UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM ~~10-Q/A~~

~~(Amendment No. 1)~~10-Q

(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,~~December 31, 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~~21,148,692 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 ~~Amendment~~Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act") and Section 21E of the Securities Exchange ~~Act.~~Act of 1934, as amended ("Exchange 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,” in our ~~2023~~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”) filed with the ~~“SEC”,~~Securities and Exchange Commission (“SEC”) on April 15, 2024, and under ~~Part~~“Part II, Item 1A., Risk ~~Factors~~Factors” in this ~~Amendment, if and as such~~Quarterly Report on Form 10-Q. 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 ~~Amendment~~Quarterly Report on Form 10-Q apply only as of the date of ~~the Original~~this Quarterly 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, https://petcarerx.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 ~~Amendment.~~Quarterly Report on Form 10-Q. 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 ~~Amendment,~~Quarterly Report on Form 10-Q, 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.~~

ITEM 1. FINANCIAL STATEMENTS.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

June 30,
2023

March 31,
2023

December 31,
2023

March 31,
2023

(Unaudited)

(as restated)

ASSETS

Current assets:

Cash and cash equivalents

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

Inventories - finished goods

Accounts receivable, less allowance for doubtful accounts of $39 and $35, respectively

Inventories - finished goods, net

Prepaid expenses and other current assets

Prepaid income taxes

Total current assets

Noncurrent assets:

Property and equipment, net

Intangible and other assets, net

Goodwill

Operating lease right-of-use assets, net

Deferred tax assets, net

Total noncurrent assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

Sales tax payable

Accrued expenses and other current liabilities

Current lease liabilities

Deferred revenue

Total current liabilities

Long-term lease liabilities

Total liabilities

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

Preferred stock, $.001 par value, 5,000,000 shares authorized; 2,500 convertible shares issued and outstanding with a liquidation preference of $4 per share

Common stock, $.001 par value, 40,000,000 shares authorized; 21,160,739 and 21,084,302 shares issued and outstanding, respectively

Additional paid-in capital

Retained earnings

Total shareholders' equity

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 share and per share amounts) (Unaudited)

Three Months Ended
June 30,

Three Months Ended
December 31,

Nine Months Ended
December 31,

2023

2022

2023

2022

2023

2022

(as restated)

Sales

Cost of sales

Gross profit

Operating expenses:

General and administrative

Advertising

Depreciation and amortization

Total operating expenses

(Loss) income from operations

Other income (expense):

Interest income (expense), net

Other income:

Interest income, net

Other, net

Total other income (loss)

Total other income

(Loss) income before (benefit) provision for income taxes

(Loss) income before provision for income taxes

(Benefit) provision for income taxes

Net (loss) income

Net (loss) income per common share:

Basic

Diluted

Weighted average number of common shares outstanding:

Basic

20,333

20,208

20,425,282

20,301,384

20,380,262

20,257,145

Diluted

20,333

20,291

Diluted

20,425,282

20,301,384

20,380,262

20,339,064

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,

Nine Months Ended
December 31,

2023

2022

2023

2022

(as restated)

Cash flows from operating activities:

Net (loss) income

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

Depreciation and amortization

Share based compensation

Deferred income taxes

Bad debt expense

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

Accounts receivable

Inventories - finished goods

Prepaid income taxes

Prepaid expenses and other current assets

Operating lease right-of-use assets, net

Accounts payable

Sales tax payable

Accrued expenses and other current liabilities

Lease liabilities

Deferred revenue

Income taxes payable

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Purchase of minority interest investment in Vetster

Acquisition of PetCareRx, net of cash acquired

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Dividends paid

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, at beginning of period

Cash and cash equivalents, at end of period

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Dividends payable in accrued expenses

Cash paid for income taxes

Dividends payable in accrued expenses

Dividends payable in accrued expenses and other current liabilities

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

N~~ote~~Note 1: Restatement of Previously Issued Financial ~~Statement~~Statements

The unaudited ~~quarterly~~condensed consolidated financial statements for the ~~quarters~~three and nine months ended ~~June 30, 2023 and~~December 31, 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"~~“Misstatements”). The Company also restated all amounts impacted within the notes to the financial ~~statements in this Amendment.~~statements. A description of the adjustments and their impacts on the previously issued financial statements for each of the Affected Periods are included below. 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 our 2023 Form 10-K/A and an Amendment No. 1 to our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2023 and September 30, 2023, to reflect the correction of the Misstatements.

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 U.S. GAAP as it relates to the sales tax liability and improperly valued the deferred tax asset and goodwill included in ~~our~~its unaudited condensed 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 ~~and that it improperly valued the deferred tax asset and goodwill reported in the first and second quarter of fiscal year 2024.~~

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) 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~~we have corrected ~~its~~Misstatements relating to the deferred tax asset we recognized in connection with ~~its~~our acquisition of PetCareRx on April 3, 2023 (the “Acquisition”). as of the end of each of the Affected Periods.In the accounting for the Acquisition, it was determined that ~~the Company~~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 by was understated by $5.9 million.~~

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

December 31, 2022

Three Months Ended

Nine Months Ended

June 30, 2023

June 30, 2022

(in thousands)

As previously reported

As restated

As previously reported

As restated

(in thousands)

As previously reported

As restated

As previously reported

As restated

Sales

Gross profit

(Loss) income from operations

Net (loss) income

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


	December 31, 2022
	Three Months Ended				Nine Months Ended
	As previously reported		As restated		As previously reported		As restated
Net (loss) income (numerator):
Net (loss) income	$	(19)	$	(212)	$	5,335	$	5,356

Shares (denominator):

Weighted average number of common shares outstanding used in basic computation	20,301,384		20,301,384		20,257,145		20,257,145
Common shares issuable upon vesting of restricted stock	—		—		71,794		71,794
Common shares issuable upon conversion of preferred shares	—		—		10,125		10,125
Shares used in diluted computation	20,301,384		20,301,384		20,339,064		20,339,064

Net (loss) income per common share:

Basic	$	—	$	(0.01)	$	0.26	$	0.26
Diluted	$	—	$	(0.01)	$	0.26	$	0.26

The restated unaudited interim financial information for the relevant unaudited interim financial statements for the quarterly ~~periods~~period ended ~~June 30, 2023 and~~December 31, 2022 is also included ~~below.~~below and identified in the Restatement Reconciliation Tables in the column entitled "Reference".

