See accompanying notes.

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

[Unaudited and in thousands of Canadian dollars]

See accompanying notes.

DAVIDsTEA Inc.

Incorporated under the laws of Canada

INTERIM CONSOLIDATED STATEMENTS OF EQUITY (DEFICIENCY)(DEFICIT)

[Unaudited and in thousands of Canadian dollars]

See accompanying notes.

DAVIDsTEA Inc.

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and six-monththree-month periods ended AugustMay 1, 20202021 and August 3, 2019May 2, 2020 [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 six-month periodsthree-month period ended AugustMay 1, 20202021 were authorized for issue in accordance with a resolution of the Board of Directors on September 21, 2020.June 15, 2021. 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,Quebec, Canada, H4P 1M2.

The Company isoffers a branded retailer and growing mass wholesaler of specialty tea, offering a differentiatedbranded selection of high-quality proprietary loose-leaf teas, pre-packaged teas, tea sachets, tea-related accessories and tea-related gifts and accessories through its e-commerce platform at www.davidstea.com and in 18 Company-owned and operated retail stores in Canada.  A selection of DAVIDsTEA products is also available in more thanthe Amazon Marketplace, its wholesale customers which include over 2,500 grocery stores and pharmacies, and 18 company-owned stores across Canada. The resultsWe offer 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 operations fortea permeates our culture and is rooted in an excitement to explore the interim period are not necessarily indicativetaste, health and lifestyle elements of the results of operations for the full year.tea. Sales fluctuate from quarter to quarter. Sales are traditionally higherhighest in the fourth fiscal quarter due to the year-end holiday season and tend to be lowest in the second and third fiscal quarters because of lower customer engagement during the summer months.

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

The Company qualifies for the Canada Emergency Wage Subsidy (“CEWS”) under the COVID-19 Economic Response Plan of the Government of Canada. During the first and second quarters of Fiscal 2020,period ended May 1, 2021, the Company recognized payroll subsidies of $1.1 million (May 2, 2020 - $0.8 million and $1.2 million respectivelymillion) under this wage subsidy program as a reduction in the associated wage costs which the Company incurred, which werewas recognized in Selling, general and administration expenses.

CCAA Proceedings

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

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

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

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

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

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

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

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

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

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

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

The Company will seek a sanction order (the “Sanction Order”) for the Plan of Arrangement from the Québec Superior Court at a hearing scheduled for June 16, 2021. If the Sanction Order is granted, the Company will seek recognition of the Sanction Order from the United States Bankruptcy Court for the District of Delaware under Chapter 15 of the United States Bankruptcy Code at a hearing scheduled for June 17, 2021.

The Plan of Arrangement approved by the Company’s creditors on June 11, 2021 provides that DAVIDsTEA Inc. will distribute an aggregate amount of approximately $18.0 million to its creditors and those of DAVIDsTEA (USA) Inc. in full and final settlement of all claims affected by the Plan of Arrangement. Such distribution will take place after, and is conditional upon, the two Court approvals referred to above, the whole as provided in the Plan of Arrangement. The Company can provide no assurance that it will obtain a sanction order for the Plan of Arrangement from the Québec Superior Court or that the sanction order, if any, will be recognized by the United States Bankruptcy Court for the District of Delaware.

2. BASIS OF PREPARATION AND GOING CONCERN UNCERTAINTY

These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). Accordingly, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended February 1, 2020,January 30, 2021, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. In management’s opinion, the unaudited condensed interim consolidated financial statements reflect all the adjustments that are necessary for a fair presentation of the results for the interim period presented. These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in note 3 of the consolidated financial statements for the year ended February 1, 2020, other than as disclosed in note 3 below.January 30, 2021.

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 temporarily 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, in July 2020, the Company sent notices to terminate leases for 82164 of its stores in Canada and all 42 of its stores in the United States. On July 30,August 21, 2020, the Company sent notices to terminate leases for an additional 82re-opened 18 of its stores in Canada and continues to negotiate with landlords for the remaining 18 stores.throughout Canada.

Although the Company continues to offer its products directly to consumers through its online store and in supermarkets and drugstores across Canada, it is unlikely that customers will purchase its products at previous volumes through these alternative channels. Furthermore, the duration and impact of the COVID-19 pandemic is unknown and may influence consumer shopping behavior and consumer demand including online shopping. Notwithstanding that

The Plan of Arrangement requires approximately $18.0 million to be paid to the Company expectsCompany’s creditors in order to legally emerge from the formal restructuring process as a leaner organization, thereprocess. This is no assurance thatexpected to place increased risk on the Restructuring Plan will be successful and that all relevant and required regulatory, creditor and court approvals will be obtained.Company’s available liquidity, especially considering the Company does not currently have access to any debt or financing arrangements.

