Fast, Easy, Helpful Service with Great Savings!
You’re 100% satisfied
or your money back!
www.petmeds.com
America’s Most Trusted Pet Pharmacy®
www.petmeds.com
America’s Most Trusted Pet Pharmacy®
2020
ANNUAL REPORT
PetMed Express, Inc.
To My Fellow Stockholders:
Fiscal 2020 was a transition year for the online pet medication market. The market was much more competitive with
new participants offering aggressive pricing, which negatively impacted our gross margins. One of our long-term
initiatives was to obtain direct purchasing relationships with all of the major manufacturers, which we accomplished
in fiscal 2020. The manufacturers introduced Minimum Advertised Price policies, which stabilized the pricing in the
market later in the fiscal year. For the fiscal year ended March 31, 2020 sales increased slightly to $284.1 million com-
pared to $283.4 million for the prior fiscal year. During fiscal 2020, our reorder sales were $248.6 million, compared to
$241.8 million, for the year ended March 31, 2019, an increase of 2.8%. For the fiscal year ended March 31, 2020, net
income was $25.9 million, or $1.29 diluted per share compared to $37.7 million, or $1.84 diluted per share a year ago,
a decrease to net income of 31%. At March 31, 2020, the Company had $103.8 million in cash and cash equivalents
with no debt. Net cash provided by operating activities decreased to $38.8 million for fiscal 2020 compared to $45.1
million for fiscal 2019.
During the quarter ended March 31, 2020, along with the rest of the country we were dealing with the uncertainty
and challenges of COVID-19. The demand for pet medications in the e-commerce channel increased with consumers
shifting their purchases to online, which positively impacted our sales. As an essential business, 1-800-PetMeds has
been open during our normal business hours without any material disruptions to our operations. We are dedicated
to making every effort to ensure the health and safety of our employees. We have implemented working from home
PERFORMANCE
SUMMARY
Sales
($ in millions)
$234.7
$249.2
$273.8
$283.4
$284.1
where possible and enhanced disinfection and social distancing within our work place. We are also dedicated to mak-
ing every effort to ensure our customers’ pets receive the medications they need.
2016 2017 2018 2019 2020
Company’s financial performance. Since fiscal 2010 the Company has returned almost $185 million in dividends to
1-800-PetMeds continues to be committed to returning capital to our stockholders. During fiscal 2020, we paid $1.08
per share in dividends to our stockholders, and recently increased our quarterly dividend to $0.28 per share. While the
Company intends to continue to pay regular quarterly dividends, the declaration and payment of future dividends is
discretionary and will be subject to a determination by our Board of Directors each quarter, following its review of the
Net Income
($ in millions)
$37.3
$37.7
$25.9
$23.8
$20.6
our stockholders. In fiscal 2020, we also repurchased approximately 613,000 shares of our common stock for approxi-
mately $11.5 million, averaging approximately $18.73 per share, and have approximately $28.7 million remaining
under the Company’s share repurchase plan.
According to the American Pet Products Association, pet spending in the United States increased 5.7% to $95.7 billion
in 2019. Veterinary care and prescription medications represented $29.3 billion, or 31% of the total spending on pets
in the United States. The pet medication market that we participate in is estimated to be approximately $5.5 billion,
with veterinarians having the majority of the market share. The dog and cat population is approximately 184 million,
with approximately 67% of all households having a pet.
2016 2017 2018 2019 2020
We are a licensed pharmacy to dispense prescription medications in all 50 states. We offer a wide selection of prod-
Earnings per share EPS
(Diluted)
ucts, including a variety of private label products. We regularly research new products, and select new products or
the latest generation of existing products to become part of our product selection, so that we can offer our customers
$1.82
$1.84
$1.29
$1.17
$1.02
the best medications, supplements, and supplies for dogs, cats, and horses at affordable prices. Our customers can
enjoy either the convenience of ordering online at our top-rated website www.petmeds.com or through our mobile
app, or over the telephone, where they can experience 1-800-PetMeds’ exceptional customer care.
In fiscal 2021 we will continue focusing on optimizing our marketing in this more competitive environment and be-
ing more efficient with our advertising spending. In addition, we will continue investing in our e-commerce platform
to better service our customers. As the national brand leader and America’s Largest and Most Trusted Pet Pharmacy,
2016 2017 2018 2019 2020
we continue to make it the goal of everyone at 1-800-PetMeds to provide “Fast, Easy, and Helpful Service with Great
Dividends declared
(Per share)
Savings!” We have served over 10 million satisfied customers, with approximately 2.3 million customers having pur-
chased from us within the last two years. We are proud of our outstanding customer satisfaction rating.
