UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
(Amendment No. 1)
x ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.1934
For the quarterly period ended May 4, 2019.August 1, 2020
OR
¨ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.1934
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 | |
Common shares, no par value per share |
|
| 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 x ☒ NO ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x ☒ NO ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
|
Non-accelerated filer | ☒ | Smaller reporting company |
|
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ ☐ NO x☒
As of December 20, 2019, 26,079,662September 17, 2020, 26,208,129 common shares of the registrant were outstandingoutstanding.
On June 14, 2019, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was US$1.00 = CAD$1.3382
EXPLANATORY NOTEDAVIDsTEA Inc.
DAVIDsTEA Inc. (the “Company”) is filing this Form 10-Q/A (“Form 10-Q/A”) to amend its Quarterly Report on Form 10-Q for the period ended May 4, 2019, originally filed with the Securities and Exchange Commission (the “SEC”) on June 18, 2019 (“Original Filing”) to restate its unaudited condensed interim consolidated financial statements and related footnote disclosures for the three months ended May 4, 2019. Consequently, the previously filed unaudited condensed interim consolidated financial statements for the period ended May 4, 2019 should no longer be relied upon. This Form 10-Q/A also amends certain other items in the Original Filing, as listed in “Items Amended in this Form 10 -Q/A” below.
Effects of the restatement
As previously disclosed in a Current Report on Form 8-K filed with the SEC on December 18, 2019, the Board of Directors of the Company (the “Board”) in consultation with the Audit Committee of the Board, reached a determination that the Company's unaudited condensed interim consolidated financial statements and related footnote disclosures for the three months ended May 4, 2019 included in its Quarterly Report on Form 10-Q for the quarter ended May 4, 2019 contained a material error. During the course of the Company’s financial statement close process for the quarter ended November 2, 2019, accounting errors were identified in the assessment of impairment indicators upon completing the store impairment analysis under IAS 36, Impairment of Assets (“IAS 36”), subsequent to the adoption of IFRS 16, Leases (“IFRS 16”). When appropriately performing the assessment of impairment indicators with respect to the right-of-use assets (“ROU assets”) as at May 4, 2019 and August 3, 2019, impairment charges of $13,924 and $5,025 respectively were identified that would have been required to be recognized in the respective periods under the Company’s accounting policy for transition to IFRS 16, which included the use of the practical expedient for assessing impairment. Upon further review, the Company also determined that, pursuant to IFRS standards, its financial statements would be more relevant had they applied IAS 36 to assess impairment of ROU assets as of the date of initial adoption, instead of applying the available practical expedient. Accordingly, the Company elected to voluntarily change its accounting policy to perform an impairment assessment in accordance with IAS 36 at the date of transition to IFRS 16. The Company believes this change is more relevant because it more faithfully depicts the performance of the Company. Subsequent to the retrospective application of the change in accounting policy, the impairment charges were nil and $5,025 for the quarters ended May 4, 2019 and August 3, 2019, respectively.
The changes to the unaudited condensed interim consolidated financial statements and related footnote disclosures for the quarters ended May 4, 2019 and August 3, 2019 as a result of the error correction and subsequent voluntary change in accounting policy result in (i) a non-cash impact on the opening deficit within total equity upon the initial adoption of IFRS 16 and (ii) impairment charges for the three and six-month periods ended August 3, 2019, offset by the ongoing impact related to lower depreciation of the ROU assets, respectively. The Company determined that these changes have a material impact on the as filed condensed interim consolidated financial statements as at and for the three-month period ended May 4, 2019, and the three and six-month periods ended August 3, 2019, and as a result, the unaudited condensed interim consolidated financial statements and related footnote disclosures for the quarters ended May 4, 2019 and August 3, 2019 are being restated.
Based on the impairment test performed at February 3, 2019 upon the voluntary change to the Company’s method of transition to IFRS 16 to eliminate the use of the practical expedient, the Company’s ROU assets were impaired upon initial adoption by $32,487 as compared to the application of the previously recognized onerous lease provisions of $19,154 against the ROU assets. The difference that results from performing an IAS 36 impairment test at February 3, 2019 and the application of the practical expedient related to onerous leases results from a difference in the application of certain assumptions required under the two standards. The Company previously had recorded a reduction to the deficit of $1,280 on transition to IFRS 16. After the application of the voluntary change in accounting policy, the deficit increased by $14,613 to $61,293. The additional reduction in the initial value of the ROU assets resulted in a decrease in amortization expense in the three-month periods ended May 4, 2019 and August 3, 2019 of $689 and $699 respectively.
The following table illustrates the amended effect of the adoption of IFRS 16 as at February 3, 2019, upon application of the voluntary change in accounting policy:
February 3, | ||||||||||||||||||||
2019 | Change in | |||||||||||||||||||
February 2, 2019 | IFRS 16 Adoption | As previously reported | Policy Adjustment | February 3, 2019 | ||||||||||||||||
Restated | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Right-of-use assets | - | 75,596 | 75,596 | (14,613 | ) | 60,983 | ||||||||||||||
Other assets | 122,500 | - | 122,500 | - | 122,500 | |||||||||||||||
Total assets | 122,500 | 75,596 | 198,096 | (14,613 | ) | 183,483 | ||||||||||||||
LIABILITIES | ||||||||||||||||||||
Lease liability | - | 102,168 | 102,168 | - | 102,168 | |||||||||||||||
Deferred rent and lease inducements | 8,698 | (8,698 | ) | - | - | - | ||||||||||||||
Provisions | 19,154 | (19,154 | ) | - | - | - | ||||||||||||||
Other liabilities | 27,192 | - | 27,192 | - | 27,192 | |||||||||||||||
Total liabilities | 55,044 | 74,316 | 129,360 | - | 129,360 | |||||||||||||||
EQUITY | ||||||||||||||||||||
Deficit | (47,960 | ) | 1,280 | (46,680 | ) | (14,613 | ) | (61,293 | ) | |||||||||||
Other | 115,416 | - | 115,416 | - | 115,416 | |||||||||||||||
Total equity | 67,456 | 1,280 | 68,736 | (14,613 | ) | 54,123 | ||||||||||||||
TOTAL LIABILITIES AND EQUITY | 122,500 | 75,596 | 198,096 | (14,613 | ) | 183,483 |
The following tables illustrate the impact of the error correction related to unrecognized impairment charges, and the retrospective application of the voluntary change in accounting policy:
Consolidated Balance sheet
|
| May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
Right-of-use assets |
|
| 72,373 |
|
|
| (14,165 | ) |
|
| 58,208 |
|
|
| — |
|
|
| 58,208 |
|
Total assets |
|
| 184,591 |
|
|
| (14,165 | ) |
|
| 170,426 |
|
|
| — |
|
|
| 170,426 |
|
Deficit |
|
| (50,540 | ) |
|
| (13,924 | ) |
|
| (64,464 | ) |
|
| — |
|
|
| (64,464 | ) |
Accumulated other comprehensive income |
|
| 1,241 |
|
|
| (241 | ) |
|
| 1,000 |
|
|
| — |
|
|
| 1,000 |
|
Total equity |
|
| 64,529 |
|
|
| (14,165 | ) |
|
| 50,364 |
|
|
| — |
|
|
| 50,364 |
|
Total liabilities and equity |
|
| 184,591 |
|
|
| (14,165 | ) |
|
| 170,426 |
|
|
| — |
|
|
| 170,426 |
|
Consolidated statement of income (loss) and comprehensive income (loss)
|
| For the three months ended May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
Selling, general and administration expenses |
|
| 28,709 |
|
|
| 13,924 |
|
|
| 42,633 |
|
|
| (14,613 | ) |
|
| 28,020 |
|
Results from operating activities |
|
| (2,373 | ) |
|
| (13,924 | ) |
|
| (16,297 | ) |
|
| 14,613 |
|
|
| (1,684 | ) |
Loss before income taxes |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Net loss |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Cumulative translation adjustment |
|
| (256 | ) |
|
| (241 | ) |
|
| (497 | ) |
|
| — |
|
|
| (497 | ) |
Total comprehensive loss |
|
| (4,265 | ) |
|
| (14,165 | ) |
|
| (18,430 | ) |
|
| 14,613 |
|
|
| (3,817 | ) |
Net loss per share |
|
| (0.15 | ) |
|
| (0.54 | ) |
|
| (0.69 | ) |
|
| 0.56 |
|
|
| (0.13 | ) |
Consolidated statement of cash flows
|
| For the three months ended May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
Net loss |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Amortization of right-of-use assets |
|
| 3,791 |
|
|
| — |
|
|
| 3,791 |
|
|
| (689 | ) |
|
| 3,102 |
|
Impairment of right-of-use assets |
|
| — |
|
|
| 13,924 |
|
|
| 13,924 |
|
|
| (13,924 | ) |
|
| — |
|
Cash flows related to operating activities |
|
| 360 |
|
|
| — |
|
|
| 360 |
|
|
| — |
|
|
| 360 |
|
Consolidated statement of equity (deficit)
|
| For the three months ended May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
IFRS 16 adoption adjustment |
|
| 1,280 |
|
|
| — |
|
|
| 1,280 |
|
|
| (14,613 | ) |
|
| (13,333 | ) |
Adjusted balance at beginning of period |
|
| 68,736 |
|
| — |
|
|
| 68,736 |
|
| (14,613 | ) |
|
| 54,123 | |||
Net loss |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Accumulated other comprehensive loss |
|
| (256 | ) |
|
| (241 | ) |
|
| (497 | ) |
|
| — |
|
|
| (497 | ) |
Total comprehensive loss |
|
| (4,265 | ) |
|
| (14,165 | ) |
|
| (18,430 | ) |
|
| 14,613 |
|
|
| (3,817 | ) |
Internal Control Considerations
In light of the restatement, our Chief Executive Officer and Chief Financial Officer have reassessed their evaluation of the effectiveness of the design and operation of its disclosure controls over financial reporting as of May 4, 2019 and concluded that the Company did not maintain effective disclosure control and procedures due to a material weakness in the Company’s internal control over financial reporting that existed at that date. The material weakness that existed on those dates is described in Part I, Item 4 – Controls and Procedures in this Form 10-Q/A.
Items Amended in this Form 10-Q/A
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, in its entirety, as amended and superseded as necessary to reflect the restatement described above. The following items in the Original Filing have been amended as a result of, and to reflect, the restatement:
|
| |
Signatures
In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, from our Chief Executive Officer and Chief Financial Officer dated as of the filing date of this Form 10-Q/A. In addition, the Exhibit Index has been appropriately updated.
Except as describe above no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.
Restatement of Other Financial Statements
The Company is also concurrently filing an amended Quarterly Report on Form 10-Q/A for its second quarter period ended August 3, 2019 (the “Q2 Form 10-Q/A”) to amend and restate the previously issued unaudited condensed interim consolidated financial statements as a result of the same error correction and voluntary change in accounting policy described above and originally filed with the SEC on September 17, 2019.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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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/A10-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,Quarterly Report, unless otherwise specified, all monetary amounts are in Canadian dollars, all references to “$,” “C$,” “CAD,” “CND$,” “Canadian dollars” and “dollars” mean Canadian dollars and all references to “U.S. dollars,” “US$” and “USD” mean U.S. dollars.