For the three and six-month periodsquarter ended AugustMay 1, 2020,2021, the Company reported a net income of $2.6 million and incurred a net loss of $43.2 million, respectively.$3.2 million. The Company’s current liabilities total $86.6$111.6 million as at AugustMay 1, 2020.2021. As at AugustMay 1, 2020,2021, the Company held cash and accounts and other receivables of $41.0$37.9 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 businessand by focusing on how to grow its product portfolio including sales and customer service execution, and structuring its operationsexecution. The Company expects to ensure it successfully emergestransition to a digital-first organization with a leaner, more sustainable physical presence that complements a growing world-class online and grocery business, supported by a right-sized support organization.

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

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

These interim condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. These interim condensed consolidated financial statements as at and for the three and six-month periodsthree-months ended AugustMay 1, 20202021 do not include any adjustments to the carrying amounts and classification of assets, liabilities and reported expenses that may otherwise be required if the going concern basis was not appropriate. Such adjustments could be material.

3. CHANGES IN ACCOUNTING POLICIESPRINCIPLES

Change in the pattern of consumption of intangible assets

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

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

Recently Issued Accounting Pronouncements

On May 28, 2020, the IASB issued an amendment to IFRS 16, Leases“Leases” to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions. In April 2021, the IASB extended the relief to cover rent concessions that reduce lease payments due on or before June 30, 2022.

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

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

4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

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

In preparing these unaudited condensed interim consolidated financial statements, critical judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in note 5 of the consolidated financial statements for the year ended February 1, 2020.As of February 2, 2020, 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.

Key sources of estimation uncertainty

Lease termination

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

Recoverability and impairment of non-financial assets

The temporary store closures as a result of COVID-19, as well as the 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.

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 lease 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.January 30, 2021.

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.

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

An assessment of impairment indicators was performed which caused the Company to review the recoverable amountAs a result of the propertyimpairment assessment and equipment, and right-of-use assets for certain cash generating units (“CGUs”) with an indication of impairment. CGUs reviewed included storesthe Company’s decision to be permanently closed as part of theimplement its Restructuring Plan and the remaining stores that are expected to perform below the Company’s previous projections.

As a result,accelerate its transition to predominately an online retailer, the Company recorded an impairment loss of its property and equipment and right-of-use assets 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 inrespectively, during 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].three-month period ended May 2, 2020.

Included in the amount above for property and equipment, is an impairment loss of $12.8$40.0 million, for$37.4 million relates to the 206 stores to be permanently closed as parta result of the Restructuring Plan. Plan, and is recorded in Restructuring plan activities, net (Note 10) in the interim consolidated statement of income (loss) and comprehensive income (loss).

The remaining $0.2$2.6 million of impairment loss was determined by comparing the carrying amount of the CGU’scash-generating units’ net assets with their respective recoverable amounts based on value in use, for 7 of the 18 stores that remain open.

Includedand is recorded in Selling, general and administration expenses (Note 9) in the amount above, for rightinterim consolidated statement 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 Planincome (loss) and the remaining impairment loss of $2.4 million pertain to 7 of the 18 stores that remain open.

comprehensive income (loss). 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 consideredterms, considering historical experience as well as currentand economic conditions, including the expected reopening date and the timeframe to foot traffic recovery in those location, and was then discounted using a pre‑taxpre-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 expenseof property and impairment losses related to right-of-use assets have beenequipment for the three-month period ended May 1, 2021 was $388 (May 2, 2020 - $1,243), and is recorded in Selling, general and administration expenses (Note 11)9) in the interim consolidated statement of lossincome (loss) and comprehensive loss.income (loss).

For Right-of-useAmortization of right-of-use assets for the threethree-month period ended May 1, 2021 was $159 (May 2, 2020 - $2,239), 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 $2,416is recorded in the Canada segment [August 3, 2019 - $5,059],Selling, general and $277 recordedadministration expenses (Note 9) in the U.S. segment [August 3, 2019 - $1,157]interim consolidated statement of income (loss) and comprehensive income (loss).

7. RESTRUCTURING PLAN

(a) Liabilities subject to compromise6. LIABILITIES SUBJECT TO COMPROMISE

As a result of the Initial Order obtained on July 8, 2020 and subsequent amendments (note(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 the Company’s Plan of Arrangement.

On September 17, 2020, the Court issued a plan of arrangement that is expectedClaims Process Order establishing the claims procedures for the Company’s creditors under the CCAA. The Claims Process Order, among other things set November 6, 2020 as the time by which creditors had to be presentedsubmit their claims to creditors.  PwC.

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

(b) PROVISIONS

Leases

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

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

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

As of May 1, 2021, liabilities subject to compromise are broken down as follows:

The Plan of Arrangement approved by the Company’s creditors on June 11, 2021 provides that the Company will distribute an aggregate amount of approximately $18.0 million to its creditors in full and final settlement of all claims affected by the Plan of Arrangement. Such distribution will take place after, and is conditional upon, the Court approvals, the whole as provided in the Plan of Arrangement. The Company can provide no assurance that it will obtain a sanction order for the Plan of Arrangement from the Québec Superior Court or that the sanction order, if any, will be recognized by the United States Bankruptcy Court for the District of Delaware.

8. RESTRUCTURING PLAN ACTIVITIES, NET