit risk at the reporting date is equal to the carrying value of receivables. Accounts receivable primarily consist of receivables from retail customers who pay by credit card, receivables from our wholesale channel sales, recoveries of credits from suppliers for returned or damaged products, and receivables from other companies for sales of products, gift cards and other services. Credit card payments have minimal credit riskclaim has a legal merit and the ~~limited number~~final amount of ~~corporate receivables is closely monitored. As a result, expected credit loss on these financial assets is not significant.~~settlement, if any.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

OF- FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and there are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). The following cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes”, “expects”, “may”, “will”, “should”, ~~“could”, “seeks”, “projects”,~~ “approximately”, ~~“intend”~~“intends”, “plans”, “estimates” or “anticipates” or, in each case, their negatives or other variations or comparable terminology. These forward-looking statements include all matters that are not historical ~~facts. They appear in a number of places throughout this Quarterly Report on Form 10-Q~~facts and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our strategy of transitioning to e-commerce and wholesale sales, future sales through our e-commerce and wholesale channels, our results of operations, financial condition, liquidity and prospects, ~~competitive strengths~~ and ~~differentiators, strategy, long-term Adjusted EBITDA margin potential, dividend policy,~~the impact of the COVID-19 pandemic and other geopolitical conditions on the global macroeconomic environment, properties, outcome of litigation and legal proceedings, use of cash and operating and capital expenditures, impact of new accounting pronouncements, and impact of improvements to internal control and financial reporting.environment.

While we believe these expectations and projections are based on reasonable assumptions, such forward-looking statements are inherently subject to risks, uncertainties, and assumptions about us, including the risk factors listed under Item 1A. Risk Factors, as well as other cautionary language in our Form 10-K filed with the SEC on April ~~30, 2021.~~29, 2022.

Actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to, the following:

	☐·	~~We may not have sufficient cash to maintain our operations following the Restructuring Plan.~~

	☐	Our ability to successfully pivot our business to a digital-first strategy, supported by our wholesale distribution capabilities and our retail operations, including our ability to attract and retain employees ~~that~~who are instrumental to growing our online and wholesale channel businesses;

	☐·	The duration and impact of the global COVID-19 pandemic, which has disrupted the Company’s business and has adversely affected the Company’s financial condition and operating results, and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers and partners;

	☐·	Our ability to ~~manage significant changes to~~maintain and enhance our ~~leadership team;~~brand image;

	☐·	~~Our ability to maintain and enhance our brand image;~~

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	☐	Significant competition within our industry;

	☐·	~~Our ability to attract and retain employees that embody our entrepreneurial culture;~~

	☐	~~Changes in consumer preferences and economic conditions affecting disposable income;~~

	☐	~~Our ability to source, develop and market new varieties of teas, tea accessories, and beverages;~~

	☐	~~Our reliance upon the continued retention of key personnel;~~

	☐	~~The impact from real or perceived quality or safety issues with our teas, tea accessories, and beverages;~~

	��	Our ability to obtain quality products from third-party manufacturers and suppliers on a timely basis or in sufficient quantities, in ~~particular in~~ light of supply chain ~~disruption~~disruptions due to the ongoing COVID-19 ~~pandemic;~~pandemic and the war in Ukraine;

	☐·	~~The impact~~Actual or attempted breaches of ~~weather conditions, natural disasters~~data security; and ~~man-made disasters on the supply and price of tea;~~

	☐·	~~Actual or attempted breaches of data security;~~

	☐	~~The costs of protecting and enforcing our intellectual property rights and defending against intellectual property claims brought by others;~~

	☐	~~Fluctuations in exchange rates; and~~

	☐	The seasonality of our business.

All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. These statements are based upon information available to us as of the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially-available relevant information. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur, and investors are cautioned not to unduly rely upon these statements.

Forward-looking statements speak only as of the date of this Form 10-Q. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention to update any forward-looking statements to reflect events or circumstances arising after the date of this Form 10-Q, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this Form 10-Q or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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Accounting Periods

All references to “Fiscal ~~2021”~~2022” are to the Company’s fiscal year ending January ~~29, 2022.~~28, 2023. All references to “Fiscal ~~2020”~~2021” are to the Company’s fiscal year ended January ~~30, 2021.~~29, 2022.

The Company’s fiscal year ends on the Saturday closest to the end of January, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. The year ended January ~~30, 2021~~29, 2022 and the year ending January ~~29, 2022~~28, 2023 both cover a 52-week period.

Overview

The Company offers a ~~specialty branded~~ selection of high-quality proprietary loose-leaf teas, pre-packaged teas, tea sachets, tea-related accessories, and gifts through its e-commerce platform at www.davidstea.com and the Amazon Marketplace, its wholesale customers which include over ~~3,300~~3,800 grocery stores and pharmacies, and 18 ~~company-owned~~Company-owned stores across Canada. ~~We offer~~The Company offers primarily proprietary tea blends that are exclusive to the Company, as well as traditional single-origin teas and herbs. Our passion for and knowledge of tea permeates our culture and is rooted in an excitement to explore the taste, health and lifestyle elements of tea. With a focus on innovative flavours, wellness-driven ingredients and organic tea, the Company launches seasonally driven “collections” with a mission of making tea fun and accessible to all.

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We believe that our proprietary loose-leaf tea assortment and related product suite differentiates us from competitors in North America and resonates with our target customer base. Our strategy is to stabilize our business from unfavorable trend lines by playing to our core strengths and strengthening our business by focusing on how to grow our product portfolio. This includes migrating sales to a virtual experience and best-in-class customer service execution. We are focused on effectively optimizing our retail footprint into a more sustainable physical presence that complements a growing online and wholesale business, all supported by a right-sized support organization.

OnIn 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, ~~we closed~~in response to the COVID-19 pandemic, the Company announced the temporary closure of all ~~of our~~its retail stores in ~~North America, as subsequently mandated by the governments in both~~ Canada and the United ~~States~~States.

Following a careful review of available options to stem the losses generated primarily from its brick-and-mortar footprint, our management and Board of Directors determined that a formal restructuring process was the best option in ~~light~~the context of an increasingly challenging retail environment, further exacerbated by the COVID-19 pandemic. Due to the degree of uncertainty in connection with the scope and extent of the COVID-19 pandemic and the resulting impact to our business, and considering that significant losses were historically incurred in our brick-and-mortar operations which were anchored by commercial leases that are difficult to modify, we concluded that our transformation objectives would be better achieved through a formal restructuring process.

On July 8, 2020, the Company announced that it was 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 would continue to operate its online business through its e-commerce platform ~~at www.davidstea.com~~ and the Amazon Marketplace as well as its wholesale distribution channel. Following a careful review of available options to stem the losses from our brick-and-mortar footprint, the Company’s management and Board of Directors determined that the formal Restructuring Plan was the best option in the context of an increasingly challenging retail environment, further exacerbated by the COVID-19 pandemic.

On ~~July 8,~~August 21, 2020, the Company ~~obtained an Initial Order pursuant to the CCAA from the Québec Superior Court~~re-opened 18 stores across Canada and permanently closed 164 stores 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 CCAACanada and ~~enforced the Initial Order, in effect providing protection to the Company from creditor action against our assets~~all 42 stores in the United States.

As part of the 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 of its stores in the United States. These lease terminations were effective on August 9, 2020.

~~On July 30, 2020, the Company sent notices to terminate leases for an additional 82 of its stores in Canada. These lease terminations were effective on August 29, 2020.~~

~~On September 17, 2020, the Québec Superior Court extended the stay of all proceedings against the Company to December 15, 2020 and issued~~At a claims process order (the “Claims Process Order”) establishing the claims procedures for the Company’s creditors under the CCAA. The Claims Process Order, among other things, set November 6, 2020 (the “Claims Bar Date”) as the time by which creditors had to submit their claims to PricewaterhouseCoopers (“PwC”), the Court-appointed Monitor.

~~On March 19, 2021, the Québec Superior Court extended the stay of all proceedings against the Company to June 4, 2021, and addressed certain administrative matters.~~

On May 7, 2021, the Company obtained an order from the Québec Superior Court authorizing the Company to file its plan of arrangement (the “Plan of Arrangement” or the “Plan”) under the CCAA and to call a creditors’ meeting to be held on June 11, 2021. The Court order also extended to July 16, 2021 the previously-announced stay of all proceedings against the Company under the CCAA.

~~At the~~ creditors’ meeting held on June 11, 2021, the Company’s Plan of Arrangement was approved by the requisite majorities of creditors of DAVIDsTEA Inc. and its subsidiary DAVIDsTEA (USA) Inc., respectively, in accordance with the CCAA, that is, a simple majority of creditors of DAVIDsTEA Inc. and of DAVIDsTEA (USA) Inc., voting separately, whose claims were affected by the Plan of Arrangement, representing in each case at least two-thirds in dollar value of all such claims duly filed in accordance with the CCAA proceedings.

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The approved Plan of Arrangement ~~approved by the Company’s creditors on June 11, 2021~~ required that DAVIDsTEA Inc. distribute an aggregate amount of ~~approximately~~ $17.6 million to its creditors and those of DAVIDsTEA (USA) Inc. in full and final settlement of all claims affected by the Plan of ~~Arrangement.~~Arrangement on June 18, 2021.