On June 14, 2019,September 17, 2020, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New YorkCanada closing average exchange rate was US$1.00 = CAD$1.3382.1.3200
Table of Contents |
Item 1. Consolidated Financial Statements
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED BALANCE SHEETS
[Unaudited and in thousands of Canadian dollars]
|
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|
|
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|
|
| As at |
| |||||
|
|
|
| May 4, |
|
| February 2, |
| ||
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|
|
| 2019 |
|
| 2019 |
| ||
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|
|
| $ |
|
| $ |
| ||
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|
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| (Restated - Note 3) |
|
|
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ASSETS |
|
|
|
|
|
|
|
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Current |
|
|
|
|
|
|
|
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Cash |
|
|
|
| 35,491 |
|
|
| 42,074 |
|
Accounts and other receivables |
|
|
|
| 2,909 |
|
|
| 3,681 |
|
Inventories |
| [Note 5] |
|
| 31,642 |
|
|
| 34,353 |
|
Income tax receivable |
|
|
|
| 4,112 |
|
|
| 4,107 |
|
Prepaid expenses and deposits |
|
|
|
| 9,164 |
|
|
| 8,819 |
|
Total current assets |
|
|
|
| 83,318 |
|
|
| 93,034 |
|
Property and equipment |
|
|
|
| 22,879 |
|
|
| 23,788 |
|
Intangible assets |
|
|
|
| 6,021 |
|
|
| 5,678 |
|
Right-of-use assets |
| [Note 3] |
|
| 58,208 |
|
|
| — |
|
Total assets |
|
|
|
| 170,426 |
|
|
| 122,500 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
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Current |
|
|
|
|
|
|
|
|
|
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Trade and other payables |
|
|
|
| 15,305 |
|
|
| 20,951 |
|
Deferred revenue |
|
|
|
| 5,567 |
|
|
| 6,241 |
|
Current portion of provisions |
| [Note 3] |
|
| — |
|
|
| 3,714 |
|
Current portion of lease liabilities |
| [Note 3] |
|
| 16,324 |
|
|
| — |
|
Total current liabilities |
|
|
|
| 37,196 |
|
|
| 30,906 |
|
Deferred rent and lease inducements |
| [Note 3] |
|
| — |
|
|
| 8,698 |
|
Provisions |
| [Note 3] |
|
| — |
|
|
| 15,440 |
|
Non-current portion of lease liabilities |
| [Note 3] |
|
| 82,866 |
|
|
| — |
|
Total liabilities |
|
|
|
| 120,062 |
|
|
| 55,044 |
|
Commitments and contingencies |
|
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|
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Equity |
|
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|
|
|
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Share capital |
| [Note 7] |
|
| 112,740 |
|
|
| 112,519 |
|
Contributed surplus |
|
|
|
| 1,088 |
|
|
| 1,400 |
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Deficit |
|
|
|
| (64,464 | ) |
|
| (47,960 | ) |
Accumulated other comprehensive income |
|
|
|
| 1,000 |
|
|
| 1,497 |
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Total equity |
|
|
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| 50,364 |
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| 67,456 |
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Total liabilities and equity |
|
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| 170,426 |
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| 122,500 |
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As at | ||||||||||
August 1, | Feb 1, | |||||||||
2020 | 2020 | |||||||||
$ | $ | |||||||||
ASSETS | ||||||||||
Current | ||||||||||
Cash | 34,285 | 46,338 | ||||||||
Accounts and other receivables | 6,757 | 6,062 | ||||||||
Inventories | [Note 5] | 24,354 | 22,363 | |||||||
Income tax receivable | 223 | 1,196 | ||||||||
Prepaid expenses and deposits | 8,476 | 4,542 | ||||||||
Total current assets | 74,095 | 80,501 | ||||||||
Property and equipment | [Note 6] | 3,086 | 17,737 | |||||||
Intangible assets | 4,693 | 6,339 | ||||||||
Right-of-use assets | [Note 6] | 7,292 | 35,082 | |||||||
Total assets | 89,166 | 139,659 | ||||||||
LIABILITIES AND EQUITY | ||||||||||
Current | ||||||||||
Trade and other payables | [Note 7] | 26,642 | 20,794 | |||||||
Deferred revenue | 6,268 | 6,852 | ||||||||
Provisions | [Note 7] | 47,818 | — | |||||||
Current portion of lease liabilities | 6,545 | 16,434 | ||||||||
Total current liabilities | 87,273 | 44,080 | ||||||||
Non-current portion of lease liabilities | 21,265 | 72,230 | ||||||||
Total liabilities | 108,538 | 116,310 | ||||||||
Commitments and contingencies | ||||||||||
Equity | ||||||||||
Share capital | [Note 9] | 113,119 | 112,843 | |||||||
Contributed surplus | 1,602 | 1,577 | ||||||||
Deficit | (135,282 | ) | (92,278 | ) | ||||||
Accumulated other comprehensive income | 1,189 | 1,207 | ||||||||
Total equity (deficiency) | (19,372 | ) | 23,349 | |||||||
Total liabilities and equity (deficiency) | 89,166 | 139,659 |
See accompanying notes.
Table of Contents |
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
[Unaudited and in thousands of Canadian dollars, except share and per share information]
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| For the three months ended |
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| May 4, |
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| May 5, |
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| 2019 |
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| 2018 |
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| $ |
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| $ |
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| (Restated - Note 3) |
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Sales |
| [Note 12] |
|
| 44,265 |
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| 45,786 |
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Cost of sales |
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| 17,929 |
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| 23,094 |
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Gross profit |
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| 26,336 |
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| 22,692 |
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Selling, general and administration expenses |
| [Note 9] |
|
| 28,020 |
|
|
| 24,396 |
|
Results from operating activities |
|
|
|
| (1,684 | ) |
|
| (1,704 | ) |
Finance costs |
|
|
|
| 1,827 |
|
|
| 79 |
|
Finance income |
|
|
|
| (191 | ) |
|
| (237 | ) |
Loss before income taxes |
|
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| (3,320 | ) |
|
| (1,546 | ) |
Provision for income tax (recovery) |
| [Note 8] |
|
| — |
|
|
| (344 | ) |
Net loss |
|
|
|
| (3,320 | ) |
|
| (1,202 | ) |
Other comprehensive loss |
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Items to be reclassified subsequently to income: |
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Unrealized net gain on forward exchange contracts |
| [Note 13] |
|
| — |
|
|
| 707 |
|
Realized net loss on forward exchange contracts reclassified to inventory |
|
|
|
| — |
|
|
| 438 |
|
Provision for income tax recovery |
|
|
|
| — |
|
|
| (306 | ) |
Cumulative translation adjustment |
|
|
|
| (497 | ) |
|
| (321 | ) |
Other comprehensive income (loss), net of tax |
|
|
|
| (497 | ) |
|
| 518 |
|
Total comprehensive loss |
|
|
|
| (3,817 | ) |
|
| (684 | ) |
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted |
| [Note 10] |
|
| (0.13 | ) |
|
| (0.05 | ) |
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted |
| [Note 10] |
|
| 26,019,594 |
|
|
| 25,893,327 |
|
|
|
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
|
|
| August 1, |
|
| August 3, |
|
| August 1, |
|
| August 3, |
| ||||
|
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales |
| [Note 14] |
|
| 23,031 |
|
|
| 39,167 |
|
|
| 55,273 |
|
|
| 83,432 |
|
Cost of sales |
|
|
|
| 14,694 |
|
|
| 17,362 |
|
|
| 32,263 |
|
|
| 35,291 |
|
Gross profit |
|
|
|
| 8,337 |
|
|
| 21,805 |
|
|
| 23,010 |
|
|
| 48,141 |
|
Selling, general and administration expenses |
| [Note 11] |
|
| 7,409 |
|
|
| 31,563 |
|
|
| 29,042 |
|
|
| 59,583 |
|
Restructuring plan activities, net |
| [Note 8] |
|
| (3,172 | ) |
|
| — |
|
|
| 34,228 |
|
|
| — |
|
Results from operating activities |
|
|
|
| 4,100 |
|
|
| (9,758 | ) |
|
| (40,260 | ) |
|
| (11,442 | ) |
Finance costs |
|
|
|
| 1,559 |
|
|
| 1,781 |
|
|
| 3,226 |
|
|
| 3,608 |
|
Finance income |
|
|
|
| (68 | ) |
|
| (195 | ) |
|
| (308 | ) |
|
| (386 | ) |
Net income (loss) |
|
|
|
| 2,609 |
|
|
| (11,344 | ) |
|
| (43,178 | ) |
|
| (14,664 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to be reclassified subsequently to income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
| 1,451 |
|
|
| 255 |
|
|
| (18 | ) |
|
| (242 | ) |
Total comprehensive income (loss) |
|
|
|
| 4,060 |
|
|
| (11,089 | ) |
|
| (43,196 | ) |
|
| (14,906 | ) |
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| [Note 12] |
|
| 0.10 |
|
|
| (0.44 | ) |
|
| (1.65 | ) |
|
| (0.56 | ) |
Fully diluted |
| [Note 12] |
|
| 0.10 |
|
|
| (0.44 | ) |
|
| (1.65 | ) |
|
| (0.56 | ) |
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| [Note 12] |
|
| 26,128,971 |
|
|
| 26,056,520 |
|
|
| 26,108,499 |
|
|
| 26,038,128 |
|
Fully diluted |
| [Note 12] |
|
| 26,925,264 |
|
|
| 26,056,520 |
|
|
| 26,108,499 |
|
|
| 26,038,128 |
|
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 |
| |||||||||||||||||||||
|
| May 4, |
| May 5, |
|
| For the three months ended |
| For the six months ended |
| ||||||||||||||
|
| 2019 |
| 2018 |
|
| August 1, |
| August 3, |
| August 1, |
| August 3, |
| ||||||||||
|
| $ |
|
| $ |
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||
|
| (Restated - Note 3) |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net loss |
| (3,320 | ) |
| (1,202 | ) | ||||||||||||||||||
Net Income (loss) |
| 2,609 |
| (11,344 | ) |
| (43,178 | ) |
| (14,664 | ) | |||||||||||||
Items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Depreciation of property and equipment |
| 1,325 |
| 1,686 |
|
| 301 |
| 1,359 |
| 1,544 |
| 2,684 |
| ||||||||||
Amortization of intangible assets |
| 399 |
| 182 |
|
| 571 |
| 456 |
| 1,083 |
| 855 |
| ||||||||||
Amortization of right-of-use assets |
| 3,102 |
| — |
|
| 454 |
| 3,114 |
| 2,693 |
| 6,216 |
| ||||||||||
Gain on modification of lease liabilities |
| (54,735 | ) |
| — |
| (54,735 | ) |
| — |
| |||||||||||||
Provisions |
| 47,818 |
| — |
| 47,818 |
| — |
| |||||||||||||||
Interest on lease liabilities |
| 1,827 |
| — |
|
| 1,559 |
| 1,781 |
| 3,187 |
| 3,608 |
| ||||||||||
Deferred rent |
| — |
| (137 | ) | |||||||||||||||||||
Recovery for onerous contracts |
| — |
| (176 | ) | |||||||||||||||||||
Loss on disposal of property and equipment and right-of-use assets |
| 1,542 |
| 22 |
| 1,542 |
| 22 |
| |||||||||||||||
Impairment of property and equipment and right-of-use assets |
| — |
| 5,025 |
| 39,960 |
| 5,025 |
| |||||||||||||||
Stock-based compensation expense |
| 127 |
| 295 |
|
|
| 267 |
|
|
| 143 |
|
|
| 580 |
|
|
| 270 |
| |||
Amortization of financing fees |
| — |
| 20 |
| |||||||||||||||||||
Accretion on provisions |
| — |
| 59 |
| |||||||||||||||||||
Deferred income taxes |
|
| — |
|
|
| 956 |
| ||||||||||||||||
Sub-total |
| 3,460 |
| 1,683 |
|
| 386 |
| 556 |
| 494 |
| 4,016 |
| ||||||||||
Net change in other non-cash working capital balances related to operations |
| (3,100 | ) |
| (8,789 | ) |
| (4,209 | ) |
| 2,527 |
| (8,373 | ) |
| (573 | ) | |||||||
Cash flows related to operating activities |
|
| 360 |
|
|
| (7,106 | ) | ||||||||||||||||
Cash flows from (used in) operating activities |
|
| (3,823 | ) |
|
| 3,083 |
|
|
| (7,879 | ) |
|
| 3,443 |
| ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Proceed from issuance of common shares pursuant to exercise of stock options |
| 3 |
| — |
| 3 |
| — |
| |||||||||||||||
Payment of lease liabilities |
| (5,823 | ) |
| — |
|
|
| (1,198 | ) |
|
| (5,799 | ) |
|
| (5,574 | ) |
|
| (11,622 | ) | ||
Cash flows related to financing activities |
|
| (5,823 | ) |
|
| — |
| ||||||||||||||||
Cash flows used in financing activities |
|
| (1,195 | ) |
|
| (5,799 | ) |
|
| (5,571 | ) |
|
| (11,622 | ) | ||||||||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Additions to property and equipment |
| (415 | ) |
| (928 | ) |
| (40 | ) |
| (319 | ) |
| (312 | ) |
| (734 | ) | ||||||
Additions to intangible assets |
| (705 | ) |
| (1,582 | ) |
| — |
| (958 | ) |
| (317 | ) |
| (1,663 | ) | |||||||
Cash flows related to investing activities |
|
| (1,120 | ) |
|
| (2,510 | ) | ||||||||||||||||
Repayment (issuance) of loan from a Company controlled by an executive employee |
| — |
|
| (1,773 | ) |
|
| 2,026 |
|
|
| (1,773 | ) | ||||||||||
Cash flows from (used in) investing activities |
|
| (40 | ) |
|
| (3,050 | ) |
|
| 1,397 |
|
|
| (4,170 | ) | ||||||||
Decrease in cash during the period |
| (6,583 | ) |
| (9,616 | ) |
| (5,058 | ) |
| (5,766 | ) |
| (12,053 | ) |
| (12,349 | ) | ||||||
Cash, beginning of the period |
| 42,074 |
| 63,484 |
|
|
| 39,343 |
|
|
| 35,491 |
|
|
| 46,338 |
|
|
| 42,074 |
| |||
Cash, end of the period |
|
| 35,491 |
|
|
| 53,868 |
|
|
| 34,285 |
|
|
| 29,725 |
|
|
| 34,285 |
|
|
| 29,725 |
|
Supplemental Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest |
| — |
| — |
|
| — |
| — |
| — |
| — |
| ||||||||||
Income taxes (classified as operating activity) |
| — |
| — |
|
| — |
| — |
| — |
| — |
| ||||||||||
Cash received for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest |
| 195 |
| 233 |
|
| 68 |
| 210 |
| 279 |
| 405 |
| ||||||||||
Income taxes (classified as operating activity) |
| — |
| — |
|
| 563 |
| 168 |
| 870 |
| 168 |
|
See accompanying notes.
