UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM ~~10-Q~~10-Q/A

(Amendment No. 1)

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

o 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: 000-28827

________________________

PETMED EXPRESS, INC.

(Exact name of registrant as specified in its charter)

________________________


FLORIDA			65-0680967
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

420 South Congress Avenue, Delray Beach, Florida 33445

(Address of principal executive offices, including zip code)

(561) 526-4444

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.001 per share	PETS	NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

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


Large accelerated filer o			Accelerated Filer x
Non-accelerated filer o			Smaller reporting company o
Emerging growth company o

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

Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,169,327 shares of Common Stock, $.001 par value per share, at August 1, 2023

As of April 15, 2024, 21,148,692 shares of the issuer’s Common Stock, $.001 par value per share, were issued and outstanding.

EXPLANATORY NOTE

PetMed Express, Inc. (“we,” “us,” “our,” or the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amendment”) to amend and restate certain items in our Quarterly Report on Form 10-Q for the three months ended June 30, 2023, originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 2, 2023 (the “Original Report”).

In filing this Amendment, we are restating our previously issued condensed consolidated financial statements as of and for the three months ended June 30, 2023 and 2022, (the “Affected Periods”) to correct accounting errors primarily relating to compliance with U.S. GAAP in connection with our historical accounting for sales tax liabilities and the valuation of deferred tax assets associated with the Company’s acquisition of PetCareRx in April 2023 (collectively, the "Misstatements"). As a result of the Misstatements, our previously issued condensed consolidated financial statements for the Affected Periods should no longer be relied upon. In addition, we have filed an Amendment No.1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended March 31, 2023 (the "2023 Form 10-K/A") and intend to file an amendment to our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023, originally filed with the SEC on October 31, 2023 (together with this Amendment and the 2023 Form 10-K/A, the “Amended Reports”). We will also restate the three and nine months ended December 31, 2022 to be included in our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2023 to account for the Misstatements during the 2022 periods to be presented therein. All material restatement information that relates to the Misstatements will be included in the Amended Reports and our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2023, and we do not intend to separately amend other filings that we have previously filed with the SEC.

Background and Effects of the Restatement

In the third quarter of fiscal year 2024, we reviewed the accounting treatment related to previously reported sales tax accruals as well as the accounting treatment related to the valuation of the deferred tax asset associated with our acquisition of PetCareRx in April 2023. As a result of this review, management determined that we incorrectly applied U.S. GAAP as it relates to the sales tax liability and improperly valued the deferred tax asset and goodwill included in our consolidated financial statements for each of the Affected Periods.

We corrected the Misstatements relating to sales tax accruals by recording sales tax accruals as of the end of each of the Affected Periods using a legal liability approach under Accounting Standards Codification Topic 405, Liabilities. The restated sales tax accrual amounts assume that (i) customers who have not yet provided certificates or other documentation of exemption from sales tax are taxable, (ii) total potential interest and penalty assessments may be imposed, and (iii) we will not receive waivers of interest and penalties or other benefits under agreements we may obtain with jurisdictions from our outreach with voluntary disclosures. We expect to make adjustments to the sales tax liability in future periods as and if we obtain any waivers of interest and penalties or other benefits from our voluntary disclosures and as and if we obtain additional documentation from customers supporting exemption from sales tax.

In addition, we have corrected Misstatements relating to the deferred tax asset we recognized in connection with our acquisition of PetCareRx on April 3, 2023 (the “Acquisition”). In the accounting for the Acquisition, it was determined that we incorrectly valued deferred tax assets associated with loss carryforwards of PetCareRx under section 382 of the Internal Revenue Code. As a result of this error, the amount of deferred tax assets disclosed in the Original Report was overstated by $5.9 million and the amount of goodwill was understated by $5.9 million.

This Amendment restates our previously issued unaudited condensed consolidated financial statements for each of the Affected Periods and certain other related disclosures that were included in the Original Report. The Misstatements that appeared in the previously issued unaudited condensed consolidated financial statements of the Company were material. A summary of the impact of the adjustments described above, as of and for the three months ended June 30, 2023 and 2022 is as follows:


	Three Months Ended
	June 30, 2023				June 30, 2022
(in thousands)	As previously reported		As restated		As previously reported		As restated
Sales	$	78,244	$	78,244	$	70,187	$	70,042
Gross profit	22,526		22,526		19,943		19,798
(Loss) income from operations	(2,128)		(2,128)		3,490		3,311
Net (loss) income	(887)		(1,136)		2,775		2,687


	As of
	June 30, 2023				March 31, 2023
(in thousands)	As previously reported		As restated		As previously reported		As restated
Total assets	$	180,737	$	184,275	$	164,117	$	167,478
Total liabilities	62,415		80,031		40,322		57,512
Total shareholders' equity	118,322		104,244		123,795		109,966

Restatement of Condensed Consolidated Financial Statements

This Amendment includes unaudited restated condensed consolidated financial statements for the Affected Periods. For additional information, see Note 1 "Restatement of Previously Issued Financial Statements" in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 in this Amendment.

Internal Control Considerations

Management has reassessed its evaluation of the effectiveness of its internal control over financial reporting as of June 30, 2023, as further described in Part I, Item 4 of this Amendment, and concluded that additional material weaknesses existed and that internal control over financial reporting and disclosure controls and procedures were not effective as of June 30, 2023.

Items Amended in this Filing

This Amendment sets forth our Original Report in its entirety, as amended by the changes related to the Misstatements. This Amendment does not reflect events occurring after the filing of our Original Report, or modify or update those disclosures. Accordingly, forward-looking statements included in this Amendment may represent management’s views as of the Original Report and should not be assumed to be accurate as of any date thereafter.

This Amendment amends and restates the following items of the Original Report as of and for the quarter ended June 30, 2023 :

a.Part I, Item 1. Financial Statements

b.Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

c.Part I, Item 4. Controls and Procedures

d.Part II, Item 1A. Risk Factors

e.Part II, Item 6. Exhibits, Financial Statement Schedules

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment includes new certifications specified in Rule 13a-14 under the Exchange Act, from our Chief Executive Officer and Chief Financial Officer dated as of the date of this Amendment.

PART I - FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, certain information in this ~~Quarterly Report on Form 10-Q~~Amendment includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the ~~Securities~~ Exchange ~~Act of 1934.~~Act. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information, may be forward-looking statements. You can identify these forward-looking statements by the words "believes," "intends," "expects," “might,” "may," "will," "should," "plans," "projects," "contemplates," "intends," "budgets," “potential,” "predicts," "estimates," "anticipates," “future,” “goal,” and variations of such words or similar expressions. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved, and actual future results may differ materially from what is expressed in or indicated by the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A, under the heading “Risk Factors,” ofin our ~~Annual Report on~~2023 Form ~~10-K for the year ended March 31, 2023,~~10-K/A filed with the ~~Securities and Exchange Commission (“SEC”)~~“SEC”, and under ~~“Part~~Part II, Item 1A., Risk ~~Factors”~~Factors in this ~~Quarterly Report on Form 10-Q,~~Amendment, if and as such risk factors may be updated from time to time in our periodic filings with the SEC. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and a reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this ~~Quarterly Report on Form 10-Q~~Amendment apply only as of the date of ~~this Quarterly~~the Original Report ~~on Form 10-Q~~ or as of the date they were made or as otherwise specified herein. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Investors and others should note that we use our websites (https://petmeds.com and https://www.investors.petmeds.com), as well as social media, press releases, SEC filings, public conference calls and webcasts, as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings, public conference calls and webcasts. The contents of our websites and social media posts, however, are not incorporated by reference into this ~~Quarterly Report on Form 10-Q.~~Amendment. Further, our references to website URLs in this filing are intended to be inactive textual references only.

NOTE REGARDING COMPANY REFERENCES

When used in this ~~Quarterly Report on Form 10-Q,~~Amendment, unless otherwise stated or the context otherwise indicates, "PetMed Express," "PetMeds," "PetMed," "the Company," "we," "our," and "us" refers to PetMed Express, Inc. and its direct and indirect wholly owned subsidiaries, taken as a whole.

ITEM 1. CONDENSED FINANCIAL STATEMENTS.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for per share amounts)

June 30,
2023

March 31,
2023

(Unaudited)

June 30,
2023

March 31,
2023

(Unaudited)

(as restated)

ASSETS

Current assets:

Cash and cash equivalents

61,534

104,086

Accounts receivable, less allowance for doubtful accounts of $38 and $35, respectively

1,894

1,740

Inventories - finished goods

32,324

19,023

Prepaid expenses and other current assets

8,530

4,719

Prepaid income taxes

1,548

1,883

Total current assets

105,830

131,451

Noncurrent assets:

Property and equipment, net

27,207

26,178

Intangible and other assets, net

17,671

5,860

Goodwill

20,735

–

Operating lease right-of-use assets, net

2,024

–

Deferred tax assets, net

7,270

628

Total noncurrent assets

74,907

32,666

Total assets

180,737

164,117

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

40,037

25,208

Accounts payable

Sales tax payable

Accrued expenses and other current liabilities

13,240

11,289

Current lease liabilities

799

–

Deferred revenue

3,246

–

Total current liabilities

57,322

36,497

Total current liabilities

Long-term lease liabilities

1,268

–

Other long-term liabilities

3,825

Long-term lease liabilities

Total liabilities

62,415

40,322

Commitments and contingencies (Note 9)

Shareholders' equity:

Preferred stock, $.001 par value, 5,000 shares authorized; 3 convertible shares issued and outstanding with a liquidation preference of $4 per share

Common stock, $.001 par value, 40,000 shares authorized; 21,170 and 21,084 shares issued and outstanding, respectively

Additional paid-in capital

20,037

18,277

Retained earnings

98,255

105,488

Total shareholders' equity

118,322

123,795

Total shareholders' equity

Total liabilities and shareholders' equity

180,737

164,117

Total liabilities and shareholders' equity

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(In thousands, except for per share amounts) (Unaudited)


		Three Months Ended June 30,
				2023		2022

		Three Months Ended June 30,
		Three Months Ended June 30,
		Three Months Ended June 30,
			2023										2023	2022
			(as restated)										(as restated)	(as restated)
Sales	Sales			$	78,244	$	70,187
Cost of sales	Cost of sales			55,718		50,244

Gross profit	Gross profit			22,526		19,943
Gross profit
Gross profit

Operating expenses:	Operating expenses:
Operating expenses:
Operating expenses:
General and administrative
General and administrative
General and administrative	General and administrative			15,711		9,351
Advertising	Advertising			7,265		6,349
Depreciation and amortization	Depreciation and amortization			1,678		753
Total operating expenses	Total operating expenses			24,654		16,453