$1.06
$1.08
We thank you, our loyal customers, dedicated employees, and stockholders, for your ongoing support of
1-800-PetMeds, and we hope everyone is keeping safe and healthy.
$0.72
$0.76
$0.85
Sincerely,
2016 2017 2018 2019 2020
(all above fiscal years ended on March 31st)
Menderes Akdag
President, Chief Executive Officer, Director
June 19, 2020
www.petmeds.com
America’s Most Trusted Pet Pharmacy®
Corporate Information:
Directors, Executive Officers, and Corporate Secretary
Robert C. Schweitzer
Chairman of the Board
and Independent Director
Chief Executive Officer of
RCS Mediation & Consulting Services
Menderes Akdag
Director, Chief Executive Officer
and President of the Company
Frank J. Formica
Independent Director
Legal Consultant
Leslie C.G. Campbell
Independent Director
Ronald J. Korn
Independent Director
President of Ronald Korn Consulting
Dr. Gian M. Fulgoni
Independent Director
Venture Partner, 4490 Ventures
Executive Chairman, Varcode, Ltd.
Bruce S. Rosenbloom, CPA
Chief Financial Officer and Treasurer
of the Company
Alison Berges, Esq.
Corporate Secretary and
General Counsel to the Company
Corporate Headquarters
PetMed Express, Inc.
420 South Congress Ave., Suite 100
Delray Beach, Florida 33445
Independent Registered Public Accounting Firm
RSM US LLP
West Palm Beach, Florida
Transfer Agent
Continental Stock Transfer & Trust Company
New York, New York
Stock Exchange Listing
The NASDAQ Stock Market LLC
Trading Symbol: PETS
Annual Meeting
The Annual Meeting of Stockholders will be held at 1 p.m. Eastern Time,
July 31, 2020.
Investor Relations
PetMed Express, Inc. welcomes inquiries from stockholders and other
interested investors. You may contact us by phone: (800) 738-6337 or
(561) 526-4444 or by writing to the corporate headquarters address above.
QUARTERLY
STOCK
PRICE RANGE
First Quarter
Fiscal 2020
High
Low
$23.65
$15.32
Fiscal 2019
High
Low
$46.17
$33.46
Second Quarter
Fiscal 2020
High
Low
$18.47
$15.01
Fiscal 2019
High
Low
$44.57
$33.01
Third Quarter
Fiscal 2020
High
Low
$27.37
$17.87
Fiscal 2019
High
Low
$32.67
$22.42
Fourth Quarter
Fiscal 2020
High
Low
$28.78
$22.18
Fiscal 2019
High
Low
$24.32
$20.50
PetMed Express, Inc.
PetMed Express, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(cid:1)(cid:1)(cid:1)(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For the fiscal year ended March 31, 2020
OR
(cid:2)(cid:2)(cid:2)(cid:2) 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
(State or other jurisdiction of
incorporation or organization)
65-0680967
(IRS Employer
Identification No.)
420 South Congress Avenue, Delray Beach, Florida 33445
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (561) 526-4444
Securities registered under Section 12(b) of the Act:
Title of each class Trading Symbol
Name of each exchange on which registered
Common Stock, PETS
$.001 Par value per share
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered under Section 12(g) of the Act:
NONE
___________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:2) No (cid:3)
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 (cid:3) No (cid:2)
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes (cid:3) No (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(cid:2)
(cid:2)
Accelerated filer
Smaller reporting company
Emerging growth company
(cid:3)
(cid:2)
(cid:2)
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. (cid:2)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:2) No (cid:3)
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of September 30, 2019, the last
business day of the registrant’s most recently completed second fiscal quarter, was $349.1 million based on the closing sales price of the
registrant’s Common Stock on that date, as reported on the NASDAQ Global Select Market.
The number of shares of the registrant’s Common Stock outstanding as of May 26, 2020 was 20,166,382.
DOCUMENTS INCORPORATED BY REFERENCE
Information to be set forth in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders to be held on July 31, 2020 is
incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III of this report.
PETMED EXPRESS, INC.