Table of Contents |
DAVIDsTEA Inc.
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)(DEFICIENCY)
[Unaudited and in thousands of Canadian dollars]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
| Accumulated Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
| Other |
| Total |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Accumulated |
| Accumulated |
|
|
|
|
|
| Share |
| Contributed |
|
|
| Comprehensive |
| Equity |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
| Derivative |
| Foreign |
| Accumulated |
|
|
|
| Capital |
| Surplus |
| Deficit |
| Income |
| (Deficiency) |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
| Financial |
| Currency |
| Other |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||||||||||
|
| Share |
| Contributed |
|
|
| Instrument |
| Translation |
| Comprehensive |
| Total |
| |||||||||||||||||||||||||||||||||
|
| Capital |
| Surplus |
| Deficit |
| Adjustment |
| Adjustment |
| Income |
| Equity |
| |||||||||||||||||||||||||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||||||||||||||||||||
Balance, February 3, 2018 |
| 111,692 |
| 2,642 |
| (14,721 | ) |
| (167 | ) |
| 1,922 |
| 1,755 |
| 101,368 |
| |||||||||||||||||||||||||||||||
Net loss for the three months ended May 5, 2018 |
| — |
| — |
| (1,202 | ) |
| — |
| — |
| — |
| (1,202 | ) | ||||||||||||||||||||||||||||||||
Balance, February 1, 2020 |
| 112,843 |
| 1,577 |
| (92,278 | ) |
| 1,207 |
| 23,349 |
| ||||||||||||||||||||||||||||||||||||
Net loss for the six months ended August 1, 2020 |
| — |
| — |
| (43,178 | ) |
| — |
| (43,178 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 839 |
|
|
| (321 | ) |
|
| 518 |
|
|
| 518 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| (18 | ) |
Total comprehensive loss |
| — |
| — |
| (1,202 | ) |
| 839 |
| (321 | ) |
| 518 |
| (684 | ) |
| — |
| — |
| (43,178 | ) |
| (18 | ) |
| (43,196 | ) | ||||||||||||||||||
Issuance of common shares |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| 4 |
| (1 | ) |
| — |
| — |
| 3 |
| |||||||||||||||||||||
Common shares issued on vesting of restricted stock units |
| 257 |
| (593 | ) |
| 134 |
| — |
| — |
| — |
| (202 | ) |
| 272 |
| (554 | ) |
| 174 |
| — |
| (108 | ) | ||||||||||||||||||||
Stock-based compensation expense |
| — |
| 295 |
| — |
| — |
| — |
| — |
| 295 |
|
|
| — |
|
|
| 580 |
|
|
| — |
|
|
| — |
|
|
| 580 |
| |||||||||||||
Income tax impact associated with stock options |
| — |
| 11 |
| — |
| — |
| — |
| — |
| 11 |
| |||||||||||||||||||||||||||||||||
Balance, May 5, 2018 |
|
| 111,949 |
|
|
| 2,355 |
|
|
| (15,789 | ) |
|
| 672 |
|
|
| 1,601 |
|
|
| 2,273 |
|
|
| 100,788 |
| ||||||||||||||||||||
Balance, August 1, 2020 |
|
| 113,119 |
|
|
| 1,602 |
|
|
| (135,282 | ) |
|
| 1,189 |
|
|
| (19,372 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Balance, February 2, 2019 |
| 112,519 |
| 1,400 |
| (47,960 | ) |
| — |
| 1,497 |
| 1,497 |
| 67,456 |
|
| 112,519 |
| 1,400 |
| (61,293 | ) |
| 1,497 |
| 54,123 |
| ||||||||||||||||||||
IFRS 16 adoption adjustment (1) |
|
| — |
|
|
| — |
|
|
| (13,333 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,333 | ) | ||||||||||||||||||||
Adjusted balance at beginning of period (1) |
| 112,519 |
| 1,400 |
| (61,293 | ) |
| — |
| 1,497 |
| 1,497 |
| 54,123 |
| ||||||||||||||||||||||||||||||||
Net loss for the three months ended May 4, 2019 (1) |
| — |
| — |
| (3,320 | ) |
| — |
| — |
| — |
| (3,320 | ) | ||||||||||||||||||||||||||||||||
Net loss for the six months ended August 3, 2019 |
| — |
| — |
| (14,664 | ) |
| — |
| (14,664 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (497 | ) |
|
| (497 | ) |
|
| (497 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (242 | ) |
|
| (242 | ) |
Total comprehensive loss (1) |
| — |
| — |
| (3,320 | ) |
| — |
| (497 | ) |
| (497 | ) |
| (3,817 | ) | ||||||||||||||||||||||||||||||
Issuance of common shares |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||||
Total comprehensive loss |
| — |
| — |
| (14,664 | ) |
| (242 | ) |
| (14,906 | ) | |||||||||||||||||||||||||||||||||||
Common shares issued on vesting of restricted stock units |
| 221 |
| (439 | ) |
| 149 |
| — |
| — |
| — |
| (69 | ) |
| 273 |
| (561 | ) |
| 195 |
| — |
| (93 | ) | ||||||||||||||||||||
Stock-based compensation expense |
|
| — |
|
|
| 127 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| — |
|
|
| 270 |
|
|
| — |
|
|
| — |
|
|
| 270 |
|
Balance, May 4, 2019 |
|
| 112,740 |
|
|
| 1,088 |
|
|
| (64,464 | ) |
|
| — |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 50,364 |
| ||||||||||||||||||||
Balance, August 3, 2019 |
|
| 112,792 |
|
|
| 1,109 |
|
|
| (75,762 | ) |
|
| 1,255 |
|
|
| 39,394 |
|
_________
(1) See restated note 3
See accompanying notes.
Table of Contents |
DAVIDsTEA Inc.
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three-monththree and six-month periods ended May 4,August 1, 2020 and August 3, 2019 and May 5, 2018 [Unaudited]
[Amounts in thousands of Canadian dollars except share and per share amounts]
1. CORPORATE INFORMATION
The unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary (collectively, the “Company”) for the three-month periodthree and six-month periods ended May 4, 2019August 1, 2020 were authorized for issue in accordance with a resolution of the Board of Directors on June18, 2019. The amended and restated unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary (collectively, the “Company”) for the three-month period ended May 4, 2019 were authorized for issue in accordance with a resolution of the Board of Directors on December 20, 2019.September 21, 2020. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the NASDAQNasdaq Global Market under the symbol “DTEA”. The registered office is located at 5430 Ferrier St., Town of Mount-Royal, Quebec,Québec, Canada, H4P 1M2.
The Company is engageda branded retailer and growing mass wholesaler of specialty tea, offering a differentiated selection of proprietary loose-leaf teas, pre-packaged teas, tea sachets and tea-related gifts and accessories through its e-commerce platform at www.davidstea.com and in the18 Company-owned and operated retail stores in Canada. A selection of DAVIDsTEA products is also available in more than 2,500 grocery stores and online sale of tea, tea accessories and food and beverages in Canada and the United States.pharmacies across Canada. The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. Sales fluctuate from quarter to quarter. Sales are traditionally higher in the fourth fiscal quarter due to the year-end holiday season and tend to be lowest in the second and third fiscal quarterquarters because of lower customer trafficengagement during the summer months.
In March 2020, the outbreak of a novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization and on March 17, 2020, in response to the COVID-19 pandemic, the Company announced the temporary closure of all of its retail stores in Canada and the United States. On August 21, 2020, the Company re-opened 18 stores across Canada.
The Company qualifies for the Canada Emergency Wage Subsidy (“CEWS”) under the COVID-19 Economic Response Plan of the Government of Canada. During the first and second quarters of Fiscal 2020, the Company recognized payroll subsidies of $0.8 million and $1.2 million respectively under this wage subsidy program as a reduction in the associated wage costs which the Company incurred, which were recognized in Selling, general and administration expenses.
On July 8, 2020, the Company announced that it is implementing a restructuring plan (the “Restructuring Plan”) under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) in order to accelerate its transition to predominantly an online retailer and wholesaler of high-quality tea and accessories and that during the restructuring process, the Company would continue to operate its online business through its e-commerce platform at www.davidstea.com and its wholesale distribution channel, through which it sells a selection of DAVIDsTEA products in grocery stores and pharmacies across Canada. Following a careful review of available options to stem the losses from its brick-and-mortar footprint, the Company’s management and Board of Directors determined that a formal restructuring process was the best option in the context of an increasingly challenging retail environment, further exacerbated by the COVID-19 pandemic.
On July 8, 2020, the Company obtained an Initial Order pursuant to the CCAA from the 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 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.
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Table of Contents |
On September 17, 2020, the Québec Superior Court extended the stay of all proceedings against the Company to December 15, 2020 and issued a Claims Process Order establishing the claims procedures for the Company’s creditors under the CCAA. This Order, among other things sets November 6, 2020 as the time by which creditors must submit their claims to PwC, the Court-appointed Monitor.
2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION AND GOING CONCERN UNCERTAINTY
These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). Accordingly, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended February 2, 2019,1, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. In management’s opinion, the unaudited condensed interim consolidated financial statements reflect all the adjustments that are necessary for a fair presentation of the results for the interim period presented. These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in note 3 of the consolidated financial statements for the year ended February 2, 2019,1, 2020, other than as disclosed in note 3 belowbelow.
Going Concern Uncertainty
In December 2019, a novel strain of coronavirus, responsible for COVID-19, was first reported and was subsequently declared a pandemic by the World Health Organization in March 2020. The measures adopted by the federal, provincial and state governments in order to mitigate the spread of the outbreak required the Company to close all of its retail locations across North America effective March 17, 2020. On August 21, 2020, the Company re-opened 18 of its stores throughout Canada.
On July 8, 2020, the Company announced that it was implementing the Restructuring Plan under applicable laws in both Canada and in the United States in order to accelerate its transition to predominantly an online retailer and wholesaler of high-quality tea and accessories. As part of the Restructuring Plan, the Company sent notices to terminate leases for 82 of its stores in Canada and all 42 of its stores in the United States. On July 30, 2020, the Company sent notices to terminate leases for an additional 82 of its stores in Canada and continues to negotiate with respectlandlords for the remaining 18 stores.
Although the Company continues to offer its products directly to consumers through its online store and in supermarkets and drugstores across Canada, it is unlikely that customers will purchase its products at previous volumes through these alternative channels. Furthermore, the duration and impact of the COVID-19 pandemic is unknown and may influence consumer shopping behavior and consumer demand including online shopping. Notwithstanding that the Company expects to emerge from the restructuring process as a leaner organization, there is no assurance that the Restructuring Plan will be successful and that all relevant and required regulatory, creditor and court approvals will be obtained.
For the three and six-month periods ended August 1, 2020, the Company reported a net income of $2.6 million and incurred a net loss of $43.2 million, respectively. The Company’s current liabilities total $86.6 million as at August 1, 2020. As at August 1, 2020, the Company held cash and accounts and other receivables of $41.0 million. The Company does not currently have any third-party financing available with which to meet any future financial obligations.