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":~~below:

a.Sales Tax – Sales tax on sales of ~~products and~~ services to customers who were subject to sales tax, inclusive of ~~maximum~~total potential 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 and nine months ended ~~June 30, 2023 and~~December 31, 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

December 31, 2022

As Previously Reported

Restatement Adjustments

Refer-ence

As Restated

As Previously Reported

Restatement Adjustments

Refer-ence

As Restated

As Previously Reported

Restatement Adjustments

Reference

As Restated

ASSETS

Current assets:

Cash and cash equivalents

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

Accounts receivable, less allowance for doubtful accounts of $40

Inventories - finished goods

Prepaid expenses and other current assets

Prepaid income taxes

Total current assets

Noncurrent assets:

Property and equipment, net

Intangible and other assets

Goodwill

Operating lease right-of-use assets, net

Deferred tax assets, net

Deferred tax assets

Total noncurrent assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

Sales tax payable

Accrued expenses and other current liabilities

Current lease liabilities

Deferred revenue

Total current liabilities

Deferred tax liabilities

Long-term lease liabilities

Other long-term liabilities

Total liabilities

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

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

Preferred stock, $0.001 par value, 5,000,000 shares authorized; 2,500 convertible shares issued and outstanding with a liquidation preference of $4 per share

Common stock, $0.001 par value, 40,000,000 shares authorized; 21,077,077 shares issued and outstanding

Additional paid-in capital

Retained earnings

Total shareholders' equity

Total liabilities and shareholders' equity

Summary of Restatement - Consolidated Statements of Operations

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Three Months Ended December 31, 2022

Nine Months Ended December 31, 2022

As Previously Reported

Restatement Adjustments

Refer-ence

As Restated

As Previously Reported

Restatement Adjustments

Refer-ence

As Restated

As Previously Reported

Restatement Adjustments

Refer-ence

As Restated

As Previously Reported

Restatement Adjustments

Refer-ence

As Restated

Sales

Cost of sales

Gross profit

Operating expenses:

General and administrative

Advertising

Depreciation and amortization

Depreciation

Total operating expenses

(Loss) income from operations

Other income (expense):

Interest income (expense), net

Other income:

Interest income, net

Other, net

Total other income (loss)

Total other income

(Loss) income before (benefit) provision for income taxes

Income (loss) before provision for income taxes

(Benefit) provision for income taxes

Provision for income taxes

Net (loss) income

Net (loss) income per common share:

Basic

Diluted

Weighted average number of common shares outstanding:

Basic

Diluted

Cash dividends declared per common share

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


	Nine Months Ended December 31, 2022
	As Previously Reported		Restatement Adjustments		Reference	As Restated
Cash flows from operating activities:
Net income	$	5,335	$	21	a	$	5,356
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,552		—			2,552
Share based compensation	4,987		—			4,987
Deferred income taxes	(471)		(643)		b	(1,114)
Bad debt expense	292		—			292
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable	(324)		—			(324)
Inventories - finished goods	10,053		—			10,053
Prepaid income taxes	(927)		—			(927)
Prepaid expenses and other current assets	(771)		—			(771)
Accounts payable	(3,183)		—			(3,183)
Sales tax payable	—		2,291		a	2,291
Accrued expenses and other current liabilities	536		(1,669)		a	(1,133)
Net cash provided by operating activities	18,079		—			18,079

Cash flows from investing activities:
Purchase of minority interest investment in Vetster	(5,000)		—			(5,000)
Purchases of property and equipment	(3,329)		—			(3,329)
Net cash used in investing activities	(8,329)		—			(8,329)

Cash flows from financing activities:
Dividends paid	(18,402)		—			(18,402)
Net cash used in financing activities	(18,402)		—			(18,402)

Net (decrease) increase in cash and cash equivalents	(8,652)		—			(8,652)

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

Cash and cash equivalents, at end of year	$	102,428	$	—		$	102,428

Supplemental disclosure of cash flow information:

Cash paid for income taxes	$	3,870	$	—		$	3,870

Dividends payable in accrued expenses	$	1,079	$	—		$	1,079

Note 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,~~number, 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,~~December 31, 2023, the Statements of (Loss) Income for the three and nine months ended ~~June 30,~~December 31, 2023 and 2022, and Cash Flows for the ~~three~~nine months ended ~~June 30,~~December 31, 2023 and 2022. The results of operations for the three and nine months ended ~~June 30,~~December 31, 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~~our 2023 Form 10-K/A. The unaudited condensed consolidated financial statements include the accounts of PetMed Express, Inc. and its direct and indirect 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.

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.~~PetCareRx, Inc. (“PetCareRx”). The total deferred revenue as of ~~June 30,~~December 31, 2023 for these memberships was ~~$3.2~~$3.1 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~~Acquired trade name 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 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

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 and $5.3 million of previously deferred annual membership fees in the three and nine months ended ~~June 30,~~December 31, 2023, respectively, and had ~~$3.2~~$3.1 million of deferred revenue as of ~~June 30,~~the quarter ended December 31, 2023 (amounts in millions).


	2023
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
Deferred memberships fees received	2.1
Deferred membership fee revenue recognized	(1.7)
Deferred revenue, September 30,	3.6
Deferred memberships fees received	1.3
Deferred membership fee revenue recognized	(1.8)
Deferred revenue, December 31,	$	~~3.2~~3.1

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 and nine months ended ~~June 30,~~December 31, 2023, membership fees earned under the partner program were ~~$0.6 million.~~$0.7 million and $2.0 million, respectively.

The Company has no material contract asset or liability balances at ~~June 30,~~December 31, 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,
Revenue (In thousands)
Revenue (In thousands)
Revenue (In thousands)			2023					%			2022				%				$ Variance				% Variance
							(as restated)
					Three Months Ended December 31,												Increase (Decrease)
Revenue (in thousands)			2023					%			2022				%				$				%
Reorder sales
Reorder sales
Reorder sales			$	68,038		87.0			87.0	%		$	63,208	90.2		90.2		%		$	4,830	7.6		7.6	%		$	57,682		88.3		88.3	%		$	53,316		90.6		90.6	%		$	4,366		8.2		8.2	%
New order sales	New order sales		7,820			10.0			10.0	%		6,834		9.8		9.8		%		986		14.4		14.4	%	New order sales			5,189		7.9		7.9	%			5,554		9.4		9.4	%			(365)		-6.6		-6.6	%
Membership fees	Membership fees		2,386			3.0			3.0	%		–		–		–		%		2,386		–		–	%	Membership fees			2,446		3.7		3.7	%			–		–		–	%			2,446		–		–	%
Total net sales
Total net sales
Total net sales			$	78,244		100.0			100.0	%		$	70,042	100.0		100.0		%		$	8,202	11.7		11.7	%		$	65,317		100.0		100.0	%		$	58,870		100.0		100.0	%		$	6,447		11.0		11.0	%


	Nine Months Ended December 31,								Increase (Decrease)
Revenue (in thousands)	2023		%		2022		%		$		%
					(as restated)
Reorder sales	$	188,123	87.7	%	$	176,131	90.7	%	$	11,992	6.8	%
New order sales	19,181		8.9	%	18,041		9.3	%	1,140		6.3	%
Membership fees	7,256		3.4	%	–		–	%	7,256		–	%

Total net sales	$	214,560	100.0	%	$	194,172	100.0	%	$	20,388	10.5	%

Note 4: Acquisition ~~(As Restated)~~

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~~$36.1 million and was ~~provided~~funded from the Company's cash on hand.