(Loss) income from operations	(Loss) income from operations			(2,128)		3,490
(Loss) income from operations
(Loss) income from operations

Other income:
Interest income, net				620		117
Other income (expense):
Other income (expense):
Other income (expense):
Interest income (expense), net
Interest income (expense), net
Interest income (expense), net
Other, net	Other, net			506		198
Total other income				1,126		315
Total other income (loss)

(Loss) income before (benefit) provision for income taxes
(Loss) income before (benefit) provision for income taxes
(Loss) income before (benefit) provision for income taxes	(Loss) income before (benefit) provision for income taxes			(1,002)		3,805

(Benefit) provision for income taxes	(Benefit) provision for income taxes			(115)		1,030
(Benefit) provision for income taxes
(Benefit) provision for income taxes

Net (loss) income
Net (loss) income
Net (loss) income	Net (loss) income			$	(887)	$	2,775

Net (loss) income per common share:	Net (loss) income per common share:
Net (loss) income per common share:
Net (loss) income per common share:
Basic
Basic
Basic	Basic			$	(0.04)	$	0.14
Diluted	Diluted			$	(0.04)	$	0.14

Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:
Weighted average number of common shares outstanding:
Weighted average number of common shares outstanding:
Basic
Basic
Basic	Basic			20,333		20,208			20,333		20,208
Diluted	Diluted			20,333		20,291		Diluted		20,333		20,291

Cash dividends declared per common share	Cash dividends declared per common share			$	0.30	$	0.30
Cash dividends declared per common share
Cash dividends declared per common share

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

Three Months Ended
June 30,

2023

2022

Three Months Ended
June 30,

2023

2022

(as restated)

Cash flows from operating activities:

Net (loss) income

(887)

2,775

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization

1,678

753

Share based compensation

1,760

1,536

Deferred income taxes

(450)

(294)

Bad debt expense

(Increase) decrease in operating assets and increase (decrease) in operating liabilities:

Accounts receivable

(46)

Accounts receivable

Inventories - finished goods

(10,185)

9,880

Prepaid income taxes

335

681

Prepaid expenses and other current assets

(2,390)

451

Operating lease right-of-use assets, net

196

–

Accounts payable

9,115

(10,469)

Sales tax payable

Accrued expenses and other current liabilities

1,369

Lease liabilities

(205)

–

Deferred revenue

253

–

Income taxes payable

–

839

Net cash provided by operating activities

562

6,380

Cash flows from investing activities:

Purchase of minority interest investment in Vetster

–

(5,000)

Acquisition of PetCareRx, net of cash acquired

(35,859)

–

Purchases of property and equipment

(1,153)

(982)

Net cash used in investing activities

(37,012)

(5,982)

Cash flows from financing activities:

Dividends paid

(6,102)

(6,064)

Net cash used in financing activities

(6,102)

(6,064)

Net decrease in cash and cash equivalents

(42,552)

(5,666)

Net decrease in cash and cash equivalents

Cash and cash equivalents, at beginning of period

104,086

111,080

Cash and cash equivalents, at end of period

61,534

105,414

Cash and cash equivalents, at end of period

Supplemental disclosure of cash flow information:

Dividends payable in accrued expenses

1,507

791

Dividends payable in accrued expenses

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Restatement of Previously Issued Financial Statements

The unaudited quarterly financial statements for the quarters ended June 30, 2023 and 2022 (collectively, the "Affected Periods") have been restated to account for material misstatements related to the collection of sales taxes on sales of products and services to customers as further described below and the accounting treatment related to the deferred tax asset associated with the Company’s acquisition of PetCareRx in April 2023 (collectively, the "Misstatements"). The Company also restated all amounts impacted within the notes to the financial statements in this Amendment. A description of the adjustments and their impacts on the previously issued financial statements are included below.

Description of restatement adjustments

In the third quarter of fiscal year 2024, the Company reviewed the accounting treatment related to its previously reported sales tax accruals as well as the accounting treatment related to the valuation of the deferred tax asset associated with the Company’s acquisition of PetCareRx in April 2023. As a result of this review, management determined that the Company incorrectly applied GAAP as it relates to the sales tax liability included in our consolidated financial statements for each of the Affected Periods, and that it improperly valued the deferred tax asset and goodwill reported in the first and second quarter of fiscal year 2024.

The restated sales tax accrual amounts assume that (i) customers who have not yet provided certificates or other documentation of exemption from sales tax are taxable, (ii) total potential interest and penalty assessments may be imposed, and (iii) the Company will not receive waivers of interest and penalties or other benefits under agreements it may obtain with jurisdictions from its outreach with voluntary disclosures. The Company expects to make adjustments to the sales tax liability in future periods as and if it obtains any waivers of interest and penalties or other benefits from its voluntary disclosures and as and if it obtains additional documentation from customers supporting exemption from sales tax.

In addition, the Company has corrected its deferred tax asset recognized in connection with its acquisition of PetCareRx on April 3, 2023 (the “Acquisition”). In the accounting for the Acquisition, it was determined that the Company incorrectly valued deferred tax assets associated with loss carryforwards of PetCareRx under section 382 of the Internal Revenue Code. As a result of this error, the amount of deferred tax assets disclosed in the Original Report was overstated by $5.9 million and the amount of goodwill by was understated by $5.9 million.

A summary of the impact of the adjustments described above relating to the Misstatements for the quarters ended June 30, 2023 and 2022, is as follows:


	Three Months Ended
	June 30, 2023				June 30, 2022
(in thousands)	As previously reported		As restated		As previously reported		As restated
Sales	$	78,244	$	78,244	$	70,187	$	70,042
Gross profit	$	22,526	$	22,526	$	19,943	$	19,798
(Loss) income from operations	$	(2,128)	$	(2,128)	$	3,490	$	3,311
Net (loss) income	$	(887)	$	(1,136)	$	2,775	$	2,687


	Three Months Ended
	June 30, 2023				June 30, 2022
	As previously reported		As restated		As previously reported		As restated
Net (loss) income (numerator):
Net (loss) income	$	(887)	$	(1,136)	$	2,775	$	2,687

Shares (denominator):

Weighted average number of common shares outstanding used in basic computation	20,333		20,333		20,208		20,208
Common shares issuable upon vesting of restricted stock	—		—		73		73
Common shares issuable upon conversion of preferred shares	—		—		10		10
Shares used in diluted computation	20,333		20,333		20,291		20,291

Net (loss) income per common share:

Basic	$	(0.04)	$	(0.06)	$	0.14	$	0.13
Diluted	$	(0.04)	$	(0.06)	$	0.14	$	0.13

The restated unaudited interim financial information for the relevant unaudited interim financial statements for the quarterly periods ended June 30, 2023 and 2022 is also included below.

The categories of restatement adjustments and their impacts on previously reported financial statements are described below and identified in the Restatement Reconciliation Tables in the column entitled "Reference":

a.Sales Tax – Sales tax on sales of products and services to customers who were subject to sales tax, inclusive of maximum penalties and interest, that was not previously accrued by the Company is corrected by an increase to sales tax liabilities on the consolidated balance sheets. The effect of the adjustments on the consolidated statements of operations were recorded as a reduction to sales for the amount of tax, an increase to general and administrative expenses for accrued penalties and interest is included in other interest(expense) on the consolidated statements of operations.

b.Tax provision / accrual – Tax provisions, deferred tax assets and liabilities were adjusted based on restated net income and restated deferred assets valuation in connection with the acquisition of PetCareRx.

c.Deferred tax asset adjustment - Deferred tax asset recognized in connection with the acquisition of PetCareRx on April 3, 2023.

Condensed Consolidated Financial Statements - Restatement Reconciliation Tables

In light of the foregoing, in accordance with ASC 250, Accounting Changes and Error Corrections, we are restating the previously issued unaudited condensed consolidated financial statements as of June 30, 2023 and March 31, 2023, and for the three months ended June 30, 2023 and 2022, to reflect the effects of the restatement adjustments and to make certain corresponding disclosures. In the following tables, we have presented a reconciliation of our consolidated balance sheets, statements of operations, and cash flows as previously reported for these prior periods to the restated and revised amounts.

Summary of Restatement - Consolidated Balance Sheets


	June 30, 2023							March 31, 2023
	As Previously Reported		Restatement Adjustments		Refer-ence	As Restated		As Previously Reported		Restatement Adjustments		Refer-ence	As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	61,534	$	—		$	61,534	$	104,086	$	—		$	104,086
Accounts receivable, less allowance for doubtful accounts of $38 and $35, respectively	1,894		—			1,894		1,740		—			1,740
Inventories - finished goods	32,324		—			32,324		19,023		—			19,023
Prepaid expenses and other current assets	8,530		—			8,530		4,719					4,719
Prepaid income taxes	1,548		(1,020)		b	528		1,883		(1,020)		b	863
Total current assets	105,830		(1,020)			104,810		131,451		(1,020)			130,431

Noncurrent assets:
Property and equipment, net	27,207		—			27,207		26,178		—			26,178
Intangible and other assets	17,671		—			17,671		5,860		—			5,860
Goodwill	20,735		5,922		c	26,657		—		—			—
Operating lease right-of-use assets, net	2,024		–			2,024		—		–			–
Deferred tax assets, net	7,270		(1,364)		b, c	5,906		628		4,381		b	5,009
Total noncurrent assets	74,907		4,558			79,465		32,666		4,381			37,047

Total assets	$	180,737	$	3,538		$	184,275	$	164,117	$	3,361		$	167,478

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	40,037	$	—		$	40,037	$	25,208	$	—		$	25,208
Sales tax payable	—		26,614		a	26,614		—		26,113		a	26,113
Accrued expenses and other current liabilities	13,240		(5,173)		a	8,067		11,289		(5,098)		a	6,191
Current lease liabilities	799		—			799		—		—			—
Deferred revenue	3,246		—			3,246		—		—			—
Total current liabilities	57,322		21,441			78,763		36,497		21,015			57,512

Deferred tax liabilities	—		—			—		—		—			—
Long-term lease liabilities	1,268		—			1,268		—		—			—
Other long-term liabilities	3,825		(3,825)		a	—		3,825		(3,825)		a	—

Total liabilities	62,415		17,616			80,031		40,322		17,190			57,512

Commitments and contingencies	—		—			—		—		—			—

Shareholders' equity:
Preferred stock, $.001 par value, 5,000 shares authorized; 3 convertible shares issued and outstanding with a liquidation preference of $4 per share	9		—			9		9		—			9
Common stock, $.001 par value, 40,000 shares authorized; 21,170 and 21,084 shares issued and outstanding, respectively	21		—			21		21		—			21
Additional paid-in capital	20,037		—			20,037		18,277		—			18,277
Retained earnings	98,255		(14,078)		a, b, c	84,177		105,488		(13,829)		a, b	91,659