The Company’s ability to continue as a going concern is dependent on its ability to stabilize its business from unfavorable trend lines, strengthening its business by focusing on how to grow its product portfolio including sales and customer service execution, and structuring its operations to ensure it successfully emerges 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 profitability in the current environment, including the unpredictability surrounding the recovery from the COVID-19 pandemic, changes in accounting policies.consumer behavior and the ability to successfully emerge from the Restructuring Plan process.
As a result, these events and conditions indicate that a material uncertainty exists that raises substantial doubt about the Company’s ability to continue as a going concern and, therefore, realize its assets and discharge its liabilities in the normal course of business.
These interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. These interim condensed consolidated financial statements as at and for the three and six-month periods ended August 1, 2020 do not include any adjustments to the carrying amounts and classification of assets, liabilities and reported expenses that may otherwise be required if the going concern basis was not appropriate. Such adjustments could be material.
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3. CHANGES IN ACCOUNTING POLICIES AND RESTATEMENT OF PREVIOUSLY-ISSUED FINANCIAL STATEMENTS
DuringRecently Issued Accounting Pronouncements
On May 28, 2020, the course of the Company’s financial statement close process for the quarter ended November 2, 2019, accounting errors were identified in the assessment of impairment indicators upon completing the store impairment analysis under IAS 36, Impairment of Assets (“IAS 36”), subsequent to the adoption of IFRS 16, Leases (“IFRS 16”). When appropriately performing the assessment of impairment indicators with respect to the right-of-use assets (“ROU assets”) as at May 4, 2019 and August 3, 2019, impairment charges of $13,924 and $5,025 respectively were identified that would have been required to be recognized in the respective periods under the Company’s accounting policy for transitionIASB issued an amendment to IFRS 16, which includedLeases to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions.
The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the useCOVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021.
The amendment is effective as of June 1, 2020 but can be applied immediately in any financial statements—interim or annual—not yet authorized for issue. The Company applied the practical expedient for assessing impairment. Upon further review,to all rent concessions meeting the Company also determined that, pursuant to IFRS standards, its financial statements would be more relevant had they applied IAS 36 to assess impairment of ROU assetscriteria as set out in the amendment, as of February 2, 2020. With respect to rent concessions not meeting the datedefinition of initial adoption, instead of applying the available practical expedient. Accordingly,a lease modification, the Company elected to voluntarily change its accounting policyaccount for such concessions by continuing to perform an impairment assessment in accordance with IAS 36 at the date of transition to IFRS 16. The Company believes this change is more relevant because it more faithfully depicts the performance of the Company. Subsequent to the retrospective application of the change in accounting policy, the impairment charges were nil and $5,025account for the quarters ended May 4, 2019 and August 3, 2019, respectively.
Effects of the restatement
Based on the impairment test performed at February 3, 2019 upon the voluntary change to the Company’s method of transition to IFRS 16 to eliminate the use of the practical expedient, the Company’s ROU assets were impaired upon initial adoption by $32,487 as compared to the application of the previously recognized onerous lease provisions of $19,154 against the ROU assets. The difference that results from performing an IAS 36 impairment test at February 3, 2019 and the application of the practical expedient related to onerous leases results from a difference in the application of certain assumptions required under the two standards. The Company previously had recorded a reduction to the deficit of $1,280 on transition to IFRS 16. After the application of the voluntary change in accounting policy, the deficit increased by $14,613 to $61,293. The additional reduction in the initial value of the ROU assets resulted in a decrease in amortization expense in the three-month periods ended May 4, 2019 and August 3, 2019 of $689 and $699 respectively.
The following table illustrates the effect of the voluntary change in accounting policy on the adoption of IFRS 16 as at February 3, 2019:
|
|
|
|
|
|
|
| February 3, |
|
|
|
|
|
|
| |||||
|
|
|
|
|
| 2019 |
|
|
|
|
|
|
| |||||||
|
| February 2, 2019 |
|
| IFRS 16 Adoption |
|
| As previously reported |
|
| Change in Policy Adjustment |
|
| February 3, 2019 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Right-of-use assets |
|
| - |
|
|
| 75,596 |
|
|
| 75,596 |
|
|
| (14,613 | ) |
|
| 60,983 |
|
Other assets |
|
| 122,500 |
|
|
| - |
|
|
| 122,500 |
|
|
| - |
|
|
| 122,500 |
|
Total assets |
|
| 122,500 |
|
|
| 75,596 |
|
|
| 198,096 |
|
|
| (14,613 | ) |
|
| 183,483 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liability |
|
| - |
|
|
| 102,168 |
|
|
| 102,168 |
|
|
| - |
|
|
| 102,168 |
|
Deferred rent and lease inducements |
|
| 8,698 |
|
|
| (8,698 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Provisions |
|
| 19,154 |
|
|
| (19,154 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Other liabilities |
|
| 27,192 |
|
|
| - |
|
|
| 27,192 |
|
|
| - |
|
|
| 27,192 |
|
Total liabilities |
|
| 55,044 |
|
|
| 74,316 |
|
|
| 129,360 |
|
|
| - |
|
|
| 129,360 |
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
| (47,960 | ) |
|
| 1,280 |
|
|
| (46,680 | ) |
|
| (14,613 | ) |
|
| (61,293 | ) |
Other |
|
| 115,416 |
|
|
| - |
|
|
| 115,416 |
|
|
| - |
|
|
| 115,416 |
|
Total equity |
|
| 67,456 |
|
|
| 1,280 |
|
|
| 68,736 |
|
|
| (14,613 | ) |
|
| 54,123 |
|
TOTAL LIABILITIES AND EQUITY |
|
| 122,500 |
|
|
| 75,596 |
|
|
| 198,096 |
|
|
| (14,613 | ) |
|
| 183,483 |
|
The following tables illustrate the impact of the error correction related to unrecognized impairment charges, and the retrospective application of the voluntary change in accounting policy:
Consolidated Balance sheet
|
| May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
Right-of-use assets |
|
| 72,373 |
|
|
| (14,165 | ) |
|
| 58,208 |
|
|
| — |
|
|
| 58,208 |
|
Total assets |
|
| 184,591 |
|
|
| (14,165 | ) |
|
| 170,426 |
|
|
| — |
|
|
| 170,426 |
|
Deficit |
|
| (50,540 | ) |
|
| (13,924 | ) |
|
| (64,464 | ) |
|
| — |
|
|
| (64,464 | ) |
Accumulated other comprehensive income |
|
| 1,241 |
|
|
| (241 | ) |
|
| 1,000 |
|
|
| — |
|
|
| 1,000 |
|
Total equity |
|
| 64,529 |
|
|
| (14,165 | ) |
|
| 50,364 |
|
|
| — |
|
|
| 50,364 |
|
Total liabilities and equity |
|
| 184,591 |
|
|
| (14,165 | ) |
|
| 170,426 |
|
|
| — |
|
|
| 170,426 |
|
Consolidated statement of income (loss) and comprehensive income (loss)
|
| For the three months ended May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
Selling, general and administration expenses |
|
| 28,709 |
|
|
| 13,924 |
|
|
| 42,633 |
|
|
| (14,613 | ) |
|
| 28,020 |
|
Results from operating activities |
|
| (2,373 | ) |
|
| (13,924 | ) |
|
| (16,297 | ) |
|
| 14,613 |
|
|
| (1,684 | ) |
Loss before income taxes |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Net loss |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Cumulative translation adjustment |
|
| (256 | ) |
|
| (241 | ) |
|
| (497 | ) |
|
| — |
|
|
| (497 | ) |
Total comprehensive loss |
|
| (4,265 | ) |
|
| (14,165 | ) |
|
| (18,430 | ) |
|
| 14,613 |
|
|
| (3,817 | ) |
Net loss per share |
|
| (0.15 | ) |
|
| (0.54 | ) |
|
| (0.69 | ) |
|
| 0.56 |
|
|
| (0.13 | ) |
Consolidated statement of cash flows
|
| For the three months ended May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
Net loss |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Amortization of right-of-use assets |
|
| 3,791 |
|
|
| — |
|
|
| 3,791 |
|
|
| (689 | ) |
|
| 3,102 |
|
Impairment of right-of-use assets |
|
| — |
|
|
| 13,924 |
|
|
| 13,924 |
|
|
| (13,924 | ) |
|
| — |
|
Cash flows related to operating activities |
|
| 360 |
|
|
| — |
|
|
| 360 |
|
|
| — |
|
|
| 360 |
|
Consolidated statement of equity (deficit)
|
| For the three months ended May 4, 2019 |
| |||||||||||||||||
|
| As previously reported |
|
| Correction of error - Adjustment |
|
| Correction of error - Restated |
|
| Change in policy - Adjustment |
|
| Restated |
| |||||
IFRS 16 adoption adjustment |
|
| 1,280 |
|
|
| — |
|
|
| 1,280 |
|
|
| (14,613 | ) |
|
| (13,333 | ) |
Adjusted balance at beginning of period |
|
| 68,736 |
|
| — |
|
|
| 68,736 |
|
| (14,613 | ) |
|
| 54,123 | |||
Net loss |
|
| (4,009 | ) |
|
| (13,924 | ) |
|
| (17,933 | ) |
|
| 14,613 |
|
|
| (3,320 | ) |
Accumulated other comprehensive loss |
|
| (256 | ) |
|
| (241 | ) |
|
| (497 | ) |
|
| — |
|
|
| (497 | ) |
Total comprehensive loss |
|
| (4,265 | ) |
|
| (14,165 | ) |
|
| (18,430 | ) |
|
| 14,613 |
|
|
| (3,817 | ) |
Internal Control Considerations
IFRS 16 – Leases
IFRS 16, “Leases’’ (“IFRS 16’’) replaces IAS 17, “Leases’’ and related interpretations. This standard provides a single model for leases abolishing the current distinction between finance and operating leases, with most leases being recognized on the balance sheet. Certain exemptions will apply for short-term leases and leases of low value assets. The new standard is effective for annual periods beginning on or after January 1, 2019.
a) Nature of the effect of adoption of IFRS 16 (restated)
The Company has adopted IFRS 16 as at February 3, 2019. The adoption of IFRS 16 had a significant impact as the Company recognized new assets and liabilities for its operating leases of retail stores. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. The Company has elected to apply the modified retrospective method by setting right-of-use assets based on the lease liability at the date of initial application, adjusted by the amount of any prepaid or accrued lease payments, and has applied the following practical expedients:
At the date of initial application of IFRS 16, the Company tested for impairment in accordance with IAS 36 Impairment of assets.
The effect of adoption of IFRS 16 as at February 3, 2019 is as follows:
February 3, 2019 February 2, 2019 IFRS 16 Adoption As previously reported Change in Policy Adjustment February 3, 2019 Restated ASSETS Right-of-use assets Other assets Total assets LIABILITIES Lease liability Deferred rent and lease inducements Provisions Other liabilities Total liabilities EQUITY Deficit Other Total equity TOTAL LIABILITIES AND EQUITY- 75,596 75,596 (14,613 ) 60,983 122,500 - 122,500 - 122,500 122,500 75,596 198,096 (14,613 ) 183,483 - 102,168 102,168 - 102,168 8,698 (8,698 ) - - - 19,154 (19,154 ) - - - 27,192 - 27,192 - 27,192 55,044 74,316 129,360 - 129,360 (47,960 ) 1,280 (46,680 ) (14,613 ) (61,293 ) 115,416 - 115,416 - 115,416 67,456 1,280 68,736 (14,613 ) 54,123 122,500 75,596 198,096 (14,613 ) 183,483
For leases previously classified as operating leases, the Company recorded the right-of-use assets based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Due to this, the Company derecognized an amount of $8,698 that was previously included under deferred rent and leasehold inducements with a corresponding adjustment to the right-of-use asset.
The lease liabilities as at February 3, 2019 can be reconciled to the operating lease commitments as of February 2, 2019 as follows:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
Operating lease payments which were previously included in cost of sales on the consolidated statement of income are replaced with depreciation expenses (included in selling, general and administrative expenses) from the right-of-use asset using the rights and interest expense (included under finance costs) from the lease liability.
b) Summary of new accounting policies
Right-of-use assets
The Company recognises right-of-use assets at the commencement dateobligations of the existing lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement ofrecognizing a separate lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Amortization expense is recorded in selling, general and administrative expense.
