Attached files
file | filename |
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EX-32.2 - EX-32.2 - DAVIDsTEA Inc. | dtea-20160430ex322cd88f3.htm |
EX-32.1 - EX-32.1 - DAVIDsTEA Inc. | dtea-20160430ex321594ca3.htm |
EX-31.2 - EX-31.2 - DAVIDsTEA Inc. | dtea-20160430ex312a9938b.htm |
EX-31.1 - EX-31.1 - DAVIDsTEA Inc. | dtea-20160430ex311add251.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 April 30, 2016.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 001-37404
DAVIDsTEA Inc.
(Exact name of registrant as specified in its charter)
Canada |
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98-1048842 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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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)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
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Accelerated filer ☐ |
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Non-accelerated filer ☒ |
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Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
As of June 7, 2016, 24,507,558 common shares of the registrant were outstanding.
DAVIDsTEA Inc.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
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26 |
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27 |
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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 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,” “CND$,” “Canadian dollars” and “dollars” mean Canadian dollars and all references to “U.S. dollars,” “US$” and “USD” mean U.S. dollars.
On June 3, 2016, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was US$1.00 = $1.2947.
2
Item 1. Consolidated Financial Statements
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED BALANCE SHEETS
[Unaudited and in thousands of Canadian dollars]
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As at |
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As at |
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April 30, 2016 |
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January 30, 2016 |
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$ |
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$ |
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ASSETS |
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Current |
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Cash |
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69,068 |
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72,514 |
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Accounts and other receivables |
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2,463 |
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2,702 |
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Inventories |
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[Note 5] |
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17,554 |
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17,767 |
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Income tax receivable |
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— |
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605 |
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Prepaid expenses and deposits |
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6,454 |
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4,493 |
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Derivative financial instruments |
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[Note 15] |
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— |
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3,442 |
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Total current assets |
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95,539 |
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101,523 |
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Property and equipment |
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46,976 |
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47,330 |
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Intangible assets |
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2,221 |
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2,242 |
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Deferred income tax assets |
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[Note 10] |
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8,816 |
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7,877 |
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Total assets |
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153,552 |
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158,972 |
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LIABILITIES AND EQUITY |
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Current |
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Trade and other payables |
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12,052 |
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14,435 |
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Deferred revenue |
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3,326 |
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3,762 |
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Income taxes payable |
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13 |
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62 |
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Current portion of provisions |
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[Note 6] |
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512 |
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512 |
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Derivative financial instruments |
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[Note 15] |
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1,723 |
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— |
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Total current liabilities |
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17,626 |
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18,771 |
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Deferred rent and lease inducements |
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6,075 |
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6,002 |
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Provisions |
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[Note 6] |
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91 |
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162 |
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Total liabilities |
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23,792 |
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24,935 |
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Equity |
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Share capital |
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[Note 9] |
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259,889 |
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259,205 |
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Contributed surplus |
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7,024 |
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7,094 |
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Deficit |
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(137,240) |
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(138,465) |
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Accumulated other comprehensive income |
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87 |
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6,203 |
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Total equity |
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129,760 |
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134,037 |
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153,552 |
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158,972 |
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See accompanying notes
3
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 information]
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For the three months ended |
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April 30, 2016 |
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May 2, 2015 |
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$ |
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$ |
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Sales |
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[Note 14] |
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44,469 |
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35,844 |
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Cost of sales |
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21,314 |
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16,755 |
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Gross profit |
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23,155 |
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19,089 |
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Selling, general and administration expenses |
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[Note 11] |
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21,119 |
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16,991 |
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Stock-based compensation related to cashless exercise |
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— |
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4,052 |
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Results from operating activities |
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2,036 |
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(1,954) |
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Finance costs |
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17 |
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792 |
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Finance income |
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(121) |
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(51) |
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Accretion of preferred shares |
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[Note 8] |
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— |
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314 |
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Loss from embedded derivative on Series A, A-1 and A-2 preferred shares |
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[Note 8] |
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— |
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90,705 |
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Income (loss) before income taxes |
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2,140 |
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(93,714) |
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Provision for income tax (recovery) |
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[Note 10] |
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626 |
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(488) |
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Net income (loss) |
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1,514 |
