(

)

Summary of Significant Accounting Policies

Organization

PetMed Express, Inc. and subsidiaries, d/b/a

800

-PetMeds (the “Company”), is a leading nationwide pet pharmacy. The Company markets prescription and non-prescription pet medications, health products, and supplies for dogs and cats, direct to the consumer. The Company markets its products through national advertising campaigns, which aim to increase the recognition of the

“1

800

-PetMeds” brand name and “PetMeds” family of trademarks, increase traffic on its website at

www.1800petmeds.com

, acquire new customers, and maximize repeat purchases. The majority of all of the Company's sales are to residents in the United States. The Company’s corporate headquarters and distribution facility are located in Delray Beach, Florida. The Company's fiscal year end is

March 31,

and references herein to fiscal

2018,

2017,

2016

refer to the Company's fiscal years ended

March 31, 2018,

2017,

and

2016,

respectively.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Revenue Recognition

The Company generates revenue by selling pet medication products and pet supplies mainly to retail consumers. The Company’s policy is to recognize revenue from product sales upon shipment, when the rights of ownership and risk of loss have passed to the customer. Outbound shipping and handling fees are included in sales and are billed upon shipment. Shipping expenses are included in cost of sales. The majority of the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in

two

three

banking days. Credit card sales minimize the accounts receivable balances relative to sales. We recognize revenue once all of the following criteria have been met: (

) persuasive evidence of an arrangement exists; (

) delivery of our obligations to our customer has occurred; (

) the price is fixed or determinable; and (

) collectability of the related receivable is reasonably assured. The Company maintains an allowance for doubtful accounts for losses that the Company estimates will arise from the customers’ inability to make required payments, arising from either credit card charge-backs or insufficient funds checks. The Company determines its estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends. At

March 31, 2018

and

2017,

the allowance for doubtful accounts was approximately

$35,000

and

$27,000,

respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturity of

three

months or less when purchased to be cash equivalents. Cash and cash equivalents at

March 31, 2018

and

2017

consisted of the Company’s cash accounts and money market accounts with a maturity of

three

months or less. The carrying amount of cash equivalents approximates fair value. The Company maintains its cash in bank deposit accounts which, at times,

may

exceed federally insured limits. The Company has

not

experienced any losses in such accounts.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Inventories

Inventories consist of prescription and non-prescription pet medications and pet supplies that are available for sale and are priced at the lower of cost or net realizable value using a weighted average cost method. The Company writes down its inventory for estimated obsolescence. The inventory reserve was approximately

$58,000

and

$51,000

March 31, 2018

and

2017,

respectively.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Our building is being depreciated over a period of

thirty

years. The furniture, fixtures, equipment, and computer software are being depreciated over periods ranging from

three

ten

years. Leasehold improvements and assets under capital lease agreements are amortized over the shorter of the underlying lease agreement or the useful life of the asset.

Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

may

not

be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the asset to the undiscounted cash flows expected to be generated from the asset.

Intangible Assets

The intangible assets consist of a toll-free telephone number and an internet domain name. In accordance with the ASC Topic

350

(“

Goodwill and Other Intangible Assets”

) the intangible assets are

not

being amortized, and are subject to an annual review for impairment.

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.

Advertising

The Company's advertising expenses consist primarily of online marketing and direct mail/print advertising. Internet costs are expensed in the month incurred and direct mail/print costs are expensed when the related catalogs, brochures, and postcards are produced, distributed, or superseded.

Business Concentrations

The Company purchases its products from a variety of sources, including certain manufacturers, domestic distributors, and wholesalers. We have multiple suppliers for each of our products to obtain the lowest cost. There were

four

suppliers from whom we purchased approximately

50%

of all products in both fiscal

2018

and fiscal

2017.

Accounting for Share Based Compensation

The Company records compensation expense associated with restricted stock in accordance with ASC Topic

718

(

“Share Based Payment”

). The compensation expense related to all of the Company’s stock-based compensation arrangements is recorded as a component of general and administrative expenses.