Lease liabilities
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expensepayable in the period onin which the event or condition that triggersallocated lease cash payment is due. As a result of the payment occurs.Initial Order obtained from the Québec Superior Court on July 8, 2020, any rent concessions provided by landlords are accordingly nullified.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. Interest accretion is recorded as interest expense in finance costs. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The Company has elected to apply the practical expedient to not separate the lease component and its associated non-lease component.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below US $5,000). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Significant judgement in determining the lease term of contracts with renewal options
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Company has the option, under some of its leases to lease the assets for additional terms of three to five years. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal, including store performance, expected future performance and past business practice. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
c) Amounts recognised in the statement of financial position and profit or loss
Set out below are the carrying amounts of the Company’s right-of-use assets and lease liabilities and the movements during the period:
|
| Right-of use |
|
| Lease |
| ||
|
| assets |
|
| liability |
| ||
|
| $ |
|
| $ |
| ||
|
| (Restated - Note 3) |
|
|
|
| ||
Balance, February 3, 2019 |
|
| 60,983 |
|
|
| 102,168 |
|
Amortization expense |
|
| (3,102 | ) |
|
| — |
|
Interest Expense |
|
| — |
|
|
| 1,827 |
|
Payments |
|
| — |
|
|
| (5,823 | ) |
CTA |
|
| 327 |
|
|
| 1,018 |
|
Balance, May 4, 2019 |
|
| 58,208 |
|
|
| 99,190 |
|
|
|
|
|
|
|
|
|
|
Presented as: |
|
|
|
|
|
|
|
|
Current |
|
| — |
|
|
| 16,324 |
|
Non-Current |
|
| 58,208 |
|
|
| 82,866 |
|
The Company recognizes variable lease payments of $210 for the three months ended May 4, 2019.
IFRS 23 – Uncertainty over Income Tax Treatments
IFRIC 23, “Uncertainty over Income Tax Treatments” (the “Interpretation”), was issued by the IASB in June 2017. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted. The Interpretation requires an entity to:
|
|
|
|
|
|
The adoption of this interpretation did not have a significant impact on the Company’s financial statements.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS,JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of condensed interim consolidated financial statements requires management to make estimates and assumptions using judgmentjudgments that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense during the reporting period. Estimates and other judgments are continually evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates.
In preparing these unaudited condensed interim consolidated financial statements, critical judgementsjudgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in note 5 of the consolidated financial statements for the year ended February 1, 2020.As of February 2, 2019.2020, the Company also considered the impacts related to COVID-19 and the Restructuring Plan to its use of estimates and judgments, as appropriate, within its unaudited interim condensed consolidated financial statements. Estimates and assumptions are subject to inherent uncertainty, which may result in actual amounts differing from reported amounts.
5. INVENTORIES
|
| May 4, |
|
| February 2, |
| ||
|
| 2019 |
|
| 2019 |
| ||
|
| $ |
|
| $ |
| ||
Finished goods |
|
| 28,978 |
|
|
| 28,991 |
|
Goods in transit |
|
| 731 |
|
|
| 3,262 |
|
Packaging |
|
| 1,933 |
|
|
| 2,100 |
|
|
|
| 31,642 |
|
|
| 34,353 |
|
6. REVOLVING FACILITYKey sources of estimation uncertainty
On June 11, 2018,Lease termination
As a result of the termination of leases pursuant to the Restructuring Plan in the second quarter of 2020, the Company amended its existing Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement provideshas recorded an estimate for a two year revolving facility (“Amended Revolving Facility”)allowed claim in the principal amount of $15,000 or the equivalent in U.S. dollars, repayable at any time, two years from June 11, 2018, with no accordion feature. Borrowings under the Amended Revolving Facility may not exceed the lesser of the total commitment$42.9 million. The estimate for the revolving facility and the borrowing base, calculated as 75% of the face value of all eligible receivables plus 50% of the estimated value of all eligible inventory, less any priority payables.
The Amended Credit Agreement subjects the Company to certain financial covenants. Without the prior written consent of the lender, the Company’s fixed charge coverage ratio may not be less than 1.10:1.00 and the Company’s leverage ratio may not exceed 3.00:1.00. In addition, the Company’s net tangible worth may not be less than $65,000 and the Company’s minimum excess availability must not be less than $15,000. The Amended Revolving Facility bears interestallowed claim is based on the Company’s adjusted leverage ratio, atbest estimate and is determined based on the bank’s prime rate, U.S. bank rate or LIBOR plus a range from 0.5% to 2.5% per annum. A standby fee rangetotal undiscounted lease liability offset by an estimate of 0.3% to 0.5%the losses that affected landlords will be paidable to successfully mitigate. Accordingly, an expense of $42.9 million was recorded in Restructuring plan activities, net in the unaudited interim consolidated statement of income (loss). This provision is subject to significant estimation uncertainty, as proceedings are in a preliminary stage. Changes to the provision in future periods may be material and will be recorded through earnings.
Recoverability and impairment of non-financial assets
The temporary store closures as a result of COVID-19, as well as the permanent closure of a majority of our retail stores resulting from the Restructuring Plan, and the related reduction in operating income during the first and second quarters of fiscal 2020 are considered to be indicators of impairment and the Company performed an assessment of recoverability for the property and equipment and right-of-use assets associated with its retail locations.
9 |
Table of Contents |
Key judgments in applying accounting principles
Lease liabilities
The temporary store closures as a result of COVID-19, and the resulting non-payment of rent for the months of April, May, June and part of July as well as the Restructuring Plan led the Company to make significant judgements with respect to the impacts of these events on the daily principallease liabilities as of August 1, 2020. These include considerations such as the accounting for rent concessions, and the timing of termination of leases.
For all leases terminated as a result of the CCAA filing and for which the notice period had expired, lease liabilities under IFRS 16 were determined to have been modified.
5. INVENTORIES
During the three and six-month periods ended August 1, 2020, inventories recognized as cost of sales amounted to $6,104 and $14,760, respectively [August 3, 2019 - $11,623 and $23,617, respectively]. During the three and six-month periods ended August 1, 2020, the cost of inventory includes write-downs of nil and $560, respectively [August 3, 2019 – reversals of write downs of $493 and $493, respectively] recorded as a result of net realizable value being lower than cost.
August 1, | February 1, | |||||||
2020 | 2020 | |||||||
$ | $ | |||||||
Finished goods | 20,018 | 18,590 | ||||||
Goods in transit | 2,628 | 2,059 | ||||||
Packaging | 1,708 | 1,714 | ||||||
24,354 | 22,363 |
6. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
An assessment of impairment indicators was performed which caused the Company to review the recoverable amount of the unused portionproperty and equipment, and right-of-use assets for certain cash generating units (“CGUs”) with an indication of impairment. CGUs reviewed included stores to be permanently closed as part of the Amended Revolving Facility.Restructuring Plan and the remaining stores that are expected to perform below the Company’s previous projections.
As a result, the Company recorded an impairment loss of $13.0 million and nil in the first and second quarters of 2020 respectively, related to property and equipment, [first and second quarter of 2019, respectively, nil and nil] and $27.0 million and nil in the first and second quarters of 2020, respectively, related to right of use assets [first and second quarter of 2019, respectively, nil and $5.0 million].
Included in the amount above, for property and equipment, is an impairment loss of $12.8 million for the 206 stores to be permanently closed as part of the Restructuring Plan. The remaining $0.2 million of impairment loss was determined by comparing the carrying amount of the CGU’s net assets with their respective recoverable amounts based on value in use for 7 of the 18 stores that remain open.
Included in the amount above, for right of use assets, is an impairment loss of $24.6 million for the 206 stores to be permanently closed after the completion of the Restructuring Plan and the remaining impairment loss of $2.4 million pertain to 7 of the 18 stores that remain open.
For these stores, a value in use of $791 for the first quarter of 2020, [August 3, 2019 – $3,924] was determined based on management’s best estimate of expected future cash flows from use over the remaining lease terms. This determination considered historical experience as well as current economic conditions, including the expected reopening date and the timeframe to foot traffic recovery in those location, and was then discounted using a pre‑tax discount rate of 13.0% for the first quarter of 2020 [August 3, 2019 – 11.9%].
For the three and six-month periods ended August 1, 2020, the depreciation expense was $301 and $1,544 respectively [August 3, 2019 - $1,359 and $2,684, respectively]; with $1,186 recorded in the Canada segment [August 3, 2019 - $2,318], $358 recorded in the U.S. segment [August 3, 2019 - $366], and $305 recorded in corporate selling, general and administration expenses [August 3, 2019 - $257]. Depreciation expense, and impairment losses are reported in the consolidated statement of loss and comprehensive loss under Selling, general and administration expenses (Note 11).
Depreciation expense and impairment losses related to right-of-use assets have been recorded in Selling, general and administration expenses (Note 11) in the consolidated statement of loss and comprehensive loss.
For Right-of-use assets, for the three and six-month periods ended August 1, 2020, the depreciation expense was $454 and $2,693 respectively [August 3, 2019 - $3,114 and $6,216, respectively]; with $2,416 recorded in the Canada segment [August 3, 2019 - $5,059], and $277 recorded in the U.S. segment [August 3, 2019 - $1,157].
10 |
Table of Contents |
7. RESTRUCTURING PLAN
(a) Liabilities subject to compromise
As a result of the Initial Order obtained on July 8, 2020 and subsequent amendments (note 1), the payment of liabilities owing as of July 8, 2020 is stayed, and the outstanding liabilities, as well as any additional outstanding claims by creditors are subject to compromise pursuant to a plan of arrangement that is expected to be presented to creditors. Obligations for goods and services provided to the Company after the filing date of July 8, 2020 are discharged based on negotiated terms and conditions.
As of August 1, 2020, liabilities subject to compromise amounted to $68.0 million and are made up of trade and other payables, provisions related to lease terminations and severance. These liabilities may also be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims or other events.
(b) PROVISIONS
As at | ||||
August 1, | ||||
2020 | ||||
$ | ||||
Lease termination | 42,878 | |||
Severance | 4,940 | |||
Provisions | 47,818 |
Leases
During the second quarter of 2020, in connection with the termination of leases pursuant to the Restructuring Plan, the Company reduced its lease liabilities by $54.7 million, resulting in a gain on the modification of lease liabilities reported in Restructuring plan activities, net (note 8).
In addition, as a result of the termination of leases pursuant to the Restructuring Plan in the second quarter of 2020, the Company has recorded an estimate for allowed claim in the amount of $42.9 million. The estimate for the allowed claim is based on the Company’s best estimate and is determined based on the total undiscounted lease liability offset by an estimate of the losses that affected landlords will be able to successfully mitigate. Accordingly, an expense of $42.9 million was recorded in Restructuring plan activities, net in the unaudited interim consolidated statement of income (loss). This provision is subject to significant estimation uncertainty, as proceedings are in a preliminary stage. Changes to the provision in future periods may be material and will be recorded through earnings.
The credit facility also contains nonfinancial covenants that, among other thingsCompany sent notices to terminate leases for an additional 82 of its stores in Canada on July 30, 2020 which were effective on August 29, 2020. The Company expects to record an additional gain on the modification of this lease liability of $16.6 million and subject to certain exceptions, restrict the Company’s ability to become guarantor or endorser or otherwise become liable upon any note or other obligation other thanan estimate for allowed claim in the normal courseamount of business.$18.0 million in the third quarter ending October 31, 2020. This estimate is based on the same assumptions used for the lease modifications recorded in the second quarter of 2020. The Company also cannot make any dividend payments.actual amount recorded in the third quarter of 2020 may differ as the Restructuring Plan proceedings evolve.
11 |
Table of Contents |
As at May 4, 2019, the Company did not have any borrowings under the Amended Revolving Facility.8. RESTRUCTURING PLAN ACTIVITIES, NET
|
| For the three months ended |
|
| For the six months ended |
| ||
|
| August 1, |
|
| August 1, |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
| $ |
|
| $ |
| ||
Gain on modification of lease liabilities |
|
| (54,735 | ) |
|
| (54,735 | ) |
Lease terminations |
|
| 42,878 |
|
|
| 42,878 |
|
Impairment of property and equipment and right-of-use assets |
|
| — |
|
|
| 37,400 |
|
Severance |
|
| 5,168 |
|
|
| 5,168 |
|
Loss on disposal of property and equipment and right-of-use assets |
|
| 1,542 |
|
|
| 1,542 |
|
Penalties and interest related to lease payable |
|
| 1,001 |
|
|
| 1,001 |
|
Professional fees associated with our Restructuring Plan |
|
| 974 |
|
|
| 974 |
|
Restructuring plan activities, net |
|
| (3,172 | ) |
|
| 34,228 |
|
As at May 4, 2019, the Company is in breach of its fixed charge coverage ratio and certain nonfinancial covenants. BMO has temporarily agreed to forbear from exercising remedies under the Credit Agreement, however the Company cannot borrow under the facility.9. SHARE CAPITAL
The current lending agreement will be terminated on the earlier of (a) January 24, 2020, and (b) the company securing new financing. The Company is in good faith discussions with BMO to install an asset based lending facility that will provide a revolving facility at commercial reasonable terms.