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(93,226) |
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Other comprehensive loss |
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Items to be reclassified subsequently to income: |
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Unrealized net loss on forward exchange contracts |
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[Note 15] |
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(4,197) |
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— |
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Realized net gain on forward exchange contracts reclassified to inventory |
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(968) |
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— |
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Provision for income tax recovery on comprehensive loss |
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1,371 |
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— |
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Cumulative translation adjustment |
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(2,322) |
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(574) |
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Other comprehensive loss, net of tax |
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(6,116) |
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(574) |
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Total comprehensive loss |
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(4,602) |
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(93,800) |
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Net income (loss) per share: |
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Basic |
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[Note 12] |
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0.06 |
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(7.73) |
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Fully diluted |
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[Note 12] |
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0.06 |
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(7.73) |
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Weighted average number of shares outstanding |
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— basic |
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[Note 12] |
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24,134,285 |
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12,057,474 |
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— fully diluted |
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[Note 12] |
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25,892,598 |
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12,057,474 |
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See accompanying notes
4
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited and in thousands of Canadian dollars]
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For the three months ended |
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April 30, 2016 |
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May 2, 2015 |
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$ |
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$ |
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OPERATING ACTIVITIES |
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Net income (loss) |
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1,514 |
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(93,226) |
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Items not affecting cash: |
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Depreciation of property and equipment |
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1,787 |
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1,298 |
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Amortization of intangible assets |
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161 |
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123 |
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Deferred rent |
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280 |
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198 |
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Provision (recovery) for onerous contracts |
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— |
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(74) |
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Stock-based compensation expense |
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316 |
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325 |
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Amortization of financing fees |
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18 |
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166 |
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Accretion of preferred shares |
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— |
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314 |
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Loss from embedded derivative on Series A, A-1 and A-2 preferred shares |
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— |
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90,705 |
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Deferred income taxes (recovered) |
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(30) |
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15 |
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4,046 |
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(156) |
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Net change in other non-cash working capital balances related to operations |
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(4,834) |
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(6,501) |
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Cash flows related to operating activities |
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(788) |
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(6,657) |
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FINANCING ACTIVITIES |
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Repayment of finance lease obligations |
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— |
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(552) |
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Proceeds from issuance of long-term debt |
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— |
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9,996 |
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Repayment of long-term debt |
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— |
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(10,014) |
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Proceeds from issuance of common shares pursuant to exercise of stock options |
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344 |
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— |
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IPO-related expenses |
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— |
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(552) |
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Financing fees |
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— |
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(119) |
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Cash flows related to financing activities |
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344 |
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(1,241) |
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INVESTING ACTIVITIES |
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Additions to property and equipment |
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(2,846) |
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(1,840) |
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Additions to intangible assets |
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(156) |
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(268) |
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Cash flows related to investing activities |
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(3,002) |
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(2,108) |
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Decrease in cash during the period |
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(3,446) |
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(10,006) |
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Cash, beginning of period |
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72,514 |
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19,784 |
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Cash, end of period |
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69,068 |
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9,778 |
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Supplemental Information |
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Cash paid for: |
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Interest |
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— |
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273 |
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Income taxes (classified as operating activity) |
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577 |
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811 |
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Cash received for: |
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Interest |
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120 |
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51 |
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Income taxes (classified as operating activity) |
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344 |
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— |
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See accompanying notes
5
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY)
[Unaudited and in thousands of Canadian dollars]
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Accumulated Other Comprehensive Income |
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Accumulated |
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Accumulated |
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Derivative |
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Foreign |
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Accumulated |
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Financial |
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Currency |
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Other |
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Total |
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Share |
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Contributed |
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Instrument |
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Translation |
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Comprehensive |
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Equity |
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Capital |
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Surplus |
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Deficit |