~~Upon issuance of the Certificate of Implementation, the Monitor began distributing funds to the creditors who had duly proven their claims as part of the claims process.~~ On September 9, 2021, the Monitor filed a Certificate of Termination with the Québec Superior Court in accordance with paragraph 24 of the Sanction Order and declared the CCAA proceedings were terminated without further act or formality.

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~~Management believes~~

The Company emerged from the Restructuring Plan a smaller and more invigorated organization, with a renewed sense of purpose and confidence as we continue building a high-performing, future-ready winning culture, driven by purpose. We were founded on a spirit of innovation and of embracing unconventional ideas with a desire to create a North American experience around tea. We removed the boundaries that ~~there~~kept tea in the cupboards of only those in-the-know. We experimented and took risks, attracted passionate employees and as customers became friends, we embraced our brand purpose; a desire to share “positivitea” with all, and use our platform to do good - for business and for the lives of all with whom we interact.

Our actions are driven by the fervent desire to become the world’s most innovative tea company; one that inspires greater wellness and sustainability through ethical and sustainable tea sourcing, compostable and regenerative packaging, and caring for our community. Our digital-first strategy is ~~material uncertainty surrounding our~~built to respond to consumer demand - meeting consumers where they are, driving loyalty with the ability to ~~execute~~scale the ~~strategy necessary~~business, without borders. We are focused on building a winning culture that is fueled by delighting consumers and driven to ~~return~~overcome challenging operational and market conditions. We are focused on revenue growth, attaining profitability and positive cash-flow, and with an unwavering sense of passion, purpose and commitment to ~~profitability in the current environment, including the unpredictability surrounding the recovery from the COVID-19 pandemic,~~our customers and changes in consumer behavior. 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.our stakeholders.

Factors Affecting Our Performance

We believe that our performance and future success depend on ~~a number of~~several factors that present significant opportunities for us and may pose risks and challenges, as discussed in the “Risk Factors” section under “Item 1A. Risk Factors” ~~of this Form 10-Q and~~ in our Form 10-K filed with the SEC and on SEDAR and available at www.sec.gov and www.sedar.com, respectively.

How We Assess Our Performance

The key measures we use to evaluate the performance of our business and the execution of our strategy are set forth below:

Sales. Sales are generated from our online ~~store,~~stores, retail stores, and from our wholesale distribution channel. Our business is seasonal and, as a result, our sales fluctuate from quarter to quarter. Sales are traditionally highest in the fourth fiscal quarter, which includes the holiday sales period, and tend to be lowest in the second and third fiscal quarters because of lower customer engagement in both our online store and physical locations in the summer months.

The specialty retail industry is cyclical, and our sales are affected by general economic conditions. ~~A number of~~Several factors ~~that~~ influence the level of consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates, the rate of inflation and consumer confidence that can affect purchases of our products.

As we ~~transition~~have transitioned to generating sales primarily from our online ~~store,~~stores, measuring the change in period-over-period comparable same store sales, although still a valid measure within our retail sales channel, loses its significance in the overall evaluation of how our business is performing. Other measures such as sales performance in total and in our e-commerce and wholesale channels begin to influence how we direct resources and evaluate our performance. Factors affecting our performance include:

	☐·	our ability to anticipate and respond effectively to consumer preference, buying and economic trends;

	☐·	our ability to provide a product offering that generates new and repeat visits online and in our other channels;

	☐·	the customer experience we provide online and in our other channels;

	☐·	the level of customer traffic to our website and our online presence more generally;

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	☐
	·	the number of customer transactions and average ticket online;

	☐·	the pricing of our tea and tea accessories; and

	☐·	our ability to obtain, ~~manufacture~~process and distribute product efficiently.

Gross Profit. Gross profit is equal to our sales less our cost of sales. Cost of sales includes product costs, freight costs, certain store occupancy costs, assembly, and ~~delivery and~~ distribution costs.

~~Restructuring Plan Activities.~~ Restructuring Plan activities consist of gains on modification of lease liabilities, estimates for allowed landlord claims, loss on disposal of property and equipment and right-of-use assets, impairment of property and equipment and right-of-use assets, severance costs, interest and penalties related to unpaid occupancy charges, professional fees, store closure related costs, and the gain on settlement of liabilities subject to compromise.

Selling, General and Administration Expenses. Selling, general and administration expenses (“SG&A”) consist of store operating expenses and other general and administration expenses. Store operating expenses consist of all store expenses excluding certain occupancy related costs (which are included in costs of sales). General and administration costs consist of salaries and other payroll costs, travel, professional fees, stock compensation, marketing expenses, information technology, depreciation of property and equipment, amortization of intangible assets, amortization of right-of-use assets, any ~~store or other~~ asset impairment ~~taken in the normal course of business~~ and other operating costs.

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General and administration costs, which are generally fixed in nature, do not vary proportionally with sales to the same degree as our cost of sales. We believe that these costs will decrease as a percentage of sales over time. Accordingly, this expense as a percentage of sales is usually higher in ~~lower volume~~lower-volume quarters and lower in ~~higher volume~~higher-volume quarters.

We present Adjusted selling, general and administration expenses as a supplemental measure because we believe it facilitates a comparative assessment of our selling, general and administration expenses under IFRS, while isolating the effects of some items that vary from period to period. It is reconciled to its nearest IFRS measure under “Non-IFRS Financial Measures” in this Quarterly Report on Form 10-Q.

Results from Operating Activities. Results from operating activities consist of our gross profit less our selling, general and administration expenses, and in respect of Fiscal 2021, Restructuring Plan ~~activities.~~

~~We present Adjusted results from operating~~ activities, as a supplemental performance measure because we believe it facilitates a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that vary from period to period. It is reconciled to its nearest IFRS measure under “Non-IFRS Financial Measures” in this Quarterly Report on Form 10-Q.net.

Finance Costs. Finance costs consist of ~~cash and imputed non-cash charges related to any credit facility, and~~ interest expense ~~from~~on lease liabilities.

Finance Income. Finance income consists of interest income on cash balances.

~~Adjusted EBITDA.~~ We present Adjusted EBITDA as a supplemental performance measure because we believe it facilitates a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that vary from period to period. Specifically, Adjusted EBITDA allows for an assessment of our operating performance and our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, finance costs, non-cash compensation expense, loss on disposal of property and equipment, impairment of property and equipment and right-of-use assets, and certain non-recurring expenses. This measure also functions as a benchmark to evaluate our operating performance. It is reconciled to its nearest IFRS measure under “Non-IFRS Financial Measures” in this Quarterly Report on Form 10-Q.

~~Table of Contents~~

Selected Operating and Financial Highlights

Results of Operations

Sales during the third quarter of Fiscal ~~2021~~2022 decreased by ~~$4.0~~$6.0 million or ~~15.3%~~27.1% to ~~$22.2~~$16.2 million ~~over~~from the prior year quarter due mainly to a decrease in e-commerce sales of $4.3 million and a decrease in brick-and-mortar and wholesale sales of $1.8 million.

Sales of $51.7 million in the year-to-date period ended October 29, 2022 decreased by $12.5 million from the prior year period or 19.5% due to a decrease in e-commerce ~~and wholesale~~ sales of $5$16.2 million, partially offset by an increase in sales of $1$3.7 million from ~~brick-and-mortar. With the reduction of revenue the~~brick-and-mortar and wholesale.

The Company recorded a Net loss of ~~$1.9~~$4.7 million ~~for~~in the ~~period~~third quarter compared to a Net ~~income~~loss of ~~$14.5~~$1.9 million in the prior year quarter. Excluding adjustments noted herein, Adjusted net loss ⁽¹⁾for the third quarter was ~~$1.8~~$3.3 million compared to an ~~adjusted~~Adjusted net ~~income~~loss ⁽¹⁾ of ~~$2.8~~$1.8 million in the prior year quarter. Adjusted EBITDA ⁽¹⁾in the third quarter of Fiscal ~~2021~~2022 was ~~negative $0.3~~a loss of $2.0 million compared to ~~$3.3~~a loss of $0.3 million in the prior year quarter.

The Company recorded a Net Loss of $11.5 million in the year-to-date period compared to a Net income of $76.8 million in the prior year period. Excluding adjustments noted herein, Adjusted net loss ⁽¹⁾ for the year-to-date period was $8.0 million compared to an Adjusted net loss ⁽¹⁾ of $2.4 million in the prior year period. Adjusted EBITDA ⁽¹⁾ in the year-to-date period of Fiscal 2022 was a loss of $4.1 million compared to income of $1.6 million in the prior year period.

Sales and operating results have been materially impacted by changes in overall economic conditions in North America and the impact these conditions have had on consumer confidence and discretionary spending. Continuing inflationary pressures have resulted in an increase in our cost of goods, transportation, and labour costs. Fears of a looming recession, increases in interest rates, the rate of inflation, uncertainty surrounding the COVID-19 pandemic, continuing supply chain disruptions, increased input costs, and shortage of technical and skilled labour are expected to have a continuing significant impact on economic conditions that could materially affect our financial condition, results of operations and cash flows.

As COVID-19 restrictions loosened in Fiscal 2022, consumer spending shifted to out-of-home and we saw a shift away from online to brick-and mortar. We believe this decline in e-commerce revenue is temporary as we continue to build on the wellness trend for healthier beverages with our target audiences.

