10-Q

UNITED STATES

securities and exchange commission

Washington D.C. 20549

FORM 10-Q

(Mark One)

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

☐ 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 ☒ No ☐

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 ☒ No ☐

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          ☐	Accelerated filer                    ☒
Non-accelerated filer            ☐	Smaller reporting company   ☐
Emerging growth company  ☐

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. ☐

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

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,174,932 Common Shares, $.001 par value per share at October 30, 2019.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PETMED EXPRESS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for per share amounts)

	September 30,		March 31,
	2019		2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	94,897	$	100,529
Accounts receivable, less allowance for doubtful accounts of $22 and $39, respectively		1,466		2,542
Inventories - finished goods, net		19,061		21,370
Prepaid expenses and other current assets		2,841		1,408
Prepaid income taxes		-		582
Total current assets		118,265		126,431
Noncurrent assets:
Property and equipment, net		26,412		27,136
Intangible assets		860		860
Total noncurrent assets		27,272		27,996
Total assets	$	145,537	$	154,427
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	15,155	$	16,275
Accrued expenses and other current liabilities		2,871		2,351
Income taxes payable		525		-
Total current liabilities		18,551		18,626
Deferred tax liabilities		1,395		1,121
Total liabilities		19,946		19,747
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 5,000 shares authorized; 3 convertible shares issued and outstanding with a liquidation preference of $4 per share		9		9
Common stock, $.001 par value, 40,000 shares authorized; 20,175 and 20,674 shares issued and outstanding, respectively		20		21
Additional paid-in capital		2,347		12,478
Retained earnings		123,215		122,172
Total shareholders' equity		125,591		134,680
Total liabilities and shareholders' equity	$	145,537	$	154,427

See accompanying notes to condensed consolidated financial statements.

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PETMED EXPRESS, INC. AND SUBSIDIARIES

condensed consolidated statementS of COMPREHENSIVE INCOME

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

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Sales	$	69,936	$	71,396	$	149,924	$	158,786
Cost of sales		49,934		46,141		108,061		103,577
Gross profit		20,002		25,255		41,863		55,209
Operating expenses:
General and administrative		6,303		6,200		12,811		13,134
Advertising		4,756		5,300		13,380		12,007
Depreciation		572		552		1,140		1,108
Total operating expenses		11,631		12,052		27,331		26,249
Income from operations		8,371		13,203		14,532		28,960
Other income:
Interest income, net		459		428		1,026		807
Other, net		304		255		561		572
Total other income		763		683		1,587		1,379
Income before provision for income taxes		9,134		13,886		16,119		30,339
Provision for income taxes		2,469		3,134		4,111		7,005
Net income	$	6,665	$	10,752	$	12,008	$	23,334
Comprehensive income	$	6,665	$	10,752	$	12,008	$	23,334
Net income per common share:
Basic	$	0.33	$	0.53	$	0.60	$	1.14
Diluted	$	0.33	$	0.52	$	0.60	$	1.14
Weighted average number of common shares outstanding:
Basic		19,963		20,463		20,098		20,436
Diluted		19,973		20,520		20,109		20,485
Cash dividends declared per common share	$	0.27	$	0.27	$	0.54	$	0.52

See accompanying notes to condensed consolidated financial statements.

2

PETMED EXPRESS, INC. AND SUBSIDIARIES

condensed consolidated statementS of cash flows

(In thousands)(Unaudited)

	Six Months Ended
	September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	12,008		$	23,334
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,140			1,108
Share based compensation		1,365			1,500
Deferred income taxes		274			189
Bad debt expense		64			49
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable		1,012			457
Inventories - finished goods		2,309			(5,279	)
Prepaid income taxes		582			170
Prepaid expenses and other current assets		(1,433	)		(94	)
Accounts payable		(1,120	)		(996	)
Accrued expenses and other current liabilities		568			(36	)
Income taxes payable		525			-
Net cash provided by operating activities		17,294			20,402
Cash flows from investing activities:
Purchases of property and equipment		(416	)		(450	)
Net cash used in investing activities		(416	)		(450	)
Cash flows from financing activities:
Repurchase and retirement of common stock		(11,496	)		-
Dividends paid		(11,014	)		(10,756	)
Net cash used in financing activities		(22,510	)		(10,756	)
Net (decrease) increase in cash and cash equivalents		(5,632	)		9,196
Cash and cash equivalents, at beginning of period		100,529			77,936
Cash and cash equivalents, at end of period	$	94,897		$	87,132
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2,730		$	6,645
Dividends payable in accrued expenses	$	155		$	207

See accompanying notes to condensed consolidated financial statements.

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PETMED EXPRESS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Summary of Significant Accounting Policies

Organization

PetMed Express, Inc. and subsidiaries, d/b/a 1-800-PetMeds (the “Company”), is a leading nationwide pet pharmacy. The Company markets prescription and non-prescription pet medications, health products, and supplies for dogs, cats, and horses, direct to the consumer. The Company offers consumers an attractive alternative for obtaining pet medications in terms of convenience, price, and speed of delivery. 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 the Company’s sales are to residents in the United States. The Company’s corporate headquarters and distribution facility is located in Delray Beach, Florida. The Company’s fiscal year end is March 31, and references herein to fiscal 2020 or fiscal 2019 refer to the Company's fiscal years ending March 31, 2020 and 2019, 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 of America for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company at September 30, 2019, the Statements of Comprehensive Income for the three and six months ended September 30, 2019 and 2018, and Cash Flows for the six months ended September 30, 2019 and 2018. The results of operations for the three and six months ended September 30, 2019 are not necessarily indicative of the operating results expected for the fiscal year ending March 31, 2020. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2019. The Condensed Consolidated Financial Statements include the accounts of PetMed Express, Inc. and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of Condensed 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ 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.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“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 are 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, using this effective date as the date of initial application.

4

Consequently, on adoption, the Company recognized an additional current operating liability, with a corresponding right of use asset of approximately the same amount based on the present value of the remaining rental payments under current leasing standards for existing operating leases. As of September 30, 2019, the current operating liability and corresponding right of use asset was approximately $220,000. The lease liability and right of use asset is reflected in the condensed consolidated balance sheet as part of accrued expenses and other current liabilities and as part of prepaid expenses and other current assets. The amended guidance did not have a material impact on the Company’s condensed 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.

Note 2: 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 in 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 not considered a key judgment. There are no 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: (1) Reorder revenue vs new order revenue, and (2) Internet revenue vs. contact center revenue. The following table illustrates revenue by various classifications:

Three Months Ended September 30,
Revenue (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	61,851		88.4	%	$	60,979		85.4	%	$	872			1.4	%
New Order Sales		8,085		11.6	%		10,417		14.6	%		(2,332	)		-22.4	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%
Internet Sales	$	58,453		83.6	%	$	60,306		84.5	%	$	(1,853	)		-3.1	%
Contact Center Sales		11,483		16.4	%		11,090		15.5	%		393			3.5	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%

Six Months Ended September 30,
Sales (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	129,593		86.4	%	$	132,493		83.4	%	$	(2,900	)		-2.2	%
New Order Sales		20,331		13.6	%		26,293		16.6	%		(5,962	)		-22.7	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%
Internet Sales	$	125,476		83.7	%	$	134,625		84.8	%	$	(9,149	)		-6.8	%
Contact Center Sales		24,448		16.3	%		24,161		15.2	%		287			1.2	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%

5

The majority of 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. The Company had no material contract asset or contract liability balances as of September 30, 2019 or March 31, 2019.