Total shareholders' equity	118,322		(14,078)			104,244		123,795		(13,829)			109,966

Total liabilities and shareholders' equity	$	180,737	$	3,538		$	184,275	$	164,117	$	3,361		$	167,478

Summary of Restatement - Consolidated Statements of Operations


	Three Months Ended June 30, 2023							Three Months Ended June 30, 2022
	As Previously Reported		Restatement Adjustments		Refer-ence	As Restated		As Previously Reported		Restatement Adjustments		Refer-ence	As Restated
Sales	$	78,244	$	—		$	78,244	$	70,187	$	(145)	a	$	70,042
Cost of sales	55,718		—			55,718		50,244		—			50,244

Gross profit	22,526		—			22,526		19,943		(145)			19,798

Operating expenses:
General and administrative	15,711		—			15,711		9,351		34		a	9,385
Advertising	7,265		—			7,265		6,349		—			6,349
Depreciation and amortization	1,678		—			1,678		753		—			753
Total operating expenses	24,654		—			24,654		16,453		34			16,487

(Loss) income from operations	(2,128)		—			(2,128)		3,490		(179)			3,311

Other income (expense):
Interest income (expense), net	620		(426)		a	194		117		(391)		a	(274)
Other, net	506		—			506		198		—			198
Total other income (loss)	1,126		(426)			700		315		(391)			(76)

(Loss) income before (benefit) provision for income taxes	(1,002)		(426)			(1,428)		3,805		(570)			3,235

(Benefit) provision for income taxes	(115)		(177)		b	(292)		1,030		(482)		b	548

Net (loss) income	$	(887)	$	(249)		$	(1,136)	$	2,775	$	(88)		$	2,687

Net (loss) income per common share:
Basic	$	(0.04)	$	(0.02)		$	(0.06)	$	0.14	$	(0.01)		$	0.13
Diluted	$	(0.04)	$	(0.02)		$	(0.06)	$	0.14	$	(0.01)		$	0.13

Weighted average number of common shares outstanding:
Basic	20,333		—			20,333		20,208		—			20,208
Diluted	20,333		—			20,333		20,291		—			20,291

Cash dividends declared per common share	$	0.30	$	—		$	0.30	$	0.30	$	—		$	0.30

Summary of Restatement - Consolidated Cash Flow Statement


	Three Months Ended June 30, 2023							Three Months Ended June 30, 2022
	As Previously Reported		Restatement Adjustments		Refer-ence	As Restated		As Previously Reported		Restatement Adjustments		Refer-ence	As Restated
Cash flows from operating activities:
Net (loss) income	$	(887)	$	(249)	a	$	(1,136)	$	2,775	$	(88)	a	$	2,687
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	1,678		—			1,678		753		—			753
Share based compensation	1,760		—			1,760		1,536		—			1,536
Deferred income taxes	(450)		(177)		b	(627)		(294)		(482)		b	(776)
Bad debt expense	19		—			19		45		—			45
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable	(46)		—			(46)		86		—			86
Inventories - finished goods	(10,185)		—			(10,185)		9,880		—			9,880
Prepaid income taxes	335		—			335		681		—			681
Prepaid expenses and other current assets	(2,390)		—			(2,390)		451		—			451
Operating lease right-of-use assets, net	196		—			196		—		—			—
Accounts payable	9,115		—			9,115		(10,469)		—			(10,469)
Sales tax payable	—		500		a	500		—		498		a	498
Accrued expenses and other current liabilities	1,369		(74)		a	1,295		97		72		a	169
Lease liabilities	(205)		—			(205)		—		—			—
Deferred revenue	253		—			253		—		—			—
Income taxes payable	—		—			—		839		—			839
Net cash provided by operating activities	$	562	$	—		$	562	$	6,380	$	—		$	6,380

Cash flows from investing activities:
Purchase of minority interest investment in Vetster	—		—			—		(5,000)		—			(5,000)
Acquisition of PetCareRx, net of cash acquired	(35,859)		—			(35,859)		—		—			—
Purchases of property and equipment	(1,153)		—			(1,153)		(982)		—			(982)
Net cash used in investing activities	$	(37,012)	$	—		$	(37,012)	$	(5,982)	$	—		$	(5,982)

Cash flows from financing activities:
Dividends paid	(6,102)		—			(6,102)		(6,064)		—			(6,064)
Net cash used in financing activities	$	(6,102)	$	—		$	(6,102)	$	(6,064)	$	—		$	(6,064)

Net (decrease) increase in cash and cash equivalents	(42,552)		—			(42,552)		(5,666)		—			(5,666)

Cash and cash equivalents, at beginning of year	104,086		—			104,086		111,080		—			111,080

Cash and cash equivalents, at end of year	$	61,534	$	—		$	61,534	$	105,414	$	—		$	105,414

Supplemental disclosure of cash flow information:



Dividends payable in accrued expenses	$	1,507	$	—		$	1,507	$	791	$	—		$	791

Note 1:2: Summary of Significant Accounting Policies

Organization

PetMed Express, Inc. and subsidiaries, d/b/a PetMeds®, is a leading direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, food, supplements, supplies and vet services for dogs, cats, and horses. The Company markets and sells directly to consumers through its websites, toll-free numbers, and mobile applications. The Company offers consumers an attractive option for obtaining pet medications, food, and supplies in terms of convenience, price, speed of delivery, and valued customer service.

Founded in 1996, the Company’s executive headquarters offices are currently located in Delray Beach, Florida. The Company’s fiscal year end is March 31, and references herein to fiscal 2024 or fiscal 2023 refer to the Company's fiscal years ending March 31, 2024 and 2023, respectively.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company at June 30, 2023, the Statements of (Loss) Income for the three months ended June 30, 2023 and 2022, and Cash Flows for the three months ended June 30, 2023 and 2022. The results of operations for the three months ended June 30, 2023 are not necessarily indicative of the operating results expected for the fiscal year ending March 31, 2024. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the ~~Company’s Annual Report on~~2023 Form ~~10-K for the fiscal year ended March 31, 2023.~~10-K/A. The unaudited condensed consolidated financial statements include the accounts of PetMed Express, Inc. and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Business Combinations

The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") Topic 805 ("Business Combinations"). The purchase price is allocated to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business combination are included in the Company’s unaudited condensed consolidated financial statements from the date of acquisition.

Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions, and competition. In connection with the determination of fair values, the Company may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain obligations assumed. Acquisition-related transaction costs incurred by the Company are not included as a component of consideration transferred but are accounted for as an operating expense in the period in which the costs are incurred.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

510

Fair Value of Financial Instruments

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments.

Deferred Revenue

Deferred revenue is recorded when payments are received or due in advance of performing our service obligations and revenue is recognized over the service period. Deferred revenue represents prepayments of PetPlus memberships with PetCareRx. The total deferred revenue as of June 30, 2023 for these memberships was $3.2 million. Memberships provide discounted pricing, free standard shipping, veterinary telehealth services and local Caremark Pharmacy prescription pickup. The membership fee is an annual charge and automatically renews one year from the initial enrollment date. The Company generally recognizes the revenue ratably over the term of the membership.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but instead is tested for impairment annually on January 1, or more frequently if events or changes in circumstances indicate goodwill might be impaired. When testing goodwill for impairment, the Company has the option to choose whether it will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply the quantitative assessment directly. The Company has concluded that it has one reporting unit and has assigned the entire balance of goodwill to this reporting unit.

Intangible Assets

The Company acquired definite-lived intangible assets in the acquisition (see Note 3) that will be amortized based on their estimated useful lives in accordance with ASC Topic 350 (“Goodwill and Other Intangible Assets”). These definite-lived intangible assets are being amortized over periods ranging from three to seven years. The acquired indefinite life intangible is not being amortized and is subject to an annual review for impairment consistent with the existing intangible assets in fiscal 2024.

Leases

The Company accounts for leases in accordance with ASC Topic 842 ("Leases"). The Company reviews all contracts and determines if the arrangement is or contains a lease, at inception. Operating leases are reported as right-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities on the unaudited Condensed Consolidated Balance Sheets. The Company does not have any have any material leases, individually or in the aggregate, classified as a finance lease.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

Recent Accounting Pronouncements

The Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company's consolidated financial position, results of operations, or cash flows.

Note 2:3: Revenue Recognition (As Restated)

In accordance with ASC Topic 606 ("Revenue from Contracts with Customers"), the Company generates revenue by selling prescription and non-prescription pet medication products, pet food, supplements, supplies, membership fees, and veterinary services. Certain pet supplies offered on the Company’s website are drop shipped to customers. The Company considers itself the principal in the arrangement because the Company controls the specified good before it is transferred to

611

the customer. Revenue contracts contain one performance obligation, which is delivery of the product. Customer care and support is deemed not to be a material right to the contract. The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are based on historical patterns, however this is not considered a key judgment. Revenue is recognized when control transfers to the customer at the point in time at which the shipment of the product occurs. This key judgment is determined as the shipping point, which represents the point in time when the Company has a present right to payment, title has transferred to the customer, and the customer has assumed the risks and rewards of ownership. Virtually all the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in two to three banking days. Credit card sales minimize the accounts receivable balances relative to sales.

Outbound shipping and handling fees are an accounting policy election and are included in sales as the Company considers itself the principal in the arrangement given its responsibility for supplier selection and discretion over pricing. Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales.

Membership fees represent the amounts recognized periodically from two membership models. The first is the PetPlus membership for PetCareRx customers, the second is a partner membership provided through PetCareRx. These memberships provide discounted pricing, free standard shipping, veterinary telehealth services and local Caremark Pharmacy prescription pickup which represent a single stand-ready performance obligation to provide these benefits. The PetPlus membership fee is an upfront annual charge and automatically renews one year from the initial enrollment date. The Company recognizes the revenue ratably over the term of the PetPlus membership which is generally one year. As shown in the following table, under the PetPlus program, the Company recognized $1.8 million previously deferred annual membership fees in the three months ended June 30, 2023 and had $3.2 million of deferred revenue as of June 30, 2023 (amounts in millions).


Deferred revenue, March 31, 2023	$	–
Deferred revenue acquired with PetCareRx	3.0
Deferred memberships fees received	2.0
Deferred membership fee revenue recognized	(1.8)
Deferred revenue, June 30, 2023	$	3.2

In addition to annual membership fees earned under the PetPlus program, the Company also earns membership fees on a month-to-month basis under its PetCareRx partner membership program. For the three months ended June 30, 2023, membership fees earned under the partner program were $0.6 million.

The Company has no material contract asset or liability balances at June 30, 2023 and March 31, 2023, respectively.