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The following table summarizes key components of our results of operations for the periods indicated:

	For the three months ended						For the nine months ended						For the three-months ended						For the nine-months ended
	October 30,			October 31,			October 30,			October 31,			October 29,			October 30,			October 29,			October 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Consolidated statement of income (loss) data:
Consolidated statement of operations data:
Sales	$	22,203		$	26,225		$	64,195		$	81,497		$	16,176		$	22,203		$	51,670		$	64,195
Cost of sales		13,587			15,399			36,816			47,409			9,894			13,587			30,116			36,816
Gross profit		8,616			10,826			27,379			34,088			6,282			8,616			21,554			27,379
Selling, general and administration expenses		10,242			7,120			28,521			35,883			10,925			10,242			32,784			28,521
Restructuring plan activities, net		195			(10,743	)		(76,964	)		24,017			—			195			—			(76,964	)
Results from operating activities		(1,821	)		14,449			75,822			(25,812	)		(4,643	)		(1,821	)		(11,230	)		75,822
Finance costs		71			35			104			3,260			194			71			532			104
Finance income		(28	)		(53	)		(118	)		(361	)		(120	)		(28	)		(236	)		(118	)
Net income (loss) before income taxes		(1,864	)		14,467			75,836			(28,711	)		(4,717	)		(1,864	)		(11,526	)		75,836
Recovery of income tax								(1,000	)
Net income (loss)	$	(1,864	)	$	14,467		$	76,836		$	(28,711	)
Recovery of income taxes														—			—			—			(1,000	)
Net (loss) income													$	(4,717	)	$	(1,864	)	$	(11,526	)	$	76,836
Percentage of sales:
Sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		61.2	%		58.7	%		57.4	%		58.2	%		61.2	%		61.2	%		58.3	%		57.4	%
Gross profit		38.8	%		41.3	%		42.6	%		41.8	%		38.8	%		38.8	%		41.7	%		42.6	%
Selling, general and administration expenses		46.1	%		27.1	%		44.4	%		44.0	%		67.5	%		46.1	%		63.4	%		44.4	%
Restructuring plan activities, net		0.9	%		(41.0	)%		(119.9	)%		29.5	%
Results from operating activities		(8.2	)%		55.1	%		118.1	%		(31.7	)%
Finance costs		0.3	%		0.1	%		0.2	%		4.0	%
Finance income		(0.1	)%		(0.2	)%		(0.2	)%		(0.4	)%
Net income (loss)		(8.4	)%		55.2	%		119.7	%		(35.2	)%
Net (loss) income														(29.2	)%		(8.4	)%		(22.3	)%		119.7	%
Other financial and operations data:
Adjusted EBITDA⁽¹⁾	$	(308	)	$	3,304		$	1,555		$	4,265		$	(2,004	)	$	(308	)	$	(4,043	)	$	1,555
Adjusted EBITDA as a percentage of sales		(1.4	)%		12.6	%		2.4	%		5.2	%
Adjusted EBITDA as a percentage of sales ⁽¹⁾														(12.4	)%		(1.4	)%		(7.8	)%		2.4	%
Adjusted SG&A⁽¹⁾	$	10,359		$	8,566		$	29,780		$	36,767		$	9,525		$	10,359		$	29,304		$	29,780
Adjusted results from operating activities ⁽¹⁾	$	(1,743	)	$	2,260		$	(2,401	)	$	(2,679	)	$	(3,243	)	$	(1,743	)	$	(7,750	)	$	(2,401	)
Adjusted net income (loss) ⁽¹⁾	$	(1,786	)	$	2,278		$	(2,387	)	$	(5,578	)
Adjusted net loss ⁽¹⁾													$	(3,317	)	$	(1,786	)	$	(8,046	)	$	(2,387	)

(1)

For a reconciliation of Adjusted EBITDA, Adjusted EBITDA as a percentage of sales, Adjusted SG&A, Adjusted results from operating activities, and Adjusted net ~~income (loss),~~loss, to the most directly comparable measure calculated in accordance with IFRS, see “Non-IFRS ~~financial measures”~~Financial Measures and Ratios” below.

Non-IFRS Financial Measures and Ratios

The Company uses certain non-IFRS financial measures and ratios for purposes of comparison to prior periods, to prepare annual operating budgets, and for the development of future projections. These measures and ratios are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to ~~similarly titled~~similarly-titled measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures and ratios by providing further understanding of our results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.

We present the following non-IFRS financial measures;

	(a)	“Adjusted selling, general and administration expenses” is presented as a supplemental measure because we believe it facilitates a comparative assessment of our selling, general and administration expenses under IFRS, while isolating the effects of some items that are non-recurring by nature or which vary from period to period.

	(b)	“Adjusted results from operating activities” is presented as a supplemental performance measure because we believe it facilitates a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that are non-recurring by nature or which vary from period to period.

2316

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	(c)	“Adjusted net (loss) income” is presented as a supplemental performance measure because we believe it facilitates a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that are non-recurring by nature or which vary from period to period.

	(d)	“Adjusted EBITDA” is presented as a supplemental performance measure because we believe it facilitates a comparative assessment of our operating performance relative to our performance based on our results under IFRS, while isolating the effects of some items that are non-recurring by nature or which vary from period to period. Specifically, Adjusted EBITDA allows for an assessment of our operating performance and our ability to service or incur indebtedness without the effect of non-cash charges, such as depreciation, amortization, finance costs, non-cash compensation expense, loss on disposal of property and equipment, impairment of property and equipment and right-of-use assets, stock-based compensation and certain non-recurring expenses. This measure also functions as a benchmark to evaluate our operating performance.

We also present the following non-IFRS ratios:

	(a)	“Adjusted net (loss) income per common share” for purposes of evaluating underlying business performance relative to our performance based on our results under IFRS, while isolating the effects of some items that vary from period to period.

	(b)	Adjusted EBITDA as a percentage of sales is calculated by dividing adjusted EBITDA as defined above by the sales figures for a period.

The use of non-IFRS financial measures ~~to provide supplemental measures~~and ratios provides complementary information that excludes items that do not reflect our core performance or where their exclusion would assist users in understanding our results for the period. For these reasons, a significant number of users of our ~~operating performance~~MD&A analyze our results based on these financial measures. Management believes these measures help users of our MD&A to better analyze results, enabling better comparability of our results from one period to another and ~~thus highlight trends in our business that may not otherwise be apparent when relying solely on IFRS financial measures.~~with peers.

~~These~~Management believes that these non-IFRS financial measures ~~include; Adjusted selling general~~ and ~~administrative expenses, Adjusted~~ratios in addition to IFRS measures and ratios provide users of our financial reports with enhanced understanding of our results ~~from operating activities, Adjusted net income (loss), Adjusted EBITDA~~ and ~~Adjusted fully diluted net income (loss) per common share.~~related trends and increases the transparency and clarity of the core results of our business.

We believe that although these non-IFRS financial measures provide investors with useful information with respect to our historical operations and are frequently used by securities analysts, lenders and others in their evaluation of companies, they have limitations as an analytical tool. Some of these limitations are:

☐	·	Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted net (loss) income ~~(loss)~~ and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

☐	·	Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted net (loss) income ~~(loss)~~ and Adjusted EBITDA do not reflect the cash requirements necessary to fund capital expenditures; and

☐	·	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

Because of these limitations, these non-IFRS financial measures should not be considered as discretionary cash available to us to reinvest in the growth of our business or as a measure of cash that will be available to us to meet our obligations.

The following tables provide reconciliations of our non-IFRS financial measures and ratios to the most ~~directly comparable~~directly-comparable measure calculated in accordance with IFRS:

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Reconciliation of Selling, general and administration expenses to Adjusted selling, general and administration expenses

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

Selling, general and administration expenses

$ 10,242

$ 7,120

$ 28,521

$ 35,883

Impairment of property and equipment and right-of-use assets (a)

-

-

-

(2,561 )
Software implementation costs (b)

(641 )

-

(3,095 )

-

Government emergency wage and rent subsidy (c)

758

1,446

4,354

3,445

Adjusted selling, general and administration expenses

$ 10,359

$ 8,566

$ 29,780

$ 36,767

	For the three-months ended						For the nine-months ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Selling, general and administration expenses	$	10,925		$	10,242		$	32,784		$	28,521
Software implementation and configuration costs (a)		(1,142	)		(641	)		(3,222	)		(3,095	)
Government emergency wage and rent subsidy (b)		—			758			—			4,354
Impairment of property and equipment and right-of-use assets (c)		(258	)		—			(258	)		—
Adjusted selling, general and administration expenses	$	9,525		$	10,359		$	29,304		$	29,780

(a)	Represents costs related to implementation and configuration of software solutions.
(b)	Represents the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.
(c)	Represents costs related to impairment of property and equipment and right-of-use assets within our retail stores.

Reconciliation of Results from operating activities to Adjusted results from operating activities

	For the three-months ended						For the nine-months ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Results from operating activities	$	(4,643	)	$	(1,821	)	$	(11,230	)	$	75,822
Software implementation and configuration costs (a)		1,142			641			3,222			3,095
Restructuring plan activities, net (b)		—			195			—			(76,964	)
Government emergency wage and rent subsidy (c)		—			(758	)		—			(4,354	)
Impairment of property and equipment and right-of-use assets (d)		258			—			258			—
Adjusted results from operating activities	$	(3,243	)	$	(1,743	)	$	(7,750	)	$	(2,401	)

(a)	Represents costs related to implementation and configuration of software solutions.
(b)	Represents the net gain related to the Restructuring Plan activities which were completed in Fiscal 2021.
(c)	Represents the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.
(d)	Represents costs related to impairment of property and equipment and right-of-use assets for ~~stores~~within our retail stores.