Note 3: Net Income Per Share

In accordance with the provisions of Accounting Standards Codification (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 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 income per share computations for the periods presented (in thousands, except for per share amounts):

	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net income (numerator):
Net income	$	6,665	$	10,752	$	12,008	$	23,334
Shares (denominator):
Weighted average number of common shares outstanding used in basic computation		19,963		20,463		20,098		20,436
Common shares issuable upon vesting of restricted stock		-		47		1		39
Common shares issuable upon conversion of preferred shares		10		10		10		10
Shares used in diluted computation		19,973		20,520		20,109		20,485
Net income per common share:
Basic	$	0.33	$	0.53	$	0.60	$	1.14
Diluted	$	0.33	$	0.52	$	0.60	$	1.14

For the three and six months ended September 30, 2019, 76,620 shares of common restricted stock were excluded from the computations of diluted net income per common share, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. For the three and six months ended September 30, 2018, 46,868 shares of common restricted stock were excluded from the computations of diluted net income per common share, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.

Note 4: Stock-Based Compensation

The Company records compensation expense associated with restricted stock in accordance with ASC Topic 718 (“Share Based Payment”) (ASU 2016-09). The compensation expense related to all of the Company’s stock-based compensation arrangements is recorded as a component of general and administrative expenses. The Company had 972,175 restricted common shares issued under the 2006 Employee Equity Compensation Restricted Stock Plan (“2006 Employee Plan”), 162,158 restricted common shares issued under the 2016 Employee Equity Compensation Restricted Stock Plan (“2016 Employee Plan” and collectively referred to with the 2006 Employee Plan as the “Employee Plans”), 272,000 restricted common shares issued under the 2006 Outside Director Equity Compensation Restricted Stock Plan (“2006 Director Plan”), and 135,000 restricted common shares issued under the 2015 Outside Director Equity Compensation Restricted Stock Plan (“2015 Director Plan”, and collectively referred to with the 2006 Director Plan as the “Director Plans”) at September 30, 2019, all shares of which were issued subject to a restriction or forfeiture period that lapses ratably on the first, second, and third anniversaries of the date of grant, and the fair value of which is being amortized over the three-year restriction period.

6

In July 2019, the Board of Directors approved the issuance of 77,125 restricted shares to certain employees of the Company, which included the Company’s CEO restricted stock grant of 40,000 shares in accordance with his Amended Employee Agreement, under the 2016 Employee Plan, with a fair value of $15.98 per share. In July 2019, the Board of Directors approved the issuance of 37,500 restricted shares to directors of the Company under the 2015 Director Plan, with a fair value of $15.98 per share. For the quarters ended September 30, 2019 and 2018, the Company recognized $730,000 and $781,000, respectively, of compensation expense related to the Employee and Director Plans. For the six months ended September 30, 2019 and 2018, the Company recognized $1.4 million and $1.5 million, respectively, of compensation expense related to the Employee and Director Plans. At September 30, 2019 and 2018, there was $4.3 million and $5.5 million of unrecognized compensation cost related to the non-vested restricted stock awards, respectively, which is expected to be recognized over the next three years. At both September 30, 2019 and 2018 there were approximately 191,000 non-vested restricted shares.

Note 5: Fair Value

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

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

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

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

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. At September 30, 2019, the Company had invested the majority of its $94.9 million cash and cash equivalents balance in money market funds which are classified within level 1.

Note 6: Changes in Shareholders’ Equity and Comprehensive Income:

Changes in shareholders’ equity for the six months ended September 30, 2019 and 2018 are summarized below (in thousands):

	Additional
	Paid-In			Retained
	Capital			Earnings
Beginning balance at March 31, 2019:	$	12,478		$	122,172
Share based compensation		635			-
Dividends declared		-			(5,518	)
Repurchase and retirement of common stock		(11,496	)		-
Net income		-			5,343
Ending balance at June 30, 2019:	$	1,617		$	121,997
Share based compensation		730			-
Dividends declared		-			(5,447	)
Net income		-			6,665
Ending balance at September 30, 2019:	$	2,347		$	123,215

7

	Additional
	Paid-In		Retained
	Capital		Earnings
Beginning balance at March 31, 2018:	$	9,381	$	106,320
Share based compensation		719		-
Dividends declared		-		(5,151	)
Net income		-		12,582
Ending balance at June 30, 2018:	$	10,100	$	113,751
Share based compensation		781		-
Dividends declared		-		(5,573	)
Net income		-		10,752
Ending balance at September 30, 2018:	$	10,881	$	118,930

During the six months ended September 30, 2019, the Company purchased and retired approximately 613,000 shares of its common stock for approximately $11.5 million. There were no shares of common stock that were purchased or retired in the six months ended September 30, 2018. At September 30, 2019, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.

Note 7: Commitments and Contingencies

The Company was a defendant in a putative class action lawsuit, filed in May 2019, in the United States District Court for the Southern District of New York seeking injunctive and monetary relief styled Valentin Reid, on behalf of himself and all others similarly situated v. PetMed Express, Inc., Case No. 19-cv-4169, alleging that the Company’s website, www.1800petmeds.com, does not comply with the Americans with Disabilities Act (“ADA”), New York State Human Rights Law (“NYSHRL”), and New York City Human Rights Law (“NYCHRL”), and discriminates against visually impaired individuals. The Company denies any wrongdoing. On July 30, 2019, the Company and the Plaintiff reached a confidential settlement in which the Plaintiff dismissed the matter with prejudice in exchange for the Company making a payment of $8,500 and the matter has concluded.

In January 2019, a putative class action complaint was filed by a different individual in the United States District Court for the Southern District of New York alleging that the Company’s website, www.1800petmeds.com, does not comply with the ADA, NYSHRL, and NYCHRL, and discriminates against visually impaired individuals. The Plaintiff initially named a New York corporation named Pet Meds Inc., which is not related or affiliated with the Company, as the defendant. However, the Plaintiff sought to remedy that error by requesting leave to file an amended complaint naming the Company, which request the Court granted on April 9, 2019. On April 18, 2019, the Court granted the Plaintiff’s request to transfer the case to the United States District Court for the Eastern District of New York, where it is currently pending. The matter is styled Brian Fischler, individually and on behalf of all other persons similarly situated v. PetMed Express, Inc.; Case No. 19-cv-02391. The Company denies any wrongdoing. As of July 24, 2019, the Company and the Plaintiff have reached a confidential settlement in which the Plaintiff and the Company will enter into a consent decree requiring among other things, the Company to modify its website to comply with certain accessibility standards within the next 24 months, and the matter will be dismissed with prejudice. As part of the confidential settlement agreement, the Company will pay the Plaintiff a sum of $10,000. The parties are awaiting the district court’s execution of the joint proposed consent decree.

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 initiates litigation to protect 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.

8

Note 8: Income Taxes

For the quarters ended September 30, 2019 and 2018, the Company recorded an income tax provision of approximately $2.5 million and $3.1 million, respectively, and for the six months ended September 30, 2019 and 2018, the Company recorded an income tax provision of approximately $4.1 million and $7.0 million, respectively. The decrease in the income tax provision for the quarter and six months ended September 30, 2019 is related to a decrease in operating income during the periods.

The effective tax rate for the quarter ended September 30, 2019 was approximately 27.0%, compared to 22.6% for the quarter ended September 30, 2018, and the effective tax rate for the six months ended September 30, 2019 was approximately 25.5% compared to 23.1% for the six months ended September 30, 2018. The increase to the effective rate for the three and six months ended September 30, 2019 can be attributed to a $322,000 income tax charge related to restricted stock compensation, compared to a $134,000 income tax benefit related to restricted stock compensation, which was recognized in the quarter ended September 30, 2018.