2020 Annual Report on Form 10-K
TABLE OF CONTENTS
Page
PART I ........................................................................................................................................................................ 1
Item 1. Business ................................................................................................................................................. 1
Item 1A. Risk Factors ............................................................................................................................................ 6
Item 1B. Unresolved Staff Comments ................................................................................................................. 12
Item 2. Properties ............................................................................................................................................. 12
Item 3. Legal Proceedings ................................................................................................................................ 12
Item 4. Mine Safety Disclosures ....................................................................................................................... 12
PART II ..................................................................................................................................................................... 13
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ........................................................................................ 13
Item 6. Selected Financial Data........................................................................................................................ 16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................................................................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk…………………….. ................................. 24
Item 8. Financial Statements and Supplementary Data…………………….. .................................................... 25
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure .......................................................................................................................................... 45
Item 9A. Controls and Procedures ...................................................................................................................... 45
Item 9B. Other Information .................................................................................................................................. 45
PART III ................................................................................................................................................................... 46
Item 10. Directors, Executive Officers, and Corporate Governance .................................................................. 46
Item 11. Executive Compensation ...................................................................................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ........................................................................................................................... 46
Item 13. Certain Relationships and Related Transactions, and Director Independence ................................... 46
Item 14. Principal Accountant Fees and Services .............................................................................................. 46
PART IV ................................................................................................................................................................... 47
Item 15. Exhibits, Financial Statement Schedules ............................................................................................. 47
Item 16. Form 10-K Summary ............................................................................................................................ 48
SIGNATURES .......................................................................................................................................................... 49
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain information in this Annual Report on Form 10-K 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," "plan," "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
Annual Report on Form 10-K. When used in this Annual Report on Form 10-K, "PetMed Express," "1-800-
PetMeds," “PetMeds,” "PetMed," “PetMeds.com,” "PetMed Express.com," "the Company," "we," "our," and "us"
refer to PetMed Express, Inc. and our wholly-owned subsidiaries.
ITEM 1. BUSINESS
General
PetMed Express, Inc. and subsidiaries, d/b/a 1-800-PetMeds, is a leading nationwide pet pharmacy. The
Company markets prescription and non-prescription pet medications, and other health products 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. Our fiscal year end
is March 31, our executive offices are currently located at 420 South Congress Avenue, Delray Beach, Florida
33445, and our telephone number is (561) 526-4444.
Our Products
We offer a broad selection of products for dogs, cats, and horses. Our current product line contains
approximately 2,500 SKUs of the most popular pet medications, health products, and supplies. These products
include a majority of the well-known brands of pet medications. Generally, our prices are competitive with the
prices for medications charged by veterinarians, online retailers and other retailers. We also offer for sale
additional pet supplies on our website, which are drop shipped to our customers by third parties. These pet
supplies include: food, beds, crates, stairs, strollers, and other popular pet supplies. We research new products,
and regularly select new products or the latest generation of existing products to become part of our product
selection. In addition, we also refine our current products to respond to changing consumer-purchasing habits.
Our website is designed to give us the flexibility to change featured products or promotions. Our product line
provides customers with a wide variety of selections across the most popular health categories for dogs, cats, and
horses. Our current products include:
Non-Prescription Medications (OTC) and supplies: Flea and tick control products, bone and joint care
products, vitamins, treats, nutritional supplements, hygiene products, and supplies.
Prescription Medications (Rx): Heartworm and flea and tick preventatives, arthritis, dermatitis, thyroid,
diabetes, pain medications, heart/blood pressure, and other specialty medications, as well as generic
substitutes.
Sales
We offer our products through three main sales channels: Internet through our website, telephone contact
center through our toll-free number, and direct mail/print through brochures and postcards. We have designed our
website to provide a convenient, cost-effective, and informative shopping experience that encourages consumers
to purchase products important for a pet’s health and quality of life. We believe that these multiple channels allow
us to increase the visibility of our brand name and provide our customers with increased shopping flexibility and
excellent service.