7. SHARE CAPITAL
Authorized
An unlimited number of Commoncommon shares.
Issued and outstanding
|
| May 4, |
|
| February 2, |
| ||
|
| 2019 |
|
| 2019 |
| ||
|
| $ |
|
| $ |
| ||
Share Capital - Common shares |
|
| 112,740 |
|
|
| 112,519 |
|
August 1, | February 1, | |||||||
2020 | 2020 | |||||||
$ | $ | |||||||
Share Capital - 26,208,129 Common shares (February 1, 2020 - 26,086,162) | 113,119 | 112,843 |
During the three-monththree and six-month periods ended May 4, 2019 and May 5, 2018, noAugust 1, 2020, 4,000 stock options were exercised for common shares.shares for cash proceeds of $3 [August 3, 2019 – nil].
In addition, during the three-month periodthree and six-month periods ended May 4, 2019, 39,365August 1, 2020, 104,652 and 117,967 common shares, [May 5, 2018respectively [August 3, 2019 – 29,7859,603 and 48,968 common shares]shares respectively] were issued in relation to the vesting of restricted stock units (“RSU”), resulting in an increase in share capital of $221,$198 and $272, net of tax [May 5, 2018[August 3, 2019 — $257]$52 and $273, net of tax, respectively] and a reduction in contributed surplus of $439 [May 5, 2018$398 and $554, respectively [August 3, 2019 — $593]$122 and $561, respectively].
Stock-based compensation
As at May 4,August 1, 2020, 1,042,285 [August 3, 2019, 929,0531,650,733] common shares remain available for issuance under the 2015 Omnibus Plan.
No stock options were granted during the three-monththree and six-month periods ended May 4, 2019August 1, 2020 and May 5, 2018.August 3, 2019.
12 |
Table of Contents |
A summary of the status of the Company’s stock option plan and changes during the three-month periodsix-month periods is presented below.
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||||||||
|
| May 4, |
| May 5, |
|
| August 1, |
| August 3, |
| ||||||||||||||||||||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||||||||||||||||||||
|
|
|
| Weighted |
|
|
| Weighted |
|
|
|
| Weighted |
|
| Weighted |
| |||||||||||||||
|
|
|
| average |
|
|
| average |
|
|
|
| average |
|
|
| average |
| ||||||||||||||
|
| Options |
| exercise |
| Options |
| exercise |
|
| Options |
| exercise |
| Options |
| exercise |
| ||||||||||||||
|
| outstanding |
| price |
| outstanding |
| price |
|
| outstanding |
| price |
| outstanding |
| price |
| ||||||||||||||
|
| # |
|
| $ |
|
| # |
|
| $ |
|
| # |
|
| $ |
|
| # |
|
| $ |
| ||||||||
Outstanding, beginning of year |
| 137,540 |
| 7.17 |
| 447,779 |
| 7.18 |
|
| 76,350 |
| 8.96 |
| 137,540 |
| 7.17 |
| ||||||||||||||
Issued |
| — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
| ||||||||||||||
Exercised |
| — |
| — |
| — |
| — |
|
| (4,000 | ) |
| 0.77 |
| — |
| — |
| |||||||||||||
Forfeitures |
|
| (9,020 | ) |
|
| 6.20 |
|
|
| (55,342 | ) |
|
| 5.34 |
|
|
| — |
|
|
| — |
|
|
| (28,305 | ) |
|
| 4.84 |
|
Outstanding, end of period |
|
| 128,520 |
|
|
| 7.20 |
|
|
| 392,437 |
|
|
| 7.44 |
|
|
| 72,350 |
|
|
| 9.41 |
|
|
| 109,235 |
|
|
| 7.73 |
|
Exercisable, end of period |
|
| 127,101 |
|
|
| 7.12 |
|
|
| 260,604 |
|
|
| 6.01 |
|
|
| 72,350 |
|
|
| 9.41 |
|
|
| 107,816 |
|
|
| 7.65 |
|
A summary of the status of the Company’s RSU plan and changes during the three-month periodsix-month periods is presented below.
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||||||||
|
| May 4, |
| May 5, |
|
| August 1, |
| August 3, |
| ||||||||||||||||||||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||||||||||||||||||||
|
|
|
| Weighted |
|
|
| Weighted |
|
|
|
| Weighted |
|
|
| Weighted |
| ||||||||||||||
|
|
|
| average |
|
|
| average |
|
|
|
| average |
|
|
| average |
| ||||||||||||||
|
| RSUs |
| fair value |
| RSUs |
| fair value |
|
| RSUs |
| fair value |
| RSUs |
| fair value |
| ||||||||||||||
|
| outstanding |
| per unit (1) |
| outstanding |
| per unit (1) |
|
| outstanding |
| per unit (1) |
| outstanding |
| per unit (1) |
| ||||||||||||||
|
| # |
|
| $ |
|
| # |
|
| $ |
|
| # |
|
| $ |
|
| # |
|
| $ |
| ||||||||
Outstanding, beginning of year |
| 270,976 |
| 5.26 |
| 289,416 |
| 9.70 |
|
| 749,522 |
| 2.17 |
| 270,976 |
| 5.26 |
| ||||||||||||||
Granted |
| — |
| — |
| 416,450 |
| 4.35 |
|
| 1,177,222 |
| 1.44 |
| 804,710 |
| 1.93 |
| ||||||||||||||
Forfeitures |
| (21,716 | ) |
| 5.73 |
| (10,880 | ) |
| 9.49 |
|
| (275,162 | ) |
| 1.66 |
| (32,525 | ) |
| 5.27 |
| ||||||||||
Vested |
| (42,934 | ) |
| 5.15 |
| (29,785 | ) |
| 8.61 |
|
| (117,967 | ) |
| 2.22 |
| (71,468 | ) |
| 5.52 |
| ||||||||||
Vested, withheld for tax |
|
| (33,865 | ) |
|
| 6.44 |
|
|
| (31,694 | ) |
|
| 8.58 |
|
|
| (120,383 | ) |
|
| 2.26 |
|
|
| (50,331 | ) |
|
| 5.72 |
|
Outstanding, end of period |
|
| 172,461 |
|
|
| 5.00 |
|
|
| 633,507 |
|
|
| 6.29 |
|
|
| 1,413,232 |
|
|
| 1.65 |
|
|
| 921,362 |
|
|
| 2.30 |
|
_________
_____________
(1) | Weighted average fair value per unit as at date of grant. |
During the three-month periodthree and six-month periods ended May 4, 2019,August 1, 2020, the Company recognized a stock-based compensation expense of $127 [May 5, 2018$267 and $580, respectively [August 3, 2019 — $295]$143 and $270].
Table of Contents |
8.10. 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 |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| May 4, |
| May 5, |
|
| For the three months ended |
| For the six months ended |
| ||||||||||||||||||||||||||||||||||||||
|
| 2019 |
| 2018 |
|
| August 1, |
| August 3, |
| August 1, |
| August 3, |
| ||||||||||||||||||||||||||||||||||
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||||||||||||
|
| (Restated - Note 3) |
|
|
|
|
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
| |||||||||||||||||
Income tax recovery — statutory rate |
| 26.9 |
| (893 | ) |
| 26.9 |
| (416 | ) |
| 26.8 |
| 699 |
| 26.8 |
| (3,037 | ) |
| 26.8 |
| (11,572 | ) |
| 26.8 |
| (3,930 | ) | |||||||||||||||||||
Increase (decrease) in provision for income tax (recovery) resulting from: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Non-deductible items |
| (1.0 | ) |
| 33 |
| (4.6 | ) |
| 71 |
|
| 3.9 |
| 103 |
| (0.4 | ) |
| 43 |
| (0.3 | ) |
| 126 |
| (0.5 | ) |
| 76 |
| |||||||||||||||||
Unrecognized deferred income tax assets |
| (25.9 | ) |
| 860 |
| — |
| — |
|
|
| (30.7 | ) |
|
| (802 | ) |
|
| (26.4 | ) |
|
| 2,994 |
|
|
| (26.5 | ) |
|
| 11,446 |
|
|
| (26.3 | ) |
|
| 3,854 |
| ||||||
Other |
|
| — |
|
|
| — |
|
|
| (0.1 | ) |
|
| 1 |
| ||||||||||||||||||||||||||||||||
Income tax provision (recovery) — effective tax rate |
|
| — |
|
|
| — |
|
|
| 22.2 |
|
|
| (344 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
A breakdown of the income tax provision (recovery) on the interim consolidated statement of income (loss) is as follows:
|
| For the three months ended |
| |||||
|
| May 4, |
|
| May 5, |
| ||
|
| 2019 |
|
| 2018 |
| ||
|
| $ |
|
| $ |
| ||
Income tax provision (recovery) |
|
|
|
|
|
| ||
Current |
|
| — |
|
|
| (1,300 | ) |
Deferred |
|
| — |
|
|
| 956 |
|
|
|
| — |
|
|
| (344 | ) |
9.11. SELLING, GENERAL AND ADMINISTRATION EXPENSES
|
| For the three months ended |
| |||||||||||||||||||||
|
| May 4, |
| May 5, |
|
| For the three months ended |
| For the six months ended |
| ||||||||||||||
|
| 2019 |
| 2018 |
|
| August 1, |
| August 3, |
| August 1, |
| August 3, |
| ||||||||||
|
| $ |
|
| $ |
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||
|
| (Restated - Note 3) |
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Wages, salaries and employee benefits |
| 16,517 |
| 16,480 |
|
| 3,270 |
| 14,792 |
| 12,663 |
| 31,309 |
| ||||||||||
Depreciation of property and equipment |
| 1,325 |
| 1,686 |
|
| 301 |
| 1,359 |
| 1,544 |
| 2,684 |
| ||||||||||
Amortization of intangible assets |
| 399 |
| 182 |
|
| 571 |
| 456 |
| 1,083 |
| 855 |
| ||||||||||
Amortization right-of-use asset |
| 3,102 |
| — |
|
| 454 |
| 3,114 |
| 2,693 |
| 6,216 |
| ||||||||||
Utilization of onerous contract |
| — |
| (1,340 | ) | |||||||||||||||||||
Recovery of provision for onerous contracts |
| — |
| (176 | ) | |||||||||||||||||||
Marketing expenses |
| 597 |
| 1,245 |
| 1,639 |
| 2,356 |
| |||||||||||||||
Stores supplies |
| 311 |
| 815 |
| 1,076 |
| 1,625 |
| |||||||||||||||
Impairment of property and equipment and right-of-use assets |
| — |
| 5,025 |
| 2,561 |
| 5,025 |
| |||||||||||||||
Stock-based compensation |
| 127 |
| 295 |
|
| 267 |
| 143 |
| 580 |
| 270 |
| ||||||||||
Strategic review and proxy contest |
| — |
| 794 |
| |||||||||||||||||||
Government wage subsidy |
| (1,156 | ) |
| — |
| (1,999 | ) |
| — |
| |||||||||||||
Other selling, general and administration |
|
| 6,550 |
|
|
| 6,475 |
|
|
| 2,794 |
|
|
| 4,614 |
|
|
| 7,202 |
|
|
| 9,243 |
|
|
|
| 28,020 |
|
|
| 24,396 |
|
|
| 7,409 |
|
|
| 31,563 |
|
|
| 29,042 |
|
|
| 59,583 |
|
10.12. EARNINGS PER SHARE
Basic earnings per share (“EPS”) amounts are calculated by dividing the net 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 income (loss) attributable to ordinary equity holders (after adjusting for dividends) 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.