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

The Company recognized ~~preliminary~~ goodwill of approximately ~~$26.7~~$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~~represents 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 aan Internal Revenue Code Section 382 analysis to determine if the net operating losses carried forward will have a utilization limitation. ~~- refer~~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, net	270
Goodwill	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~~258
Lease liabilities	~~2,272~~2,220
Total liabilities	11,315
Total purchase consideration	$	36,079

The Company incurred a total of ~~$1.6~~$1.8 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.~~2023, and $1.3 million was recorded for the nine months ended December 31, 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~~nine months ended December 31, 2022 is as follows (in thousands):


	~~Three~~Nine Months Ended ~~June 30,~~December 31, 2022
	(unaudited)
Revenue	$	~~81,245~~226,713
Net income	~~907~~407

Note 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.

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 share and per share amounts):

Three Months Ended
June 30,

Three Months Ended December 31,

Nine Months Ended
December 31,

2023

2022

2023

2022

2023

2022

(as restated)

Net (loss) income (numerator):

Net (loss) income

Shares (denominator):

Weighted average number of common shares outstanding used in basic computation

Common shares issuable upon vesting of restricted stock

Common shares issuable upon conversion of preferred shares

Shares used in diluted computation

Net (loss) income per common share:

Basic

Diluted

For the three months ended ~~June 30,~~December 31, 2023 ~~862,519~~and 2022, 825,825 and 243,604 shares issuable upon vesting of restricted stock and 10,125 and zero shares issuable upon conversion of preferred shares, respectively, 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. For the nine months ended December 31, 2023 and 2022, 837,084 and 243,604 shares issuable upon vesting of restricted stock and 10,125 and zero shares issuable upon conversion of preferred shares, respectively, 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 6: Stock-Based Compensation

The Company records compensation expense associated with restricted stock in accordance with ASC Topic 718 (“~~Share Based Payment~~Compensation - Stock Compensation”). The Company had ~~968,667~~961,973 common shares issued under the 2016 Employee Equity Compensation Restricted Stock Plan (“(the “2016 Employee Plan”) (which 2016 Employee ~~Plan”)~~Plan was succeeded by the 2022 Employee Plan in April 2023, and no further awards will be granted under the 2016 Employee Plan), ~~75,742~~89,742 common shares issued under the 2022 Employee Equity Compensation Plan (as amended) ~~(“2022~~(the “2022 Employee Plan”), and ~~242,378~~225,251 common shares issued under the 2015 Outside Director Equity Compensation Plan (as amended) ~~(“2015~~(the “2015 Director Plan”) ~~at June 30,~~. At December 31, 2023, all shares ~~of which~~ were issued with service-based vesting conditions which vest subject to the employee's continued employment with the Company or the director’s continued directorship with the Company through the applicable vesting date. The Company ~~recorded share-based~~records stock-based compensation expense for these awards on a ~~straight line~~straight-line basis over the requisite service ~~period and accounted~~period. The Company reverses stock-based compensation expense previously recorded upon forfeiture of unvested awards except for ~~forfeitures as they occur, with the exception of market based~~performance restricted shares ~~which were~~with a market condition issued to the Chief Executive ~~Officer.~~Officer (“CEO”) and performance stock units (“PSUs”) with a market condition issued to the Chief

Financial Officer (“CFO”) as described in the following paragraphs. Stock-based compensation expense previously recorded for these awards will not be reversed if the awards are forfeited.

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,~~December 31, 2023, the Company ~~also~~ had ~~13,250~~55,380 RSUs and 12,000 PSUs granted under the 2022 Employee Plan and 30,000 RSUs granted under the 2015 Director Plan.

In August 2021, the Company issued 90,000 restricted shares and 510,000 ~~performance~~ restricted shares with a market condition to the Company’s CEO, in accordance with the CEO’s employment agreement, under the 2016 Employee Plan. The ~~performance~~ restricted shares with a market condition 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.~~grant subject to the CEO’s continued employment with the Company through such date. As of ~~June 30,~~December 31, 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’~~the CFO’s 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’~~the CFO’s continued employment with the Company through the applicable vesting date, with any unvested RSUs being forfeited upon ~~Ms. Chambers~~the CFO ceasing to be an employee of the Company. Also in June 2023, the ~~Company's~~ CFO was awarded 8,000 ~~PSUs. Ms. Chambers~~PSUs with a market condition. The CFO 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~~14,000 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~~ three months ended ~~June 30,~~December 31, 2023. The Company issued ~~1,623~~zero shares of restricted stock and zero RSUs to board members under the 2015 Director Plan during the quarter ended ~~June 30,~~December 31, 2023. For the quarters ended ~~June 30,~~December 31, 2023 and 2022, the Company recognized $~~1.8~~1.7 million and ~~$1.5~~$1.8 million, respectively, of compensation expense related to the 2016 Employee Plan, 2022 Employee Plan, and 2015 Director Plan. For the nine months ended December 31, 2023 and 2022, the Company recognized $5.2 million and $5.0 million, respectively, of compensation expense related to the 2016 Employee Plan, 2022 Employee Plan, and 2015 Director Plan. At ~~June 30,~~December 31, 2023 and 2022 there was ~~$9.0~~$6.1 million and ~~$12.3~~$10.6 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,~~December 31, 2023 and ~~2022,~~March 31, 2023, there were ~~837,269~~728,446 and ~~780,167~~752,829 non-vested restricted shares issued and outstanding, respectively.

Restricted Stock Awards

The fair value assigned to restricted stock awards is the market price of the Company’s stock at the grant date. The vesting period range from one to three years. 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


	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	89,742	103,765	$	14.75
Vested	(28,585)	(72,235)	–	(100,820)	$	26.57
Forfeited	(17,127)	(10,201)	–	(27,328)	$	24.67
Balance at December 31, 2023	24,540	614,164	89,742	728,446	$	26.16

Restricted Stock Units

The fair value ofassigned to RSUs is ~~determined~~the market price of the Company’s stock 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.~~grant date. 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:

RSUs

Weighted-Average
Grant Date
Fair Value Per RSU

RSUs

Weighted-Average
Grant Date
Fair Value Per RSU

Balance at March 31, 2023

Granted

Vested and issued

Forfeited

Balance at June 30, 2023

Vested and unissued at June 30, 2023

Non-vested at June 30, 2023

Balance at December 31, 2023

The total grant-date fair value of RSUs granted during the ~~quarters~~three months ended ~~June 30,~~December 31, 2023 and 2022 was ~~$0.2~~zero for both periods. The total grant-date fair value of RSUs granted during the nine months ended December 31, 2023 and 2022 was $1.1 million and zero, respectively.