The Company disaggregates sales in the following categories: reorder sales vs new order sales vs membership fees. The following table illustrates sales in those categories:


			Three Months Ended June 30,
		Three Months Ended June 30,
Revenue (In thousands)	Revenue (In thousands)		2023		%			2022		%		$ Variance		% Variance

Revenue (In thousands)
Revenue (In thousands)																			2023					%					2022				%			$ Variance					% Variance
							(as restated)
Reorder sales
Reorder sales
Reorder sales	Reorder sales		$	68,038	87.0	%		$	63,339	90.2	%	$	4,699	7.4	%		$	68,038			87.0		87.0		%			$	63,208		90.2		90.2	%		$	4,830		7.6			7.6		%
New order sales	New order sales		7,820		10.0	%		6,848		9.8	%	972		14.2	%	New order sales			7,820			10.0			10.0		%			6,834		9.8		9.8	%			986		14.4				14.4	%
Membership fees	Membership fees		2,386		3.0	%		–		–	%	2,386		–	%	Membership fees			2,386			3.0			3.0		%			–		–		–	%			2,386		–				–	%

Total net sales	Total net sales		$	78,244	100.0	%		$	70,187	100.0	%	$	8,057	11.5	%
Total net sales
Total net sales																			$	78,244				100.0		%			$	70,042			100.0	%		$	8,202				11.7		%

Note 3:4: Acquisition (As Restated)

Merger Sub, Inc., a New York corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), PetCareRx and

Jeanette Loeb (as representative of the PetCareRx equity holders). The Merger Agreement provided for the Company’s acquisition of PetCareRx pursuant to the merger of Merger Sub with and into PetCareRx, with PetCareRx as the surviving corporation. The aggregate purchase price consideration was $36.1 million and was provided from the Company's cash on hand.

The acquisition of PetCareRx has allowed us to significantly expand our product catalog, most notably in non-medication products, including food. In addition,PetCareRX brings increased distribution capability.

The Company recognized preliminary goodwill of approximately ~~$20.7~~$26.7 million, which is calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of the identifiable assets acquired. Goodwill recognized in the transaction represent synergies or scale achieved by significantly increasing the customer base without adding corresponding levels of additional overhead, the value of additional vendor relationships, including the food manufacturing relationships, a broader product catalog, and an assembled and experienced workforce. These items represent intangible assets that do not qualify for separate recognition. No goodwill is deductible for tax purposes.

The values assigned to the assets acquired and liabilities assumed are based on their estimates of fair value available as of April 3, 2023, as calculated by an independent third-party firm. The selected rates of returns were chosen in consideration of the individual risk profiles of the assets, as well as the resulting weighted average return on assets. Intangible assets are considered to be riskier than the overall business, so the Company included a premium to the investment rate of return on the identified intangible discount rates.

The fair values of intangible assets acquired consist of a trade name, customer relationships, and developed technology, which were estimated by applying various discounted cash flow models such as the relief from royalty rate for the trade name, the multi-period excess earnings method for the customer relationships, and the cost to replace method for the developed technology. The fair value measurements were based on significant inputs that are not observable (Level 3). The assumptions made by management in determining the fair value of intangible assets included a discount rate of 12% based on the weighted average cost of capital.

As a result of the acquisition, the Company performed a Section 382 analysis to determine if the net operating losses carried forward will have a utilization limitation. - refer to Note 11 for further discussion.

The table below outlines the purchase price allocation of the purchase for PetCareRx to the acquired identifiable assets, liabilities assumed and goodwill (in thousands):


Cash and cash equivalents	$	220
Accounts receivable, net	125
Other receivables	506
Inventory	3,116
Other current assets	835
Property and equipment	1,065
Deferred tax assets	~~6,192~~270
Goodwill	~~20,735~~26,657
Intangible assets, net	12,300
Right of use assets	2,220
Other assets	80
Total assets	47,394
Accounts payable	5,713
Accrued liabilities	131
Deferred revenue	2,993
Other current liabilities	206
Lease liabilities	2,272
Total liabilities	11,315
Total purchase consideration	$	36,079

The Company incurred a total of $1.6 million in acquisition related costs that were expensed as incurred and recorded in general and administrative expenses in the Company’s unaudited Condensed Consolidated Statements of (Loss) Income,

of which $0.5 million was recorded in fiscal year 2023. These costs include banking, legal, accounting, and consulting fees related to the acquisition.

Supplemental Pro Forma Information (As Restated)

The supplemental pro forma financial information presented below is for illustrative purposes only, does not include the pro forma adjustments that would be required under Regulation S-X of the Exchange Act for pro forma financial information, is not necessarily indicative of the financial position or results of operations that would have been realized if the PetCareRx acquisition had been completed on April 1, 2022, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances.

The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the PetCareRx acquisition had occurred on April 1, 2022 to give effect to certain events that the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:

a.A decrease in depreciation expense that would have been recognized due to acquired identifiable fixed assets;

b.A decrease in amortization expense that would have been recognized due to acquired identifiable intangible assets; and

c.A decrease in payroll costs and benefits.

The supplemental pro forma financial information for the prior period first fiscal quarter is as follows (in thousands):


	Three Months Ended June 30, 2022
	(unaudited)
Revenue	$	~~81,390~~81,245
Net income	~~995~~907

Note 4:5: Net (Loss) Income Per Share (As Restated)

In accordance with the provisions of ASC Topic 260 (“Earnings Per Share”) basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share includes the dilutive effect of potential restricted and performance stock and the effects of the potential conversion of preferred shares, calculated using the treasury stock method. Unvested restricted stock and convertible preferred shares issued by the Company represent the only dilutive effect reflected in the diluted weighted average shares outstanding.

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The following is a reconciliation of the numerators and denominators of the basic and diluted net (loss) income per share computations for the periods presented (in thousands, except for per share amounts):

Three Months Ended
June 30,

2023

2022

Three Months Ended
June 30,

2023

2022

Net (loss) income (numerator):

Net (loss) income

(887)

2,775

Shares (denominator):

Weighted average number of common shares outstanding used in basic computation

20,333

20,208

Common shares issuable upon vesting of restricted stock

–

Common shares issuable upon conversion of preferred shares

–

Shares used in diluted computation

20,333

20,291

Net (loss) income per common share:

Basic

(0.04)

0.14

Diluted

(0.04)

0.14

For the three months ended June 30, 2023, ~~418,386~~862,519 shares issuable upon vesting of restricted stock and 10,125 shares issuable upon conversion of preferred shares were excluded from the computation of diluted net (loss) income per common share, as their inclusion would have had an anti-dilutive effect on diluted net (loss) income per common share.

Note 5:6: Stock-Based Compensation

The Company records compensation expense associated with restricted stock in accordance with ASC Topic 718 (“Share Based Payment”). The Company had 968,667 common shares issued under the 2016 Employee Equity Compensation Restricted Stock Plan (“2016 Employee Plan”), 75,742 common shares issued under the 2022 Employee Equity Compensation Plan (as amended) (“2022 Employee Plan”), and 242,378 common shares issued under the 2015 Outside Director Equity Compensation Plan (as amended) (“2015 Director Plan”) at June 30, 2023, all shares of which were issued with service-based vesting conditions which vest subject to the employee's continued employment with the Company through the applicable vesting date. The Company recorded share-based compensation expense for these awards on a straight line basis over the requisite service period and accounted for forfeitures as they occur, with the exception of market based restricted shares which were issued to the Chief Executive Officer.

In June 2023, the Board of Directors amended and restated the 2015 Director Plan and the 2022 Employee Plan (collectively, the "Plans") to include the ability to grant restricted stock units ("RSUs") and performance stock units ("PSUs") under the Plans. The amendments and restatement of the Plans did not increase the maximum number of shares of common stock that may be awarded under the Plans. At June 30, 2023, the Company also had 13,250 RSUs and 12,000 PSUs granted under the 2022 Employee Plan.

In August 2021, the Company issued 90,000 restricted shares and 510,000 performance restricted shares to the Company’s CEO, in accordance with the CEO’s employment agreement, under the 2016 Employee Plan. The performance restricted shares vest based on achieving absolute stock hurdles within the three-year period from the grant date. If the shares meet the absolute stock price hurdle, they will only vest on the third anniversary of the date of grant. As of June 30, 2023, none of the performance stock hurdles were met.

In June 2023, the Company granted the Company's CFO 11,750 RSUs under the 2022 Employee Plan, of which 3,750 RSUs were awarded in recognition of Ms. Chambers’ contributions during fiscal year 2023 and the remaining 8,000 awarded as a part of the equity award cycle for fiscal year 2024. One-third of the RSUs will vest on each of the first three anniversaries of the date of grant, subject to Ms. Chambers’ continued employment with the Company through the applicable vesting date, with any unvested RSUs being forfeited upon Ms. Chambers ceasing to be an employee of the Company. Also in June 2023, the Company's CFO was awarded 8,000 PSUs. Ms. Chambers will earn shares of our common stock pursuant to the PSUs based on the Company’s total shareholder return (“TSR”) relative to the S&P 600

Specialty Retail Index (“Index”) over an overall three-year performance period consisting of the 2024 through 2026 fiscal years, as follows:

•100% of the target number of shares, which is 8,000 shares, will be earned if the Company’s TSR is equal to or greater than the 75th percentile of the Index (the “maximum target payout”);

•50% of the target number of shares, which is 4,000 shares, will be earned if the Company’s TSR is equal to at least the 50th percentile of the Index;

•25% of the target number of shares, which is 2,000 shares, will be earned if the Company’s TSR is equal to at least the 25th percentile of the Index (the “minimum threshold”);

•No shares will be earned if the TSR is less than the 25th percentile of the Index, and the payout is capped at 2,000 shares if absolute TSR is negative, regardless of relative position to the Index; and

•Linear scaling will be used to determine the number of shares earned for performance between the maximum target payout level and the minimum threshold payout level.

The Company issued 12,400 shares of restricted stock to certain employees under the 2016 Employee Plan and 75,742 shares of restricted stock to certain employees under the 2022 Employee Plan during the quarter ended June 30, 2023. The Company issued 1,623 shares of restricted stock to board members under the 2015 Director Plan during the quarter ended June 30, 2023. For the quarters ended June 30, 2023 and 2022, the Company recognized $1.8 million and $1.5 million, respectively, of compensation expense related to the 2016 Employee Plan, 2022 Employee Plan, and 2015 Director Plan. At June 30, 2023 and 2022 there was $9.0 million and $12.3 million of unrecognized compensation cost related to the non-vested restricted stock awards, respectively, which is expected to be recognized over the next one to three years. All stock-based compensation expense is recognized as a payroll-related expense and it is included within the general and administrative expenses line item within the Company’s unaudited Consolidated Statements of (Loss) Income, , and the offset is included in the additional paid-in capital line item of the Company’s unaudited Condensed Consolidated Balance Sheets. As of June 30, 2023 and 2022, there were 837,269 and 780,167 non-vested restricted shares issued and outstanding, respectively.