Note 9: Subsequent Events

On October 21, 2019 our Board of Directors declared a quarterly dividend of $0.27 per share. The Board established a November 4, 2019 record date and a November 15, 2019 payment date. Based on the outstanding share balance as of October 31, 2019 the Company estimates the dividend payable to be approximately $5.4 million.

9

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

Executive Summary

PetMed Express was incorporated in the state of Florida in January 1996. The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol “PETS.” The Company began selling pet medications and other pet health products in September 1996. In March 2010, the Company started offering for sale additional pet supplies on its website, and these items are drop shipped to customers by third party vendors. Presently, the Company’s product line includes approximately 2,500 SKUs of the most popular pet medications, health products, and supplies for dogs, cats, and horses.

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. Approximately 84% of all sales were generated via the Internet for the quarter ended September 30, 2019, compared to 85% for the quarter ended September 30, 2018. The Company’s sales consist of products sold mainly to retail consumers. The three-month average purchase was approximately $85 and $87 per order for the quarters ended September 30, 2019 and 2018, respectively, and the six-month average purchase was approximately $86 and $89 per order for the six months ended September 30, 2019 and 2018, respectively.

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. The Company’s 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

The Company generates revenue by selling pet medication products and pet supplies mainly to retail customers. 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 it is not considered a key judgment. There are no 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 majority of 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 accounts receivable balances relative to sales.

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 un-collectibility of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for doubtful accounts was approximately $22,000 at September 30, 2019 compared to $39,000 at March 31, 2019.

10

Valuation of inventory

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 market value using a weighted average cost method. The Company writes down its inventory for estimated obsolescence. The inventory reserve was approximately $48,000 at September 30, 2019 compared to $54,000 at March 31, 2019.

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 brochures and postcards are produced, distributed, or superseded. Television advertising costs are expensed as the advertisements are televised.

Accounting for income taxes

The Company accounts 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 the Company’s 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.

Results of Operations

The following should be read in conjunction with the Company’s 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 the Company’s Condensed Consolidated Statements of Comprehensive Income:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		71.4			64.6			72.1			65.2
Gross profit		28.6			35.4			27.9			34.8
Operating expenses:
General and administrative		9.0			8.7			8.5			8.3
Advertising		6.8			7.4			8.9			7.6
Depreciation		0.8			0.8			0.8			0.7
Total operating expenses		16.6			16.9			18.2			16.6
Income from operations		12.0			18.5			9.7			18.2
Total other income		1.1			1.0			1.1			0.9
Income before provision for income taxes		13.1			19.5			10.8			19.1
Provision for income taxes		3.5			4.4			2.7			4.4
Net income		9.6	%		15.1	%		8.1	%		14.7	%

11

Three Months Ended September 30, 2019 Compared With Three Months Ended September 30, 2018, and Six Months Ended September 30, 2019 Compared With Six Months Ended September 30, 2018

Sales

Sales decreased by approximately $1.5 million, or 2.0%, to approximately $69.9 million for the quarter ended September 30, 2019, from approximately $71.4 million for the quarter ended September 30, 2018. For the six months ended September 30, 2019, sales decreased by approximately $8.9 million, or 5.6%, to approximately $149.9 million compared to $158.8 million for the six months ended September 30, 2018. The decrease in sales for the quarter ended September 30, 2019 was primarily due to decreased new order sales offset by increased reorder sales, and the decrease in sales for the six months ended September 30, 2019 was primarily due to decreased new order and reorder sales. The Company acquired approximately 98,000 new customers for the quarter ended September 30, 2019, compared to approximately 117,000 new customers for the same period the prior year. For the six months ended September 30, 2019 the Company acquired approximately 238,000 new customers, compared to 286,000 new customers for the six months ended September 30, 2018. The following chart illustrates sales by various sales classifications:

Three Months Ended September 30,
Sales (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	61,851		88.4	%	$	60,979		85.4	%	$	872			1.4	%
New Order Sales		8,085		11.6	%		10,417		14.6	%		(2,332	)		-22.4	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%
Internet Sales	$	58,453		83.6	%	$	60,306		84.5	%	$	(1,853	)		-3.1	%
Contact Center Sales		11,483		16.4	%		11,090		15.5	%		393			3.5	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%

Six Months Ended September 30,
Sales (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	129,593		86.4	%	$	132,493		83.4	%	$	(2,900	)		-2.2	%
New Order Sales		20,331		13.6	%		26,293		16.6	%		(5,962	)		-22.7	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%
Internet Sales	$	125,476		83.7	%	$	134,625		84.8	%	$	(9,149	)		-6.8	%
Contact Center Sales		24,448		16.3	%		24,161		15.2	%		287			1.2	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%

Going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price. 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 heartworm, and flea and tick medications. For the quarters ended June 30, September 30, December 31, and March 31 of Fiscal 2019, the Company’s sales were approximately 31%, 25%, 21%, and 23%, respectively.

Cost of sales

Cost of sales increased by approximately $3.8 million, or 8.2%, to approximately $49.9 million for the quarter ended September 30, 2019, from approximately $46.1 million for the quarter ended September 30, 2018. For the six months ended September 30, 2019, cost of sales increased by approximately $4.5 million, or 4.3%, to approximately $108.1 million compared to $103.6 million for the same period in the prior year. As a percentage of sales, cost of sales was 71.4% and 64.6% for the quarters ended September 30, 2019 and 2018, respectively, and for the six months ended September 30, 2019 and 2018 cost of sales was 72.1% and 65.2%, respectively. The cost of sales increases can be attributed to price reductions given to customers to stimulate sales in response to increased online competition, and an increase to product costs during the quarter and six months. One of our long-term strategic initiatives and primary purchasing goals has always been to have direct purchasing relationships with the major manufacturers. We now have direct relationships with all major manufacturers which may help lower inventory costs in the future.

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Gross profit

Gross profit decreased by approximately $5.3 million, or 20.8%, to approximately $20.0 million for the quarter ended September 30, 2019, from approximately $25.3 million for the quarter ended September 30, 2018. For the six months ended September 30, 2019 gross profit decreased by approximately $13.3 million, or 24.2%, to approximately $41.9 million, compared to $55.2 million for the same period in the prior year. The decrease in gross profit is directly related to a decrease in sales and price reductions during the quarter and six months ended September 30, 2019. Gross profit as a percentage of sales was 28.6% and 35.4% for the three months ended September 30, 2019 and 2018, respectively, and for the six months ended September 30, 2019 and 2018, gross profit as a percentage of sales was 27.9% and 34.8%, respectively. The gross profit percentage decrease can be mainly attributed to price reductions given to customers to stimulate sales in response to increased online competition, and an increase in product costs during the quarter and six months. We now have direct relationships with all major manufacturers and these manufacturers have minimum advertised price policies which allow a general price discipline in the online market, which may help improve our gross margins in the future.

General and administrative expenses

General and administrative expenses increased by approximately $103,000, or 1.7%, to approximately $6.3 million for the quarter ended September 30, 2019, from approximately $6.2 million for the quarter ended September 30, 2018. The increase in general and administrative expenses for the quarter ended September 30, 2019 was primarily due to the following: an $82,000 increase in professional fees related to the annual proxy solicitation, a $51,000 increase in property expenses, a $22,000 increase in bad debt expense, and a $14,000 net increase of other expenses which includes insurance and telephone expenses, offset by a $66,000 decrease in payroll expense related to stock compensation expenses. For the six months ended September 30, 2019, general and administrative expenses decreased by approximately $323,000, or 2.5%, to approximately $12.8 million, compared to $13.1 million for the same period the prior year. The decrease in general and administrative expenses for the six months ended September 30, 2019 was primarily due to the following: a $309,000 decrease in payroll expenses related to a decrease in stock compensation expenses; a $129,000 decrease in bank service fees which was related to decreased sales in the period; and a $21,000 net decrease in other expenses, which included professional fees and license expenses. Offsetting the decrease was a $105,000 increase in property expenses; and a $31,000 net increase in other expenses, which included bad debt and insurance expenses.