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Reconciliation of Net (loss) income to Adjusted net loss

	For the three-months ended						For the nine-months ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Net (loss) income	$	(4,717	)	$	(1,864	)	$	(11,526	)	$	76,836
Software implementation and configuration costs (a)		1,142			641			3,222			3,095
Restructuring plan activities, net (b)		—			195			—			(76,964	)
Government emergency wage and rent subsidy (c)		—			(758	)		—			(4,354	)
Recovery of income taxes (d)		—			—			—			(1,000	)
Impairment of property and equipment and right-of-use assets (e)		258			—			258			—
Adjusted net loss	$	(3,317	)	$	(1,786	)	$	(8,046	)	$	(2,387	)

(a)	Represents costs related to implementation and ~~intangible assets.~~configuration of software solutions.
(b)	Represents the net gain related to the Restructuring Plan activities which were completed in Fiscal 2021.
(c)	Represents the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.
(d)	Represents the reversal of the previously accrued estimate of income tax liabilities that were compromised by the Restructuring Plan.
(e)	Represents costs related to impairment of property and equipment and right-of-use assets within our retail stores.

Reconciliation of fully diluted net (loss) earnings per common share to Adjusted fully diluted net loss per common share

	For the three-months ended						For the nine-months ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Weighted average number of shares outstanding, fully diluted		26,566,441			26,359,969			26,493,484			27,584,128
Adjusted weighted average number of shares outstanding, fully diluted		26,566,441			26,359,969			26,493,484			26,300,289

Net (loss) income	$	(4,717	)	$	(1,864	)	$	(11,526	)	$	76,836
Adjusted net loss	$	(3,317	)	$	(1,786	)	$	(8,046	)	$	(2,387	)

Net (loss) earnings per common share, fully diluted	$	(0.18	)	$	(0.07	)	$	(0.44	)	$	2.79
Adjusted net loss per common share, fully diluted	$	(0.12	)	$	(0.07	)	$	(0.30	)	$	(0.09	)

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Reconciliation of Net (loss) income to Adjusted EBITDA

	For the three-months ended						For the nine-months ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Net (loss) income	$	(4,717	)	$	(1,864	)	$	(11,526	)	$	76,836
Finance costs		194			71			532			104
Finance income		(120	)		(28	)		(236	)		(118	)
Depreciation and amortization		884			1,043			2,644			3,019
Recovery of income taxes		—			—			—			(1,000	)
EBITDA	$	(3,759	)	$	(778	)	$	(8,586	)	$	78,841
Additional adjustments:
Stock-based compensation expense (a)		355			392			1,063			937
Software implementation and configuration costs (b)		1,142			641			3,222			3,095
Restructuring plan activities, net (c)		—			195			—			(76,964	)
Government emergency wage and rent subsidy (d)		—			(758	)		—			(4,354	)
Impairment of property and equipment and right-of-use assets (e)		258			—			258			—
Adjusted EBITDA	$	(2,004	)	$	(308	)	$	(4,043	)	$	1,555

(a)	Represents non-cash stock-based compensation expense.
(b)	Represents costs related to implementation and configuration of software solutions.
(c)	Represents the ~~wages and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.~~

~~Reconciliation of Results from operating activities to Adjusted results from operating activities~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

Results from operating activities

$ (1,821 )

$ 14,449

$ 75,822

$ (25,812 )
Impairment of property and equipment and right-of-use assets (a)

-

-

-

2,561

Software implementation costs (b)

641

-

3,095

-

Restructuring plan activities, net (c)

195

(10,743 )

(76,964 )

24,017

Government emergency wage and rent subsidy (d)

(758 )

(1,446 )

(4,354 )

(3,445 )
Adjusted results from operating activities

$ (1,743 )

$ 2,260

$ (2,401 )

$ (2,679 )

~~Table of Contents~~

~~(a)~~	~~Represents costs related to impairment of property, equipment and right-of-use assets for stores and intangible assets.~~
~~(b)~~	~~Represents costs related to implementation and configuration of software solutions.~~
~~(c)~~	~~Represents the costs~~net gain related to the Restructuring Plan activities ~~net.~~which were completed in Fiscal 2021.
(d)	Represents the ~~wages and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.~~

~~Reconciliation of Net income (loss) to Adjusted net income (loss)~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

Net income (loss)

$ (1,864 )

$ 14,467

$ 76,836

$ (28,711 )
Impairment of property and equipment and right-of-use assets (a)

2,561

Software implementation costs (b)

641

3,095

Restructuring plan activities, net (c)

195

(10,743 )

(76,964 )

24,017

Government emergency wage and rent subsidy (d)

(758 )

(1,446 )

(4,354 )

(3,445 )
Recovery of income taxes (e)

(1,000 )

Adjusted net income (loss)

$ (1,786 )

$ 2,278

$ (2,387 )

$ (5,578 )

~~(a)~~	~~Represents costs related to impairment of property, equipment and right-of-use assets for stores and intangible assets.~~
~~(b)~~	~~Represents costs related to implementation and configuration of software solutions.~~
~~(c)~~	~~Represents the costs related to the Restructuring Plan activities, net.~~
~~(d)~~	~~Represents the wages~~wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.
(e)	Represents ~~reversal of previously accrued estimate of income tax liabilities that was compromised by the Restructuring Plan activities.~~

~~Reconciliation of fully diluted net earnings (loss) per common share to Adjusted fully diluted net earnings (loss) per common share~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

Weighted average number of shares outstanding, fully diluted

26,359,969

26,214,573

26,300,289

26,143,963

Adjusted weighted average number of shares outstanding, fully diluted

26,359,969

26,767,470

27,584,128

26,143,963

Net income (loss)

$ (1,864 )

$ 14,467

$ 76,836

$ (28,711 )

Adjusted net income (loss)

$ (1,786 )

$ 2,278

$ (2,387 )

$ (5,578 )

Net earnings (loss) per share, fully diluted

$ (0.07 )

$ 0.54

$ 2.79

$ (1.10 )

Adjusted net income (loss) per share, fully diluted

$ (0.07 )

$ 0.09

$ (0.09 )

$ (0.21 )

~~Table of Contents~~

~~Reconciliation of Net income (loss) to Adjusted EBITDA~~

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

Net income (loss)

$ (1,864 )

$ 14,467

76,836

$ (28,711 )
Finance costs

71

35

104

3,260

Finance income

(28 )

(53 )

(118 )

(361 )
Depreciation and amortization

1,043

846

3,019

6,166

Recovery of income taxes

-

-

(1,000 )

-

EBITDA

$ (778 )

$ 15,295

78,841

$ (19,646 )
Additional adjustments:

Stock-based compensation expense (a)

392

198

937

778

Impairment of property and equipment and right-of-use assets (b)

-

-

-

2,561

Software implementation costs (c)

641

-

3,095

-

Restructuring plan activities, net (d)

195

(10,743 )

(76,964 )

24,017

Government emergency wage and rent subsidy (e)

(758 )

(1,446 )

(4,354 )

(3,445 )
Adjusted EBITDA

$ (308 )

$ 3,304

1,555

$ 4,265

~~(a)~~	~~Represents non-cash stock-based compensation expense.~~
~~(b)~~	~~Represents~~ costs related to impairment of property and equipment and right-of-use assets ~~and intangibles assets for~~within our retail stores.
~~(c)~~	~~Represents costs related to implementation and configuration of software solutions.~~
~~(d)~~	~~Represents the costs related to the Restructuring Plan activities, net.~~
~~(e)~~	~~Represents the wages and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan.~~

Operating results for the ~~three months~~three-months ended October ~~30, 2021~~29, 2022, compared to the operating results for the ~~three months~~three-months ended October ~~31, 2020~~30, 2021

Sales. Sales ~~for~~decreased 27.1%, or $6.0 million, to $16.2 million in the ~~three-months~~quarter ended October ~~30, 2021 decreased 15.3%, or $4.0 million,~~29, 2022, compared to $22.2 ~~million from $26.2~~ million in the prior year quarter. ~~On March 17, 2020, in response to the COVID-19 pandemic, the Company temporarily closed all its retail stores~~Sales in Canada ~~and the United States, and subsequently in the second quarter~~ of ~~Fiscal 2020 as part~~$12.9 million, representing 79.7% of its Restructuring Plan pursuant to the CCAA, exited all of its brick-and-mortar stores except for 18 Canadian stores which were reopened on August 21, 2020. Accordingly, brick and mortar sales for the quarter compare favorablytotal revenues, decreased $5.0 million or 28.1% compared to the prior year ~~quarter~~quarter. U.S. sales of $3.3 million decreased by $1.0 million ~~since stores were not open for two of the three months in~~or 23.0% compared to the prior ~~year.~~year quarter. Sales from e-commerce ~~and wholesale channels~~ decreased by ~~$5.1~~$4.3 million or ~~22.9%~~29.5% to ~~$17.1~~$10.2 million from ~~$22.1~~$14.5 million in the prior year quarter. Sales from our wholesale channel decreased $1.1 million or 41.8% to $1.6 million from $2.7 million in the prior year quarter. This decrease is explained primarily by discounting on older formats as we transitioned to our new individually wrapped sachets. Brick-and-mortar sales for the quarter ~~with~~of $4.4 million were impacted by reduced consumer traffic, decreasing $0.6 million or 12.5% compared to the ~~transition from last year’s pandemic-fueled surge of online sales to serving consumers throughout our omni-channel capabilities.~~prior year quarter. E-commerce, wholesale, and ~~wholesale~~brick-and-mortar sales represented ~~77.1%~~62.9%, 9.8% and 27.3% of sales, respectively compared to ~~84.3% of sales~~65.0%, 12.2% and 22.8%, respectively in the prior year quarter.