For the ~~quarters~~three months ended ~~June 30,~~December 31, 2023 and 2022, the Company recorded ~~stock- based~~stock-based compensation related to RSUs of $0.1 million and zero, ~~for both periods.~~respectively. For the nine months ended December 31, 2023 and 2022, the Company recorded stock-based compensation related to RSUs of $0.2 million and zero, respectively.

Performance Stock Units

~~Stock-based compensation costs associated with the Company’s~~The fair value assigned to PSUs ~~are either initially~~is determined using the ~~fair~~ market ~~value~~price of the Company’s ~~common~~ stock on the grant date ~~the awards are granted (service inception date)~~ for awards with a performance condition, orand by using a Monte Carlo simulation for awards with a market condition. PSUs with a performance condition ~~the grant value is based on~~vest over one year. PSUs with a ~~Monte Carlo simulation. The vesting of PSUs is subject to certain performance conditions and a service requirement ranging from~~ ~~one~~ tomarket condition vest over three years. Stock-based compensation costs associated with PSUs with a performance condition 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

PSUs

Weighted-Average
Grant Date
Fair Value Per PSU

Balance at March 31, 2023

Granted

Vested and issued

Forfeited

Performance adjustment

Balance at June 30, 2023

Vested and unissued at June 30, 2023

Non-vested at June 30, 2023

Balance at December 31, 2023

The total grant-date fair value of PSUs granted during the ~~quarters~~three months ended ~~June 30,~~December 31, 2023 and 2022 was zero for both periods. The total grant-date fair value of PSUs granted during the nine months ended December 31, 2023 and 2022 was $0.1 million and zero, respectively.

For the ~~quarters~~three months ended ~~June 30,~~December 31, 2023 and 2022, the Company recorded ~~stock- based~~stock-based compensation related to PSUs of zero for both periods. For the nine months ended December 31, 2023 and 2022, the Company recorded stock-based compensation related to PSUs of zero for both periods.

Note 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~~Measurement”) 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,~~December 31, 2023 and March 31, 2023, the Company had invested the majority of its ~~$61.5~~$49.4 million and ~~$104.1~~$104.1 million cash and cash equivalents balance in money market funds which are classified within Level 1.

Note 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)

Useful Life

Gross Value

Accumulated Amortization

Net Carrying Value

Weighted Average Remaining Useful Life (Years)

June 30, 2023

December 31, 2023

Intangible Assets

Toll-free telephone number

Indefinite

375

–

375

Indefinite

375

–

375

Indefinite

Internet domain names

Indefinite

485

–

485

Indefinite

Internet domain names

Indefinite

485

–

485

Indefinite

Trade Names - PetCareRx

Indefinite

2,600

–

2,600

Indefinite

Trade Names - PetCareRx

Indefinite

2,600

–

2,600

Indefinite

Customer Relationships -PetCareRx

7 years

6,700

(239)

6,461

6.75

Customer Relationships -PetCareRx

7 years

6,700

(718)

5,982

6.25

Developed Technology - PetCareRx

3 years

3,000

(250)

2,750

2.75

Developed Technology - PetCareRx

3 years

3,000

(750)

2,250

2.25

Other Assets

Initial minority interest investment in Vetster

N/A

5,000

–

5,000

N/A

5,300

–

5,300

N/A

Balance June 30, 2023

Balance December 31, 2023

March 31, 2023

Intangible Assets

Toll-free telephone number

Indefinite

375

–

375

Indefinite

375

–

375

Indefinite

Internet domain names

Indefinite

485

–

485

Indefinite

Internet domain names

Indefinite

485

–

485

Indefinite

Other Assets

Initial minority interest investment in Vetster

N/A

5,000

–

5,000

N/A

5,000

–

5,000

N/A

Balance March 31, 2023

Amortization expense for intangible assets was $0.5 million and zero for the three months ended ~~June 30,~~December 31, 2023 and 2022, respectively. Amortization expense for intangible assets was $1.5 million and zero for the nine months ended December 31, 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 Canadian 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

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. On October 3, 2023, the Company purchased additional shares in Vetster in the amount of $0.3 million. This increases the minority interest investment disclosed in Note 7 to $5.3 million. Following this round, the Company’s minority ownership changed to approximately 4.8% of Vetster’s outstanding shares.

Note 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 fiscal year 2024 to ~~2027.~~2028. 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,~~December 31, 2023, the weighted average remaining lease term and discount rate for the Company’s operating leases were ~~3.4~~3.1 years and ~~6.6%.~~3.8%, respectively. 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~~as recorded in the general and administrative costs and activity for the three and nine 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~~


Lease cost	Three months ended December 31, 2023		Nine Months Ended December 31, 2023
Operating lease cost - fixed	$	215	$	646
Operating lease costs - variable	15		43
Total lease cost	$	230	$	689

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


	~~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~~


	Three months ended December 31, 2023		Nine Months Ended December 31, 2023
Cash paid for the amounts included in the measurement of operating lease liabilities	$	211	$	630
Right-of-use assets obtained in exchange for new operating lease liabilities as a result of acquisition	$	2,220	$	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,~~December 31, 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


	December 31, 2023
Three months ending March 31, 2024	$	202
2025	501
2026	488
2027	502
2028	42
Total lease payments	1,735
Less: Imputed Interest	(92)
Present value of lease liabilities	$	1,643

Note 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.

2021

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

Changes in Shareholders’ Equity for the ~~three~~nine months ended ~~June 30,~~December 31, 2023 is summarized below (in thousands):

Common Stock

Additional
Paid-In
Capital

Retained
Earnings

Common Stock

Additional
Paid-In
Capital

Retained
Earnings

Beginning balance at March 31, 2023:

Beginning balance at March 31, 2023 (as restated):

Share based compensation

Dividends declared

Net loss

Ending balance at June 30, 2023:

Ending balance at June 30, 2023 (as restated):

Share based compensation

Dividends declared

Net loss

Ending balance at September 30, 2023 (as restated):

Share based compensation

Net loss

Ending balance at December 31, 2023:

Changes in Shareholders’ Equity for the ~~three~~nine months ended ~~June 30,~~December 31, 2022 is summarized below (in thousands):

Common Stock

Additional
Paid-In
Capital

Retained
Earnings

Common Stock

Additional
Paid-In
Capital

Retained
Earnings

Beginning balance at March 31, 2022:

Beginning balance at March 31, 2022 (as restated):

Share based compensation

Dividends declared

Net income

Ending balance at June 30, 2022

Ending balance at June 30, 2022 (as restated):

Share based compensation

Dividends declared

Net income

Ending balance at September 30, 2022 (as restated):

Share based compensation

Dividends declared

Net loss

Ending balance at December 31, 2022 (as restated):

There were no shares of common stock that were purchased or retired in the ~~three~~nine months ended ~~June 30,~~December 31, 2023 or 2022. At ~~June 30,~~December 31, 2023, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.