Advertising expenses

Advertising expenses decreased by approximately $544,000, or 10.3%, to approximately $4.8 million for the quarter ended September 30, 2019, from approximately $5.3 million for the quarter ended September 30, 2018. For the six months ended September 30, 2019, advertising expenses increased by approximately $1.4 million, or 11.4%, to approximately $13.4 million compared to advertising expenses of approximately $12.0 million for the six months ended September 30, 2018. The decrease in advertising expenses for the three months ended September 30, 2019 was due to the elimination of television advertising in the quarter. The increase in advertising expenses for the six months ended September 30, 2019 was related to the re-addition of television advertising in the quarter ended June 30, 2019. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $49 for the quarter ended September 30, 2019 compared to $45 for the quarter ended September 30, 2018, and $56 for the six months ended September 30, 2019 compared to $42 for the six months ended September 30, 2018. Advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, advertising spending, and price competition. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future new order sales, whereas a less favorable advertising environment may negatively impact future new order sales.

As a percentage of sales, advertising expense was 6.8% and 7.4% for the quarters ended September 30, 2019 and 2018, respectively, and for the six months ended September 30, 2019 and 2018 advertising expense was 8.9% and 7.6%, respectively. The decrease in advertising expense as a percentage of total sales for the quarter ended September 30, 2019 can be mainly attributed to the elimination of television advertising in the September quarter. The increase in advertising expense as a percentage of total sales for the six months ended September 30, 2019 can be mainly attributed to the re-addition of television advertising in the June quarter to stimulate sales and promote brand awareness. The Company currently anticipates advertising as a percentage of sales to be approximately 9.0% for fiscal 2020. However, the advertising percentage will fluctuate quarter to quarter due to seasonality and advertising availability.

13

Depreciation

Depreciation expense increased by approximately $20,000 to approximately $572,000 for the quarter ended September 30, 2019, from approximately $552,000 for the quarter ended September 30, 2018. For both the six months ended September 30, 2019 and 2018 depreciation expense was approximately $1.1 million. The increase to depreciation expense for the quarter and six months ended September 30, 2019 can be attributed to new property and equipment additions during the same periods.

Other income

Other income increased by approximately $80,000 to approximately $763,000 for the quarter ended September 30, 2019 from approximately $683,000 for the quarter ended September 30, 2018. For the six months ended September 30, 2019 other income increased by approximately $208,000 to approximately $1.6 million compared to approximately $1.4 million for the same period in the prior year. The increase to other income for the quarter and six months ended September 30, 2019 is primarily related to increased interest income due to increased interest rates. Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $28.7 million remaining as of September 30, 2019, on any quarterly dividend payment, on its operating activities, or with a decrease in interest rates.

Provision for income taxes

For the quarters ended September 30, 2019 and 2018, the Company recorded an income tax provision of approximately $2.5 million and $3.1 million, respectively, and for the six months ended September 30, 2019 and 2018, the Company recorded an income tax provision of approximately $4.1 million and $7.0 million, respectively. The decrease in the income tax provision for the quarter and six months ended September 30, 2019 is related to a decrease in operating income during the period. The effective tax rate for the quarter ended September 30, 2019 was approximately 27.0%, compared to 22.6% for the quarter ended September 30, 2018, and the effective tax rate for the six months ended September 30, 2019 was approximately 25.5% compared to 23.1% for the six months ended September 30, 2018. The increase to the effective rate for the three and six months ended September 30, 2019 can be attributed to a $322,000 income tax charge related to restricted stock compensation, compared to a $134,000 income tax benefit related to restricted stock compensation, which was recognized in the quarter ended September 30, 2018.

Liquidity and Capital Resources

The Company’s working capital at September 30, 2019 and March 31, 2019 was $99.7 million and $107.8 million, respectively. The $8.1 million decrease in working capital was primarily attributable to the share buyback and dividends paid in the period. Net cash provided by operating activities was $17.3 million and $20.4 million for the six months ended September 30, 2019 and 2018, respectively. This decrease is mainly attributed to a decrease in net income offset by a decrease in inventory for the six months ended September 30, 2019, compared to an increase in inventory for six months ended September 30, 2018. Net cash used in investing activities was $416,000 for the six months ended September 30, 2019, compared to net cash used in investing activities of $450,000 for the six months ended September 30, 2019. This change in investing activities is related to property and equipment additions in the six months ended September 30, 2019. Net cash used in financing activities was $22.5 million for the six months ended September 30, 2019, compared to $10.8 million for the same period in the prior year. The increase to financing activities relates to the Company purchasing approximately 613,000 shares of its common stock for approximately $11.5 million during the period and the remaining increase to financing activities related to an increase in the dividend paid in the six months ended September 30, 2019.

At September 30, 2019, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan. Subsequent to September 30, 2019, on October 21, 2019 our Board of Directors declared a $0.27 per share dividend. The Board established a November 4, 2019 record date and a November 15, 2019 payment date. Depending on future market conditions the Company may utilize its cash and cash equivalents on the remaining balance of its current share repurchase plan, on dividends, or on its operating activities.

14

At September 30, 2019, the Company had no material outstanding lease commitments. See Note 1, Recent Accounting Pronouncements, to the Condensed Consolidated Financial Statements within this Form 10-Q for the Company’s disclosure related to leases. We are not currently bound by any long or short term agreements 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 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.

Presently, we have approximately $4.6 million forecasted for capital expenditures for the remainder of fiscal 2020, the majority of which will be invested in our e-commerce platform to better service our customers, which will be funded through cash from operations. The Company’s primary source of working capital is cash from operations. The Company presently has no need for alternative sources of working capital, and has no commitments or plans to obtain additional capital.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements at September 30, 2019.

Cautionary Statement Regarding Forward-Looking Information

Certain information in this 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. 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. A reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. When used in this quarterly report on Form 10-Q, "PetMed Express," "1-800-PetMeds," "PetMeds," "PetMed," "PetMeds.com," “1800PetMeds.com,” "PetMed.com," "PetMed Express.com," "the Company," "we," "our," and "us" refers to PetMed Express, Inc. and our subsidiaries.

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 investments. At September 30, 2019, we had $94.9 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 equivalents are subject to market risk, primarily interest rate and credit risk. Our 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 restricting our cash and cash equivalents to high-quality debt instruments with both short and long term maturities. We do not hold any derivative financial instruments that could expose us to significant market risk. At September 30, 2019, we had no debt obligations.

15

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended) as of the quarter ended September 30, 2019, the end of the period covered by this report (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective such that the information relating to our Company, including our consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act: (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

part ii - other information

ITEM 1. LEGAL PROCEEDINGS.

As previously reported in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019, filed May 28, 2019, the Company was named as a defendant in a putative class action lawsuit, filed in May 2019, in the United States District Court for the Southern District of New York seeking injunctive and monetary relief styled Valentin Reid, on behalf of himself and all others similarly situated v. PetMed Express, Inc., Case No. 19-cv-4169, alleging that the Company’s website, www.1800petmeds.com, does not comply with the Americans with Disabilities Act (“ADA”), New York State Human Rights Law (“NYSHRL”), and New York City Human Rights Law (“NYCHRL”), and discriminates against visually impaired individuals. On July 30, 2019, the Company and the Plaintiff reached a confidential settlement in which the Plaintiff dismissed the matter with prejudice in exchange for the Company making a payment of $8,500 and the matter has concluded.