Gross Profit. Gross profit of ~~$8.6~~$6.3 million for the three-months ended October ~~30, 2021~~29, 2022 decreased by ~~$2.2~~$2.3 million or ~~20.4%~~27.1% from the prior year quarter due to a decline in sales during the period, ~~higher retail lease expenses and lower gross margin on tea,~~ partially offset by lower delivery and distribution costs, compared to the prior year quarter. Gross profit as a percentage of sales ~~decreased to 38.7%~~was 38.8% for the quarter, ~~compared to 41.3% in~~consistent with the prior year quarter.

Selling, General and Administration Expenses. Selling, general and administration expenses (“SG&A”) increased ~~by $3.1~~$0.7 million or ~~43.9%~~6.7% to ~~$10.2~~$10.9 million in the third quarter compared to the prior year quarter. Excluding the impact of software implementation and configuration costs, ~~and~~ the impact of the wage and rent subsidies received under the Canadian government COVID-19 Economic Response Plan, and the impairment of property and equipment and right-of-use assets, Adjusted SG&A ~~increased~~decreased by ~~$1.8~~$0.8 million or ~~20.9%~~8.1% to ~~$10.4~~$9.5 million in the ~~quarter~~quarter. The drop in SG&A expenses is primarily due to a decrease in marketing expenses and credit card fees partially offset by increases in ~~recurring software related costs, staffing and online marketing~~IT ongoing expenses as ~~we continue~~ the Company continues its transformation to ~~a digital first~~an omnichannel organization. Adjusted SG&A as a percentage of sales in the quarter increased to ~~46.7%~~58.9% from ~~32.7%~~46.7% in the prior year quarter.

~~Restructuring Plan activities, net.~~ Restructuring plan activities, net includes an expense of $195 thousand related to professional services in connection with the completion of the CCAA proceedings compared to a gain of $10.7 million in the prior year quarter.

~~Table of Contents~~

Results from Operating Activities. ~~Results~~Loss from operating activities during the quarter ~~were negative $1.8~~was $4.6 million compared to ~~earnings~~a loss of ~~$14.4~~$1.8 million in the prior year quarter. Excluding the impact of the Restructuring ~~Plan,~~plan activities, net, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, and software implementation and configuration costs, and the impairment of property and equipment and right-of-use assets, Adjusted operating loss amounted to ~~$1.7~~$3.2 million in the third quarter compared to an ~~income~~Adjusted operating loss of ~~$2.3~~$1.7 million in the prior year quarter. The ~~decrease~~increased Adjusted operating loss results primarily from a decline in ~~operating results is explained by the~~sales, lower ~~Gross~~gross profit and ~~the~~ increased SG&A expenses in pursuit of ~~our~~the ongoing transformation to become a digital first organization.

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Finance Costs. Finance costs amounted to ~~$71~~$194 thousand in the three-months ended October ~~30, 2021 which is comparable~~29, 2022 and compares unfavorably to ~~nil from~~ the prior year ~~quarter.~~period due primarily to the interest expense on our right-of-use assets.

Finance Income. Finance income of ~~$28~~$120 thousand, which is derived mainly from interest on cash on hand, ~~and has~~ decreased slightly from the prior year quarter.

Net ~~income (loss).~~loss. Net loss was ~~$1.9~~$4.7 million in the quarter ~~ended October 30, 2021~~ compared to a Net ~~income~~loss of ~~$14.5~~$1.9 million in the prior year quarter. Adjusted net loss, which excludes the impact of Restructuring ~~Plan~~plan activities, net, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, software implementation and configuration costs, and ~~recovery~~the impairment of ~~income taxes~~property and equipment and right-of-use assets, amounted to a Net loss of ~~$1.8~~$3.3 million compared to a Net ~~income~~loss of ~~$2.3~~$1.8 million in the prior year quarter.

Fully diluted ~~earnings (loss)~~loss per common share. Fully diluted loss per common share was ~~$0.07~~$0.18 in the quarter ended October ~~30, 2021~~29, 2022 compared to a fully diluted ~~earnings~~loss per common share of ~~$0.54~~$0.07 in the prior year quarter. Adjusted fully diluted loss per common share ~~which is~~was $0.12 in the quarter ended October 29, 2022 compared to an Adjusted ~~net loss on a~~ fully diluted ~~weighted average shares outstanding basis, was~~loss per common share of $0.07 ~~compared to $0.09~~ in the prior year quarter.

EBITDA and Adjusted EBITDA. EBITDA, which excludes non-cash and other items in the current and prior periods, was negative ~~$778 thousand~~$3.8 million in the quarter ended October ~~30, 2021~~29, 2022 compared to ~~$15.3~~negative $0.8 million in the prior year quarter representing a decrease of ~~$16.1~~$3.0 million over the prior year quarter. Adjusted EBITDA for the quarter ended October 29, 2022 was negative $2.0 million compared to negative $0.3 million for the same period in the prior year. The decrease in Adjusted EBITDA of $1.7 million reflects the impact of a sales decline of $6.0 million, lower gross profit and increased SG&A expenses.

Operating results for the nine-months ended October 29, 2022, compared to the operating results for the nine-months ended October 30, 2021

Sales. Sales for the nine-months ended October 29, 2022 decreased by 19.5% or $12.5 million, to $51.7 million from $64.2 million in the prior year period. Sales in Canada of $42.3 million, representing 81.9% of total revenues, decreased $8.8 million or 17.3% over the prior year period. U.S. sales of $9.4 million decreased by $3.7 million or 28.3% over the prior year period. Sales from e-commerce decreased by $16.2 million or 34.1% to $31.3 million from $47.5 million in the prior year period as we transition from last year’s pandemic-fueled surge of online sales to serving consumers throughout our omni-channel capabilities. Sales from our wholesale channel increased by $1.8 million or 33.5% to $7.0 million from $5.2 million in the prior year period. Brick-and-mortar sales increased by $1.9 million or 16.8% to $13.3 million from $11.4 million in the prior year period. E-commerce, wholesale, and brick-and-mortar sales represented 60.7%, 13.5% and 25.8% of sales, respectively compared to 74.1%, 8.1% and 17.8% of sales, respectively in the prior year period

Gross Profit. Gross profit decreased by 21.3% or $5.8 million to $21.6 million in the nine-month period ended October 29, 2022 in comparison to the prior period due primarily to a decline in sales and a lower gross margin, partially offset by lower delivery and distribution costs and lower retail lease expense compared to the prior year period. Gross profit as a percentage of sales decreased to 41.7% for the nine-month period ended October 29, 2022 from 42.6% in the prior year period.

Selling, General and Administration Expenses. SG&A increased by $4.3 million or 14.9% to $32.8 million in the nine-month period ended October 29, 2022 from the same period in the prior year. Excluding the impact of non-recurring software implementation and configuration costs, the impact of the wage and rent subsidies received under the Canadian government COVID-19 Economic Response Plan, and the impairment of property and equipment and right-of-use assets, Adjusted SG&A decreased by $0.5 million to $29.3 million in the nine-month period ended October 29, 2022. Adjusted SG&A as a percentage of sales increased to 56.7% from 46.4% in the prior year period.

Restructuring plan activities, net. Restructuring plan activities, net was $nil for the nine-month period ended October 29, 2022 compared to a gain of $76.9 million in the prior year period.

Results from Operating Activities. Results from operating activities during the nine-month period ended October 29, 2022 was negative $11.2 million compared to $75.8 million in the prior year period. Excluding the impact of the Restructuring Plan, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, non-recurring software implementation costs, and the impairment of property and equipment and right-of-use assets, Adjusted operating loss amounted to $7.8 million in the nine-month period ended October 29, 2022, compared to an Adjusted operating loss of $2.4 million in the prior year period. The increase in Adjusted operating loss results from a decrease in sales of $12.5 million, partially offset by a reduction in operating costs.

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Finance Costs. Finance costs amounted to $0.5 million in the nine-month period ended October 29, 2022, an increase of $0.4 million from the prior year period. The interest expense relates to the accounting for lease liabilities.

Finance Income. Finance income of $236 thousand is derived mainly from interest on cash on hand and has increased $118 thousand from $118 thousand in the prior year period.

Net income (loss). Net loss was $11.5 million in the nine-month period ended October 29, 2022 compared to a Net income of $76.8 million in the prior year period. Adjusted net loss, which excludes the ~~impact of stock-based compensation expense, the~~ Restructuring ~~Plan~~plan activities, net, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, ~~and~~non-recurring software implementation costs, ~~was negative $308 thousand compared to $3.3 million for the same period in the prior year. The decrease in Adjusted EBITDA~~recovery of ~~$4.1 million reflects the decline in sales from last year’s pandemic-fueled surge of online sales, increases in recurring software related costs, planned increases in online marketing~~income taxes, and staffing costs, partially offset by an improved delivery and distribution cost structure. All is an outcome of the continued transformation efforts resulting in the realignment of the business model to primarily an e-commerce and wholesale distribution model.