1
Internet
We seek to combine our product selection and pet health information with the shopping ease of the Internet to
deliver a convenient and personalized shopping experience. Our website offers health and nutritional product
selections for dogs, cats, and horses, and relevant editorial and easily obtainable or retrievable resource
information. Customers can search our website for products and access resources on a variety of information on
dogs, cats, and horses. Customers can shop at our website by category, product line, individual product, or
symptom. We attracted approximately 30 million visits to our website during fiscal 2020, approximately 9% of
those visits resulted in an order, and our website generated approximately 84% of our total sales for the same time
period. On our website pet owners have access to health information covering pets’ behavior and illnesses, and
natural and pharmaceutical remedies specifically for a pet’s problem. The pet education content on our main
website is periodically updated with the latest research for pet owners. As part of our multichannel strategy, we
also offer mobile versions of our website (www.1800petmeds.com) and an application for mobile phones, tablets,
and other devices. In February 2017, we released our mobile application, which offers customers a more
streamlined shopping experience. Mobile application features include: “ask-the-vet”; live web chat; easy refill
medication reminders; local veterinarian finder; and express checkout to provide our customers with fast, easy,
and helpful service from their mobile devices.
Telephone Contact Center
Our customer care representatives receive and process inbound and outbound customer calls, facilitate our
live web chat, and process customer e-mails. Our telephone system is equipped with certain features including
pop-up screens and call blending capabilities that give us the ability to efficiently utilize our customer care
representatives’ time, providing excellent customer care, service, and support. Our customer care representatives
receive a base salary and are rewarded with commissions for sales, and bonuses and other awards for achieving
certain quality goals.
Direct Mail/Print
We mail brochures and postcards in response to requests generated from our advertising and as part of direct
mail campaigns to our customers.
Our Customers
Approximately 2.3 million customers have purchased from us within the last two years. We attracted
approximately 421,000 and 467,000 new customers in fiscal 2020 and 2019, respectively. Our customers are
located throughout the United States, with approximately 50% of customers residing in California, Florida, Texas,
New York, Pennsylvania, North Carolina, Georgia, and Virginia. Our primary focus has been on retail customers
and the average purchase was approximately $87 for both fiscal 2020 and fiscal 2019.
Marketing
The goal of our marketing strategy is to build brand recognition, increase customer traffic, add new customers,
build strong customer loyalty, maximize reorders, and develop incremental revenue opportunities. We have an
integrated marketing campaign that includes online marketing, television advertising, and direct mail/print and e-
mail.
Online Marketing
We advertise and market our products primarily online. We make our brand available to Internet consumers
by purchasing targeted keywords and achieving prominent placement on the top search engines and search
engine networks. We utilize Internet display and video advertisements, social media, and comparison shopping,
and we are also members of an affiliate program with merchant clients and affiliate websites.
2
Television Advertising
Our television advertising is designed to build brand equity, create brand awareness, and generate initial
purchases of products via the telephone and the Internet. Our television commercials typically focus on our ability
to rapidly deliver to customers the same medications offered by veterinarians, but at reduced prices. We generally
purchase advertising on national cable channels to target our key demographic group – women, ages 30 to 65.
We believe that television advertising is particularly effective and instrumental in building brand awareness. Our
most current television commercial, airing nationally, speaks to pet owners about the savings and convenience of
purchasing the same exact pet medications from 1-800-PetMeds.
Direct Mail/Print and E-mail
We use direct mail/print and e-mail to acquire new customers and to remind our existing customers to reorder.
Operations
Order Processing
Our website allows customers to easily browse and purchase all of our products online. Our website is
designed to be fast, secure, and easy to use with order and shipping confirmations, and with online order tracking
capabilities. We provide our customers with toll-free telephone access to our customer care representatives. Our
call center generally operates from 7:00 AM to 11:00 PM, Monday through Thursday, 7:00 AM to 9:00 PM on
Friday, 9:00 AM to 6:00 PM on Saturday, and 9:00 AM to 5:00 PM on Sunday, Eastern Time. The process of
customers purchasing products from 1-800-PetMeds consists of a few simple steps. A customer first places an
order online or by calling our toll-free telephone number. The following information is needed to process
prescription orders: pet information, prescription information, and the veterinarian’s name and phone number. This
information is entered into our computer system. Then our pharmacists and pharmacy technicians verify all
prescriptions. The order process system checks for the verification for prescription medication orders and a valid
payment method for all orders. Verified orders are then sent to our fulfillment center, where items are picked, and
then shipped via the United States Postal Service and Federal Express. Our customers enjoy the convenience of
rapid home delivery, with the majority of all orders being shipped within 24 hours of ordering.
Customer Care and Support
We believe that a high level of customer care and support is critical in retaining and expanding our customer
base. Customer care representatives participate in ongoing training programs under the supervision of our training
managers. These training sessions include a variety of topics such as product knowledge, computer usage,
customer service tips, and the relationship between our Company and veterinarians. Our customer care
representatives respond to customers’ e-mails, calls, and live web chats that are related to products, order status,
prices, and shipping. We believe our customer care representatives are a valuable source of feedback regarding
customer satisfaction.