Note 12: Income Taxes (As Restated)

For the ~~quarters~~three months ended ~~June 30,~~December 31, 2023 and 2022, the Company recorded an income tax benefit of approximately $0.6 million and an income tax provision of approximately $1.0 thousand, respectively, and for the nine months ended December 31, 2023 and 2022 the Company recorded an income tax benefit of approximately $0.3 million and aan income tax provision of approximately ~~$0.5~~$1.6 million, respectively. The decrease in the income tax provision for the

three and nine months ended ~~June 30,~~December 31, 2023 is related to the ~~utilization~~gain on settlement of ~~net operating losses available related to the acquisition of PetCareRx.~~sales tax liability cases. The ~~effective tax rate for the quarter ended June 30, 2023 was approximately 20.4%, compared to approximately 16.9% for the quarter ended June 30, 2022. The increase to the~~ effective tax rate for the three months ended ~~June 30,~~December 31, 2023 ~~can be attributed~~was approximately 23.4%, compared to ~~more deductible expenses~~approximately (0.5)% for the three months ended December 31, 2022, and ~~net operating losses offsetting taxable income, partially offset by an increase~~the effective tax rate for the nine months ended December 31, 2023 was approximately 12.4% compared to approximately 23.4% for the nine months ended December 31, 2022. The decrease in the ~~state income tax.~~effective tax rate for the three and nine months ended December 31,2023 is related to the deduction of permanent differences from the gain on settlement of sales tax liability cases.

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 ~~restated~~ results of the preliminary Section 382 analysis determined the net operating ~~loss~~losses and disallowed interest expense in total, would be limited and reduced to approximately $14.5 million.

~~Note 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.~~

2223

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 ~~Amendment,~~Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2023, and our 2023 Form 10-K/A.

Certain information in this ~~Amendment~~Quarterly Report on Form 10-Q 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. 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 2023 Form 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 ~~the Original~~this Quarterly Report ~~or as of the date they were made or as otherwise specified herein.~~on Form 10-Q. 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~~We offer 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~~our 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~~We have a March 31 fiscal ~~year.~~year end.

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~~9,000 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~~websites at www.petmeds.com and www.petcarerx.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~~$93 for the quarter ended December 31, 2023, approximately $90 for the quarter ended December 31, 2022, approximately $95 for the ~~quarters~~nine months ended ~~June 30,~~December 31, 2023 and ~~2022, respectively.~~approximately $93 for the nine months ended December 31, 2022.

Restatement

As described in the ~~Explanatory Note above and in~~ Note 1 of “Notes to ~~our consolidated financial statements,~~Condensed 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 and nine months ended ~~June 30, 2023 and June 30, 2022 in this Amendment.~~December 31, 2022.

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~~Accounting Standards Codification ("ASC") Topic 606 ("Revenue from Contracts with Customers"). ~~and generate~~The Company generates revenue by selling prescription and non-prescription pet medication products, pet food, supplements, supplies, membership fees, and ~~pet supplies mainly to retail customers.~~veterinary services. Certain pet supplies offered on our website are drop shipped to customers. We consider ~~ourselves~~ourself 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~~we also earns membership fees on a month-to-month basis as earned under ~~its~~our 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")~~ASC Topic 326 ("Financial Instruments - Credit Losses"). The allowance for doubtful accounts was approximately ~~$38~~$39 thousand at ~~June 30,~~December 31, 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.

Acquisition

On April 3, 2023, we 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 us, 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 our 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 funded from our cash on hand.

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~~we performed aan Internal Revenue Code 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~~our 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 $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.

2526

Results of Operations ~~(As Restated)~~

The following should be read in conjunction with our unaudited ~~condensed consolidated financial statements~~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,
			Three Months Ended June 30,
			Three Months Ended June 30,
		Three Months Ended December 31,			Nine Months Ended December 31,
				2023							2023				2022			2023				2022				2023		2022
				(as restated)							(as restated)				(as restated)												(as restated)
Sales	Sales					100.0	%	100.0	%	Sales		100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales
Gross profit
Gross profit
Gross profit
Operating expenses:
Operating expenses:
Operating expenses:
General and administrative
General and administrative
General and administrative
Advertising
Depreciation and amortization
Total operating expenses
(Loss) income from operations
(Loss) income from operations
(Loss) income from operations
Total other income (expense)
Total other income (expense)
Total other income (expense)
Total other income
Total other income
Total other income
(Loss) income before provision for income taxes
(Loss) income before provision for income taxes
(Loss) income before provision for income taxes
Income (loss) before provision for income taxes
Income (loss) before provision for income taxes
Income (loss) before provision for income taxes
(Benefit) provision for income taxes
(Benefit) provision for income taxes
(Benefit) provision for income taxes
Net (loss) income
Net (loss) income
Net (loss) income						(1.4)	%	3.8	%	(3.1)		%		(0.4)		%			(1.1)	%			2.8	%

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;~~expense, depreciation and ~~amortization;~~amortization, income tax ~~provision;~~provision, interest income (expense);, and other non-operational expenses. We have provided reconciliations below of net income to 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 non-operational expenses, including the investment banking fee related to the Vetster partnership, ~~acquisition costs related~~

2627

acquisition costs related 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 sales tax expense (income) relating to 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.