~~Operating results for the nine months ended October 30, 2021 compared to the operating results for the nine months ended October 31, 2020~~

~~Sales.~~ Sales for the nine-months ended October 30, 2021 decreased 21.2%, or $17.3 million, to $64.2 million from $81.5 million in the prior year. On March 17, 2020, in response to the COVID-19 pandemic, the Company temporarily closed all its retail stores in Canada and the United States, and subsequently in second quarter of Fiscal 2020 as part of its formal Restructuring Plan, exited all of its brick-and-mortar stores except for 18 Canadian stores which were subsequently reopened on August 21, 2020. Accordingly, brick and mortar sales for the nine-month period ended October 30, 2021 declined compared to the prior year period by $7.9 million or 40.9% to $11.4 million. Sales from e-commerce and wholesale channels decreased by $9.4 million or 15.1% to $52.7 million, from $62.1 million in the prior year. For the nine-month period ended October 30, 2021, e-commerce and wholesale sales represented 82.1% of total sales as opposed to 76.2% in the same period in the prior year.

~~Gross Profit.~~ Gross profit of $27.4 million for the nine-month period ended October 30, 2021 decreased by $6.7 million or 19.7% from the same period of the prior year due primarily to a decline in sales and a lower gross margin during the period, partially offset by lower delivery and distribution costs and lower retail lease expense compared to the same period in the prior year. Gross profit as a percentage of sales increased to 42.6% for the nine-month period compared to 41.8% in the same period in the prior year.

~~Selling, General and Administration Expenses.~~ Selling, general and administration expenses (“SG&A”) decreased by $7.4 million or 20.5%, to $35.9 million in the nine-months ended October 30, 2021 from the same period in the prior year. Excluding the impact of the impairment of property and equipment and right-of-use assets, ~~for~~amounted to $8.0 million compared to a Net loss of $2.4 million in the prior year period.

Fully diluted net (loss) earnings per common share. Fully diluted net loss per common share was $0.44 in nine-month period ended October 31, 2020, the impact of software implementation costs, and the impact of the wage and rent subsidies received under the Canadian Government COVID-19 Economic Response Plan, Adjusted SG&A decreased by $7.0 million or 19.0% to $29.8 million during the nine-month period ended October 30, 202129, 2022 compared to ~~$36.8 million~~fully diluted net earnings of $2.79 per common share in the same period in the prior year. In connection with our Restructuring Plan, we terminated the leases for all of our stores in North America during the nine-month period ended October 31, 2020, except for 18 Canadian stores which reopened on August 21, 2020. As a result, during the nine-month period ended October 30, 2021, wages, salaries and employee benefits were reduced by $5.0 million and we realized a reduction of $2.3 million in amortization expenses due to a lower right-of-use asset value at the beginning of the period. Adjusted SG&A as a percentage of sales for the nine-months ended October 30, 2021 decreased to 46.1% from 45.1% in the prior year quarter.

~~Table of Contents~~

~~Restructuring Plan activities, net.~~ Restructuring Plan activities, net amounting to a gain of $76.9 million for the nine-month period ended October 30, 2021 compares favorably to a loss of $24.0 million recorded in the same period in the prior year. Included in this period’s gain is the impact of the Sanction Order that was granted on June 16, 2021. Therein, net liabilities subject to compromise amounting to $95.3 million were settled according to the Sanction Order by payment of $17.6 million through the Monitor to creditors who had duly proven their claims as part of the claims process. The resulting gain of $79.9 million was reduced by $1.7 million of professional fees in connection with the CCAA proceedings and presented in the interim consolidated statements of income (loss) and comprehensive income (loss) and in the condensed statement of income (loss) in management’s discussion and analysis of financial condition and results of operations under Restructuring plan activities, net and Recovery of income taxes.

~~Results from Operating Activities.~~ Results from operating activities during the nine-month period ended October 30, 2021 was $75.8 million compared to a loss of $25.8 million for the same period in the prior year. Excluding the impact of the impairment of property and equipment and right-of-use assets, the impact of the Restructuring Plan announced on July 8, 2020, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, and software implementation costs, Adjusted operating loss amounted to $2.4 million in the nine-month period ended October 30, 2021 compared to a loss of $2.7 million in the same period in the prior year. The improvement in operating results is partially explained by the reduced SG&A required to support approximately 82.1% of sales generated from e-commerce and wholesale and a slightly better gross profit margin.

~~Finance Costs.~~ Finance costs amounted to $104 thousand in the nine-months ended October 30, 2021, a decrease of $3.3 million from the prior year quarter. The interest expense relates to the accounting for lease liabilities has decreased from the prior year period due to the reduction in our store footprint.

~~Finance Income.~~ ~~Finance income of $118 thousand is derived mainly from interest on cash on hand and has decreased from the prior year period.~~

~~Net income (loss).~~ Net income was $76.8 million in the nine months ended October 30, 2021 compared to a Net loss of $28.7 million in the prior year period. Adjusted net loss, which excludes the Restructuring plan activities, the subsidies received from the Canadian government under the COVID-19 Economic Response Plan, the impairment of property and equipment and right-of-use assets, and the costs related to software implementation amounted to $2.4 million compared to a net loss of $5.6 million in the prior year period. This $3.2 million improvement is driven by the same reasons mentioned above in “Results from operating activities”.

~~Fully diluted earnings (loss) per common share.~~ ~~Fully diluted earnings per common share was $2.79 in the nine months ended October 30, 2021 compared to a fully diluted loss per common share of $1.10 in the prior year period.~~ Adjusted fully diluted loss per common share, which is Adjusted net ~~income~~loss on a fully diluted weighted average shares outstanding basis, was ~~$0.09,~~$0.30, compared to a ~~fully diluted~~ loss of ~~$0.21~~$0.09 in the prior year period.

EBITDA and Adjusted EBITDA. EBITDA ~~EBITDA,~~, which excludes non-cash and other items in the current and prior periods, was ~~$78.8~~negative $8.6 million in the nine-month period ~~ended~~ October ~~30, 2021~~29, 2022 compared to ~~a negative $19.6~~$78.8 million ~~in the same period~~ in the prior year period representing ~~an improvement~~a decrease of ~~$98.4~~$87.4 million over the prior year period. Adjusted EBITDA for the ~~nine-month period~~nine-months ended October ~~30, 2021,~~29, 2022, which excludes the impact of stock-based compensation expense, the impairment of property and equipment and right-of-use assets, the Restructuring Plan activities, net, the wage and rent subsidies received from the Canadian government under the COVID-19 Economic Response Plan, non-recurring software implementation costs, and ~~costs related to software implementations amounted~~the impairment of property and equipment and right-of-use assets, was negative $4.0 million compared to $1.6 million ~~compared to $4.3 million for the same period~~ in the prior ~~year.~~year period. The decrease in Adjusted EBITDA of ~~$2.7~~$5.6 million is ~~an outcome~~explained by a decrease in Gross profit of ~~the restructuring efforts to realign the business model to primarily e-commerce and wholesale distribution.~~ $5.8 million offset by a decrease in Adjusted SG&A expenses.

Summary of quarterly results

Due to seasonality and the timing of holidays, the results of operations for any quarter are not necessarily indicative of the results of operations for the fiscal year. The table below presents selected consolidated financial data for the eight most recently completed quarters.

	Fiscal Year 2022									Fiscal Year 2021										Fiscal Year 2020
	Third			Second			First			Fourth		Third			Second			First		Fourth
	Quarter			Quarter			Quarter			Quarter		Quarter			Quarter			Quarter		Quarter
	$			$			$			$		$			$			$		$
Sales		16,176			15,207			20,287			39,878		22,203			18,743			23,249		40,189
Net (loss) income		(4,717	)		(4,835	)		(1,974	)		1,291		(1,863	)		75,477			3,221		(27,222	)

EBITDA ¹		(3,759	)		(3,851	)		(976	)		2,613		(778	)		75,493			4,126		(25,918	)
Adjusted EBITDA¹		(2,004	)		(2,128	)		89			3,696		(308	)		(641	)		2,505		5,384

Net (loss) earnings per share:
Basic		(0.18	)		(0.18	)		(0.07	)		0.05		(0.07	)		2.87			0.12		(1.04	)
Fully diluted		(0.18	)		(0.18	)		(0.07	)		0.05		(0.07	)		2.75			0.12		(1.00	)
Adjusted fully diluted ¹		(0.12	)		(0.13	)		(0.05	)		0.13		(0.01	)		(0.07	)		0.05		0.15

Weighted average number of shares outstanding:
Basic		26,566,441			26,487,933			26,426,055			26,393,118		26,359,969			26,299,094			26,296,690		26,228,206
Fully diluted		26,566,441			26,487,933			26,426,055			27,614,734		26,359,969			27,455,005			27,400,840		27,140,065