Warehousing and Shipping
We inventory our products and fill most customer orders from our corporate headquarters in Delray Beach,
Florida. We have an in-house fulfillment and distribution operation, which is used to manage the entire supply
chain, beginning with the placement of the order, continuing through order processing, and then fulfilling and
shipping of the product to the customer. We offer a variety of shipping options, including next day delivery. We
ship to anywhere in the United States served by the United States Postal Service or Federal Express. Priority
orders are expedited in our fulfillment process. Our goal is to ship the products the same day that the order is
received. For prescription medications, our goal is to ship the product immediately after the prescription has been
authorized by the customer’s veterinarian.
3
Purchasing
We purchase our products from a variety of sources, including certain manufacturers, domestic distributors,
and wholesalers. There were three suppliers from whom we purchased approximately 60% of all products in fiscal
2020. We believe having strong relationships with product manufacturers and distributors will ensure the
availability of an adequate volume of products ordered by our customers. In the past some of the major
manufacturers of prescription and non-prescription medications have declined to sell these products to direct
marketing companies, such as our company. Part of our growth strategy included developing direct relationships
with all of the leading pharmaceutical manufacturers of the more popular prescription and non-prescription
medications. We now have direct relationships with all major manufacturers.
Technology
We utilize integrated technologies in our call centers, e-commerce, order entry, and inventory control/fulfillment
operations. Our systems are custom configured by us to optimize our computer telephone integration and mail-
order processing. The systems are designed to maintain a large database of specialized information and process
a large volume of orders efficiently and effectively. Our systems provide our customer care representatives, and
our customers on our website, including on our mobile application, with real time product availability information
and updated customer information to enhance our customer care. We also have an integrated direct connection
for processing credit cards to ensure that a valid credit card number and authorization have been received at the
same time our customer care representatives are on the telephone with the customer or when a customer submits
an order on our website. Our information systems provide our customer care representatives with records of all
prior contact with a customer, including the customer’s address, telephone number, e-mail address, prescription
information, order history, payment history, and notes.
Competition
The pet medications market is competitive and highly fragmented. Our competitors consist of veterinarians,
and online and traditional retailers. We believe that the following are the principal competitive factors in our
market:
Product selection and availability, including the availability of prescription and non-prescription
medications;
Brand recognition;
Reliability and speed of delivery;
Personalized service and convenience;
Price; and
Website usability and content.
We compete with veterinarians, and online and traditional retailers for the sale of prescription and non-
prescription pet medications and other health products. Many pet owners may prefer the convenience of
purchasing their pet medications or other health products at the time of a veterinarian visit. In order to effectively
compete with veterinarians, we must continue to educate pet owners about the service, convenience, and savings
offered by our Company.
According to the American Pet Products Association, pet spending in the United States increased 5.7% to
$95.7 billion in 2019. Veterinary care and Rx medications represented $29.3 billion, or 31% of the total spending
on pets in the United States. The pet medication market that we participate in is estimated to be approximately
$5.5 billion, with veterinarians having the majority of the market share. The dog and cat population is
approximately 184 million, with approximately 67% of all households having a pet.
We believe that the following are the main competitive strengths that differentiate 1-800-PetMeds from the
competition:
“1-800-PetMeds” brand name;
Channel leader, in an estimated $5.5 billion industry;
Licensed pharmacy to conduct business in 50 states, and a Pharmacy Verified website (a website
verification program by the National Association of Boards of Pharmacy®, which identifies online
pharmacies and pharmacy-related websites as safe and legitimate); and
Exceptional customer care and support.
4
Intellectual Property
We conduct our business under the trade name “1-800-PetMeds” and use a family of trade names all
containing the term “PetMeds” or “PetMed” in some form. We believe the “1-800-PetMeds” trade name, which is
also our toll-free telephone number, and the “PetMeds” family of trademarks, have added significant value and are
important factors in the marketing of our products. We have also obtained the right to use and control the Internet
addresses www.1800petmeds.com, www.1888petmeds.com, www.petmedexpress.com, www.petmed.com, and
www.petmeds.com.