The following ~~table presents~~tables present 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~~


	Three Months Ended				Increase (Decrease)
($ in thousands, except percentages)	December 31, 2023		December 31, 2022		$		%
			(as restated)
Consolidated Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA:

Net loss	$	(2,027)	$	(212)	$	(1,815)	856	%

Add (subtract):
Share-based Compensation	1,707		1,770		(63)		(4)	%
Income Taxes	(618)		1		(619)		n/m
Depreciation and Amortization	1,770		941		829		88	%
Interest (Income) Expense, Net (1)	(136)		(299)		163		(55)	%
Acquisition/Partnership Transactions and Other Items	–		539		(539)		(100)	%

Sales Tax Expense (Income)	228		–		228		n/m

Adjusted EBITDA	$	924	$	2,740	$	(1,816)	(66)	%

~~PetMed Express, Inc.~~

~~(Unaudited)~~

Three Months Ended
($ in thousands, except percentages) June 30,
2023 June 30,
2022
$
Change
%
Change
(as restated) (as restated)
Consolidated Reconciliation of GAAP Net Income to Adjusted EBITDA:
Net (loss) income $ (1,136) $ 2,687 $ (3,823) n/m
Add (subtract):
Share-based Compensation $ 1,760 $ 1,536 $ 224 15 %
Income Tax expense (benefit) $ (292) $ 548 $ (840) n/m
Depreciation and Amortization $ 1,678 $ 753 $ 925 123 %
Interest (Income) Expense, Net (1)
$ (194) $ 274 $ (468) n/m
Acquisition/Partnership Transactions and Other Items $ 1,126 $ 355 $ 771 217 %
Employee Severance $ 393 $ – $ 393 n/m
Sales Tax Expense $ – $ 179 $ (179) (100) %
Adjusted EBITDA $ 3,335 $ 6,332 $ (2,997) (47) %

(1) Included in interest (income) expense is ~~$426~~$423 thousand of interest expense related to the sales tax liability and ~~$620~~$559 thousand of interest income for the three months ended ~~June 30,~~December 31, 2023 and ~~$391~~$409 thousand of interest expense related to the sales tax liability and ~~$117~~$708 thousand of interest income for the three months ended ~~June 30,~~December 31, 2022.


	Nine Months Ended				Increase (Decrease)
($ in thousands, except percentages)	December 31, 2023		December 31, 2022		$		%
			(as restated)
Consolidated Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA:

Net (loss) income	$	(2,448)	$	5,356	$	(7,804)	(146)	%

Add (subtract):
Share-based Compensation	5,196		4,987		209		4	%
Income Taxes	(345)		1,636		(1,981)		(121)	%
Depreciation and Amortization	5,161		2,552		2,609		102	%
Interest (Income) Expense, Net (1)	(481)		(11)		(470)		4273	%
Acquisition/Partnership Transactions and Other Items	1,294		894		400		45	%
Employee Severance	408		364		44		12	%
Sales Tax Expense (Income)	(1,088)		344		(1,432)		(416)	%

Adjusted EBITDA	$	7,697	$	16,122	$	(8,425)	(52)	%

(1) Included in interest (income) expense is $1,268 thousand of interest expense related to the sales tax liability and $1,749 thousand of interest income for the nine months ended December 31, 2023 and $1,202 thousand of interest expense related to the sales tax liability and $1,213 thousand of interest income for the nine months ended December 31, 2022.

Three Months Ended ~~June 30,~~December 31, 2023 Compared With Three Months Ended ~~June 30,~~December 31, 2022 and Nine Months Ended December 31, 2023 Compared With Nine Months Ended December 31, 2022

Sales (As Restated)

Sales increased by approximately ~~$8.2~~$6.4 million, or ~~11.7%~~11.0%, to approximately ~~$78.2~~$65.3 million for the quarter ended ~~June 30,~~December 31, 2023, compared to ~~approximately $70.0~~approximately $58.9 million for the quarter ended ~~June 30,~~December 31, 2022. The increase in sales for the ~~three months~~quarter ended ~~June 30,~~December 31, 2023 was due to incremental sales and membership fees from the ~~combination~~integration of PetCareRx, ~~growth~~partially offset by declines in PetMeds new customer and reorder sales.

New order sales ~~with an~~decreased by approximately $0.4 million or 6.6%, to approximately $5.2 million for the quarter ended December 31, 2023, compared to $5.6 million for the quarter ended December 31, 2022. The decrease in new order sales is primarily due to one time promotions in the same quarter last year that we did not repeat, partially offset by incremental new order sales from the integration of PetCareRx.

Sales increased by approximately $20.4 million, or 10.5%, to approximately $214.6 million for the nine months ended December 31, 2023, compared to approximately $194.2 million for the nine months ended December 31, 2022. The

increase in sales for the nine months ended December 31, 2023 was due to incremental sales and membership fees from the integration of PetCareRx, partially offset by declines in PetMeds reorder sales.

We acquired approximately ~~86,000~~67,000 new customers for the quarter ended ~~June 30,~~December 31, 2023 compared to approximately ~~69,000~~72,000 new customers for the quarter ended ~~June 30,~~December 31, 2022. We acquired approximately 229,000 new customers for the nine months ended December 31, 2023 compared to approximately 202,000 new customers for the nine months ended December 31, 2022. The following tables illustrates sales by various sales classifications:

					Three Months Ended June 30,
		Three Months Ended December 31,													Increase (Decrease)
Revenue (In thousands)	Revenue (In thousands)		2023					%			2022					%					$ Variance						% Variance		Revenue (In thousands)		2023					%					2022				%			$				%
							(as restated)
Reorder sales
Reorder sales
Reorder sales			$	68,038		87.0			87.0	%		$	63,208	90.2				90.2		%			$	4,830		7.6			7.6		%	$	57,682	88.3			88.3		%			$	53,316	90.6		90.6	%		$	4,366	8.2		8.2	%
New order sales	New order sales		7,820			10.0			10.0	%		6,834					9.8		%			986			14.4			14.4		%	New order sales		5,189		7.9			7.9		%			5,554			9.4	%		(365)		(6.6)		(6.6)	%
Membership fees	Membership fees		2,386			3.0			3.0	%		–					–		%			2,386			–			–		%	Membership fees		2,446		3.7			3.7		%			–			–	%		2,446		–		–	%
Total net sales
Total net sales
Total net sales			$	78,244		100.0			100.0	%		$	70,042	100.0				100.0		%			$	8,202		11.7			11.7		%	$	65,317	100.0			100.0		%			$	58,870	100.0		100.0	%		$	6,447	11.0		11.0	%


	Nine Months Ended December 31,								Increase (Decrease)
Revenue (In thousands)	2023		%		2022		%		$		%
					(as restated)
Reorder sales	$	188,123	87.7	%	$	176,131	90.7	%	$	11,992	6.8	%
New order sales	19,181		8.9	%	18,041		9.3	%	1,140		6.3	%
Membership fees	7,256		3.4	%	–		–	%	7,256		–	%