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Adjustment |
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Adjustment |
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Income |
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(Deficiency) |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance, January 31, 2015 |
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385 |
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1,412 |
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(4,129) |
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— |
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2,286 |
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2,286 |
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(46) |
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Net loss for the three months ended May 2, 2015 |
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— |
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— |
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(93,226) |
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— |
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— |
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— |
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(93,226) |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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(574) |
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(574) |
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(574) |
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Total comprehensive loss |
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— |
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— |
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(93,226) |
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— |
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(574) |
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(574) |
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(93,800) |
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Issuance of subordinate voting shares upon exercise of options |
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125 |
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(125) |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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325 |
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— |
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— |
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— |
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— |
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325 |
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Balance, May 2, 2015 |
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510 |
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1,612 |
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(97,355) |
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— |
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1,712 |
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1,712 |
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(93,521) |
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Balance, January 30, 2016 |
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259,205 |
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7,094 |
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(138,465) |
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2,529 |
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3,674 |
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6,203 |
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134,037 |
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Net income for the three months ended April 30, 2016 |
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— |
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— |
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1,514 |
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— |
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— |
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— |
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1,514 |
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Other comprehensive loss |
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— |
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— |
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— |
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(3,794) |
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(2,322) |
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(6,116) |
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(6,116) |
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Total comprehensive loss |
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— |
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— |
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1,514 |
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(3,794) |
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(2,322) |
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(6,116) |
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(4,602) |
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Proceeds on issuance of common shares |
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470 |
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(126) |
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— |
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— |
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— |
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— |
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344 |
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Common shares issued on vesting of restricted stock units |
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214 |
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(417) |
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(289) |
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— |
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— |
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— |
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(492) |
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Stock-based compensation expense |
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— |
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316 |
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— |
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— |
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— |
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— |
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316 |
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Income tax impact associated with stock options |
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— |
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157 |
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— |
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— |
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— |
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— |
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157 |
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Balance, April 30, 2016 |
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259,889 |
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7,024 |
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(137,240) |
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(1,265) |
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1,352 |
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87 |
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129,760 |
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See accompanying notes
6
DAVIDsTEA Inc.
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three-month period ended April 30, 2016 and May 2, 2015 [Unaudited]
[Amounts in thousands of Canadian dollars except per share amounts and where otherwise indicated]
1. CORPORATE INFORMATION
The unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary (collectively, the “Company”) for the three-month period ended April 30, 2016 were authorized for issue in accordance with a resolution of the Board of Directors on June 8, 2016. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the NASDAQ Global Market under the symbol “DTEA”. The registered office is located at 5430, Ferrier St., Town of Mount-Royal, Quebec, Canada, H4P 1M2.
The Company is engaged in the retail and online sale of tea, tea accessories and food and beverages in Canada and the United States. 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 quarter because of lower customer traffic during the summer months.
2. STATEMENT OF COMPLIANCE AND 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 of the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended January 30, 2016, 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.
On May 12, 2015, the Company’s Board of Directors approved a 1.6-for-1 split on common and Class AA common shares, which was effective May 21, 2015. The accompanying financial statements have been adjusted to reflect the forward split. As a result, the historical per share amounts and the number of shares in these unaudited condensed interim consolidated financial statements have been retroactively adjusted to reflect this change.
Basis of consolidation
The unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned U.S. subsidiary, DAVIDsTEA (USA) Inc. The unaudited condensed interim financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany transactions, balances and unrealized gains or losses have been eliminated. The Company has no interests in special purpose entities.
Basis of measurement
These unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis except for the following material items:
· |
Derivative financial instruments are measured at fair value; and |
· |
Provisions for onerous contracts are measured at the present value of the expenditures expected to settle the obligations. |
7
Functional and presentation currency
These unaudited condensed interim consolidated financial statements are presented in Canadian dollars, which is the parent Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts.
Comparative figures
The Company has reclassified the comparative figure related to stock-based compensation related to cashless exercise on the statement of income (loss) to make selling, general and administration expenses comparable.
3. SIGNIFICANT ACCOUNTING POLICIES
These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in note 3 of the consolidated financial statements for the year ended January 30, 2016. During the three-month period ended April 30, 2016, we implemented the following new accounting standard on the presentation of financial statements.
IAS 1, “Presentation of Financial Statements” (“IAS 1”), was modified in December 2014 when the IASB issued amendments to clarify materiality, order of notes to financial statements, disclosure of accounting policies as well as aggregation and disaggregation of items presented in the consolidated balance sheets and consolidated statements of income (loss) and comprehensive income (loss). These amendments shall be applied to fiscal years beginning on or after January 1, 2016. The Company has adopted this accounting standard effective on January 31, 2016, the first day of its newest fiscal year. The adoption of IAS 1 has resulted in no impact to the consolidated financial statements.