the right
We also obtained
to use and control
Internet addresses www.petmeds.pharmacy,
www.petmed.pharmacy, and www.1800petmeds.pharmacy, through a National Association of Boards of
Pharmacy® initiative to ensure high standards for online pharmacies. We do not expect to lose the ability to use
the Internet addresses; however, there can be no assurance in this regard and the loss of these addresses may
have a material adverse effect on our financial position and results of operations. We are the exclusive owners of
United States Trademark Registrations for “America’s Largest Pet Pharmacy®,” “America’s Most Trusted Pet
Pharmacy®,” “Trusted Pet Medication Experts®,” “PetMed Express and Design®,” “1888PetMeds and Design®,”
“1-800-PetMeds and Design®,” 1-800-PetMeds®,” and “PetMeds®,” among numerous others.
the
Government Regulation
IV controlled substances. We also updated our
Dispensing prescription medications is governed at the state level by Boards of Pharmacy, or similar
regulatory agencies, of each state where prescription medications are dispensed. We are subject to regulation by
the State of Florida and are licensed as a community pharmacy by the Florida Board of Pharmacy. Our current
license is valid until February 28, 2021, and prior to that date a renewal application will be submitted to the Board
of Pharmacy. During fiscal 2015 we obtained a federal registration, and state registrations/permits as required, to
registration and state
dispense Schedule
registrations/permits as required to include the ability to dispense Schedule V controlled substances. Our
pharmacy practice is also licensed and/or regulated by 49 other state pharmacy boards, the District of Columbia
Board of Pharmacy, and the United States Drug Enforcement Administration, and with respect to our products, by
other regulatory authorities including, but not necessarily limited to, the United States Food and Drug
Administration (“FDA”) and the United States Environmental Protection Agency. As a licensed pharmacy in the
State of Florida, we are subject to the Florida Pharmacy Act and regulations promulgated thereunder. To the
extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy,
or if we do not maintain the licenses granted by other state pharmacy boards, or if we become subject to actions
by the FDA, or other enforcement regulators, our distribution of prescription medications to pet owners could
cease, which could have a material adverse effect on our financial condition and results of operations.
federal
Employees
We currently have 214 full time employees, including: 116 in customer care and marketing; 30 in fulfillment
and purchasing; 54 in our pharmacy; 6 in information technology; 3 in administrative positions; and 5 in
management. None of our employees are represented by a labor union, or governed by any collective bargaining
agreements. We consider relations with our employees to be satisfactory.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and
Exchange Commission ("SEC"). Our SEC filings, including our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the
Exchange Act are available free of charge over the Internet on our website at www.1800petmeds.com or at the
SEC's web site at www.sec.gov. Our SEC filings will be available through our website as soon as reasonably
practicable after we have electronically filed or furnished them to the SEC. Information contained on our website is
not incorporated by reference into this Annual Report on Form 10-K.
5
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described below, and all the other information
included in this Annual Report on Form 10-K before you decide to invest in our common stock. Any of the
following risks could materially adversely affect our business, financial condition, or operating results and could
result in a loss of your investment.
We may inadvertently fail to comply with various state or federal regulations covering the dispensing of prescription
pet medications which may subject us to reprimands, sanctions, probations, fines, suspensions, or the loss of one
or more of our pharmacy licenses.
The sale and delivery of prescription pet medications is generally governed by state laws and state
regulations, and with respect to controlled substances, also by federal law. Since our pharmacy is located in the
State of Florida, the Company is governed by the laws and regulations of the State of Florida. Each prescription
pet medication sale we make is likely also to be covered by the laws of the state where the customer is located.
The laws and regulations relating to the sale and delivery of prescription pet medications vary from state to state,
but generally require that prescription pet medications be dispensed with the authorization from a prescribing
veterinarian. To the extent that we are unable to maintain our license as a community pharmacy with the Florida
Board of Pharmacy, or if we do not maintain the licenses granted by other state boards, or if we become subject to
actions by the FDA, or other enforcement regulators, our dispensing of prescription medications to pet owners
could cease, which could have a material adverse effect on our operations.
The Company is a party to routine litigation and administrative complaints incidental to its business.
Management does not believe that the resolution of any or all of such routine litigation and administrative
complaints is likely to have a material adverse effect on the Company’s financial condition or results of operations.