14 |
Table of Contents |
The following reflects the income and share data used in the basic and diluted EPS computations:
|
| For the three months ended |
| |||||
|
| May 4, |
|
| May 5, |
| ||
|
| 2019 |
|
| 2018 |
| ||
|
| $ |
|
| $ |
| ||
|
| (Restated - Note 3) |
|
|
|
| ||
Net loss for basic EPS |
|
| (3,320 | ) |
|
| (1,202 | ) |
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
Basic and fully diluted |
|
| 26,019,594 |
|
|
| 25,893,327 |
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic and fully diluted |
|
| (0.13 | ) |
|
| (0.05 | ) |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
| August 1, |
|
| August 3, |
|
| August 1, |
|
| August 3, |
| ||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Net loss for basic EPS |
|
| 2,609 |
|
|
| (11,344 | ) |
|
| (43,178 | ) |
|
| (14,664 | ) |
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 26,128,971 |
|
|
| 26,056,520 |
|
|
| 26,108,499 |
|
|
| 26,038,128 |
|
Fully diluted |
|
| 26,925,264 |
|
|
| 26,056,520 |
|
|
| 26,108,499 |
|
|
| 26,038,128 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 0.10 |
|
|
| (0.44 | ) |
|
| (1.65 | ) |
|
| (0.56 | ) |
Fully diluted |
|
| 0.10 |
|
|
| (0.44 | ) |
|
| (1.65 | ) |
|
| (0.56 | ) |
As a result of the net loss during the three-month periods ended May 4, 2019 and May 5, 2018, the stock options and restricted stock units disclosed in Note 7 are anti-dilutive.
11.13. 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-month periodthree and six-month periods ended May 4, 2019,August 1, 2020, the Company purchased merchandise for resale amounting to $3 and $26, respectively [August 3, 2019 – nil and $15, [May 5, 2018 - $64],respectively] and provided net infrastructure and administrative services of $18 [May 5, 2018$8 and $75, respectively [August 3, 2019 - $nil] from$41 and $59, respectively] to a company controlled by one of its executive employees, respectively. employees.
In FebruaryThe Company also spent $9 and $53, respectively [August 3, 2019 the Company entered into an arrangement with— $68 and $68, respectively] for consulting services from a related party of the controlling shareholder for reporting and consulting services. Subsequent to quarter-end,principal shareholder. As well during the three-month period ended August 3, 2019, the Company purchased thea perpetual license rights to thea reporting data model and associated intellectual property for $200. The Company also entered into a consulting services arrangement with$200 from a related party of the principal shareholder wherein nil charges were incurred.shareholder.
Loan to a Company controlled by one of the Company’s 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 million, amended on September 13, 2019 to reflect a maximum amount available under the facility of $2.0 million and a repayment date no later than December 31, 2019. As of November 2, 2019, $2.0 million was outstanding under the agreement. The loan bears interest, payable monthly, at a rate of 1% over Bank of Montreal’s prime rate, which currently stands at 3.95%.$2 million. RDI has guaranteed all of Squish’s obligations to the Company and, as security in full for the guarantee, has givengave a movable hypothec (or lien) in favourfavor of the Company on its shares of DAVIDsTEA.the Company. Squish is a company controlled by Sarah Segal, an officer of DAVIDsTEA.the Company. RDI, the principal shareholder of DAVIDsTEA,the Company, is controlled by Herschel Segal, Executive Chairman, Interim Chief Executive Officer and a director of DAVIDsTEA.the Company. 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.
12.During the first quarter of 2020, the loan of $2 million along with accrued interest of $45 were fully repaid.
14. 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. The Company has reviewed its operations and determined that each of its retail stores represents an operating segment. However, because its retail stores have similar economic characteristics, sell similar products, have similar types of customers, and use similar distribution channels, the Company has determined that these operating segments can be aggregated at a geographic level. As a result, theThe Company has concluded that it has two reportable segments, Canada and the U.S., that derive their revenues from the online, retail and onlinewholesale sale of tea, tea accessories and food and beverages. The Company’s Chief Executive Officer (the chief operating decision maker or “CODM”) makes decisions about resources allocation and assesses performance at the country level, and for which discrete financial information is available.
15 |
Table of Contents |
The Company derives revenue from the following products:
|
| For the three months ended |
|
| For the three months ended |
| For the six months ended |
| ||||||||||||||||
|
| May 4, |
| May 5, |
|
| August 1, |
| August 3, |
| August 1, |
| August 3, |
| ||||||||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Tea |
| 33,424 |
| 33,230 |
|
| 19,921 |
| 29,306 |
| 46,016 |
| 62,730 |
| ||||||||||
Tea accessories |
| 7,655 |
| 8,714 |
|
| 3,065 |
| 6,629 |
| 7,685 |
| 14,284 |
| ||||||||||
Food and beverages |
|
| 3,186 |
|
|
| 3,842 |
|
|
| 45 |
|
|
| 3,232 |
|
|
| 1,572 |
|
|
| 6,418 |
|
|
|
| 44,265 |
|
|
| 45,786 |
|
|
| 23,031 |
|
|
| 39,167 |
|
|
| 55,273 |
|
|
| 83,432 |
|
Property and equipment, right-of-use assets and intangible assets by country are as follows:
|
| May 4, |
|
| February 2, |
| ||
|
| 2019 (1) |
|
| 2019 |
| ||
|
| $ |
|
| $ |
| ||
|
| (Restated - Note 3) |
|
|
|
| ||
Canada |
|
| 73,033 |
|
|
| 27,996 |
|
US |
|
| 14,075 |
|
|
| 1,470 |
|
Total |
|
| 87,108 |
|
|
| 29,466 |
|
_________
August 1, | February 1, | |||||||
2020 | 2020 | |||||||
$ | $ | |||||||
Canada | 15,071 | 52,116 | ||||||
US | - | 7,042 | ||||||
Total | 15,071 | 59,158 |
Results from operating activities before corporate expenses per country are as follows:
|
|
For the three months ended May 4, 2019 |
| |||||||||
|
| (Restated - Note 3) |
| |||||||||
|
| Canada |
|
| US |
|
| Consolidated |
| |||
|
| $ |
|
| $ |
|
| $ |
| |||
Sales |
|
| 34,190 |
|
|
| 10,075 |
|
|
| 44,265 |
|
Cost of sales |
|
| 14,114 |
|
|
| 3,815 |
|
|
| 17,929 |
|
Gross profit |
|
| 20,076 |
|
|
| 6,260 |
|
|
| 26,336 |
|
Selling, general and administration expenses (allocated) |
|
| 14,876 |
|
|
| 4,815 |
|
|
| 19,691 |
|
Results from operating activities before corporate expenses |
|
| 5,200 |
|
|
| 1,445 |
|
|
| 6,645 |
|
Selling, general and administration expenses (non-allocated) |
|
|
|
|
|
|
|
|
|
| 8,329 |
|
Results from operating activities |
|
|
|
|
|
|
|
|
|
| (1,684 | ) |
Finance costs |
|
|
|
|
|
|
|
|
|
| 1,827 |
|
Finance income |
|
|
|
|
|
|
|
|
|
| (191 | ) |
Loss before income taxes |
|
|
|
|
|
|
|
|
|
| (3,320 | ) |
For the three months ended August 1, 2020 | For the six months endedAugust 1, 2020 | |||||||||||||||||||||||
Canada | US | Consolidated | Canada | US | Consolidated | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Sales | 16,951 | 6,080 | 23,031 | 40,996 | 14,277 | 55,273 | ||||||||||||||||||
Cost of sales | 11,469 | 3,225 | 14,694 | 24,851 | 7,412 | 32,263 | ||||||||||||||||||
Gross profit | 5,482 | 2,855 | 8,337 | 16,145 | 6,865 | 23,010 | ||||||||||||||||||
Selling, general and administration expenses (allocated) | 1,975 | 949 | 2,924 | 11,507 | 3,540 | 15,047 | ||||||||||||||||||
Impairment of property and equipment and right-of-use assets | — | — | — | 2,561 | — | 2,561 | ||||||||||||||||||
Results from operating activities before corporate expenses | 3,507 | 1,906 | 5,413 | 2,077 | 3,325 | 5,402 | ||||||||||||||||||
Selling, general and administration expenses (non-allocated) | 4,485 | 11,434 | ||||||||||||||||||||||
Restructuring plan activities, net | (3,172 | ) | 34,228 | |||||||||||||||||||||
Results from operating activities | 4,100 | (40,260 | ) | |||||||||||||||||||||
Finance costs | 1,559 | 3,226 | ||||||||||||||||||||||
Finance income | (68 | ) | (308 | ) | ||||||||||||||||||||
Net Income (loss) before income taxes | 2,609 | (43,178 | ) |
Table of Contents |
|
| For the three months ended |
| |||||||||||||||||||||||||||||||||
|
|
|
|
| May 5, 2018 |
|
|
|
| For the three months ended August 3, 2019 |
| For the six months ended August 3, 2019 |
| |||||||||||||||||||||||
|
| Canada |
| US |
| Consolidated |
|
| Canada |
| US |
| Consolidated |
| Canada |
| US |
| Consolidated |
| ||||||||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Sales |
| 36,532 |
| 9,254 |
| 45,786 |
|
| 30,340 |
| 8,827 |
| 39,167 |
| 64,530 |
| 18,902 |
| 83,432 |
| ||||||||||||||||
Cost of sales |
|
| 17,816 |
|
|
| 5,278 |
|
|
| 23,094 |
|
|
| 13,925 |
|
|
| 3,437 |
|
|
| 17,362 |
|
|
| 28,039 |
|
|
| 7,252 |
|
|
| 35,291 |
|
Gross profit |
| 18,716 |
| 3,976 |
| 22,692 |
|
| 16,415 |
| 5,390 |
| 21,805 |
| 36,491 |
| 11,650 |
| 48,141 |
| ||||||||||||||||
Selling, general and administration expenses (allocated) |
| 13,384 |
| 4,158 |
| 17,542 |
|
| 14,697 |
| 4,462 |
| 19,159 |
| 29,573 |
| 9,277 |
| 38,850 |
| ||||||||||||||||
Impact of onerous contracts |
|
| (192 | ) |
|
| (1,324 | ) |
|
| (1,516 | ) | ||||||||||||||||||||||||
Impairment of property and equipment and right-of-use assets |
|
| 2,480 |
|
|
| 2,545 |
|
|
| 5,025 |
|
|
| 2,480 |
|
|
| 2,545 |
|
|
| 5,025 |
| ||||||||||||
Results from operating activities before corporate expenses |
| 5,524 |
| 1,142 |
| 6,666 |
|
| (762 | ) |
| (1,617 | ) |
| (2,379 | ) |
| 4,438 |
| (172 | ) |
| 4,266 |
| ||||||||||||
Selling, general and administration expenses (non-allocated) |
|
|
|
|
|
| 8,370 |
|
|
|
|
|
| 7,378 |
|
|
|
|
| 15,708 |
| |||||||||||||||
Results from operating activities |
|
|
|
|
| (1,704 | ) |
|
|
|
|
| (9,758 | ) |
|
|
|
|
| (11,442 | ) | |||||||||||||||
Finance costs |
|
|
|
|
| 79 |
|
|
|
|
|
| 1,781 |
|
|
|
|
| 3,608 |
| ||||||||||||||||
Finance income |
|
|
|
|
|
| (237 | ) |
|
|
|
|
|
| (195 | ) |
|
|
|
|
|
| (386 | ) | ||||||||||||
Loss before income taxes |
|
|
|
|
|
| (1,546 | ) | ||||||||||||||||||||||||||||
Net Loss before income taxes |
|
|
|
|
|
| (11,344 | ) |
|
|
|
|
|
| (14,664 | ) |
13.15. 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 lossincome (loss) in the amount of $6.$155.
The Company’s foreign exchange exposure is as follows:
|
| May 4, |
|
| February 2, |
| |
|
| 2019 |
|
| 2019 |
| |
|
| US$ |
|
| US$ |
| |
Cash |
|
| 810 |
|
| 267 |
|
Accounts receivable |
|
| 736 |
|
| 1,142 |
|
Accounts payable |
|
| 1,667 |
|
| 3,869 |
|
August 1, | February 1, |
The Company’s U.S. subsidiary’s transactions are denominated in U.S. dollars.
The Company had no foreign exchange contracts outstanding as at
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
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
As at
The Company expects to finance its working capital needs
Refer to note 2 for details with respect to the going concern uncertainty. Credit Risk
The Company is exposed to credit risk resulting from the possibility that counterparties may default on their financial obligations to the Company. The Company’s maximum exposure to credit risk at the reporting date is equal to the carrying value of
MANAGEMENT’S DISCUSSION AND ANALYSIS 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
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 Form 10-K filed with the SEC on
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:
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
Forward-looking statements speak only as of the date of this Form
Company’s fiscal year ending January 30, 2021. All references to “Fiscal 2019” are to the Company’s fiscal year
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.
