pets-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission file number: 000-28827

________________________

PETMED EXPRESS, INC.

(Exact name of registrant as specified in its charter)

________________________


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

420 South Congress Avenue, Delray Beach, Florida 33445

(Address of principal executive offices, including zip code)

(561) 526-4444

(Registrant’s telephone number, including area code)

N/A

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

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


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

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

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

Yes x No o

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


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

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

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

Yes o No x

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

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

EXPLANATORY NOTE

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

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

Background and Effects of the Restatement

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

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

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

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


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


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

Restatement of Condensed Consolidated Financial Statements

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

Internal Control Considerations

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

Items Amended in this Filing

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

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

a.Part I, Item 1. Financial Statements

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

c.Part I, Item 4. Controls and Procedures

d.Part II, Item 1A. Risk Factors

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

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

PART I - FINANCIAL INFORMATION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, certain information in this Amendment includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the 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 Form 10-K/A filed with the “SEC”, and under Part II, Item 1A., Risk Factors in this Amendment, if and as such risk factors may be updated from time to time in our periodic filings with the SEC. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and a reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

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

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

NOTE REGARDING COMPANY REFERENCES

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

ITEM 1. CONDENSED FINANCIAL STATEMENTS.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for per share amounts)


	June 30, 2023		March 31, 2023
	(Unaudited)
	(as restated)		(as restated)
ASSETS

Current assets:
Cash and cash equivalents	$	61,534	$	104,086
Accounts receivable, less allowance for doubtful accounts of $38 and $35, respectively	1,894		1,740
Inventories - finished goods	32,324		19,023
Prepaid expenses and other current assets	8,530		4,719
Prepaid income taxes	528		863
Total current assets	104,810		130,431

Noncurrent assets:
Property and equipment, net	27,207		26,178
Intangible and other assets, net	17,671		5,860
Goodwill	26,657		–
Operating lease right-of-use assets, net	2,024		–
Deferred tax assets, net	5,906		5,009
Total noncurrent assets	79,465		37,047

Total assets	$	184,275	$	167,478

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	40,037	$	25,208
Sales tax payable	26,614		26,113
Accrued expenses and other current liabilities	8,067		6,191
Current lease liabilities	799		–
Deferred revenue	3,246		–

Total current liabilities	78,763		57,512

Long-term lease liabilities	1,268		–


Total liabilities	80,031		57,512

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	9		9
Common stock, $.001 par value, 40,000 shares authorized; 21,170 and 21,084 shares issued and outstanding, respectively	21		21
Additional paid-in capital	20,037		18,277
Retained earnings	84,177		91,659

Total shareholders' equity	104,244		109,966

Total liabilities and shareholders' equity	$	184,275	$	167,478

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

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


	Three Months Ended June 30,
		2023		2022
		(as restated)		(as restated)
Sales		$	78,244	$	70,042
Cost of sales		55,718		50,244

Gross profit		22,526		19,798

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

(Loss) income from operations		(2,128)		3,311

Other income (expense):
Interest income (expense), net		194		(274)
Other, net		506		198
Total other income (loss)		700		(76)

(Loss) income before (benefit) provision for income taxes		(1,428)		3,235

(Benefit) provision for income taxes		(292)		548

Net (loss) income		$	(1,136)	$	2,687

Net (loss) income per common share:
Basic		$	(0.06)	$	0.13
Diluted		$	(0.06)	$	0.13

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

Cash dividends declared per common share		$	0.30	$	0.30

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


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

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

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

Net decrease in cash and cash equivalents	(42,552)		(5,666)
Cash and cash equivalents, at beginning of period	104,086		111,080

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

Supplemental disclosure of cash flow information:



Dividends payable in accrued expenses	$	1,507	$	791

See accompanying notes to unaudited condensed consolidated financial statements.

PETMED EXPRESS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Restatement of Previously Issued Financial Statements

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

Description of restatement adjustments

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

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

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

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


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


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

Shares (denominator):

Weighted average number of common shares outstanding used in basic computation	20,333		20,333		20,208		20,208

SEC Form 10-Q/A filed by PetMed Express Inc. (Amendment)