There were no other new accounting standards implemented during the three-month period ended April 30, 2016.
Information on significant new accounting standards and amendments issued but not yet adopted is described below.
IFRS 9, “Financial Instruments”(“IFRS 9”), partially replaces the requirements of IAS 39, “Financial Instruments: Recognition and Measurement”. This standard is the first step in the project to replace IAS 39. The IASB intends to expand IFRS 9 to add new requirements for the classification and measurement of financial liabilities, derecognition of financial instruments, impairment and hedge accounting to become a complete replacement of IAS 39. These changes are applicable for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is currently assessing the impact of adopting this standard on the Company’s consolidated financial statements and related note disclosures.
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”) replaces IAS 11, “Construction Contracts”, and IAS 18, “Revenue”, as well as various interpretations regarding revenue. This standard introduces a single model for recognizing revenue that applies to all contracts with customers, except for contracts that are within the scope of standards on leases, insurance and financial instruments. This standard also requires enhanced disclosures. Adoption of IFRS 15 is mandatory and will be effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact of adopting this standard on the Company’s consolidated financial statements and related note disclosures.
8
IFRS 16, “Leases” (“IFRS 16”) replaces IAS 17, “Leases”. This standard provides a single model for leases abolishing the current distinction between finance and operating leases, with most leases being recognized in the statement of financial position. Certain exemptions will apply for short-term leases and leases of low value assets. The new standard will be effective for annual periods beginning on or after January 1, 2019. Early application is permitted, provided the new revenue standard, IFRS 15, has been applied, or is applied at the same date as IFRS 16. The Company is currently assessing the impact of adopting this standard on our consolidated financial statements and related note disclosures.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of condensed interim consolidated financial statements requires management to make estimates and assumptions using judgment 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 judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in note 5 of the consolidated financial statements for the year ended January 30, 2016.
5. INVENTORIES
|
|
April 30, 2016 |
|
January 30, 2016 |
|
|
|
|
$ |
|
$ |
|
|
Finished goods |
|
14,318 |
|
12,903 |
|
|
Goods in transit |
|
1,886 |
|
3,790 |
|
|
Packaging |
|
1,350 |
|
1,074 |
|
|
|
|
17,554 |
|
17,767 |
|
For the three-month period ended April 30, 2016, $256 [May 2, 2015 —$151] was written-down as a result of the net realizable value being lower than the cost of the inventory. No inventory write-downs recognized in previous years were reversed in the period.
6. PROVISIONS
|
|
For the three months ended |
|
For the year ended |
|
|
|
April 30, 2016 |
|
January 30, 2016 |
|
|
|
$ |
|
$ |
|
Opening balance |
|
674 |
|
874 |
|
Amortized during the period |
|
— |
|
(265) |
|
Cumulative translation adjustment |
|
(71) |
|
65 |
|
Ending balance |
|
603 |
|
674 |
|
Less: Current portion |
|
(512) |
|
(512) |
|
Long-term portion of provisions |
|
91 |
|
162 |
|
Provisions for onerous contracts have been recognized in respect of store leases where the unavoidable costs of meeting the obligations under the lease agreements exceed the economic benefits expected to be received from the contract. The unavoidable costs reflect the present value of the lower of the expected cost of terminating the contract and the expected net cost of operating under the contract.
9
7. REVOLVING FACILITY
The Company has a credit agreement (the “Credit Agreement”) with the Bank of Montreal (“BMO”). The Credit Agreement provides for a revolving term facility, maturing April 24, 2018, in the principal amount of $20,000 (which the Company refers to as the “Revolving Facility”) or the equivalent amount in U.S. dollars, repayable at any time. The Credit Agreement also provides for an accordion feature whereby the Company may, at any time prior to maturity and with permission from BMO, request an increase to the Revolving Facility by an amount not greater than $10,000.
The credit facility contains a number of financial and non-financial covenants that, among other things 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 than in the normal course of business. The Company cannot make any dividend payments. As at April 30, 2016, the Company is in compliance with these covenants.