Cash		16,131			19,048			22,680			25,107		13,367			12,051			31,321		30,197
Accounts receivable		3,937			2,497			3,197			3,209		4,602			6,986			6,625		6,157
Prepaid expenses and deposits		6,137			5,172			4,479			4,142		4,835			5,580			11,578		14,470
Inventories		29,985			30,234			28,359			31,048		39,802			38,055			29,258		23,468
Trade and other payables		14,445			11,701			8,966			12,300		13,958			12,533			6,154		4,152

2822

Table of Contents

Fiscal Year 2021

Fiscal Year 2020

Fiscal year 2019

Third

Second

First

Fourth

Third

Second

First

Fourth

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

$

$

$

$

$

$

$

$

Sales

22,203

18,743

23,249

40,189

26,225

23,031

32,242

73,538

Net income (loss)

(1,864 )

75,478

3,221

(27,222 )

14,467

2,609

(45,788 )

(5,701 )

EBITDA

(778 )

75,493

4,126

(25,918 )

15,295

5,426

(40,367 )

(1,097 )
Adjusted EBITDA

(308 )

(641 )

2,505

5,384

3,834

1,365

(935 )

9,971

Net earnings (loss) per share:

Basic

(0.07 )

2.87

0.12

(1.04 )

0.55

0.10

(1.76 )

(0.22 )
Fully diluted

(0.07 )

2.75

0.12

(1.01 )

0.54

0.10

(1.76 )

(0.22 )
Adjusted fully diluted

(0.01 )

(0.07 )

0.05

0.15

0.09

(0.06 )

(0.26 )

0.14

Weighted average number of shares outstanding:

Basic

26,359,969

26,299,094

26,296,690

26,128,971

26,214,573

26,128,971

26,088,127

26,080,529

Fully diluted

26,359,969

27,455,005

27,400,840

26,925,264

26,767,470

26,925,264

26,088,127

26,080,529

Cash

13,367

12,051

31,321

30,197

21,925

34,285

39,343

46,338

Accounts receivable

4,602

6,986

6,625

6,157

7,669

6,757

4,371

6,062

Prepaid expenses and deposits

4,835

5,580

11,578

14,470

13,400

8,476

4,928

4,542

Inventories

39,802

38,055

29,258

23,468

26,176

24,354

23,450

22,363

Trade and other payables

13,958

12,533

6,154

4,152

3,621

6,460

18,000

20,794

Liquidity and Capital Resources

As at October ~~30, 2021, we~~29, 2022, the Company had ~~$13.4~~$16.1 million of cash ~~primarily~~ held by major Canadian financial institutions.

Working capital was ~~$42.3~~$33.7 million as at October ~~30, 2021,~~29, 2022 compared to ~~$62.7~~$43.4 million ~~excluding liabilities subject to compromise,~~ as at January ~~30, 2021.~~29, 2022. The decrease in working capital of $9.7 million is ~~substantially~~ explained ~~from the use~~by a decrease in current assets of ~~cash on hand to pay for the settlement~~$7.3 million and an increase in current liabilities of ~~obligations according to the Restructuring Plan Sanction Order amounting to $17.6~~$2.4 million.

~~Our working~~Working capital requirements are for the purchase of inventory, payment of payroll and other operating costs, including software purchases and implementation costs. ~~Our working~~Working capital requirements fluctuate during the year, rising in the second and third fiscal quarters as wethe Company take title to increasing quantities of inventory in anticipation of our peak selling season in the fourth fiscal quarter. ~~We fund our~~The Company funds its operating, capital and working capital requirements from a combination of cash on hand and cash provided by operating activities.

On August 23, 2022, a revolving line of credit on demand with the Bank of Nova Scotia was established for up to $15.0 million, less a reserve of $0.5 million for credit cards based on eligible accounts receivable and inventory balances and subject to financial covenants required to be calculated and met starting January 28, 2023. The credit facility will bear interest at the prime rate plus 1%, renewable annually at the lender’s option. In addition, Investissement Québec has provided a loan loss guarantee under its “Loan Loss Program”, securing 50% of any loss incurred by the Bank of Nova Scotia with respect to the recovery of indebtedness under the line of credit.

As at October ~~30, 2021,~~29, 2022, the Company has financial commitments in connection with the purchase of goods and services that are enforceable and legally binding on the Company, amounting to $8.3 million, net of ~~$0.3 million~~$659 thousand of advances, ~~amounting to $5.9 million~~ which are expected to be discharged within 12 months.

Cash ~~Flow~~Flows

A summary of our cash flows (used in) provided by ~~(used in)~~ operating ~~financing~~ and ~~investing~~financing activities is presented in the following table:

For the three months ended

For the nine months ended

October 30,

October 31,

October 30,

October 31,

2021

2020

2021

2020

$

$

$

$

Cash flows provided by (used in):

Operating activities

1,553

(12,016 )

(16,219 )

(19,896 )
Financing activities

(237 )

(250 )

(559 )

(5,821 )
Investing activities

-

(94 )

(52 )

1,304

Increase (decrease) in cash

1,316

(12,360 )

(16,830 )

(24,413 )

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	For the three-months ended						For the nine-months ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
	$			$			$			$
Cash flows used in:
Operating activities		(2,164	)		1,553			(6,577	)		(16,219	)
Financing activities		(753	)		(237	)		(2,271	)		(559	)
Investing activities		—			—			(128	)		(52	)
Decrease in cash		(2,917	)		1,316			(8,976	)		(16,830	)

~~Three months~~Three-months ended October 29, 2022 compared to three-months ended October 30, 2021 ~~compared to three months ended October 31, 2020~~

Cash flows ~~provided by (used in)~~used in operating ~~activities.~~ activities. Net cash ~~provided by~~used in operating activities amounted to ~~$1.6~~$2.2 million for the quarter ended October ~~30, 2021,~~29, 2022, representing a change of ~~$13.6~~$3.7 million from the net cash used in operations of ~~$12.0~~$1.5 million in the ~~third quarter of the~~ prior ~~year.~~year quarter. The ~~improvement/increase~~decrease is primarily due to ~~$17.6 million paid to~~ the ~~Company’s creditors in order to legally emerge from the formal restructuring process and an increase in inventories in anticipation of our peak selling season in the fourth fiscal~~loss reported this quarter.

Cash flows used in financing activities. Net cash flows used in financing activities of ~~$237~~$753 thousand during the quarter ended October ~~30, 2021~~29, 2022 represents ~~a reduction~~an increase of ~~$13~~$516 thousand compared to the prior year ~~third~~ quarter due to ~~a reduction of~~an increase in lease ~~liabilities resulting from the termination of the majority our store leases in Fiscal 2020.~~repayments.

~~Cash flows used in investing activities~~~~. Cash flows used in investing activities of $nil thousand in the quarter~~Nine-months ended October 29, 2022 compared to nine-months ended October 30, 2021 ~~compares to the $94 thousand used in the quarter ended October 31, 2020.~~

~~Nine months ended October 30, 2021 compared to nine months ended October 31, 2020~~

Cash flows used in operating ~~activities~~activities.. Net cash used in operating activities amounted to ~~$16.2~~$6.6 million for the nine-month period ended October ~~30, 2021,~~29, 2022, representing a change of ~~$3.7~~$9.6 million from the net cash used in operations of ~~$19.9~~$16.2 million in the ~~third quarter of the~~ prior ~~year.~~year period. The decrease is primarily due to ~~$17.6 million paid to~~decrease in inventory over the ~~Company’s creditors~~prior period, offset by an increase in ~~order to legally emerge from~~ the ~~formal restructuring process and the increased purchase of inventories in anticipation of our peak selling season.~~net loss.

Cash flows used in financing ~~activities.~~ activities. Net cash flows used in financing activities of ~~$559 thousand~~$2.3 million during the nine-month period ended October ~~30, 2021~~29, 2022 represents ~~a reduction~~an increase of ~~$5.3~~$1.7 million compared to the prior year ~~third quarter~~period due to ~~a reduction of~~an increase in lease ~~liabilities resulting from the termination of our store leases.~~repayments.

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~~Cash flows provided by (used in) investing activities~~. Cash flows used in investing activities for the nine-months ended October 30, 2021 was $52 thousand and compares against $1.3 million provided by investing activities for the nine-months ended October 31, 2020 primarily due to the repayment of a loan from a Company controlled by an executive employee.

Off-Balance Sheet Arrangements

Other than certain operating lease obligations and purchase commitments disclosed elsewhere, we have no other off‑balance sheet obligations.

Contractual Obligations and Commitments

In the normal course of business, we enter into contractual ~~obligations~~arrangements that will require us to disburse cash over future periods. All commitments have been recorded in our consolidated balance sheets, except for the purchase of goods and services that are expected to be received in future ~~purchase obligations.~~periods. As of October ~~30, 2021,~~29, 2022, the Company ~~has~~had financial commitments in connection with the purchase of goods orand services that are enforceable and legally binding on the Company, exclusive of additional amounts based on sales, taxes and other ~~costs. Purchase obligations, net of $0.3 million of advances,~~costs amounting to ~~$5.9 million (January 30, 2021 - $14.1~~$8.3 million, net of ~~$6.8~~$659 thousand of advances (January 29, 2022 - $11.3 million, net of $542 thousand of advances). These contractual obligations and commitments are expected to be discharged within 12 months.

