dtea_10q.htm

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-37404

DAVIDsTEA Inc.

(Exact name of registrant as specified in its charter)

Canada

98-1048842

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5430 Ferrier

Mount-Royal, Québec, Canada, H4P 1M2

(Address of principal executive offices) (zip code)

(888) 873-0006

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of

Each Class

Name of Each Exchange on

Which Registered

Trading Symbol

for Each Class

Common shares, no par value per share

NASDAQ

Global Market

DTEA

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

As of December 9, 2022, 26,571,035 common shares of the registrant were outstanding.

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

DAVIDsTEA Inc.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Mine Safety Disclosures	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

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

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

On December 9, 2022, the Bank of Canada exchange rate was US$1.00 = CAD$1.3630.

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED BALANCE SHEETS

[Unaudited and in thousands of Canadian dollars]

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

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

Incorporated under the laws of Canada

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

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

		For the three-months ended						For the nine-months ended
		October 29,			October 30,			October 29,			October 30,
		2022			2021			2022			2021
		$			$			$			$
Sales	[Note 10]		16,176			22,203			51,670			64,195
Cost of sales			9,894			13,587			30,116			36,816
Gross profit			6,282			8,616			21,554			27,379
Selling, general and administration expenses	[Note 5]		10,925			10,242			32,784			28,521
Restructuring plan activities, net	[Note 6]		—			195			—			(76,964	)
Results from operating activities			(4,643	)		(1,821	)		(11,230	)		75,822
Finance costs			194			71			532			104
Finance income			(120	)		(28	)		(236	)		(118	)
Net income (loss) before income taxes			(4,717	)		(1,864	)		(11,526	)		75,836
Recovery of income taxes	[Note 6]		—			—			—			(1,000	)
Net (loss) income			(4,717	)		(1,864	)		(11,526	)		76,836

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

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

[Unaudited and in thousands of Canadian dollars]

		For the three-months ended						For the nine-months ended
		October 29,			October 30,			October 29,			October 30,
		2022			2021			2022			2021
		$			$			$			$
OPERATING ACTIVITIES
Net (loss) income			(4,717	)		(1,864	)		(11,526	)		76,836
Items not affecting cash:
Depreciation of property and equipment			90			398			254			1,193
Amortization of intangible assets			138			403			415			1,290
Amortization of right-of-use assets			656			242			1,975			536
Impairment of property and equipment and right-of-use assets			258			—			258			—
Gain on liabilities subject to compromise, including the recovery of income taxes	[Note 6]		—			—			—			(79,861	)
Interest on lease liabilities			156			50			490			83
Amortization of Financing Fees			31			—			31			—
Stock-based compensation expense			355			392			1,063			937
Sub-total			(3,033	)		(379	)		(7,040	)		1,014
Net change in non-cash working capital balances related to operations			869			1,932			463			(17,233	)
Cash flows (used in) provided by operating activities			(2,164	)		1,553			(6,577	)		(16,219	)
FINANCING ACTIVITIES
Payment of lease liabilities			(753	)		(237	)		(2,271	)		(559	)
Cash flows used in financing activities			(753	)		(237	)		(2,271	)		(559	)
INVESTING ACTIVITIES
Additions to property and equipment			—			—			(128	)		(52	)
Cash flows used in investing activities			—			—			(128	)		(52	)
(Decrease) increase in cash during the period			(2,917	)		1,316			(8,976	)		(16,830	)
Cash, beginning of the period			19,048			12,051			25,107			30,197
Cash, end of the period			16,131			13,367			16,131			13,367
Supplemental Information
Cash paid for:
Interest (other than lease liabilities)			—			—			—			—
Income taxes (classified as operating activity)			—			—			—			—
Cash received for:
Interest			92			7			203			101
Income taxes (classified as operating activity)			—			—			—			—

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY)

[Unaudited and in thousands of Canadian dollars]

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

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

See accompanying notes.

Table of Contents

DAVIDsTEA Inc.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and nine-month periods ended October 29, 2022 and October 30, 2021 [Unaudited]

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

1. CORPORATE INFORMATION

The unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary DAVIDsTEA (USA) Inc. (collectively, the “Company”) for the three and nine-month periods ended October 29, 2022 and October 30, 2021 were authorized for issue by the Board of Directors on December 13, 2022. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the Nasdaq Global Market under the symbol “DTEA”. The registered office is located at 5430 Ferrier St., Town of Mount-Royal, Québec, Canada, H4P 1M2.

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

Sales fluctuate from quarter to quarter. Sales are traditionally highest in the fourth fiscal quarter due to the year-end holiday season and tend to be lowest in the second and third fiscal quarters because of lower customer engagement during the summer months.

2. BASIS OF PREPARATION

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 the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended January 29, 2022, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. In management’s opinion, the unaudited condensed interim consolidated financial statements reflect all the adjustments that are necessary for a fair presentation of the results for the interim period presented. These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in Note 3 of the consolidated financial statements for the year ended January 29, 2022.

Certain comparatives figures related to current and prior year’s quarters have been reclassified to conform with the current quarter’s presentation.

3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

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

In preparing these unaudited condensed interim consolidated financial statements, critical judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in Note 5 of the consolidated financial statements for the year ended January 29, 2022.

Table of Contents

4. SHARE CAPITAL

Authorized

An unlimited number of common shares.

Issued and outstanding

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

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

Stock-based compensation

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

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

For the nine-months ended

October 29,

October 30,

2022

2021

Weighted

average

Options

exercise

Options

exercise

outstanding

price

outstanding

price

Outstanding and exercisable - beginning and end of period

3,490

14.39

9,490

8.01

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

For the nine-months ended

October 29,

October 30,

2022

2021

Weighted

average

RSUs

fair value

RSUs

fair value

outstanding

per unit (1)

outstanding

per unit (1)

Outstanding, beginning of period

1,282,790

2.60

1,306,101

1.70

Granted

833,764

1.99

727,217

4.55

Forfeitures

(43,857

)

1.66

(174,041

)

(2.56

)

Vested

(147,318

)

2.40

(125,387

)

(1.91

)

Vested, withheld for tax

(153,382

)

2.40

(130,562

)

(1.91

)

Outstanding, end of period

1,771,997

2.35

1,603,328

2.86

_____________

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

Table of Contents

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

5. SELLING, GENERAL AND ADMINISTRATION EXPENSES

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

For the three-months ended

For the nine-months ended

October 29,

October 30,

October 29,

October 30,

2022

2021

2022

2021

Wages, salaries and employee benefits

3,542

3,589

10,493

10,413

IT ongoing expenses

1,726

1,815

5,017

4,639

Marketing expenses

1,229

SEC Form 10-Q filed by DAVIDsTEA Inc.