As at April 30, 2016 and January 30, 2016, the Company did not have any borrowings on the Revolving Facility.
8. MANDATORILY REDEEMABLE PREFERENCE SHARES
Prior to the Company’s initial public offering (“IPO”) on June 10, 2015, the Series A, A-1, and A-2 redeemable preferred shares liability was being accreted to their nominal value and the financial derivative liability embededded in the preferred shares was being measured at fair value with all changes recognized immediately in income (loss). For the three-month period ended May 2, 2015, the accretion on preferred shares was $314 and the changes in the carrying value of the financial derivative liability embedded in preferred shares amounted to $90,705. The amounts were recorded as a loss in the unaudited condensed interim consolidated statements of income (loss) and comprehensive income (loss) for the three months ended May 2, 2015.
On June 10, 2015, immediately prior to the completion of the Company’s IPO, the financial derivative liability embedded in preferred shares was increased to reflect the fair market value of the IPO common shares. Subsequently, all of the Series A, A-1 and A-2 preferred shares were converted into common shares and the financial derivative liability embedded in the Series A, A-1 and A-2 preferred shares was converted into equity. On June 10, 2015, immediately following the IPO, the Company amended its articles to remove the Series A, A-1 and A-2 preferred shares from its authorized capital.
9. SHARE CAPITAL
Authorized
An unlimited number of common shares.
Issued and outstanding
|
|
April 30, 2016 |
|
January 30, 2016 |
|
|
|
$ |
|
$ |
|
24,462,385 Common shares [January 30, 2016 - 24,037,472 shares] |
|
259,889 |
|
259,205 |
|
|
|
259,889 |
|
259,205 |
|
During the three-month period ended April 30, 2016, 394,515 stock options were exercised for common shares. The carrying value of common shares includes $126 [May 2, 2015 — $125] which corresponds to a reduction in contributed surplus representing the value of accumulated stock-based compensation expense associated to options exercised during the period. In addition, during the three-month period ended April 30, 2016, 30,398 of common shares were issued in relation to the vesting of restricted stock units (“RSU”), resulting in an increase in share capital of $214 [May 2, 2015 – nil].
10
Stock-based compensation
As at April 30, 2016, 1,017,620 common shares remain available for issuance under the 2015 Omnibus Plan.
The weighted average fair value of options granted of $3.65 for the three-month period ended April 30, 2016 [for the three-month period ended May 2, 2015 — $6.15] was estimated using the Black Scholes option pricing model, using the following assumptions:
|
|
For the three months ended |
|
For the three months ended |
|
||||||||||||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
||||||||||||
Risk-free interest rate |
|
|
|
|
1.23 |
% |
|
|
|
|
|
|
1.15 |
% |
|
|
|
Expected volatility |
|
|
|
|
29.8 |
% |
|
|
|
|
|
|
31.0 |
% |
|
|
|
Expected option life |
|
|
|
|
4.0 |
years |
|
|
|
|
|
|
3.65 |
years |
|
|
|
Expected dividend yield |
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
Exercise price |
|
|
|
$ |
14.39 |
|
|
|
|
|
|
$ |
15.64 |
|
|
|
|
Expected volatility was estimated using historical volatility of similar companies whose share prices were publicly available.
A summary of the status of the Company’s stock option plan and changes during the three-month period is presented below.
|
|
For the three months ended |
|
For the three months ended |
|
||||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
||||
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
average |
|
|
|
average |
|
|
|
Options |
|
exercise |
|
Options |
|
exercise |
|
|
|
outstanding |
|
price |
|
outstanding |
|
price |
|
|
|
# |
|
$ |
|
# |
|
$ |
|
Outstanding, beginning of period |
|
2,146,880 |
|
3.04 |
|
2,905,648 |
|
2.06 |
|
Issued |
|
131,500 |
|
14.39 |
|
12,000 |
|
15.64 |
|
Exercised |
|
(394,515) |
|
0.87 |
|
(322,739) |
|
0.77 |
|
Cancelled/expired |
|
— |
|
— |
|
(275,529) |
|
0.77 |
|
Forfeitures |
|
(51,322) |
|
5.94 |
|
(40,000) |
|
2.67 |
|
Outstanding, end of period |
|
1,832,543 |
|
4.24 |
|
2,279,380 |
|
2.82 |
|
Exercisable, end of period |
|
910,283 |
|
2.85 |
|
780,500 |
|
1.22 |
|
The weighted average share price at the date of exercise for stock options exercised during the three-month period ended April 30, 2016 was $14.50 [for three three-month period ended May 2, 2015 — $15.64].