Critical Accounting Policies and Estimates

Our discussion and analysis of operating results and financial condition are based upon our financial statements. The preparation of financial statements requires us to estimate the effect of various matters that are inherently uncertain as of the date of the financial statements. Each of these required estimates varies in regard to the level of judgment involved and its potential impact on our reported financial results. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial position, changes in financial position or results of operations. Our significant accounting policies are discussed under Note 35 to our consolidated financial statements for the year ended January ~~30, 2021~~29, 2022 included in our Annual Report on Form 10-K dated April ~~30, 2021.~~29, 2022. There have been no material changes to the critical accounting policies and estimates since January ~~31, 2021, other than as disclosed in Note 3 to the condensed interim consolidated financial statements.~~

~~Table of Contents~~

~~Recently Issued Accounting Standards~~29, 2022.

~~Refer to Note 3, “Changes in Accounting Principles” for a discussion of recent accounting pronouncements.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the foreign exchange and interest rate risk discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K dated April ~~30, 2021.~~29, 2022.

We are exposed to foreign currency exchange risk on purchases of our teas and tea accessories.

A significant portion of our tea and tea accessory purchases are in U.S. dollars as is our revenue from U.S. ~~stores and U.S.~~ e‑commerce customers. As a result, our statement of loss and cash flows could be adversely impacted by changes in exchange rates, primarily between the U.S. dollar and the Canadian dollar.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive and Brand Officer and our President, Chief Financial and Operating Officer, evaluated the effectiveness of our disclosure controls and procedures as of October ~~30, 2021.~~29, 2022. The term “disclosure controls and ~~procedures,”~~procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the assessment of our disclosure controls and procedures, our management concluded that our disclosure controls and procedures were effective as of October ~~30, 2021.~~29, 2022.

Changes in Internal Control over Financial Reporting

There were no significant changes in our internal control over financial reporting during ~~our~~the quarter ended October ~~30, 2021~~29, 2022 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. ~~Except as noted above,~~Although the outcome of these and other claims cannot be predicted with certainty, management does not believe that the ultimate resolution of any matters in which we are not at present a party to any legal proceedings, government actions, administrative actions, investigations or claims that are pending against us or involve us that, in the opinion of our management, could reasonably be expected tocurrently involved will have a material adverse effect on our business, financial condition, or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

The Company is subject to a claim amounting to $350,000 from a third-party service provider for which services were rendered prior to July 8, 2020, when the Company announced it was implementing the Restructuring Plan under the Companies’ Creditors Arrangement Act. At this stage, it is too early to determine whether the claim has a legal merit and the final amount of settlement, if any.

Item 1A. Risk Factors

~~There~~Except as set forth below, there have been no material changes to the risk factors previously disclosed in our Form 10-K for ~~our~~the fiscal year ended January 29, 2022.

On October 28, 2022, the Company, received a letter from The Nasdaq Stock Market LLC (“Nasdaq”), notifying the Company that for the past 30 ~~2021,~~consecutive business days, the closing bid price per share of its common stock was below the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market, as required by Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). As a result, the Company was notified by Nasdaq that it is not in compliance with the Bid Price Rule. Nasdaq has provided the Company with 180 calendar days, or until April 26, 2023, to regain compliance with the Bid Price Rule. This notification has no immediate effect on the Company’s listing on the Nasdaq Capital Market or on the trading of the Company’s common stock.

There can be no assurance that we will be able to regain compliance with Nasdaq’s continued listing requirements. The failure to regain compliance prior to April 26, 2023 may result in the Company’s common stock being delisted from Nasdaq and ~~as modified~~it could be more difficult to buy or sell our securities and to obtain accurate quotations, and the price of our common stock could suffer a material decline. In addition, a delisting would impair our ability to raise capital through the public markets, could deter broker-dealers from making a market in or otherwise seeking or generating interest in our ~~Form 10-Q filed with the SEC on June 15, 2021~~securities and might deter certain institutions and persons from investing in our ~~Form 10-Q filed with the SEC on September 14, 2021.~~securities at all.

Item 2. Unregistered Sales of Equity Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

3225

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Item 6. Exhibits

(a) Exhibits:

31.1		Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

~~101.DEF~~104		Cover Page Interactive Data File (formatted as inline XBRL ~~Taxonomy Extension Definition Linkbase~~and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DAVIDsTEA INC.

Date: December ~~14, 2021~~13, 2022	By:	/s/ Sarah Segal
	Name:	Sarah Segal
	Title:	Chief Executive Officer and Chief Brand Officer

3427

PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1812

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3124

Item 4.	Controls and Procedures	3124

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3225

Item 1A.	Risk Factors	3225

Item 2.	Unregistered Sales of Equity Securities	3225

Item 3.	Defaults Upon Senior Securities	3225

Item 4.	Mine Safety Disclosures	3225

Item 5.	Other Information	3225

Item 6.	Exhibits	3326

		As at
		October 30,			January 30,
		2021			2021
		$			$
ASSETS
Current
Cash			13,367			30,197
Accounts and other receivables			4,602			6,212
Inventories			39,802			23,468
Prepaid expenses and deposits			4,835			14,470
Total current assets			62,606			74,347
Property and equipment	[Note 5]		1,169			2,309
Intangible assets			2,638			3,929
Right-of-use assets	[Note 5]		3,345			657
Total assets			69,758			81,242
LIABILITIES AND EQUITY
Current
Trade and other payables			13,958			4,152
Deferred revenue			5,559			7,080
Liabilities subject to compromise	[Note 6]		0			100,550
Current portion of lease liabilities			780			396
Total current liabilities			20,297			112,178
Non-current portion of lease liabilities			2,720			355
Total liabilities			23,017			112,533
Commitments and contingencies
Equity
Share capital	[Note 7]		113,406			113,167
Contributed surplus			2,199			1,747
Deficit			(71,726	)		(148,068	)
Accumulated other comprehensive income			2,862			1,863
Total equity (deficiency)			46,741			(31,291	)
Total liabilities and equity			69,758			81,242

	Disclaimed and modified leases			Trade and other payables			Severance Costs			Liabilities subject to compromise
	$			$			$			$
Balance as at January 30, 2021		75,310			20,699			4,541			100,550
Reversals		(1,771	)		(377	)		0			(2,148	)
Balance as at May 1, 2021		73,539			20,322			4,541			98,402
Adjustments		(1,309	)		(2,558	)		0			(3,867	)
Additions		0			742			0			742
Reversals		(72,230	)		(18,506	)		(4,541	)		(95,277	)
Balance as at July 31, 2021 & October 30, 2021		0			0			0			0

	For the three months ended							For the nine months ended
	October 31, 2020							October 31, 2020
	Canada		US		Consolidated			Canada		US		Consolidated
	$		$		$			$		$		$
Sales		20,465		5,760		26,225			61,497		20,000		81,497
Cost of sales		11,994		3,152		15,399			36,851		10,558		47,409
Gross profit		8,471		2,608		10,826			24,646		9,442		34,088
Selling, general and administration expenses (allocated)		2,699		272		3,252			14,357		3,661		18,018
Impairment of property and equipment and right-of-use assets		0							2,561				2,561
Results from operating activities before corporate expenses		5,772		2,336		7,574			7,728		5,781		13,509
Selling, general and administration expenses (non-allocated)						3,868							15,304
Restructuring plan activities, net						(10,743	)						24,017
Results from operating activities						14,449							(25,812	)
Finance costs						35							3,260
Finance income						(53	)						(361	)
Net income (loss) before income taxes						14,467							(28,711	)

	Fiscal Year 2021								Fiscal Year 2020											Fiscal year 2019
	Third			Second			First		Fourth			Third		Second			First			Fourth
	Quarter			Quarter			Quarter		Quarter			Quarter		Quarter			Quarter			Quarter
	$			$			$		$			$		$			$			$

Sales		22,203			18,743			23,249		40,189			26,225		23,031			32,242			73,538
Net income (loss)		(1,864	)		75,478			3,221		(27,222	)		14,467		2,609			(45,788	)		(5,701	)

EBITDA		(778	)		75,493			4,126		(25,918	)		15,295		5,426			(40,367	)		(1,097	)
Adjusted EBITDA		(308	)		(641	)		2,505		5,384			3,834		1,365			(935	)		9,971

Net earnings (loss) per share:
Basic		(0.07	)		2.87			0.12		(1.04	)		0.55		0.10			(1.76	)		(0.22	)
Fully diluted		(0.07	)		2.75			0.12		(1.01	)		0.54		0.10			(1.76	)		(0.22	)
Adjusted fully diluted		(0.01	)		(0.07	)		0.05		0.15			0.09		(0.06	)		(0.26	)		0.14

Weighted average number of shares outstanding:
Basic		26,359,969			26,299,094			26,296,690		26,128,971			26,214,573		26,128,971			26,088,127			26,080,529
Fully diluted		26,359,969			27,455,005			27,400,840		26,925,264			26,767,470		26,925,264			26,088,127			26,080,529

Cash		13,367			12,051			31,321		30,197			21,925		34,285			39,343			46,338
Accounts receivable		4,602			6,986			6,625		6,157			7,669		6,757			4,371			6,062
Prepaid expenses and deposits		4,835			5,580			11,578		14,470			13,400		8,476			4,928			4,542
Inventories		39,802			38,055			29,258		23,468			26,176		24,354			23,450			22,363
Trade and other payables		13,958			12,533			6,154		4,152			3,621		6,460			18,000			20,794