Total net sales	$	214,560	100.0	%	$	194,172	100.0	%	$	20,388	10.5	%

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%~~52.2% of net sales for the most recent quarter ended ~~June 30,~~December 31, 2023, up from ~~33.9%~~42.3% of net sales for the same period last year and up from ~~44.4%~~51.0% 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~~$3.8 million, or ~~10.9%~~8.7%, to approximately ~~$55.7~~$47.4 million for the quarter ended ~~June 30,~~December 31, 2023, from approximately ~~$50.2~~$43.6 million for the quarter ended ~~June 30,~~December 31, 2022. Cost of sales, as a percentage of sales, was 72.6% for the quarter ended December 31, 2023, compared to 74.1% for the quarter ended December 31, 2022. Cost of sales increased by approximately $13.3 million, or 9.4%, to approximately $154.1 million for the nine months ended December 31, 2023, from approximately $140.8 million for the nine months ended December 31, 2022. Cost of sales, as a percentage of sales, was 71.8% for the nine months ended December 31, 2023, and 72.5% for the the nine months ended December 31, 2022. The cost of sales ~~increase~~increased for the three and nine months ended December 31, 2023 compared to the three and nine months ended December 31, 2022 was primarily due to higher sales inover the ~~current~~same period. AsThe cost of sales, as a percentage of sales, ~~cost of sales was 71.2% and 71.7%~~decreased for the ~~quarters~~three and nine months ended ~~June 30,~~December 31, 2023 compared to the three and nine months ended December 31, 2022 ~~respectively.~~primarily due to lower promotional activity in the most recent period and higher profit margins obtained by PetCareRx driven by membership fees.

Gross profit (As Restated)

Gross profit increased by approximately ~~$2.7~~$2.6 million, or ~~13.8%~~17.4%, to approximately ~~$22.5~~$17.9 million for the quarter ended ~~June 30,~~December 31, 2023, from approximately ~~$19.8~~$15.2 million for the quarter ended ~~June 30,~~December 31, 2022. ~~Gross~~For the nine months ended December 31, 2023, gross profit ~~as a percentage of sales was 28.8% and 28.3%~~increased by approximately $7.1 million, or 13.3%, to approximately $60.5 million, from approximately $53.4 million for the ~~quarters~~nine months ended ~~June 30, 2023 and 2022, respectively.~~December 31, 2022. The gross profit ~~and gross profit percentage increase~~increases for the quarter

and nine months ended ~~June 30,~~December 31, 2023 compared to the quarter and nine months ended ~~June 30,~~December 31, 2022 was primarily due to ~~favorable rebates from the combination of PetCareRx.~~higher sales and higher profit margins obtained by PetCareRx driven by membership fees.

General and administrative expenses (As Restated)

General and administrative expenses increased by approximately ~~$6.3~~$3.0 million, or ~~67.4%~~28.8%, to approximately ~~$15.7~~$13.4 million for the quarter ended ~~June 30,~~December 31, 2023, from approximately ~~$9.4~~$10.4 million for the quarter ended ~~June 30,~~December 31, 2022. The increase to general and administrative expenses for the quarter ended ~~June 30,~~December 31, 2023 was due to a ~~$3.3~~$2.0 million increase in payroll expenses, a $0.2 million increase of software and systems expense, and a $1.0 million increase of variable and other overhead expenses. The expense increases were partially attributed to the integration of PetCareRx. These increases were offset by $0.4 million lower professional fees, as the quarter ended December 31, 2022 had $0.5 million of acquisition related costs.

For the nine months ended December 31, 2023 general and administrative expenses increased by approximately $11.4 million, or 38.5%, to approximately $41.1 million, from approximately $29.7 million for the nine months ended December 31, 2022. The increase to general and administrative expenses for the nine months ended December 31, 2023 was due to a $6.6 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~~$1.4 million increase of professional fees, of which ~~$1.1~~$0.4 million were acquisition related costs, ~~as well as~~ a ~~$0.6~~$1.1 million increase of software and systems expense, and a ~~$0.8~~$3.7 million increase of variable and other overhead ~~expenses primarily~~expenses. The expense increases were partially attributed to the combination of PetCareRx. These increases were offset by $1.3 million related to sales tax settlements with states.

Advertising expenses

Advertising expenses increased by approximately ~~$0.9~~$1.1 million, or ~~14.4%~~24.2%, to approximately ~~$7.3~~$5.8 million for the quarter ended ~~June 30,~~December 31, 2023, from approximately ~~$6.3~~$4.6 million for the quarter ended ~~June 30,~~December 31, 2022. The increase for the quarter can be mainly attributed to ~~higher~~ media spend ~~and increased agency fees.~~related to PetCareRx. The a~~advertising~~dvertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was ~~$84~~$86 for the quarter ended ~~June 30,~~December 31, 2023 and includes PetCareRx compared to ~~$91~~$64 for the quarter ended ~~June 30,~~December 31, 2022. The ~~decrease~~increase to customer acquisition costs for the quarter ended ~~June 30,~~December 31, 2023, was due to ~~more~~a less efficient variable marketing ~~spend and a greater diversity of products offered creating economies of scope.~~spend. 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. AAs a percentag~~s a percentage~~e of sales, advertising expense was ~~9.3%~~8.8% and ~~9.1%~~7.9% for the quarters ended ~~June 30,~~December 31, 2023 and 2022, respectively. ~~However, the~~The advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability.

For the nine months ended December 31, 2023 advertising expenses increased by approximately $3.7 million, or 24.7%, to approximately $18.5 million, from approximately $14.9 million for the nine months ended December 31, 2022. The increase was due to media spend related to PetCareRx compared to the same period in the prior year. The advertising costs of acquiring a new customer was $81 for the nine months ended December 31, 2023 and includes PetCareRx compared to $74 for the nine months ended December 31, 2023, respectively. As a percentage of sales, advertising expense was 8.6% and 7.7% for the nine months ended December 31, 2023 and 2022, respectively.

Depreciation and amortization

Depreciation and amortization expense was ~~$1.7~~$1.8 million and ~~$0.8~~$0.9 million for the quarters ended ~~June 30,~~December 31, 2023 and ~~June 30,~~December 31, 2022, respectively. Depreciation and amortization expense was $5.2 million and $2.6 million for the nine months ended December 31, 2023 and 2022, respectively. This increase to depreciation and amortization expense for the quarter and the nine months ended December 31, 2023 can be attributed to new

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

Other income ~~(expense)~~ (As Restated)

Other income decreased to approximately $0.4 million for the quarter ended December 31, 2023 compared to approximately $0.6 million for the quarter ended December 31, 2022. Other income increased to approximately $1.5 million for the nine months ended December 31, 2023 compared to approximately $0.7 million for the ~~quarter~~nine months ended ~~June 30, 2023 compared~~December 31, 2022. The decrease to ~~approximately $0.1 million of~~ other ~~expense~~income for the quarter ~~ended June 30, 2022.~~was due to slightly lower invested balances. The increase to other income for the ~~quarter~~nine months 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,~~activities, towards quarterly dividend payments, or on our share repurchase plan, which has approximately $28.7 million remaining as of ~~June 30,~~December 31, 2023. Additionally, interest income could increase or decrease if the current interest rate environment changes.