As previously reported in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019, filed May 28, 2019, in January 2019, a putative class action complaint was filed by a different individual in the United States District Court for the Southern District of New York alleging that the Company’s website, www.1800petmeds.com, does not comply with the ADA, NYSHRL, and NYCHRL, and discriminates against visually impaired individuals. The Plaintiff initially named a New York corporation named Pet Meds Inc., which is not related or affiliated with the Company, as the defendant. However, the Plaintiff sought to remedy that error by requesting leave to file an amended complaint naming the Company, which request the Court granted on April 9, 2019. On April 18, 2019, the Court granted the Plaintiff’s request to transfer the case to the United States District Court for the Eastern District of New York, where it is currently pending. The matter is styled Brian Fischler, individually and on behalf of all other persons similarly situated v. PetMed Express, Inc.; Case No. 19-cv-02391. As of July 24, 2019, the Company and the Plaintiff have reached a confidential settlement in which the Plaintiff and the Company will enter into a consent decree requiring among other things, the Company to modify its website to comply with certain accessibility standards within the next 24 months, and the matter will be dismissed with prejudice. As part of the confidential settlement agreement, the Company will pay the Plaintiff a sum of $10,000. The parties are awaiting the district court’s execution of the joint proposed consent decree.

16

ITEM 1A. RISK FACTORS.

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our Annual Report on Form 10-K for Fiscal Year 2019 for additional information concerning these and other uncertainties that could negatively impact the Company.

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

The Company did not make any sales of unregistered securities during the second quarter of Fiscal 2020.

Issuer Purchases of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report.

31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended.*

31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, promulgated under the Securities Exchange Act of 1934, as amended.*

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**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

*	Filed herewith.
**	Furnished herewith XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

17

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.

(The “Registrant”)

Date: October 30, 2019

By:	/s/ Menderes Akdag
	Menderes Akdag
	Chief Executive Officer and President
	(principal executive officer)
By:	/s/ Bruce S. Rosenbloom
	Bruce S. Rosenbloom
	Chief Financial Officer
	(principal financial and accounting officer)

18

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

_______________________

PETMED EXPRESS, INC

_______________________

FORM 10-Q

FOR THE QUARTER ENDED:

SEPTEMBER 30, 2019

_______________________

EXHIBITS

_______________________

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Menderes Akdag, certify that:

1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2019 of PetMed Express, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 30, 2019
By:	/s/ Menderes Akdag
Menderes Akdag
Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bruce S. Rosenbloom, certify that:

1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2019 of PetMed Express, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 30, 2019
By:	/s/ Bruce S. Rosenbloom
Bruce S. Rosenbloom
Chief Financial Officer

EX-32.1

Exhibit 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

I, Menderes Akdag, and I, Bruce S. Rosenbloom, each certify to the best of our knowledge, based upon a review of the report on Form 10-Q for the quarter ended September 30, 2019 (the “Report”) of the Registrant, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: October 30, 2019
By:	/s/ Menderes Akdag
Menderes Akdag
Chief Executive Officer and President
By:	/s/ Bruce S. Rosenbloom
Bruce S. Rosenbloom
Chief Financial Officer

XML

Note 9 - Subsequent Events (Details Textual) - Subsequent Event [Member] - USD ($) $ / shares in Units, $ in Millions	Oct. 21, 2019	Oct. 31, 2019
Dividends Payable, Date Declared	Oct. 21, 2019
Dividends Payable, Amount Per Share	$ 0.27
Dividends Payable, Date of Record	Nov. 04, 2019
Dividends Payable, Date to be Paid	Nov. 15, 2019
Dividends Payable		$ 5.4

XML

Note 3 - Net Income Per Share (Tables)

6 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net income (numerator):
Net income	$	6,665	$	10,752	$	12,008	$	23,334
Shares (denominator):
Weighted average number of common shares outstanding used in basic computation		19,963		20,463		20,098		20,436
Common shares issuable upon vesting of restricted stock		-		47		1		39
Common shares issuable upon conversion of preferred shares		10		10		10		10
Shares used in diluted computation		19,973		20,520		20,109		20,485
Net income per common share:
Basic	$	0.33	$	0.53	$	0.60	$	1.14
Diluted	$	0.33	$	0.52	$	0.60	$	1.14

XML

Note 8 - Income Taxes

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

8

: Income Taxes

For the quarters ended

September 30, 2019

and

2018,

the Company recorded an income tax provision of approximately

$2.5

million and

$3.1

million, respectively, and for the

six

months ended

September 30, 2019

and

2018,

the Company recorded an income tax provision of approximately

$4.1

million and

$7.0

million, respectively. The decrease in the income tax provision for the quarter and

six

months ended

September 30, 2019

is related to a decrease in operating income during the periods.

The effective tax rate for the quarter ended

September 30, 2019

was approximately

27.0%,

compared to

22.6%

for the quarter ended

September 30, 2018,

and the effective tax rate for the

six

months ended

September 30, 2019

was approximately

25.5%

compared to

23.1%

for the

six

months ended

September 30, 2018.

The increase to the effective rate for the

three

and

six

months ended

September 30, 2019

can be attributed to a

$322,000

income tax charge related to restricted stock compensation, compared to a

$134,000

income tax benefit related to restricted stock compensation, which was recognized in the quarter ended

September 30, 2018.

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Sales	$ 69,936	$ 71,396	$ 149,924	$ 158,786
Cost of sales	49,934	46,141	108,061	103,577
Gross profit	20,002	25,255	41,863	55,209
Operating expenses:
General and administrative	6,303	6,200	12,811	13,134
Advertising	4,756	5,300	13,380	12,007
Depreciation	572	552	1,140	1,108
Total operating expenses	11,631	12,052	27,331	26,249
Income from operations	8,371	13,203	14,532	28,960
Other income:
Interest income, net	459	428	1,026	807
Other, net	304	255	561	572
Total other income	763	683	1,587	1,379
Income before provision for income taxes	9,134	13,886	16,119	30,339
Provision for income taxes	2,469	3,134	4,111	7,005
Net income	6,665	10,752	12,008	23,334
Comprehensive income	$ 6,665	$ 10,752	$ 12,008	$ 23,334
Net income per common share:
Basic (in dollars per share)	$ 0.33	$ 0.53	$ 0.60	$ 1.14
Diluted (in dollars per share)	$ 0.33	$ 0.52	$ 0.60	$ 1.14
Weighted average number of common shares outstanding:
Basic (in shares)	19,963	20,463	20,098	20,436
Diluted (in shares)	19,973	20,520	20,109	20,485
Cash dividends declared per common share (in dollars per share)	$ 0.27	$ 0.27	$ 0.54	$ 0.52

XML

Note 3 - Net Income Per Share

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

3

:

Net Income Per Share

In accordance with the provisions of Accounting Standards Codification (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 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 income per share computations for the periods presented (in thousands, except for per share amounts):

	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Net income (numerator):
Net income	$	6,665	$	10,752	$	12,008	$	23,334
Shares (denominator):
Weighted average number of common shares outstanding used in basic computation		19,963		20,463		20,098		20,436
Common shares issuable upon vesting of restricted stock		-		47		1		39
Common shares issuable upon conversion of preferred shares		10		10		10		10
Shares used in diluted computation		19,973		20,520		20,109		20,485
Net income per common share:
Basic	$	0.33	$	0.53	$	0.60	$	1.14
Diluted	$	0.33	$	0.52	$	0.60	$	1.14

For the

three

and

six

months ended

September 30, 2019,

76,620

shares of common restricted stock were excluded from the computations of diluted net income per common share, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. For the

three

and

six

months ended

September 30, 2018,

46,868

shares of common restricted stock were excluded from the computations of diluted net income per common share, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.