Restricted Stock Awards

Restricted stock award activity under the 2016 Employee Plan, 2022 Employee Plan, and 2015 Director Plan was as follows:


	2015 Director Plan	2016 Employee Plan	2022 Employee Plan	Total	Weighted-Average Grant Date Fair Value
Non-vested restricted stock outstanding at March 31, 2023	68,629	684,200	–	752,829	$	27.73
Granted and issued	1,623	12,400	75,742	89,765	$	16.06
Vested	(1,085)	(500)	–	(1,585)	$	30.62
Forfeited	–	(3,740)	–	(3,740)	$	22.81
Balance at June 30, 2023	69,167	692,360	75,742	837,269	$	24.01

Restricted Stock Units

The fair value of RSUs is determined on the date of grant. The Company records compensation expense in the unaudited condensed Consolidated Statements of (Loss) Income on a straight-line basis over the vesting period for RSUs. The vesting period for employees and members of the Board of Directors ranges from one to three years.

RSU activity under the Plans was as follows:

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	RSUs	Weighted-Average Grant Date Fair Value Per RSU
Balance at March 31, 2023	–	$	–
Granted	13,250	$	13.95
Vested and issued	–	$	–
Forfeited	–	$	–
Balance at June 30, 2023	13,250	$	13.95
Vested and unissued at June 30, 2023	–	$	–
Non-vested at June 30, 2023	13,250	$	13.95

The total grant-date fair value of RSUs granted during the quarters ended June 30, 2023 and 2022 was $0.2 million and zero, respectively.

For the quarters ended June 30, 2023 and 2022, the Company recorded stock- based compensation related to RSUs of zero for both periods.

Performance Stock Units

Stock-based compensation costs associated with the Company’s PSUs are either initially determined using the fair market value of the Company’s common stock on the date the awards are granted (service inception date) for awards with performance condition or for awards with a market condition, the grant value is based on a Monte Carlo simulation. The vesting of PSUs is subject to certain performance conditions and a service requirement ranging from one to three years. Stock-based compensation costs associated with PSUs are re-assessed each reporting period based upon the estimated performance attainment on the reporting date until the performance conditions are met. The ultimate number of shares of common stock that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance targets and generally ranges from 0% to 200% of the initial PSU grant. Stock compensation expense for PSUs is recognized on a straight line basis over the requisite service period and forfeitures are accounted for as they occur.

PSU activity under the Plans was as follows:


	PSUs	Weighted-Average Grant Date Fair Value Per PSU
Balance at March 31, 2023	–	$	–
Granted	12,000	$	11.35
Vested and issued	–	$	–
Forfeited	–	$	–
Performance adjustment	–	$	–
Balance at June 30, 2023	12,000	$	11.35
Vested and unissued at June 30, 2023	–	$	–
Non-vested at June 30, 2023	12,000	$	11.35

The total grant-date fair value of PSUs granted during the quarters ended June 30, 2023 and 2022 was $0.1 million and zero, respectively.

For the quarters ended June 30, 2023 and 2022, the Company recorded stock- based compensation related to PSUs of zero for both periods.

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Note 6:7: Fair Value

The Company carries cash and cash equivalents at fair value in the unaudited Condensed Consolidated Balance Sheets. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. ASC Topic 820 (“Fair Value Measurements”) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. At June 30, 2023 and March 31, 2023, , the Company had invested the majority of its $61.5 million and $104.1 million cash and cash equivalents balance in money market funds which are classified within Level 1.

Note 7:8: Intangible and Other Assets, Net

Intangible assets and other assets, net consisted of the following (in thousands):


	Useful Life	Gross Value		Accumulated Amortization		Net Carrying Value		Weighted Average Remaining Useful Life (Years)
June 30, 2023
Intangible Assets
Toll-free telephone number	Indefinite	$	375	$	–	$	375	Indefinite
Internet domain names	Indefinite	485		–		485		Indefinite
Trade Names - PetCareRx	Indefinite	2,600		–		2,600		Indefinite
Customer Relationships -PetCareRx	7 years	6,700		(239)		6,461		6.75
Developed Technology - PetCareRx	3 years	3,000		(250)		2,750		2.75
		$	13,160	$	(489)	$	12,671
Other Assets
Initial minority interest investment in Vetster	N/A	5,000		–		5,000		N/A

Balance June 30, 2023		$	18,160	$	(489)	$	17,671

March 31, 2023
Intangible Assets
Toll-free telephone number	Indefinite	$	375	$	–	$	375	Indefinite
Internet domain names	Indefinite	485		–		485		Indefinite
		$	860	$	–	$	860
Other Assets
Initial minority interest investment in Vetster	N/A	5,000		–		5,000		N/A

Balance March 31, 2023		$	5,860	$	–	$	5,860

Amortization expense for intangible assets was $0.5 million and zero for the three months ended June 30, 2023 and 2022, respectively. The indefinite life intangibles are not being amortized and are subject to an annual review for impairment in accordance with the ASC Topic 350 (“Goodwill and Other Intangible Assets”).

On April 19, 2022, the Company engaged in a three-year partnership agreement with Vetster Inc. (“Vetster”), a veterinary telehealth Canadian company. The Company also purchased a 5% minority interest in Vetster in the amount of $5.0 million and received warrants for additional equity in Vetster, which are tied to future performance milestones. Under

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the terms of the agreement, the Company became the exclusive e-commerce provider for Vetster, and Vetster became the exclusive provider of telehealth and telemedicine services to the Company. The minority interest investment is being valued on the cost basis and the investment will be evaluated periodically for any impairment.

Note 8:9: Leases

The Company’s leasing activities primarily consist of real estate leases acquired during the acquisition of PetCareRx for use in the business operations. The leases had initial terms ranging from 5 years to 10 years. Some of the initial lease terms have already matured and the remaining leases have maturity dates ranging from 2024 to 2027. The Company assesses whether each lease is an operating lease or a finance lease at the lease commencement date. The Company does not have any material leases, individually or in the aggregate, classified as a finance lease.

Variable Lease Costs

Certain of the Company’s leases require payments for taxes, insurance, and other costs applicable to the property, in addition to the minimum lease payment. These costs are considered variable costs which are based on actual expenses incurred by the lessor. Therefore, these amounts are not included in the calculation of the right-of-use assets and lease liabilities.

The Company has lease agreements which provide for fixed and scheduled escalations, which are included in the calculation of the right-of-use assets and lease liabilities.

Options to Extend or Terminate Leases

The Company’s leases may contain an option to extend the lease term for periods from one to five years The exercise of lease renewal options is at the Company’s sole discretion. If it is reasonably certain that the Company will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of the Company’s right-of-use assets and lease liabilities. The Company’s leases do not generally contain options to early terminate.

Other Lease items

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company's operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities on the accompanying unaudited Condensed Consolidated Balance Sheets.

Discount Rate and Lease Term

As of June 30, 2023, the weighted average remaining lease term and discount rate for the Company’s operating leases were 3.4 years and 6.6%. As the rate implicit in the lease is generally not readily determinable for the Company’s operating leases, the Company uses its estimated incremental borrowing rate based on the information available at the date of acquisition, April 3, 2023 in determining the present value of future payments.

Lease Costs and Activity

The Company’s lease costs are recorded in the general and administrative costs and activity for the three months ended June 30, 2023 are as follows (in thousands):


Lease cost	Three Months Ended June 30, 2023
Operating lease cost - fixed	$	215
Operating lease costs - variable	14
Total lease cost	$	229

Supplemental cash flow information for the three months ended June 30, 2023 are as follows (in thousands):

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	Three Months Ended June 30, 2023
Cash paid for the amounts included in the measurement of operating lease liabilities	$	209
Right-of-use assets obtained in exchange for new operating lease liabilities as a result of acquisition	$	2,220

Maturity of Lease Liabilities

The maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on the Company’s unaudited Condensed Consolidated Balance Sheet as of June 30, 2023 were as follows (in thousands):


	June 30, 2023
Nine months ending March 31, 2024	$	623
2025	501
2026	488
2027	502
2028	42
Total lease payments	2,156
Less: Imputed Interest	(126)
Present value of lease liabilities	$	2,030

Note 9:10: Commitments and Contingencies

Legal Matters and Routine Proceedings

The Company has settled complaints that had been filed with various states’ pharmacy boards in the past. There can be no assurances made that other states will not attempt to take similar actions against the Company in the future. The Company also intends to vigorously defend its trade or service marks. There can be no assurance that the Company will be successful in protecting its trade or service marks. Legal costs related to the above matters are expensed as incurred. From time to time, the Company may be involved in and subject to disputes and legal proceedings, as well as demands, claims and threatened litigation that arise in the ordinary course of its business. These proceedings may include allegations involving business practices, infringement of intellectual property, employment or other matters. The ultimate outcome of any legal proceeding is often uncertain, there can be no assurance that the Company will be successful in any legal proceeding, and unfavorable outcomes could have a negative impact on our results of operations and financial condition. In accordance with ASC Topic 450-20 ("Loss Contingencies"), the Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews the status of each significant matter each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not misleading. If the loss is not probable and cannot be reasonably estimated, a liability is not recorded in the Company’s financial statements. Gain contingencies are not recorded until they are realized. Legal costs related to any legal matters are expensed as incurred.

~~Sales Tax~~

On June 21, 2018, the United States Supreme Court rendered a decision in South Dakota v. Wayfair, Inc., holding that a state may require a remote seller with no physical presence in the state to collect and remit sales tax on goods and services provided to purchasers in the state, overturning certain existing court precedent. The Company has evaluated its state tax filings with respect to the Wayfair decision and currently collects and remits applicable sales taxes in all jurisdictions in which it has a physical presence or it believes nexus exists. During the year ended March 31, 2023, the Company received an assessment for sales tax; based upon this, the Company evaluated the various jurisdictions for additional exposure and recorded an increase of $7.8 million for potential sales tax exposure. The Company included $4.0 million in the "Accrued expenses and other current liabilities" line item and $3.8 million in the "Other long-term liabilities" line item in the audited Condensed Consolidated Balance Sheet as of March 31, 2023 and unaudited Condensed Consolidated Balance Sheet as of June 30, 2023.