While we make every effort to fully comply with all applicable state rules, laws, and regulations, from time to time
we have been the subject of administrative complaints regarding the authorization of prescriptions prior to
shipment. We cannot assure you that we will not be the subject of administrative complaints in the future. We
cannot guarantee you that we will not be subject to reprimands, sanctions, probations, or fines, or that one or more
of our pharmacy licenses will not be suspended or revoked. If we were unable to maintain our license as a
community pharmacy in the State of Florida, or if we are not granted licensure in a state that begins to require
licensure, or if one or more of the licenses granted by other state boards should be suspended or revoked, our
ability to continue to sell prescription medications and to continue our business as it is presently conducted could
be in jeopardy.
Our failure to properly manage our inventory may result in excessive inventory carrying costs, or inadequate
supply of products, which could materially adversely affect our financial condition and results of operations.
Our current product line contains approximately 2,500 SKUs. A significant portion of our sales is attributable
to products representing approximately 100 SKUs, including the most popular flea and tick, and heartworm
preventative brands. We need to properly manage our inventory to provide an adequate supply of these products
and avoid excessive inventory of the products representing the balance of the SKUs. We generally place orders
for products with our suppliers based upon our internal estimates of the amounts of inventory we will need to fill
future orders. These estimates may be significantly different from the actual orders we receive.
In the event that subsequent orders fall short of original estimates, we may be left with excess inventory.
Significant excess inventory could result in price discounts and increased inventory carrying costs. Similarly, if we
fail to have an adequate supply of some SKUs, we may lose sales opportunities. We cannot guarantee that we
will maintain appropriate inventory levels. Any failure on our part to maintain appropriate inventory levels may
have a material adverse effect on our financial condition and results of operations.
Resistance from veterinarians to authorize prescriptions, or attempts/efforts on their part to discourage pet owners
from purchasing from internet mail-order pharmacies could cause our sales to decrease and could materially
adversely affect our financial condition and results of operations.
Since we began our operations some veterinarians have resisted providing our customers with a copy of their
pet’s prescription or authorizing the prescription to our pharmacy staff, thereby effectively preventing us from filling
such prescriptions under state law. We have also been informed by customers and consumers that veterinarians
have tried to discourage pet owners from purchasing from internet mail-order pharmacies.
6
Although veterinarians in some states are required by law to provide a pet owner with a prescription if
medically appropriate, if the number of veterinarians who refuse to authorize prescriptions should increase, or if
veterinarians are successful in discouraging pet owners from purchasing from internet mail-order pharmacies, our
sales could decrease and our financial condition and results of operations may be materially adversely affected.
Significant portions of our sales are made to residents of eight states. If we should lose our pharmacy license in
one or more of these states, our financial condition and results of operations would be materially adversely
affected.
While we ship pet medications to customers in all 50 states, approximately 50% of our sales for the fiscal year
ended March 31, 2020 were made to customers located in the states of California, Florida, Texas, New York,
Pennsylvania, North Carolina, Georgia, and Virginia. If for any reason our license to operate a pharmacy in one
or more of those states should be suspended or revoked, or if it is not renewed, our ability to sell prescription
medications to residents of those states would cease and our financial condition and results of operations in future
periods would be materially adversely affected.
We face significant competition from veterinarians and online and traditional retailers and may not be able to
compete profitably with them.
We compete directly and indirectly with veterinarians for the sale of pet medications and other health products.
Veterinarians hold a competitive advantage over us because many pet owners may find it more convenient or
preferable to purchase these products directly from their veterinarians at the time of an office visit. We also
compete directly and indirectly with both online and traditional retailers. Both online and traditional retailers may
hold a competitive advantage over us because of longer operating histories, established brand names, greater
resources, and/or an established customer base. Online retailers may have a competitive advantage over us
because of established affiliate relationships to drive traffic to their website. Traditional retailers may hold a
competitive advantage over us because pet owners may prefer to purchase these products from a store instead of
online or through catalog or telephone methods. In addition, we face growing competition from online and
multichannel retailers, some of whom may have a lower cost structure than ours, as customers now routinely use
computers, tablets, smartphones, and other mobile devices and mobile applications to shop online and compare
prices and products in real time. In order to effectively compete in the future, we may be required to offer
promotions and other incentives, which may result in lower operating margins and adversely affect the results of
operations. We also face a significant challenge from our competitors forming alliances with each other, such as
those between online and traditional retailers. These relationships may enable both their online and retail stores to
negotiate better pricing and better terms from suppliers by aggregating the demand for products and negotiating
volume discounts, which could be a competitive disadvantage to us.