XML

Note 8 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Tax Expense (Benefit), Total	$ 2,469,000	$ 3,134,000	$ 4,111,000	$ 7,005,000
Effective Income Tax Rate Reconciliation, Percent, Total	27.00%	22.60%	25.50%	23.10%
Effective Income Tax Rate Reconciliation, Tax Expense (Benefit), Share-based Payment Arrangement, Amount			$ 322,000	$ (134,000)

XML

Note 5 - Fair Value (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Mar. 31, 2018
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 94,897	$ 100,529	$ 87,132	$ 77,936

XML

Note 2 - Revenue Recognition - Disaggregation of Revenue by Type (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 69,936	$ 71,396	$ 149,924	$ 158,786
Revenues, percentage	100.00%	100.00%	100.00%	100.00%
Revenues, variance	$ (1,460)		$ (8,862)
Revenues, variance, percentage	2.00%		5.60%
Internet [Member]
Revenues	$ 58,453	$ 60,306	$ 125,476	$ 134,625
Revenues, percentage	83.60%	84.50%	83.70%	84.80%
Revenues, variance	$ (1,853)		$ (9,149)
Revenues, variance, percentage	3.10%		6.80%
Contact Center [Member]
Revenues	$ 11,483	$ 11,090	$ 24,448	$ 24,161
Revenues, percentage	16.40%	15.50%	16.30%	15.20%
Revenues, variance	$ 393		$ 287
Revenues, variance, percentage	3.50%		1.20%
Reorder Customer [Member]
Revenues	$ 61,851	$ 60,979	$ 129,593	$ 132,493
Revenues, percentage	88.40%	85.40%	86.40%	83.40%
Revenues, variance	$ 872		$ (2,900)
Revenues, variance, percentage	1.40%		2.20%
New Order Customer [Member]
Revenues	$ 8,085	$ 10,417	$ 20,331	$ 26,293
Revenues, percentage	11.60%	14.60%	13.60%	16.60%
Revenues, variance	$ (2,332)		$ (5,962)
Revenues, variance, percentage	22.40%		22.70%

XML

Note 4 - Stock-based Compensation

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

4

:

Stock-Based Compensation

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

718

(

“Share Based Payment”

) (ASU

2016

-

09

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

972,175

restricted common shares issued under the

2006

Employee Equity Compensation Restricted Stock Plan (

“2006

Employee Plan”),

162,158

restricted common shares issued under the

2016

Employee Equity Compensation Restricted Stock Plan (

“2016

Employee Plan” and collectively referred to with the

2006

Employee Plan as the “Employee Plans”),

272,000

restricted common shares issued under the

2006

Outside Director Equity Compensation Restricted Stock Plan (

“2006

Director Plan”), and

135,000

restricted common shares issued under the

2015

Outside Director Equity Compensation Restricted Stock Plan (

“2015

Director Plan”, and collectively referred to with the

2006

Director Plan as the “Director Plans”) at

September 30, 2019,

all shares of which were issued subject to a restriction or forfeiture period that lapses ratably on the first, second, and

third

anniversaries of the date of grant, and the fair value of which is being amortized over the

three

-year restriction period.

In

July 2019,

the Board of Directors approved the issuance of

77,125

restricted shares to certain employees of the Company, which included the Company’s CEO restricted stock grant of

40,000

shares in accordance with his Amended Employee Agreement, under the

2016

Employee Plan, with a fair value of

$15.98

per share. In

July 2019,

the Board of Directors approved the issuance of

37,500

restricted shares to directors of the Company under the

2015

Director Plan, with a fair value of

$15.98

per share. For the quarters ended

September 30, 2019

and

2018,

the Company recognized

$730,000

and

$781,000,

respectively, of compensation expense related to the Employee and Director Plans. For the

six

months ended

September 30, 2019

and

2018,

the Company recognized

$1.4

million and

$1.5

million, respectively, of compensation expense related to the Employee and Director Plans. At

September 30, 2019

and

2018,

there was

$4.3

million and

$5.5

million of unrecognized compensation cost related to the non-vested restricted stock awards, respectively, which is expected to be recognized over the next

three

years. At both

September 30, 2019

and

2018

there were approximately

191,000

non-vested restricted shares.

XML

Document And Entity Information - shares	6 Months Ended
	Sep. 30, 2019	Oct. 30, 2019
Document Information [Line Items]
Entity Registrant Name	PETMED EXPRESS INC
Entity Central Index Key	0001040130
Trading Symbol	pets
Current Fiscal Year End Date	--03-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		20,174,932
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common stock

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income	$ 12,008	$ 23,334
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,140	1,108
Share based compensation	1,365	1,500
Deferred income taxes	274	189
Bad debt expense	64	49
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable	1,012	457
Inventories - finished goods	2,309	(5,279)
Prepaid income taxes	582	170
Prepaid expenses and other current assets	(1,433)	(94)
Accounts payable	(1,120)	(996)
Accrued expenses and other current liabilities	568	(36)
Income taxes payable	525
Net cash provided by operating activities	17,294	20,402
Cash flows from investing activities:
Purchases of property and equipment	(416)	(450)
Net cash used in investing activities	(416)	(450)
Cash flows from financing activities:
Repurchase and retirement of common stock	(11,496)
Dividends paid	(11,014)	(10,756)
Net cash used in financing activities	(22,510)	(10,756)
Net (decrease) increase in cash and cash equivalents	(5,632)	9,196
Cash and cash equivalents, at beginning of period	100,529	77,936
Cash and cash equivalents, at end of period	94,897	87,132
Supplemental disclosure of cash flow information:
Cash paid for income taxes	2,730	6,645
Dividends payable in accrued expenses	$ 155	$ 207

XML

Note 4 - Stock-based Compensation (Details Textual) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Jul. 31, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Payment Arrangement, Expense		$ 730,000	$ 781,000	$ 1,400,000	$ 1,500,000
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount		$ 4,300,000	$ 5,500,000	$ 4,300,000	$ 5,500,000
2006 Employee Equity Compensation Restricted Stock Plan (the "Employee Plan") [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross				972,175
2016 Employee Equity Compensation Restricted Stock Plan [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	77,125			162,158
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 15.98
2016 Employee Equity Compensation Restricted Stock Plan [Member] | Restricted Stock [Member] | Chief Executive Officer [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	40,000
2006 Outside Director Equity Compensation Restricted Stock Plan (the "Director Plan") [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross				272,000
2015 Outside Director Equity Compensation Restricted Stock Plan ("2015 Director Plan") [Member] | Restricted Stock [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross	37,500			135,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 15.98
Employee and Director Plans [Member] | Restricted Stock [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition				3 years	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance		191,000	191,000	191,000	191,000

XML

Note 2 - Revenue Recognition (Details Textual)	6 Months Ended
	Sep. 30, 2019
Minimum [Member]
Credit Card Sales, Cash Settlement Period	2 days
Maximum [Member]
Credit Card Sales, Cash Settlement Period	3 days

XML

Note 7 - Commitments and Contingencies (Details Textual) - USD ($)	Jul. 30, 2019	Jul. 24, 2019
Settled Litigation [Member]
Litigation Settlement, Amount Awarded to Other Party	$ 8,500
Pending Litigation [Member]
Litigation Settlement, Amount Awarded to Other Party		$ 10,000

XML

Note 2 - Revenue Recognition (Tables)

6 Months Ended

Sep. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

Three Months Ended September 30,
Revenue (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	61,851		88.4	%	$	60,979		85.4	%	$	872			1.4	%
New Order Sales		8,085		11.6	%		10,417		14.6	%		(2,332	)		-22.4	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%
Internet Sales	$	58,453		83.6	%	$	60,306		84.5	%	$	(1,853	)		-3.1	%
Contact Center Sales		11,483		16.4	%		11,090		15.5	%		393			3.5	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%

Six Months Ended September 30,
Sales (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	129,593		86.4	%	$	132,493		83.4	%	$	(2,900	)		-2.2	%
New Order Sales		20,331		13.6	%		26,293		16.6	%		(5,962	)		-22.7	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%
Internet Sales	$	125,476		83.7	%	$	134,625		84.8	%	$	(9,149	)		-6.8	%
Contact Center Sales		24,448		16.3	%		24,161		15.2	%		287			1.2	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%

XML

Note 7 - Commitments and Contingencies

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

7:

Commitments and Contingencies

The Company was a defendant in a putative class action lawsuit, filed in

May 2019,

in the United States District Court for the Southern District of New York seeking injunctive and monetary relief styled

Valentin Reid, on behalf of himself and all others similarly situated v. PetMed Express, Inc.