Overview
We are a branded retailer and growing mass wholesaler of specialty tea, offering a differentiated selection of proprietary loose-leaf teas, pre-packaged teas, tea sachets and tea-related gifts
The Company has a history of losses over the last several years and the COVID-19 pandemic required an acceleration of its transformation initiatives. Consumer purchasing preferences have increasingly been trending away from brick-and-mortar and increasingly towards online and alternative channels over the last several years. In Fiscal 2019 while over 80% of the Company’s revenues were generated from on average 234 brick-and-mortar stores, same-stores sales declined by 12.7% compared to Fiscal 2018. E-commerce and wholesale revenues during Fiscal 2019 increased by 20.9 % compared to Fiscal 2018. 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. Our Restructuring Plan is focused on effectively optimizing our retail footprint to emerge as a leaner, more sustainable physical presence that complements a growing world-class online and grocery business, all supported by a right-sized support organization. On March 17, 2020, we closed all of our stores in North America, as subsequently mandated by the governments in both Canada and the United States in light of 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 are 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 the Restructuring Plan under the CCAA in order to accelerate its transition to 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 its wholesale distribution channel, through which it sells a selection of DAVIDsTEA products in grocery stores and pharmacies across Canada. Following a careful review of available options to stem the losses from its brick-and-mortar footprint, the Company’s management and Board of Directors determined that a formal restructuring process was the best option in the context of an increasingly challenging retail environment, further exacerbated by the COVID-19 pandemic. On July 8, 2020, the Company obtained the Initial Order pursuant to the CCAA from the Québec Superior Court in order to implement the Restructuring Plan. Among other things, the Initial Order provided for the appointment of PwC as Monitor in the CCAA proceedings. On July 9, 2020, the United States Bankruptcy Court for the District of Delaware entered an order in favor of the Company under Chapter 15 of the United States Bankruptcy Code. The order of the United States Bankruptcy Court provisionally recognized the proceedings under the CCAA and enforced the Initial Order, in effect providing protection to the Company from creditor action against its assets in the United States. As part of its Restructuring Plan and further to obtaining the Initial Order, the Company, on July 10, 2020, sent notices to terminate leases for 82 of its stores in Canada and all 42 stores in the United States. These lease terminations were effective on August 9, 2020. On July 16, 2020, the Company obtained an Amended and Restated Initial Order from the 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 August 21, 2020, the Company re-opened 18 stores across Canada. On September 17, 2020, the Québec Superior Court extended the stay of all proceedings against the Company to December 15, 2020 and issued a Claims Process Order establishing the claims procedures for the Company’s creditors under the CCAA. This Order, among other things sets November 6, 2020 as the time by which creditors must submit their claims to PwC, the Court-appointed Monitor. The Company expects to successfully emerge from the CCAA restructuring process as a stronger, more resilient company; however, there is material uncertainty surrounding its ability to execute the strategy necessary to return to profitability in the current environment, including the unpredictability surrounding the recovery from the COVID-19 pandemic and changes in consumer behavior. Accordingly, there is substantial doubt in its ability to continue as a going concern. Factors Affecting Our Performance
We believe that our performance and future success depend on a number of 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
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
The specialty retail industry is cyclical, and our sales are affected by general economic conditions. A number of factors that influence the level of consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence can affect purchases of our products. Sales also include gift card breakage income.
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 distribution costs.
Selling, General and Administration Expenses. Selling, general and administration expenses consist of store operating expenses and other general and administration
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 quarters and lower in 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
Results from Operating Activities. Results from operating activities consist of our gross profit less our selling, general and administration
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
Finance Costs. Finance costs consist of cash and imputed non-cash charges related to
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,
Selected Operating and Financial Highlights
Results of Operations
Sales during the second quarter of $23.0 million declined by $16.1 million or 41.2% over the prior year quarter due primarily to having no stores opened during the period. Adjusted EBITDA
The following table summarizes key components of our results of operations for the
___________
Non-IFRS Financial Measures
Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted net loss and Adjusted EBITDA,
Because of these limitations, Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted net loss and Adjusted EBITDA
The following tables present reconciliations of Adjusted selling, general and administration expenses, Adjusted results from operating activities, Adjusted net loss and Adjusted EBITDA
Reconciliation of Adjusted selling, general and administration expenses
Reconciliation of Adjusted results from operating activities
Reconciliation of Net loss to Adjusted EBITDA
Reconciliation of reported results to Adjusted net loss
Reconciliation of fully diluted loss per common share to adjusted fully diluted loss per common share
Three Months Ended Sales. Sales for the three months ended
Gross As the Company pivots to a
Selling,
Results from operating activities. Income from operating activities Finance costs. Finance costs amounted to $1.6 million in the three months ended August 1, 2020, a decrease of $0.2 million from the prior year quarter.
Finance
EBITDA Net
Fully diluted
Six Months Ended August 1, 2020 compared to Six Months Ended August 3, 2019 Sales. Sales for the six months ended August 1, 2020 decreased 33.8%, or $28.2 million, to $55.3 million from $83.4 million in the same period in prior year. On March 17, 2020, in response to the COVID-19 pandemic, the Company announced the temporary closures of all its retail stores in Canada and the United States. The Company reopened 18 stores throughout Canada on August 21, 2020. This resulted in a decline in retail sales and a migration to our online and wholesale channels. Sales from our e-commerce and wholesale channels increased $24.4 million or 155.7% to $40.0 million, from $15.6 million in the same period in prior year, resulting primarily from the closure of our stores along with naturally occurring organic growth in these channels. The decline in retail sales of $52.5 million resulted from the temporary closure of all of our stores since March 17, 2020. For the six-month period ended August 1, 2020, e-commerce and wholesale sales represented 72.4% of total sales as opposed to 18.8% in the same period in the prior year. Gross profit. Gross profit of $23.0 million for the six-month period ended August 1, 2020 decreased by $25.1 million or 52.2% from the same period of the prior year due primarily to a decline in sales during the period. Gross profit as a percentage of sales declined to 41.6% for the six-month period ended August 1, 2020 from 57.7% in the same period in the prior year. Gross profit was also impacted by the significant increase in e-commerce sales during the period ended August 1, 2020 and resulted in an increase of $5.2 million in delivery and distribution costs, $1.7 million of occupancy cost related to terminated store leases in the second quarter, partially offset by a better gross margin on hard goods and kits. Further impacting our margins in the six months ended August 1, 2020 was an increase in inventory obsolescence of $1.0 million reflecting mainly the spring merchandise left in our closed retail stores during the first quarter. Selling, general and administration expenses. SG&A decreased by $30.5 million or 51.3%, to $29.0 million in the six months ended August 1, 2020 from the same period in the prior year. Excluding the impact of the impairment of property and equipment and right-of-use assets, and the subsidy received from the Canadian Government in response to the COVID-19 Economic Response Plan in the six-month period ended August 1, 2020 which amounted to negative $0.6 million, Adjusted SG&A decreased by $28.5 million for the six months ended August 1, 2020. This is mostly explained by the temporary closure of our stores effective March 17, 2020 and the corresponding impact on wages, salaries and employee benefits amounting to $18.6 million and $4.4 million reduction in amortization expense due to a lower right-of-use asset value at the beginning of Fiscal 2020. As a percentage of sales, Adjusted SG&A decreased to 51.5% from 65.4% due to lower selling expenses resulting from the temporary closure of our stores effective March 17, 2020.
Results from operating activities. Loss from operating activities was $40.3 million compared to a loss of $11.4 million in the same period in Fiscal 2019. Excluding the impact of the impairment of property and equipment and right-of-use assets, the Restructuring plan activities, the subsidy received from the Canadian Government in response to the COVID-19 Economic Response Plan, and the loss on disposal of property and equipment, Adjusted results from operating activities was a loss of $5.5 million compared to a loss of $6.4 million in the same period in the prior year. This resulting improvement of $0.9 million is explained by reduction in wages, salaries and employee benefits amounting to $18.6 million and $4.4 million reduction in amortization expense due to a lower right-of-use asset value at the beginning of Fiscal 2020, and a reduction of other selling expenses, partially offset by the reduction of gross profit of $25.1 million.
Finance costs. Finance costs amounted to $3.2 million in the six-month period ended August 1, 2020, a decrease of $0.4 million from the prior year quarter. The interest expense relates to lease liabilities and has decreased slightly from the prior year quarter. Finance income. Finance income of $0.1 million is derived mainly from interest on cash on hand and has decreased slightly from the prior year quarter. EBITDA. EBITDA was negative $34.9 million in the six-month period ended August 1, 2020 compared to negative $1.7 million in the same period in the prior year, representing a decrease of $33.3 million over Fiscal 2019. Adjusted EBITDA for the six months ended August 1, 2020, which excludes the impact of stock-based compensation expense, the impairment of property and equipment and right-of-use assets, the Restructuring plan activities, the subsidy received from the Canadian Government in response to the COVID-19 Economic Response Plan, and the loss on disposal of property and equipment amounted to $0.4 million compared to $3.6 million in the same period in the prior year. The decline in Adjusted EBITDA, of $3.2 million, is an outcome of the decline in gross profit that was partially offset by a reduction in SG&A. Net loss. Net loss was $43.2 million in the six months ended August 1, 2020 compared to a net loss of $14.7 million in the same period in prior year. Adjusted net loss, which excludes the impact from the impairment of property and equipment and right-of-use assets, the Restructuring plan activities, the subsidy received from the Canadian Government in response to the COVID-19 Economic Response Plan and loss on disposal of property and equipment, was $8.4 million compared to $9.6 million in the same period in the prior year. This $1.2 million improvement is driven by the same reasons mentioned above in Results from operating activities. Fully diluted loss per common share. Fully diluted loss per common share was negative $1.61 compared to negative $0.56 in the six months ended August 1, 2020. Adjusted fully diluted loss per common share, which is adjusted net loss on a fully diluted weighted average shares outstanding basis, was negative $0.31 per share compared to negative $0.37 per share. Liquidity and Capital Resources
As at
Our primary source of liquidity is cash on
our online store. Our
Cash Flow
A summary of our cash flows
Three Months Ended August 1, 2020 compared to Three Months Ended August 3, 2019 Cash Cash flows used in Financing activities. Net cash flows used in Financing activities of $1.1 million compares to $5.8 million used in the prior year quarter. This net reduction in use of cash was primarily due to the non-payment of lease obligations from May 3, 2020 to July 8, 2020. Cash flows used in Investing activities. Cash flows used in Investing activities decreased by $3.0 million to almost nil for the three-months ended August 1, 2020. The decrease is primarily due to the capital expenditures and the loan advance that was made in the prior year quarter. Capital expenditures decreased by $1.2 million, to almost nil for the three months ended August 1, 2020, from $1.3 million for the three months ended
Cash flows used in Financing activities. Net cash flows used in financing activities of $5.6 million during the six-month period ended August 1, 2020 represents a reduction of $6.1 million compared to the prior year corresponding period and due primarily to the non-payment of lease obligations from April 1, 2020 to July 8, 2020. Cash flows provided by (used in) Investing activities. Cash flows provided by investing activities of $1.4 million during the six-month period ended August 1, 2020 increased by $5.6 million. The increase is primarily due to the receipt of cash from repayment of the loan from a Company
Off-Balance Sheet Arrangements
We have no off-balance sheet obligations.
Contractual Obligations and Commitments
There have been no significant changes to our contractual obligations as disclosed in our consolidated financial statements for the fiscal year ended February
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
Recently Issued Accounting Standards
Refer to Note 3, “Changes in Accounting Policies” 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
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chairman and Interim Chief Executive Officer and Chief Financial Officer and Chief Operating Officer, evaluated the effectiveness of our disclosure controls and procedures as of Based on
Changes in Internal Control over Financial Reporting
With the exception of the material weaknesses identified there were no other changes in our internal control over financial reporting during our fiscal quarter ended August 1, 2020 that
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, we are not
Pursuant to an Order from the Québec Superior Court, there is currently a stay of all proceedings against or in respect of the Company or affecting the Company’s business operations and activities, except with the leave of the Québec Superior Court, until December 15, 2020.
On August 6, 2020, the Company received a notification letter (the “Stockholders’ Equity Notice”) from the Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that the Company’s stockholders’ equity of $(17,604,000), as reported in On August 10, 2020, the Company received a notification letter (the “Bid Price Notice”) from Nasdaq saying that the Company was not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1). The Bid Price Notice has no immediate effect on the listing of the Company’s common stock on Nasdaq and There can be no assurance that we
A
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
None.
(a) Exhibits:
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.
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