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Note ~~10:~~11: Changes in Shareholders’ ~~Equity:~~Equity (As Restated):

Changes in Shareholders’ Equity for the three months ended June 30, 2023 is summarized below (in thousands):


		Common Stock		Additional Paid-In Capital		Retained Earnings
	Common Stock							Common Stock	Additional Paid-In Capital	Retained Earnings
Beginning balance at March 31, 2023:	Beginning balance at March 31, 2023:	$	21	$	18,277	$	105,488
Share based compensation	Share based compensation	—		1,760		—
Dividends declared	Dividends declared	—		—		(6,346)
Net loss	Net loss	—		—		(887)
Ending balance at June 30, 2023:	Ending balance at June 30, 2023:	$	21	$	20,037	$	98,255

Changes in Shareholders’ Equity for the three months ended June 30, 2022 is summarized below (in thousands):


		Common Stock		Additional Paid-In Capital		Retained Earnings
	Common Stock							Common Stock	Additional Paid-In Capital	Retained Earnings
Beginning balance at March 31, 2022:	Beginning balance at March 31, 2022:	$	21	$	11,660	$	130,496
Share based compensation	Share based compensation	—		1,536		—
Dividends declared	Dividends declared	—		—		(6,297)
Net income	Net income	—		—		2,775
Ending balance at June 30, 2022	Ending balance at June 30, 2022	$	21	$	13,196	$	126,974

There were no shares of common stock that were purchased or retired in the three months ended June 30, 2023 or 2022. At June 30, 2023, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.

Note ~~11:~~12: Income Taxes (As Restated)

For the quarters ended June 30, 2023 and 2022, the Company recorded an income tax benefit of approximately ~~$(0.1)~~$0.3 million and a tax provision of approximately ~~$1.0~~$0.5 million, respectively. The decrease in the tax provision for the three months ended June 30, 2023 is related to the utilization of net operating losses available related to the acquisition of PetCareRx. The effective tax rate for the quarter ended June 30, 2023 was approximately ~~11.5%~~20.4%, compared to approximately ~~27.1%~~16.9% for the quarter ended June 30, 2022. The ~~decrease~~increase to the effective tax rate for the three months ended June 30, 2023 can be attributed to more deductible expenses and net operating losses offsetting taxable income, partially offset by an increase in the state income tax.

Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change”, the corporation’s ability to use its pre-change net operating loss and tax credit carryforwards to offset its post-change income and tax liabilities may be limited. Generally, an ownership change occurs when the equity ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). On April 3, 2023, 100% of the issued and outstanding stock of PetCareRx was acquired by the Company. The merger triggered an ownership change of PetCareRx within the meaning of Section 382.

As a result of the acquisition, the Company performed a Section 382 analysis to determine if the net operating losses carried forward will have a utilization limitation. Any limitation may result in the expiration of a portion of the federal net operating loss carryforward before utilization, which would reduce the Company's gross deferred tax assets. As of April 3, 2023, and prior to the acquisition, PetCareRx had approximately $96.0 million of net operating losses and $1.9 million of disallowed interest expense. The ~~preliminary~~restated results of the Section 382 analysis determined the net operating loss and disallowed interest expense in total, would be limited and reduced to approximately ~~$35.0~~$14.5 million.

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Note ~~12:~~13: Subsequent Events

On July 31, 2023, the Board of Directors declared a quarterly dividend of $0.30 per share. The Board established a August 14, 2023 record date and a August 18, 2023 payment date. Based on the outstanding share balance as of July 31, 2023, the Company estimates the dividend payable to be approximately $6.4 million.

Subsequent to June 30, 2023, the Board of Directors approved and granted 2,500 RSUs to employees pursuant to the (as amended) 2022 Employee Plan.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this ~~Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023,~~Amendment, and our ~~Annual Report on~~2023 Form ~~10-K for the year ended March 31, 2023.~~10-K/A.

Certain information in this ~~Quarterly Report on Form 10-Q~~Amendment includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the words "believes," "intends," "expects," "may," "will," "should," "plans," "projects," "contemplates," "intends," "budgets," "predicts," "estimates," "anticipates," or similar expressions. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our ~~Annual Report on~~2023 Form ~~10-K for the year ended March 31, 2023~~10-K/A under the heading “Risk Factors.” A reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of ~~this Quarterly~~the Original Report ~~on Form 10-Q.~~or as of the date they were made or as otherwise specified herein. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Executive Summary

PetMed Express, Inc. and subsidiaries, d/b/a PetMeds®, is a leading nationwide direct-to-consumer pet pharmacy and online provider of prescription and non-prescription medications, food, supplements, supplies and vet services for dogs, cats, and horses. PetMeds markets and sells directly to consumers through its websites, toll-free numbers, and mobile applications. The Company offers consumers an attractive option for obtaining pet medications, foods, and supplies in terms of convenience, price, speed of delivery, and valued customer service.

Founded in 1996, the Company's executive headquarters offices are currently located at 420 South Congress Avenue, Delray Beach, Florida 33445, and our telephone number is (561) 526-4444. The Company has a March 31 fiscal year.

Presently, our product line includes approximately 15,000 of the most popular pet medications, health products, food and supplies for dogs, cats, and horses. Approximately 10,000 of these items were part of the April 2023 acquisition of PetCareRx.

We market our products through national advertising campaigns and social media which aim to increase the recognition of the “PetMeds®” brand name, increase traffic on our website at www.petmeds.com, acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers. The average purchase was approximately $97 and $95 for the quarters ended June 30, 2023 and 2022, respectively.

Restatement

As described in the Explanatory Note above and in Note 1 to our consolidated financial statements, we have restated our consolidated financial statements and Item 2. Management’s Discussion of Financial Condition and Results of Operations for the three months ended June 30, 2023 and June 30, 2022 in this Amendment.

Critical Accounting Policies

Our discussion and analysis of our financial condition and the results of our operations contained herein are based upon our condensed consolidated financial statements and the data used to prepare them. Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. On an ongoing basis we re-evaluate our judgments and estimates including those related to product returns, bad debts, inventories, and income taxes. We base our estimates and judgments on our historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies.

Revenue recognition

We account for revenue under ASC Topic 606 ("Revenue from Contracts with Customers") and generate revenue by selling pet medication products and pet supplies mainly to retail customers. Certain pet supplies offered on our website are

drop shipped to customers. We consider ~~ourself~~ourselves the principal in the arrangement because we control the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right to the contract. The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns, however this is not considered a key judgment. There are no amounts excluded from the variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which the shipment of the product occurs. This key judgment is determined as the shipping point, which represents the point in time where we have a present right to payment, title has transferred to the customer, and the customer has assumed the risks and rewards of ownership.

Outbound shipping and handling fees are an accounting policy election and are included in sales as we consider ourself the principal in the arrangement given responsibility for supplier selection and discretion over pricing. Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales. Virtually all of our sales are paid by credit cards and we usually receive the cash settlement in two to three banking days. Credit card sales minimize the accounts receivable balances relative to sales.

Membership fees represent the amounts recognized periodically from the PetPlus memberships provided through PetCareRx. In addition to annual membership fees earned under the PetPlus program, the Company also earns membership fees on a month-to-month basis as earned under its monthly partner program. Memberships provide wholesale pricing, free standard shipping, veterinary telehealth services and local Caremark Pharmacy prescription pickup. The PetPlus membership fee is an annual charge and automatically renews one year from the initial enrollment date. We recognize the revenue ratably over the term of the membership which is generally one year.

We maintain an allowance for doubtful accounts for losses that we estimate will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks. We determine our estimates of the uncollectibility of accounts receivable by analyzing historical and current bad debts and economic trends in compliance with the provisions of Accounting Standards Codification ("ASC") Topic 326 ("Financial Instruments - Credit Losses"). The allowance for doubtful accounts was approximately $38 thousand at June 30, 2023, compared to $35 thousand at March 31, 2023.

Business Combinations

We account for our business combinations using the acquisition method of accounting in accordance with ASC Topic 805 ("Business Combinations"). The purchase price is allocated to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business combination are included in our unaudited condensed consolidated financial statements from the date of acquisition.

Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions, and competition. In connection with the determination of fair values, we may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain obligations assumed. Acquisition-related transaction costs incurred by us are not included as a component of consideration transferred but are accounted for as an operating expense in the period in which the costs are incurred.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the attached unaudited condensed consolidated financial statements and the

reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Income taxes

(As Restated)

We account for income taxes under the provisions of ASC Topic 740 (“Accounting for Income Taxes”), which generally requires recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in our condensed consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse.

As a result of the acquisition, the Company performed a Section 382 analysis to determine if the net operating losses carried forward will have a utilization limitation. Any limitation may result in the expiration of a portion of the federal net operating loss carryforward before utilization, which would reduce the Company's gross deferred tax assets. As of April 3, 2023, and prior to the acquisition, PetCareRx had approximately $96.0 million of net operating losses and $1.9 million of disallowed interest expense. The restated results of the Section 382 analysis determined the net operating loss and disallowed interest expense in total, would be limited and reduced to ~~$35.0~~$14.5 million.

Acquisition

On April 3, 2023, the Company acquired 100% of the issued and outstanding equity interests of PetCareRx, Inc. (“PetCareRx”), a New York corporation and a leading supplier of pet food, pet medications, and supplies. The acquisition was completed pursuant to an Agreement and Plan of Merger ("Merger Agreement") by and among the Company, Harry Merger Sub, Inc., a New York corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), PetCareRx and Jeanette Loeb (as representative of the PetCareRx equity holders). The Merger Agreement provided for the Company’s acquisition of PetCareRx pursuant to the merger of Merger Sub with and into PetCareRx, with PetCareRx as the surviving corporation. The aggregate purchase price consideration was $36.1 million and was provided from the Company's cash on hand.

Economic Conditions, Challenges, and Risks

Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We also expect the current macroeconomic environment and enterprise customer cost optimization efforts to impact our revenue growth rates. We expect some or all of these factors to continue to impact our operations for the remainder of fiscal 2024.