, Case

No.

19

-cv-

4169,

alleging that the Company’s website,

www.1800petmeds.com

, does

not

comply with the Americans with Disabilities Act (“ADA”), New York State Human Rights Law (“NYSHRL”), and New York City Human Rights Law (“NYCHRL”), and discriminates against visually impaired individuals. The Company denies any wrongdoing. On

July 30, 2019,

the Company and the Plaintiff reached a confidential settlement in which the Plaintiff dismissed the matter with prejudice in exchange for the Company making a payment of

$8,500

and the matter has concluded.

In

January 2019,

a putative class action complaint was filed by a different individual in the United States District Court for the Southern District of New York alleging that the Company’s website,

www.1800petmeds.com

, does

not

comply with the ADA, NYSHRL, and NYCHRL, and discriminates against visually impaired individuals. The Plaintiff initially named a New York corporation named Pet Meds Inc., which is

not

related or affiliated with the Company, as the defendant. However, the Plaintiff sought to remedy that error by requesting leave to file an amended complaint naming the Company, which request the Court granted on

April 9, 2019.

On

April 18, 2019,

the Court granted the Plaintiff’s request to transfer the case to the United States District Court for the Eastern District of New York, where it is currently pending. The matter is styled

Brian Fischler, individually and on behalf of all other persons similarly situated v. PetMed Express, Inc.

; Case

No.

19

-cv-

02391.

The Company denies any wrongdoing. As of

July 24, 2019,

the Company and the Plaintiff have reached a confidential settlement in which the Plaintiff and the Company will enter into a consent decree requiring among other things, the Company to modify its website to comply with certain accessibility standards within the next

24

months, and the matter will be dismissed with prejudice. As part of the confidential settlement agreement, the Company will pay the Plaintiff a sum of

$10,000.

The parties are awaiting the district court’s execution of the joint proposed consent decree.

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 initiates litigation to protect 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.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Sep. 30, 2019	Mar. 31, 2019
Allowance for doubtful accounts	$ 22	$ 39
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	5,000	5,000
Preferred stock, liquidation preference (in dollars per share)	$ 4	$ 4
Preferred stock, shares issued (in shares)	3	3
Preferred stock, shares outstanding (in shares)	3	3
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	40,000	40,000
Common stock, shares issued (in shares)	20,175	20,674
Common stock, shares outstanding (in shares)	20,175	20,674

XML

Note 2 - Revenue Recognition

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note

2:

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 in 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

not

considered a key judgment. There are

no

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: (

1

) Reorder revenue vs new order revenue, and (

2

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

Three Months Ended September 30,
Revenue (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	61,851		88.4	%	$	60,979		85.4	%	$	872			1.4	%
New Order Sales		8,085		11.6	%		10,417		14.6	%		(2,332	)		-22.4	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%
Internet Sales	$	58,453		83.6	%	$	60,306		84.5	%	$	(1,853	)		-3.1	%
Contact Center Sales		11,483		16.4	%		11,090		15.5	%		393			3.5	%
Total Net Sales	$	69,936		100.0	%	$	71,396		100.0	%	$	(1,460	)		-2.0	%

Six Months Ended September 30,
Sales (In thousands)	2019		%			2018		%			$ Variance			% Variance
Reorder Sales	$	129,593		86.4	%	$	132,493		83.4	%	$	(2,900	)		-2.2	%
New Order Sales		20,331		13.6	%		26,293		16.6	%		(5,962	)		-22.7	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%
Internet Sales	$	125,476		83.7	%	$	134,625		84.8	%	$	(9,149	)		-6.8	%
Contact Center Sales		24,448		16.3	%		24,161		15.2	%		287			1.2	%
Total Net Sales	$	149,924		100.0	%	$	158,786		100.0	%	$	(8,862	)		-5.6	%

The majority of 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. The Company had

no

material contract asset or contract liability balances as of

September 30, 2019

or

March 31, 2019.

XML

Note 6 - Changes in Shareholders' Equity and Comprehensive Income: (Details Textual) - USD ($) $ in Millions	6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Stock Repurchased and Retired During Period, Shares	613,000	0
Stock Repurchased and Retired During Period, Value	$ 11.5
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 28.7

XML

Note 3 - Net Income Per Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	76,620	46,868	76,620	46,868

XML

Note 6 - Changes in Shareholders' Equity and Comprehensive Income: (Tables)

6 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Stockholders Equity [Table Text Block]

	Additional
	Paid-In			Retained
	Capital			Earnings
Beginning balance at March 31, 2019:	$	12,478		$	122,172
Share based compensation		635			-
Dividends declared		-			(5,518	)
Repurchase and retirement of common stock		(11,496	)		-
Net income		-			5,343
Ending balance at June 30, 2019:	$	1,617		$	121,997
Share based compensation		730			-
Dividends declared		-			(5,447	)
Net income		-			6,665
Ending balance at September 30, 2019:	$	2,347		$	123,215

	Additional
	Paid-In		Retained
	Capital		Earnings
Beginning balance at March 31, 2018:	$	9,381	$	106,320
Share based compensation		719		-
Dividends declared		-		(5,151	)
Net income		-		12,582
Ending balance at June 30, 2018:	$	10,100	$	113,751
Share based compensation		781		-
Dividends declared		-		(5,573	)
Net income		-		10,752
Ending balance at September 30, 2018:	$	10,881	$	118,930

XML

Note 9 - Subsequent Events

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

Note

9

:

Subsequent Events

On

October 21, 2019

our Board of Directors declared a quarterly dividend of

$0.27

per share. The Board established a

November 4, 2019

record date and a

November 15, 2019

payment date. Based on the outstanding share balance as of

October 31, 2019

the Company estimates the dividend payable to be approximately

$5.4

million.

XML

Note 5 - Fair Value

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

5

:

Fair Value

The Company carries various assets and liabilities at fair value in the Condensed Consolidated Balance Sheets. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. ASC Topic

820

(“Fair Value Measurements”) establishes a

three

-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 

1

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

Level 

2

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

Level 

3

- Unobservable inputs which are supported by little or

no

market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. At

September 30, 2019,

the Company had invested the majority of its

$94.9

million cash and cash equivalents balance in money market funds which are classified within level

1.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis Of Presentation and Consolidation [Policy Text Block]

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 of America for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company at

September 30, 2019,

the Statements of Comprehensive Income for the

three

and

six

months ended

September 30, 2019

and

2018,

and Cash Flows for the

six

months ended

September 30, 2019

and

2018.

The results of operations for the

three

and

six

months ended

September 30, 2019

are

not

necessarily indicative of the operating results expected for the fiscal year ending

March 31, 2020.