Comprehensive Income

The Company applies ASC Topic

220

(“

Reporting Comprehensive Income”

) which requires that all items that are recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. For the fiscal years ended

March 31, 2018

and

2017

the Company had

unrealized gains or losses. For the fiscal year ended

March 31, 2016

the Company recorded an unrealized gain of

$54,000

on its short term investments.

The following is a summary of our comprehensive income (in thousands):

	March 31,
	2018		2017		2016

Net income	$	37,283	$	23,819	$	20,567
Change in unrealized gain on short term investments, net of taxes		-		-		54

Comprehensive income	$	37,283	$	23,819	$	20,621

Income Taxes

The Company accounts for income taxes under the provisions of ASC Topic

740

(“

Accounting for Income Taxes

”) which generally requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the 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 required by “Accounting for Uncertainty in Income Taxes” guidance, which clarifies ASC Topic

740,

the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than

not

sustain the position following an audit. For tax positions meeting the more-likely-than-

not

threshold, the amount recognized in the Consolidated Financial Statements is the largest benefit that has a greater than

percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies “Accounting for Uncertainty in Income Taxes” guidance to all tax positions for which the statute of limitations remains open. The Company files tax returns in the U.S. federal jurisdiction and Florida and Virginia. With few exceptions, the Company is

longer subject to U.S. federal, state or local income tax examinations by tax authorities for years ending

March 31, 2012,

or earlier. Any interest and penalties related to income taxes will be recorded to other income (expenses).

Recent Accounting Pronouncements

May 2014,

the Financial Accounting Standards Board (“FASB”) issued ASU

2014

09,

“Revenue from Contracts with Customers” (ASC

606

). ASC

606

clarifies the accounting for revenue arising from contracts with customers and specifies the disclosures that an entity should include in its financial statements. The standard was effective for annual reporting periods beginning after

December

15,

2017.

During

2016,

the FASB issued certain amendments to the standard relating to the principal versus agent guidance, accounting for licenses of intellectual property and identifying performance obligations as well as the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The effective date and transition requirements for these amendments are the same as those of the original ASU. The guidance permits

two

methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method).

The Company will adopt ASC

606

using the modified retrospective method on

April 1, 2018.

In preparation for adoption of the standard, the Company has identified its revenues streams and measured the impact of implementing this guidance. The Company has evaluated each of the

five

steps in ASC

606,

which are as follows:

) Identify the contract with the customer;

) Identify the performance obligations in the contract;

) Determine the transaction price;

) Allocate the transaction price to the performance obligations; and

) Recognize revenue when performance obligations are satisfied.

The Company does

not

expect reported revenue to be affected materially in any period due to the adoption of ASC

606

as: (

) we expect to identify similar performance obligations under ASC

606

as compared with deliverables and separate units of account previously identified; (

) we have determined the transaction price to be consistent; and (

) we record revenue at the same point in time, upon shipment under both ASC

605

and ASC

606.

There are also certain considerations related to accounting policies, business processes and internal control over financial reporting that are associated with implementing ASC

606.

The Company has evaluated its policies, processes, and control framework for revenue recognition, and identified and implemented the changes needed in response to the new guidance.

Lastly, disclosure requirements under ASC

606

have been significantly expanded in comparison to the disclosure requirements under ASC

605,

including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, significant judgments made in revenue recognition determinations, adjustments to revenue that relate to activities from previous quarters or years, any significant reversals of revenue, and costs to obtain or fulfill contracts. We have designed and implemented the appropriate controls over gathering and reporting the information as required under ASC

606,

in order to support the expanded disclosure requirements.

February 2016,

the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases in the statement of financial position. Accounting applied by lessors will remain largely consistent with previous guidance, additional changes set to align lessor accounting with the revised lessee model and the FASB’s revenue recognition guidance. The amendments are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this standard on its consolidated financial statements. We do

not

expect the standard to have a material impact on our consolidated financial statements.

The Company does

not

believe that any other 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.