2025

Results of Operations (As Restated)

The following should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere herein. The following table sets forth, as a percentage of sales, certain operating data appearing in our unaudited Condensed Consolidated Statements of (Loss) Income:


		Three Months Ended June 30,
				2023		2022

		Three Months Ended June 30,
		Three Months Ended June 30,
		Three Months Ended June 30,
			2023										2023	2022
			(as restated)										(as restated)	(as restated)
Sales	Sales			100.0	%	100.0	%	Sales	100.0	%	100.0	%
Cost of sales	Cost of sales			71.2		71.6

Gross profit	Gross profit			28.8		28.4
Gross profit
Gross profit

Operating expenses:	Operating expenses:
Operating expenses:
Operating expenses:
General and administrative
General and administrative
General and administrative	General and administrative			20.2		13.3
Advertising	Advertising			9.3		9.0
Depreciation and amortization	Depreciation and amortization			2.1		1.1
Total operating expenses	Total operating expenses			31.6		23.4

(Loss) income from operations	(Loss) income from operations			(2.8)		5.0
(Loss) income from operations
(Loss) income from operations

Total other income				1.4		0.4
Total other income (expense)
Total other income (expense)
Total other income (expense)

(Loss) income before provision for income taxes
(Loss) income before provision for income taxes
(Loss) income before provision for income taxes	(Loss) income before provision for income taxes			(1.4)		5.4

(Benefit) provision for income taxes	(Benefit) provision for income taxes			(0.1)		1.4
(Benefit) provision for income taxes
(Benefit) provision for income taxes

Net (loss) income	Net (loss) income			(1.3)	%	4.0	%
Net (loss) income
Net (loss) income									(1.4)	%	3.8	%

Non-GAAP Financial Measures

Adjusted EBITDA

To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding share-based compensation expense; depreciation and amortization; income tax provision; interest income (expense); and other non-operational expenses. We have provided reconciliations below of adjusted EBITDA to net income, the most directly comparable GAAP financial measures.

We have included adjusted EBITDA, herein, because it is a key measure used by our management and Board of Directors to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and other expenses. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

We believe it is useful to exclude non-cash charges, such as share-based compensation expense, depreciation and amortization from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision and interest income (expense), as neither are components of our core business operations. We also believe that it is useful to exclude other expenses, including the investment banking fee related to the Vetster partnership, acquisition costs related

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to PetCareRx, employee severance and estimated state sales tax accrual as these items are not indicative of our ongoing operations. Adjusted EBITDA has limitations as a financial measure, and these non-GAAP measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;

•Adjusted EBITDA does not reflect share-based compensation. Share-based compensation has been, and will continue to be for the foreseeable future, a material recurring expense in our business and an important part of our compensation strategy;

•Adjusted EBITDA does not reflect interest income (expense), net; or changes in, or cash requirements for, our working capital;

•Adjusted EBITDA does not reflect transaction related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or planned transaction and include litigation matters, integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems;

•Adjusted EBITDA does not reflect certain non-operating expenses including the employee severance which reduces cash available to us;

•Adjusted EBITDA does not reflect certain non operating expenses (income) including ~~the estimated state~~ sales tax ~~accrual which reduces cash available~~expense (income) relating to ~~us.~~recording a liability for sales tax we did not collect from our customers.

•Other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces the measures usefulness as comparative measures.

Because of these and other limitations, adjusted EBITDA should only be considered as supplemental to, and alongside with other GAAP based financial performance measures, including various cash flow metrics, net income, net margin, and our other GAAP results.

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The following table presents a reconciliation of net income, the most directly comparable GAAP measure, to adjusted EBITDA for each of the periods indicated:

Reconciliation of Non-GAAP Measures

PetMed Express, Inc.

(Unaudited)


		Three Months Ended
	Three Months Ended
($ in thousands, except percentages)	($ in thousands, except percentages)	June 30, 2023		June 30, 2022		$ Change		% Change

($ in thousands, except percentages)
($ in thousands, except percentages)											June 30, 2023			June 30, 2022			$ Change			% Change
	(as restated)
Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:
Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:
Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:
Net (loss) income	Net (loss) income	$	(887)	$	2,775	$	(3,662)	(132)	%
Net (loss) income
Net (loss) income											$	(1,136)		$	2,687		$	(3,823)		n/m

Add (subtract):	Add (subtract):
Add (subtract):
Add (subtract):
Share-based Compensation	Share-based Compensation	$	1,760	$	1,536	$	224	15	%
Income Taxes		$	(115)	$	1,030	$	(1,145)	(111)	%
Share-based Compensation
Share-based Compensation											$	1,760		$	1,536		$	224		15		%
Income Tax expense (benefit)										Income Tax expense (benefit)	$	(292)		$	548		$	(840)		n/m
Depreciation and Amortization	Depreciation and Amortization	$	1,678	$	753	$	925	123	%	Depreciation and Amortization	$	1,678	$	$	753	$	$	925	123		123		%
Interest (Income)/Expense		$	(620)	$	(117)	$	(503)	430	%
Interest (Income) Expense, Net (1)										Interest (Income) Expense, Net (1)	$	(194)		$	274		$	(468)		n/m
Acquisition/Partnership Transactions and Other Items	Acquisition/Partnership Transactions and Other Items	$	1,126	$	355	$	771	n/m		Acquisition/Partnership Transactions and Other Items	$	1,126	$	$	355	$	$	771	217		217		%
Employee Severance	Employee Severance	$	393	$	–	$	393	n/m		Employee Severance	$	393	$	$	–	$	$	393	n/m			n/m

Sales Tax Expense										Sales Tax Expense	$	–		$	179		$	(179)		(100)		%

Adjusted EBITDA	Adjusted EBITDA	$	3,335	$	6,332	$	(2,997)	(47)	%
Adjusted EBITDA
Adjusted EBITDA											$	3,335		$	6,332		$	(2,997)		(47)		%

(1) Included in interest (income) expense is $426 thousand of interest expense related to the sales tax liability and $620 thousand of interest income for the three months ended June 30, 2023 and $391 thousand of interest expense related to the sales tax liability and $117 thousand of interest income for the three months ended June 30, 2022

Three Months Ended June 30, 2023 Compared With Three Months Ended June 30, 2022

Sales (As Restated)

Sales increased by approximately ~~$8.1~~$8.2 million, or ~~11.5%~~11.7%, to approximately $78.2 million for the quarter ended June 30, 2023, compared to approximately ~~$70.2~~$70.0 million for the quarter ended June 30, 2022. The increase in sales for the three months ended June 30, 2023 was due to to incremental sales from the combination of PetCareRx, growth in PetMeds new customer sales with an offset by declines in PetMeds reorder sales. .

We acquired approximately 86,000 new customers for the quarter ended June 30, 2023 compared to approximately 69,000 new customers for the quarter ended June 30, 2022. The following tables illustrates sales by various sales classifications:


		Three Months Ended June 30,
			Three Months Ended June 30,																																Three Months Ended June 30,
Revenue (In thousands)	Revenue (In thousands)	2023		%		2022		%		$ Variance		% Variance		Revenue (In thousands)			2023					%					2022			%				$ Variance				% Variance

							(as restated)
Reorder sales
Reorder sales
Reorder sales	Reorder sales	$	68,038	87.0	%	$	63,339	90.2	%	$	4,699	7.4	%		$	68,038			87.0		87.0		%			$	63,208		90.2	90.2		%		$	4,830	7.6			7.6		%
New order sales	New order sales	7,820		10.0	%	6,848		9.8	%	972		14.2	%	New order sales			7,820			10.0			10.0		%			6,834			9.8		%		986		14.4			14.4		%
Membership fees	Membership fees	2,386		3.0	%	–		–	%	2,386		–	%	Membership fees			2,386			3.0			3.0		%			–			–		%		2,386		–			–		%

Total net sales	Total net sales	$	78,244	100.0	%	$	70,187	100.0	%	$	8,057	11.5	%
Total net sales
Total net sales																	$	78,244				100.0		%			$	70,042		100.0		%		$	8,202			11.7		%

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We remain encouraged by the adoption of our AutoShip program and have seen an increasingly positive trend over the last several quarters since we launched this program. For example, our quarterly AutoShip percentage was 48.7% of net sales for the most recent quarter ended June 30, 2023, up from 33.9% of net sales for the same period last year and up from 44.4% of net sales sequentially in the prior quarter. We have set a goal of generating approximately 50% of our PetMeds net sales via the AutoShip program in fiscal 2024.

Going forward, sales may be adversely affected due to increased competition and consumers giving more consideration to price. The changes in consumer behavior due to macroeconomic factors makes future sales somewhat challenging to predict. No guarantees can be made that sales will grow in the future. The majority of our product sales are affected by the seasons, due to the seasonality of mainly flea and tick and heartworm medications. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2023, our sales were approximately 27%, 26%, 23%, and 24%, respectively, as a percentage of annual sales. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal year 2022, our sales were approximately 29%, 25%, 22%, and 24%, respectively, as a percentage of annual sales.

Cost of sales (As Restated)

Cost of sales increased by approximately $5.5 million, or 10.9%, to approximately $55.7 million for the quarter ended June 30, 2023, from approximately $50.2 million for the quarter ended June 30, 2022. The cost of sales increase was primarily due to higher sales in the current period. As a percentage of sales, cost of sales was 71.2% and ~~71.6%~~71.7% for the quarters ended June 30, 2023 and 2022, respectively.

Gross profit (As Restated)

Gross profit increased by approximately ~~$2.6~~$2.7 million, or ~~13.0%~~13.8%, to approximately $22.5 million for the quarter ended June 30, 2023, from approximately ~~$19.9~~$19.8 million for the quarter ended June 30, 2022. Gross profit as a percentage of sales was 28.8% and ~~28.4%~~28.3% for the quarters ended June 30, 2023 and 2022, respectively. The gross profit and gross profit percentage increase for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily due to favorable rebates from the combination of PetCareRx.

General and administrative expenses (As Restated)

General and administrative expenses increased by approximately ~~$6.4~~$6.3 million, or ~~68.0%~~67.4%, to approximately $15.7 million for the quarter ended June 30, 2023, from approximately $9.4 million for the quarter ended June 30, 2022. The increase to general and administrative expenses for the quarter ended June 30, 2023 was due to a $3.3 million increase in payroll expenses, of which $0.2 million is from increased stock compensation and $0.4 million from accrued severance, a $1.6 million increase of professional fees, of which $1.1 million were acquisition related costs, as well as a $0.6 million increase of software and systems expense, and a $0.8 million increase of variable and other overhead expenses primarily attributed to the combination of PetCareRx.

Advertising expenses

Advertising expenses increased by approximately $0.9 million, or 14.4%, to approximately $7.3 million for the quarter ended June 30, 2023, from approximately $6.3 million for the quarter ended June 30, 2022. The increase for the quarter can be attributed to higher media spend and increased agency fees. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $84 for the quarter ended June 30, 2023 compared to $91 for the quarter ended June 30, 2022. The decrease to customer acquisition costs for the quarter ended June 30, 2023, was due to more efficient variable marketing spend and a greater diversity of products offered creating economies of scope. The advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, spending, and price competition. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future sales, whereas a less favorable advertising environment may negatively impact future sales. As a percentage of sales, advertising expense was 9.3% and ~~9.0%~~9.1% for the quarters ended June 30, 2023 and 2022, respectively. However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability.

Depreciation and amortization

Depreciation and amortization expense was $1.7 million and $0.8 million for the quarters ended June 30, 2023 and June 30, 2022, respectively. This increase to depreciation and amortization expense for the quarter can be attributed to new

2429

property and equipment additions, as well as the intangibles acquired from PetCareRx that are being amortized subsequent to the prior period.

