(

)

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

2019,

2018,

2017

refer to the Company's fiscal years ended

March 31, 2019,

2018,

and

2017,

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. 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 estimated based on historical patterns; however this is

not

considered a key judgment. There are

amounts excluded from variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which shipment of the product occurs. This key judgment is determined as the shipping point represents the point in time in which 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. 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 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.

The Company disaggregates revenue in the following

two

categories: (

) reorder revenue vs new order revenue, and (

) internet revenue vs contact center revenue. The following table illustrates revenue by various classifications:

Year Ended March 31,
Sales (In thousands)	2019		%			2018		%			$ Variance			% Variance

Reorder Sales	$	241,780		85.3	%	$	227,513		83.1	%	$	14,267			6.3	%
New Order Sales	$	41,639		14.7	%	$	46,287		16.9	%	$	(4,648	)		-10.0	%

Total Net Sales	$	283,419		100.0	%	$	273,800		100.0	%	$	9,619			3.5	%

Internet Sales	$	240,034		84.7	%	$	230,319		84.1	%	$	9,715			4.2	%
Contact Center Sales	$	43,385		15.3	%	$	43,481		15.9	%	$	(96	)		-0.2	%

Total Net Sales	$	283,419		100.0	%	$	273,800		100.0	%	$	9,619			3.5	%

Year Ended March 31,
Sales (In thousands)	2018		%			2017		%			$ Variance			% Variance

Reorder Sales	$	227,513		83.1	%	$	206,299		82.8	%	$	21,214			10.3	%
New Order Sales	$	46,287		16.9	%	$	42,877		17.2	%	$	3,410			8.0	%

Total Net Sales	$	273,800		100.0	%	$	249,176		100.0	%	$	24,624			9.9	%

Internet Sales	$	230,319		84.1	%	$	205,643		82.5	%	$	24,676			12.0	%
Contact Center Sales	$	43,481		15.9	%	$	43,533		17.5	%	$	(52	)		-0.1	%

Total Net Sales	$	273,800		100.0	%	$	249,176		100.0	%	$	24,624			9.9	%

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 accounts receivable balances relative to sales. The Company had

material contract asset or liability balances as of

March 31, 2019

and

2018.

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

$39,000

March 31, 2019

compared to

$35,000

March 31, 2018.

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, 2019

and

2018

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

$54,000

and

$58,000

March 31, 2019

and

2018,

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.

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 expense consists primarily of Internet marketing, direct mail/print, and television advertising. Internet costs are expensed in the month incurred and direct mail/print advertising costs are expensed when the related catalogs, brochures, and postcards are produced, distributed, or superseded. Television advertising costs are expensed as the advertisements are televised.

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, 2019,

2018

and

2017

the Company had

unrealized gains or losses.

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, 2013,

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

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

2019

and fiscal

2018.

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.

Recent Accounting Pronouncements

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 adopted this standard on

April 1, 2019.

The Company has very few lease arrangements. 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.