The following table summarizes information about the Company’s RSU.
For the three months ended |
For the three months ended |
||||||||
April 30, 2016 |
May 2, 2015 |
||||||||
Weighted |
Weighted |
||||||||
average |
average |
||||||||
RSUs |
fair value |
RSUs |
fair value |
||||||
outstanding |
per unit (1) |
outstanding |
per unit (1) |
||||||
# |
$ |
# |
$ |
||||||
Outstanding, beginning of period |
|
252,720 |
|
7.39 |
|
— |
|
— |
|
Granted |
|
96,520 |
|
14.39 |
|
235,120 |
|
7.07 |
|
Forfeitures |
|
(20,310) |
|
7.07 |
|
— |
|
— |
|
Vested |
|
(59,050) |
|
7.07 |
|
— |
|
— |
|
Outstanding, end of period |
|
269,880 |
|
9.99 |
|
235,120 |
|
7.07 |
|
(1) |
Weighted average fair value per unit as at date of grant. |
11
During the three-month period ended April 30, 2016, the Company recognized a stock-based compensation expense of $316 [May 2, 2015 — $325] and a stock-based compensation expense related to cashless exercise of options by former employees of nil [May 2, 2015 — $4,052].
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 |
|
||||||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
||||
|
|
% |
|
$ |
|
% |
|
$ |
|
Provision for income tax (recovery) — statutory rate |
|
26.5 |
|
568 |
|
26.5 |
|
(24,880) |
|
Loss from embedded derivative and accretion of Series A, A-1, and A-2 preferred shares |
|
— |
|
— |
|
(25.8) |
|
24,165 |
|
Other non-deductible items |
|
3.5 |
|
74 |
|
(0.2) |
|
207 |
|
Other |
|
(0.7) |
|
(16) |
|
— |
|
20 |
|
Provision for income tax (recovery) — effective tax rate |
|
29.3 |
|
626 |
|
0.5 |
|
(488) |
|
A breakdown of the income tax provision (recovery) on the interim consolidated income statement is as follows:
|
|
For the three months ended |
|
||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
|
|
$ |
|
$ |
|
Income tax provision (recovery) |
|
|
|
|
|
Current |
|
793 |
|
(365) |
|
Deferred |
|
(167) |
|
(123) |
|
|
|
626 |
|
(488) |
|
As at April 30, 2016, the Company’s U.S. subsidiary has accumulated losses amounting to US$10.6 million [January 30, 2016 — US$9.7 million], the tax benefit of which has been fully recorded as a deferred income tax asset, which expire during the years 2033 to 2036.
11. SELLING, GENERAL AND ADMINISTRATION EXPENSES
|
|
For the three months ended |
|
||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
|
|
$ |
|
$ |
|
Wages, salaries and employee benefits |
|
13,327 |
|
11,327 |
|
Depreciation of property and equipment |
|
1,787 |
|
1,298 |
|
Amortization of intangible assets |
|
161 |
|
123 |
|
Provision (recovery) for onerous contracts |
|
— |
|
(74) |
|
Stock-based compensation |
|
316 |
|
325 |
|
Other selling, general and administration |
|
5,528 |
|
3,992 |
|
|
|
21,119 |
|
16,991 |
|
12
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, accretion interest on the mandatorily redeemable preference shares and any gain or loss from embedded derivative on preferred shares) by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares, unless these would be anti‑dilutive.