Other income (expense) (As Restated)

Other income increased to approximately ~~$1.1~~$0.7 million for the quarter ended June 30, 2023 compared to approximately ~~$0.3~~$0.1 million of other expense for the quarter ended June 30, 2022. The increase to other income for the quarter was primarily related to additional interest income as a result of higher interest rates, as well as increased rental income from PetCareRx. Interest income may decrease in the future based on several factors, including utilization of our cash balances towards quarterly dividend payments, on future investments or partnerships, or on our operating activities. Additionally, interest income could decrease if the current interest rate environment changes, or on our share repurchase plan, which has approximately $28.7 million remaining as of June 30, 2023.

Provision for income taxes (As Restated)

For the quarters ended June 30, 2023 and 2022, the Company recorded an income tax benefit of approximately ~~$(0.1)~~$0.3 million and a tax provision of approximately ~~$1.0~~$0.5 million, respectively. The decrease in the tax provision for the three months ended June 30, 2023 is related to the utilization of net operating losses available made available due to the acquisition of PetCareRx. The effective tax rate for the quarter ended June 30, 2023 was approximately ~~11.5%~~20.4%, compared to approximately ~~27.1%~~16.9% for the quarter ended June 30, 2022. The decrease to the effective tax rate for the three months ended June 30, 2023 can be attributed to deductible expenses and net operating losses offsetting taxable income partially offset by an increase in state income tax.

Liquidity and Capital Resources (As Restated)

Our working capital at June 30, 2023 and March 31, 2023 was ~~$48.5~~$26.0 million and ~~$95.0~~$72.9 million, respectively. The ~~$46.4~~$46.9 million decrease in working capital was primarily attributable to a decrease in cash to fund the $36.1 million PetCareRx acquisition, and a $10.2 ~~millon~~million increase in inventory in part related to the acquisition of PetCareRx. Net cash provided by operating activities was $0.6 million for the three months ended June 30, 2023, compared to cash provided by operating activities of $6.4 million for the three months ended June 30, 2022. This change is due to an increase in accounts payable and inventory in the three months ended June 30, 2023 than in the same period the prior year, as well as a decrease to net income. Net cash used in investing activities was $37.0 million for the three months ended June 30, 2023, compared to $6.0 million used in investing activities for the three months ended June 30, 2022. This change in investing activities is related to the PetCareRx acquisition, and increased property and equipment additions acquired in the three months ended June 30, 2023. Net cash used in financing activities was $6.1 million for the three months ended June 30, 2023 and the three months ended June 30, 2022, respectively, due to the payment of an aggregate of $0.30 per share dividend in each quarter.

As of June 30, 2023, we had approximately $28.7 million remaining under our share repurchase plan. On July 31, 2023, our Board of Directors declared a $0.30 per share dividend, with a August 14, 2023 record date and a August 18, 2023 payment date. The declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors each quarter. When considering whether to declare a dividend, our Board of Directors will take into account:

• Strategic uses of cash for growth initiatives;

• General economic and business conditions;

• Our financial condition and operating results;

• Our available cash and current and anticipated cash needs;

• Our capital requirements;

• Contractual, legal, tax and regulatory restrictions on the payment of dividends by us; and

• Such other factors as our Board of Directors may deem relevant.

As of June 30, 2023, we had $2.1 million in outstanding lease commitments assumed for the leases on two buildings occupied by PetCareRx. Other than foregoing leases, we are not currently bound by any material ~~long -~~long- or short-term commitments for the purchase or lease of capital expenditures. Any material amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately provide for any future increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Our primary source of working capital is cash from operations. We presently have no need for alternative sources of working capital and have no commitments.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates, and commodity prices. Our financial instruments include cash and cash equivalents, accounts receivable, and accounts payable. The book values of cash equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Interest rates affect our return on excess cash and cash equivalents. At June 30, 2023, we had $61.5 million in cash and cash equivalents, and the majority of our cash and cash equivalents generate interest income based on prevailing interest rates. A significant change in interest rates would impact the amount of interest income generated from our excess cash and cash equivalents. It would also impact the market value of our cash and cash equivalents. Our cash and cash equivalents are subject to market risk, primarily interest rate and credit risk. Our cash and cash equivalents are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors. Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by maintaining cash in federally-insured bank deposit accounts and restricting cash equivalents to highly-liquid investments with maturities of three months or less. We do not hold any derivative financial instruments that could expose us to significant market risk. At June 30, 2023, we had no debt obligations.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures (As Restated)

Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a‑15(e) and 15d-15(e) promulgated under the Exchange Act) ~~as of June 30, 2023, the end of the period covered by this report (the "Evaluation Date")~~. Based ~~upon that~~on such evaluation, at the time the Original Report was filed, our Chief Executive Officer and Chief Financial Officer concluded ~~as of the Evaluation Date,~~ that our disclosure controls and procedures were effective as of June 30, 2023 ~~subject~~ to ~~external audit testing.~~provide reasonable assurance that information to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure. Subsequent to the original evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2023, due to the material weaknesses described below.

~~Background~~Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Per our ~~fiscal year end~~ 2023 Form ~~10-K filed with the SEC~~10-K/A, we identified ~~and disclosed~~ a material weakness due to a lack of segregation of duties over the preparation, approval and posting of certain journal entries. ~~Notwithstanding the foregoing, management believes, that the~~Subsequent to our original evaluation, we identified a new material weakness ~~did not result~~ in athe design of our controls relating to the review of the appropriate application of GAAP relating to our sales tax liability in our consolidated financial statements.This material ~~misstatement~~weakness resulted in the restatement of our financial ~~statements.~~statements as of and for the years ended March 31, 2023, 2022 and 2021, the unaudited condensed consolidated quarterly financial information for the quarterly periods in the fiscal years ended March 31, 2023 and 2022, and the unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.Subsequent to our original evaluation, we also identified a material weakness in the design of our controls over accurate valuation of our deferred tax asset and goodwill relating to our acquisition of PetCareRx in April 2023.This material weakness resulted in the restatement of our unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

These material weaknesses remain unremediated as of June 30, 2023. Management is taking steps to remediate these material weaknesses (see “Remediation of Material Weaknesses” for details).

Remediation of Material Weaknesses

We ~~immediately developed~~are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weaknesses are remediated as soon as possible.We are developing a remediation plan ~~that included~~designed to improve our internal controls over financial reporting to remediate these

material weaknesses, including increasing resources and modifying processes to eliminate the lack of segregation of duties over the preparation, approval and posting of journal ~~entries. This~~entries and engaging consultants to assist with complex areas of U.S. GAAP and SEC rules to facilitate accurate and timely financial reporting.

Additionally, in response to the material weakness due to the tax calculations, we have developed and are in the process of implementing a remediation plan. The key elements of the plan include:

1.Enhancing the oversight and review of tax-related accounting estimates and calculations to ensure they are complete and accurate.

2. Providing additional training to personnel involved in tax accounting and financial reporting to enhance their understanding of the relevant accounting standards and requirements.

3. Enhancing the documentation of tax positions and related accounting judgments to ensure they are adequately supported and can withstand external scrutiny.

The material weaknesses will not be remediated until our remediation plan has been fully developed and implemented, asthe applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively.We are continuing to work on the implementation of our remediation plan, following which we will continue to test and monitor the new and enhanced controls until management has concluded that they are designed and operating effectively. We may conclude that additional measures, including resources, are necessary to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional evaluation and implementation time. We may also modify certain of the ~~current quarter end. Subject to external audit testing of such plan, we believe this plan has remediated the material weakness mentioned~~remediation efforts described above. ~~We continue to be committed to maintaining a strong internal control environment and implementing measures designed to ensure a strong control environment.~~

Changes in Internal Control Over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting during our ~~most recently completed~~ fiscal quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

~~Our management, including our Chief Executive Officer~~In designing and ~~our Chief Financial Officer, believes that our~~evaluating the disclosure controls and procedures, ~~and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our~~ management ~~does not expect~~recognizes that ~~our disclosure~~any controls and procedures, ~~or our internal control over financial reporting will prevent all errors and all fraud. A control system,~~ no matter how well ~~conceived~~designed and operated, can provide only reasonable ~~not absolute,~~ assurance ~~that~~of achieving the ~~objectives of the~~desired control ~~system are met. Further,~~objectives. In addition, the design ~~of a control system~~and disclosure controls and procedures must reflect the fact that there are

resource constraints and that management is required to apply its judgement in evaluating the benefits of possible controls ~~must be considered~~and procedures relative to the their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by the collusion of two or more people or by management override of controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.cost.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our ~~Annual Report on~~2023 Form ~~10-K for the fiscal year ended March 31, 2023~~10-K/A for additional information concerning these and other uncertainties that could negatively impact the ~~Company.There~~Company. There have been no material changes to the risk factors disclosed in our ~~Annual Report on~~2023 Form ~~10-K~~10-K/A for the fiscal year ended March 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

During the three months ended June 30, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

ITEM 6. EXHIBITS


31.1*			Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).

31.2*			Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).

32.1**			Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~The following exhibits are filed to correct the links that were incorporated in the Annual Report on Form 10-K or hereby incorporated by reference to exhibits previously filed with the SEC.~~

~~(10) Material Contracts~~


~~10.5 +~~			~~Restricted Stock Agreement with Mathew N. Hulett (incorporated by reference to Exhibit 10.2 to our Form 8-K filed August 30, 2021).***~~
~~10.6 +~~			~~Restricted Performance Stock Agreement with Mathew N. Hulett (incorporated by reference to Exhibit 10.3 to our Form 8-K filed August 30, 2021).~~ ~~***~~


101.INS*			Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*			Inline XBRL Taxonomy Extension Schema Document
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith.

** Furnished herewith.

*** Correcting a previously provided inaccurate exhibit hyperlink.

~~+ Indicates a management contract or compensatory plan or arrangement.~~

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SIGNATURES

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

PETMED EXPRESS, INC.

Date: ~~August 1, 2023~~April 15, 2024


By:			/s/ Mathew N. Hulett
			Mathew N. Hulett

			Chief Executive Officer and President
			(Principal Executive Officer)

By:			/s/ Christine Chambers
			Christine Chambers

			Chief Financial Officer, Treasurer and ~~Treasurer~~Secretary
			(Principal Financial and Accounting Officer)

3034

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

PETMED EXPRESS, INC

________________________

FORM ~~10-Q~~10-Q/A

(Amendment No. 1)

FOR THE QUARTER ENDED:

JUNE 30, 2023

________________________

EXHIBITS

________________________