Provision for income taxes (As Restated)

For the quarters ended ~~June 30,~~December 31, 2023 and 2022, the Company recorded an income tax benefit of approximately $0.6 million and a tax provision of approximately $1.0 thousand, respectively, and for the nine months ended December 31, 2023 and 2022, the Company recorded an income tax benefit of approximately $0.3 million and a tax provision of approximately ~~$0.5~~$1.6 million, respectively. The decrease in the tax provision for the three and nine months ended ~~June 30,~~December 31, 2023 is related to the ~~utilization~~gain on settlement of ~~net operating losses available made available due to the acquisition of PetCareRx.~~sales tax liability cases. The effective tax rate for the quarter ended ~~June 30,~~December 31, 2023 was approximately ~~20.4%~~23.4%, compared to approximately ~~16.9%~~(0.5)% for the quarter ended ~~June 30,~~December 31, 2022, and the effective tax rate for the nine months ended December 31, 2023 was approximately 12.4% compared to approximately 23.4% for the nine months ended December 31, 2022. The decrease toin the effective tax rate for the three and nine months ended ~~June 30,~~December 31, 2023 ~~can be attributed~~is related to ~~deductible expenses and net operating losses offsetting taxable income partially offset by an increase in state income tax.~~the deduction of permanent differences from the gain on settlement of sales tax liability cases.

Liquidity and Capital Resources ~~(As Restated)~~

Our working capital at ~~June 30,~~December 31, 2023 and March 31, 2023 was ~~$26.0~~$23.1 million and $72.9 million, respectively. The ~~$46.9~~$49.8 million decrease in working capital was primarily attributable to a decrease in cash used to fund the $36.1 million PetCareRx acquisition, and a ~~$10.2~~$12.4 million increase in inventory in part related to the acquisition of PetCareRx. Net cash ~~provided by~~used in operating activities was ~~$0.6~~$2.8 million for the ~~three~~nine months ended ~~June 30,~~December 31, 2023, compared to cash provided by operating activities of ~~$6.4~~$18.1 million for the ~~three~~nine months ended ~~June 30,~~December 31, 2022. This change is primarily due to decreases in net income and accounts payable and an increase in ~~accounts payable and~~ inventory in the ~~three~~nine months ended ~~June 30,~~December 31, 2023 ~~than in~~compared to the same period in the prior ~~year, as well as a decrease to net income.~~year. Net cash used in investing activities was ~~$37.0~~$39.4 million for the ~~three~~nine months ended ~~June 30,~~December 31, 2023, compared to ~~$6.0~~$8.3 million used in investing activities for the ~~three~~nine months ended ~~June 30,~~December 31, 2022. ~~This~~The change in net cash used in investing activities is related to the PetCareRx acquisition, an additional investment in Vetster, and increased property and equipment ~~additions~~ acquired induring the ~~three~~nine months ended ~~June 30,~~December 31, 2023. Net cash used in financing activities was ~~$6.1~~$12.4 million and $18.4 million for the ~~three~~nine months ended ~~June 30,~~December 31, 2023 and the ~~three~~nine months ended ~~June 30,~~December 31, 2022, respectively, due to the payment of an aggregate ~~of $0.30~~$0.60 per share dividend ~~in each quarter.~~for the nine months ended December 31, 2023, and an aggregate $0.90 per share dividend for the nine months ended December 31, 2022.

As of ~~June 30,~~December 31, 2023, we had approximately $28.7 million remaining under our share repurchase plan. On ~~July 31, 2023,~~February 1, 2024, our Board of Directors ~~declared~~elected to suspend the quarterly dividend indefinitely. This move is intended to focus use of the Company’s existing cash flow on growth initiatives and other, higher return initiatives. The board reviews and discusses the capital allocation needs of the Company on a ~~$0.30 per share~~quarterly basis and as part of that review, has determined to suspend the dividend ~~with a August 14, 2023 record date and a August 18, 2023 payment date. The~~indefinitely.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.~~Directors.

As of ~~June 30,~~December 31, 2023, we had ~~$2.1~~$1.6 million in outstanding lease commitments assumed in the PetCarerRx acquisition for the leases on two ~~buildings occupied by PetCareRx.~~buildings. Other than the foregoing leases, we are not currently bound by any material ~~long-~~long-term 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.

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,~~December 31, 2023, we had ~~$61.5~~$49.4 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,~~December 31, 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 December 31, 2023, the end of the period covered by this report (the "Evaluation Date"). Based ~~on such~~upon that evaluation, ~~at the time the Original Report was filed,~~ our Chief Executive Officer and Chief Financial Officer concluded ~~that our disclosure controls and procedures were effective~~ as of ~~June 30, 2023 to 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 concludedEvaluation Date, that our disclosure controls and procedures were not effective as of ~~June 30,~~December 31, 2023, due to ~~the~~ material weaknesses described below.

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~~the 2023 Form 10-K/A we identified a material weakness due to a lack of segregation of duties over the preparation, approval and posting of certain journal entries. Subsequent to our original evaluation, we identified a new material weakness in the 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 weakness resulted in the restatement of our financial 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~~Reports on Form 10-Q for the ~~quarter~~quarters ended June 30, 2023 and September 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~~Reports on Form 10-Q for the ~~quarter~~quarters ended June 30, 2023 and September 30, 2023.

~~These~~The material weakness due to a lack of segregation of duties over the preparation, approval and posting of certain journal entries has been remediated and the material weaknesses in the design of our controls over accurate recording of our sales tax liability and our controls over accurate valuation of our deferred tax asset and goodwill relating to our acquisition of PetCareRx remain unremediated as of ~~June 30,~~December 31, 2023. Management is taking steps to remediate these material weaknesses (see “Remediation of Material Weaknesses” for details).

Remediation of Material Weaknesses

~~We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing~~In response to the material ~~weaknesses are remediated as soon as possible.We are developing~~weakness due to a ~~remediation plan designed to improve our internal controls~~lack of segregation of duties over ~~financial reporting to remediate these~~

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

~~Additionally, in~~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, the 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 remediation efforts described above.

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

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design 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 and procedures relative to the their cost.

3234

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 2023 Form 10-K/A for additional information concerning these and other uncertainties that could negatively impact the Company. There have been no material changes to the risk factors disclosed in our 2023 Form 10-K/~~A for the fiscal year ended March 31, 2023.~~A.

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,~~December 31, 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~~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


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.

3335

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: 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 Secretary
			(Principal Financial and Accounting Officer)

3436

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

PETMED EXPRESS, INC

________________________

FORM ~~10-Q/A~~

~~(Amendment No. 1)~~10-Q

FOR THE QUARTER ENDED:

~~JUNE 30,~~DECEMBER 31, 2023

________________________

EXHIBITS

________________________


	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


	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