The following reflects the income and share data used in the basic and diluted EPS computations:
|
|
For the three months ended |
|
||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
|
|
$ |
|
$ |
|
Net income (loss) for basic EPS |
|
1,514 |
|
(93,226) |
|
|
|
|
|
|
|
Weighted average number of shares outstanding — basic |
|
24,134,285 |
|
12,057,474 |
|
Restricted stock units |
|
213,275 |
|
— |
|
Options |
|
1,545,038 |
|
— |
|
Weighted average number of shares — fully diluted |
|
25,892,598 |
|
12,057,474 |
|
As a result of the net loss during the three-month period ended May 2, 2015, the stock options and restricted stock units disclosed in Note 9 and the Series A, Series A-1 and Series A-2 preferred shares disclosed in Note 8 are anti-dilutive.
13. RELATED PARTY DISCLOSURES
For the three-month period ended May 2, 2015, interest was incurred on the loan from the controlling shareholder amounting to $33 and dividends on Series A, A-1 and A-2 preferred shares were accrued for $322. As a result of the repayment of the loan from the controlling shareholder and the conversion of the Series A, A-1 and A-2 preferred shares during the year ended January 30, 2016, there were no such amounts for the three-month period ended April 30, 2016.
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, the Company has concluded that it has two reportable segments, Canada and the U.S., that derive their revenues from the retail and online sale of tea, tea accessories and food and beverages. The Company’s Chief Executive Officer (the chief operating decision maker) makes decisions about resources to be allocated to the segments and assesses performance, and for which discrete financial information is available.
13
The Company derives revenue from the following products:
|
|
For the three months ended |
|
||
|
|
April 30, 2016 |
|
May 2, 2015 |
|
|
|
$ |
|
$ |
|
Tea |
|
30,147 |
|
24,644 |
|
Tea accessories |
|
9,893 |
|
7,242 |
|
Food and beverages |
|
4,429 |
|
3,958 |
|
|
|
44,469 |
|
35,844 |
|
Property and equipment and intangible assets by country are as follows:
|
|
April 30, 2016 |
|
January 30, 2016 |
|
|
|
$ |
|
$ |
|
Canada |
|
35,747 |
|
35,915 |
|
US |
|
13,450 |
|
13,657 |
|
Total |
|
49,197 |
|
49,572 |
|
Gross profit per country is used to measure performance because management believes this information is the most relevant in evaluating results. Gross profit per country is as follows:
|
|
For the three months ended |
|
||||
|
|
April 30, 2016 |
|
||||
|
|
Canada |
|
US |
|
Consolidated |
|
|
|
$ |
|
$ |
|
$ |
|
Sales |
|
36,959 |
|
7,510 |
|
44,469 |
|
Cost of sales |
|
17,074 |
|
4,240 |
|
21,314 |
|
Gross profit |
|
19,885 |
|
3,270 |
|
23,155 |
|
Selling, general and administration expenses |
|
|
|
|
|
21,119 |
|
Results from operating activities |
|
|
|
|
|
2,036 |
|
Finance costs |
|
|
|
|
|
17 |
|
Finance income |
|
|
|
|
|
(121) |
|
Income before income taxes |
|
|
|
|
|
2,140 |
|
|
|
For the three months ended |
|
||||
|
|
May 2, 2015 |
|
||||
|
|
Canada |
|
US |
|
Consolidated |
|
|
|
$ |
|
$ |
|
$ |
|
Sales |
|
31,803 |
|
4,041 |
|
35,844 |
|
Cost of sales |
|
14,412 |
|
2,343 |
|
16,755 |
|
Gross profit |
|
17,391 |
|
1,698 |
|
19,089 |
|
Selling, general and administration expenses |
|
|
|
|
|
16,991 |
|
Stock-based compensation related to cashless exercise |
|
|
|
|
|
4,052 |
|
Results from operating activities |
|
|
|
|
|
(1,954) |
|
Finance costs |
|
|
|
|
|
792 |
|
Finance income |
|
|
|
|
|
(51) |
|
Accretion of preferred shares |
|
|
|
|
|
314 |
|
Loss from embedded derivative on Series A, A-1 and A-2 preferred shares |
|
|
|
|
|
90,705 |
|
Loss before income taxes |
|
|
|
|
|
(93,714) |
|
14
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 income (loss) in the amount of $56.