These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s annual report on Form

10

-K for the fiscal year ended

March 31, 2019.

The Condensed Consolidated Financial Statements include the accounts of PetMed Express, Inc. and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of Condensed 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments, Policy [Policy Text Block]

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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

February 2016,

the Financial Accounting Standards Board (“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 are 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,

using this effective date as the date of initial application.

Consequently, on adoption, the Company recognized an additional current operating liability, with a corresponding right of use asset of approximately the same amount based on the present value of the remaining rental payments under current leasing standards for existing operating leases. As of

September 30, 2019,

the current operating liability and corresponding right of use asset was approximately

$220,000

.

The lease liability and right of use asset is reflected in the condensed consolidated balance sheet as part of accrued expenses and other current liabilities and as part of prepaid expenses and other current assets. The amended guidance did

not

have a material impact on the Company’s condensed 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.

XML

Note 6 - Changes in Shareholders' Equity and Comprehensive Income:

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

6

: Changes in

S

hare

holders’

Equity and Comprehensive Income:

Changes in shareholders’ equity for the

six

months ended

September 30, 2019

and

2018

are summarized below (in thousands):

	Additional
	Paid-In			Retained
	Capital			Earnings
Beginning balance at March 31, 2019:	$	12,478		$	122,172
Share based compensation		635			-
Dividends declared		-			(5,518	)
Repurchase and retirement of common stock		(11,496	)		-
Net income		-			5,343
Ending balance at June 30, 2019:	$	1,617		$	121,997
Share based compensation		730			-
Dividends declared		-			(5,447	)
Net income		-			6,665
Ending balance at September 30, 2019:	$	2,347		$	123,215

	Additional
	Paid-In		Retained
	Capital		Earnings
Beginning balance at March 31, 2018:	$	9,381	$	106,320
Share based compensation		719		-
Dividends declared		-		(5,151	)
Net income		-		12,582
Ending balance at June 30, 2018:	$	10,100	$	113,751
Share based compensation		781		-
Dividends declared		-		(5,573	)
Net income		-		10,752
Ending balance at September 30, 2018:	$	10,881	$	118,930

During the

six

months ended

September 30, 2019,

the Company purchased and retired approximately

613,000

shares of its common stock for approximately

$11.5

million. There were

no

shares of common stock that were purchased or retired in the

six

months ended

September 30, 2018.

At

September 30, 2019,

the Company had approximately

$28.7

million remaining under the Company’s share repurchase plan.

XML

Note 1 - Summary of Significant Accounting Policies (Details Textual) - Accounting Standards Update 2016-02 [Member]	Apr. 01, 2019 USD ($)
Prepaid Expenses and Other Current Assets [Member]
Operating Lease, Right-of-Use Asset	$ 220,000
Accrued Expenses and Other Current Liabilities [Member]
Operating Lease, Liability, Current	$ 220,000

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Mar. 31, 2019
Current assets:
Cash and cash equivalents	$ 94,897	$ 100,529
Accounts receivable, less allowance for doubtful accounts of $22 and $39, respectively	1,466	2,542
Inventories - finished goods, net	19,061	21,370
Prepaid expenses and other current assets	2,841	1,408
Prepaid income taxes		582
Total current assets	118,265	126,431
Noncurrent assets:
Property and equipment, net	26,412	27,136
Intangible assets	860	860
Total noncurrent assets	27,272	27,996
Total assets	145,537	154,427
Current liabilities:
Accounts payable	15,155	16,275
Accrued expenses and other current liabilities	2,871	2,351
Income taxes payable	525
Total current liabilities	18,551	18,626
Deferred tax liabilities	1,395	1,121
Total liabilities	19,946	19,747
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 5,000 shares authorized; 3 convertible shares issued and outstanding with a liquidation preference of $4 per share	9	9
Common stock, $.001 par value, 40,000 shares authorized; 20,175 and 20,674 shares issued and outstanding, respectively	20	21
Additional paid-in capital	2,347	12,478
Retained earnings	123,215	122,172
Total shareholders' equity	125,591	134,680
Total liabilities and shareholders' equity	$ 145,537	$ 154,427

XML

Note 1 - Summary of Significant Accounting Policies

6 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

Note

1:

Summary of Significant Accounting Policies

Organization

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

1

-

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, cats, and horses, direct to the consumer. The Company offers consumers an attractive alternative for obtaining pet medications in terms of convenience, price, and speed of delivery. 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 the Company’s sales are to residents in the United States. The Company’s corporate headquarters and distribution facility is located in Delray Beach, Florida. The Company’s fiscal year end is

March 31,

and references herein to fiscal

2020

or fiscal

2019

refer to the Company's fiscal years ending

March 31, 2020

and

2019,

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 of America for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company at

September 30, 2019,

the Statements of Comprehensive Income for the

three

and

six

months ended

September 30, 2019

and

2018,

and Cash Flows for the

six

months ended

September 30, 2019

and

2018.

The results of operations for the

three

and

six

months ended

September 30, 2019

are

not

necessarily indicative of the operating results expected for the fiscal year ending

March 31, 2020.

These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s annual report on Form

10

-K for the fiscal year ended

March 31, 2019.

The Condensed Consolidated Financial Statements include the accounts of PetMed Express, Inc. and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of Condensed 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ 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.

Recent Accounting Pronouncements

In

February 2016,

the Financial Accounting Standards Board (“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 are 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,

using this effective date as the date of initial application.

Consequently, on adoption, the Company recognized an additional current operating liability, with a corresponding right of use asset of approximately the same amount based on the present value of the remaining rental payments under current leasing standards for existing operating leases. As of

September 30, 2019,

the current operating liability and corresponding right of use asset was approximately

$220,000

.

The lease liability and right of use asset is reflected in the condensed consolidated balance sheet as part of accrued expenses and other current liabilities and as part of prepaid expenses and other current assets. The amended guidance did

not

have a material impact on the Company’s condensed 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.

XML

Note 6 - Changes in Shareholders' Equity and Comprehensive Income: - Schedule of Changes in Shareholders' Equity (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Sep. 30, 2018	Jun. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Balance		$ 134,680			$ 134,680
Repurchase and retirement of common stock					(11,500)
Net income	$ 6,665		$ 10,752		12,008	$ 23,334
Balance	125,591				125,591
Additional Paid-in Capital [Member]
Balance	1,617	12,478	10,100	$ 9,381	12,478	9,381
Share based compensation	730	635	781	719
Dividends declared
Repurchase and retirement of common stock		(11,496)
Net income
Balance	2,347	1,617	10,881	10,100	2,347	10,881
Retained Earnings [Member]
Balance	121,997	122,172	113,751	106,320	122,172	106,320
Share based compensation
Dividends declared	(5,447)	(5,518)	(5,573)	(5,151)
Repurchase and retirement of common stock
Net income	6,665	5,343	10,752	12,582
Balance	$ 123,215	$ 121,997	$ 118,930	$ 113,751	$ 123,215	$ 118,930

XML

Note 3 - Net Income Per Share - Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income (numerator):
Net income	$ 6,665	$ 10,752	$ 12,008	$ 23,334
Shares (denominator):
Weighted average number of common shares outstanding used in basic computation (in shares)	19,963	20,463	20,098	20,436
Common shares issuable upon vesting of restricted stock (in shares)		47	1	39
Common shares issuable upon conversion of preferred shares (in shares)	10	10	10	10
Shares used in diluted computation (in shares)	19,973	20,520	20,109	20,485
Net income per common share
Basic (in dollars per share)	$ 0.33	$ 0.53	$ 0.60	$ 1.14
Diluted (in dollars per share)	$ 0.33	$ 0.52	$ 0.60	$ 1.14