The Company’s foreign exchange exposure is as follows:
|
|
April 30, 2016 |
|
January 30, 2016 |
|
|
|
US$ |
|
US$ |
|
Cash |
|
661 |
|
464 |
|
Accounts receivable |
|
1,279 |
|
1,126 |
|
Accounts payable |
|
3,051 |
|
2,092 |
|
The Company’s U.S. subsidiary’s transactions are denominated in U.S. dollars.
In order to protect itself from the risk of losses should the value of the Canadian dollar decline in relation to the U.S. dollar, the Company has entered into forward contracts to fix the exchange rate of its expected U.S. dollar inventory purchasing requirements, through April 2017. A forward foreign exchange contract is a contractual agreement to buy a specific currency at a specific price and date in the future. The Company designated the forward contracts as cash flow hedging instruments under International Accounting Standard 39. This has resulted in mark-to-market foreign exchange adjustments, for qualifying hedged instruments, being recorded as a component of other comprehensive income for the three-month period ended April 30, 2016. As at April 30, 2016, the designated portion of these hedges was considered effective.
The nominal and contract values of foreign exchange contracts outstanding as at April 30, 2016 are as follows:
|
|
Range of |
|
|
|
|
|
|
|
Unrealized |
|
||||||||||||
|
|
contractual |
|
Nominal value |
|
Nominal value |
|
|
|
loss |
|
||||||||||||
|
|
exchange rate |
|
US$ |
|
C$ |
|
Term |
|
C$ |
|
||||||||||||
Purchase contracts |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. dollar |
|
1.3060 |
|
26,350 |
|
34,413 |
|
May 2016 to October 2016 |
|
1,364 |
|
||||||||||||
U.S. dollar |
|
1.2696 - 1.2772 |
|
19,100 |
|
24,314 |
|
November 2016 to April 2017 |
|
359 |
|
||||||||||||
|
|
|
|
45,450 |
|
58,727 |
|
|
|
1,723 |
|
The Company did not use any forward contracts to manage foreign exchange risk for the three-month period ended May 2, 2015, but rather satisfied its U.S dollar requirements primarily through spot rate purchases.
15
Market risk — interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial instruments that potentially subject the Company to cash flow interest rate risk include financial assets and liabilities with variable interest rates and consist of cash. The Company is exposed to cash flow risk on its Revolving Facility which bears interest at variable interest rates (note 7). As at April 30, 2016, the Company did not have any borrowings on the Revolving Facility.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s approach to managing liquidity risk is to ensure, to the extent possible, that it will always have sufficient liquidity to meet liabilities when due. The Company’s liquidity follows a seasonal pattern based on the timing of inventory purchases and capital expenditures. The Company is exposed to this risk mainly in respect of its trade and other payables.
As at April 30, 2016, the Company had $69,068 in cash. In addition, as outlined in note 7, the Company has a Revolving Facility of $20,000, of which nil was drawn as at April 30, 2016. The Revolving Facility also provides for an accordion feature whereby the Company may, at any time prior to maturity, and with the permission of BMO, request an increase to the Revolving Facility by an amount not greater than $10,000.
The Company expects to finance its growth in store base and its store renovations through cash flows from operations, the Revolving Facility (note 7) and cash on hand.
The Company expects that its trade and other payables will be discharged within 90 days.
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 accounts receivable and derivative financial instruments. Accounts receivable primarily consists of receivables from retail customers who pay by credit card, recoveries of credits from suppliers for returned or damaged products, and receivables from other companies for sales of products, gift cards and other services. Credit card payments have minimal credit risk and the limited number of corporate receivables is closely monitored.
Fair values
Financial assets and financial liabilities are measured on an ongoing basis at fair value or amortized cost. The disclosures in the “Financial instruments” section of note 3 of the consolidated financial statements for the year ended January 30, 2016 describe how the categories of financial instruments are measured and how income and expenses, including fair value remeasurement gains and losses, are recognized. The fair values of derivative financial instruments have been determined by reference to forward exchange rates at the end of the reporting period and classified in Level 2 of the fair value hierarchy.
16
Reconciliation of Level 3 fair values
Changes in fair value of Level 3 financial instruments were as follows, for the three-month period ended April 30, 2016 and for the year ended January 30, 2016:
|
|
Fair value of Level 3 |
|
||
|
|
financial instruments |