We now have direct buying relationships with all of the major pet medication manufacturers; the contractual
relationship depends on our compliance with their minimum advertised pricing policies (MAPP).
During fiscal 2020, the Company established direct purchasing relationships with all of the major pet
medication manufacturers. These relationships entitle the Company to buy directly from the manufacturer under
the terms and conditions of a purchasing agreement which dictates purchase pricing of inventory and criteria to
obtain additional discounts and rebates. The terms of these agreements also require the Company to comply with
the manufacturers’ MAPP. Each advertisement and/or promotion of a product below the MAPP price will be a
violation of the policy. This policy applies to all advertisements of products in all media including, without limitation,
flyers, posters, coupons, mailers, inserts, newspapers, magazines, on-line catalogs, mail order catalogs, public
signage and all Internet or similar electronic media, television, radio and public signage. on-line catalogs, mail
order catalogs, television, radio, public signage, flyers, posters, coupons, mailers, inserts, newspapers,
magazines, and all internet or similar electronic media, including websites, email newsletters, forums, and auction
sites.
At the discretion of the manufacturers, non-compliance with the MAPP can result in one or more of the
following actions: (1) forfeiture of future rebates or discounts from the manufacturer, (2) suspension of future
purchases from the manufacturer, (3) or termination of current or future business relationship. The Company has
and will make every attempt to abide by the manufacturers MAPP. However, no assurances can be made that the
Company will not violate MAPP inadvertently. A reduction or discontinuance of these rebates or discounts would
increase our costs and could reduce our profitability. If any of these major pet medication manufacturers were to
terminate our purchasing relationship it could materially adversely affect our business. If the manufacturers are
not able to enforce their MAPP industry-wide, then our profit margins and results of operations may also be
impacted negatively.
7
The loss of any of our key suppliers would negatively impact our business.
During fiscal 2020, the Company established direct purchasing relationships with all of the major pet
medication manufacturers. We purchase significant quantities of pet medication products, with the majority from
these major manufacturers. We do maintain annual purchasing contracts with these major manufacturers. While
we believe that our vendor relationships are good, a vendor could discontinue selling to us at any time. The loss of
any of our key vendors of pet medications offered by us would have a negative impact on our business, financial
condition and results of operations.
The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could
negatively impact our business.
Because we post product and pet health information and other content on our website, we face potential
liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or
other claims based on the nature and content of the materials we post. Various claims have been brought, and
sometimes successfully prosecuted, against Internet content distributors. We could be exposed to liability with
respect to the unauthorized duplication of content or unauthorized use of other parties’ proprietary technology.
Although we maintain general liability insurance, our insurance may not cover potential claims of this type, or may
not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered
by insurance, or is in excess of insurance coverage, could materially adversely affect our financial condition and
results of operations.
We may not be able to protect our intellectual property rights, and/or we may be found to infringe on the
proprietary rights of others.
We rely on a combination of trademarks, trade secrets, copyright laws, and contractual restrictions to protect
our intellectual property rights. These afford only limited protection. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy our non-prescription private label or generic equivalents, when
and if developed, as well as aspects of our sales formats, or to obtain and use information that we regard as
proprietary, including the technology used to operate our website and our content, and our trademarks. Litigation
or proceedings before the United States Patent and Trademark Office or other bodies may be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets and domain names, or to determine
the validity and scope of the proprietary rights of others. Any litigation or adverse proceeding could result in
substantial costs and diversion of resources, and could seriously harm our business and operating results. Third
parties may also claim infringement by us with respect to past, current, or future technologies. We expect that
participants in our market will be increasingly involved in infringement claims as the number of services and
competitors in our industry segment grows. Any claim, whether meritorious or not, could be time-consuming,
result in costly litigation, cause service upgrade delays, or require us to enter into royalty or licensing agreements.
These royalty or licensing agreements might not be available on terms acceptable to us or at all.
If we are unable to protect our Internet addresses or to prevent others from using Internet addresses that are
confusingly similar, our business may be adversely impacted.
Our
www.petmeds.com,
Internet addresses, www.1800petmeds.com, www.1888petmeds.com, www.petmedexpress.com,
www.petmed.com,
and
www.petmeds.pharmacy,
www.1800petmeds.pharmacy, are critical to our brand recognition and our overall success. If we are unable to
protect these Internet addresses, our competitors could capitalize on our brand recognition. There may be similar
Internet addresses used by competitors. Governmental agencies and their designees generally regulate the
acquisition and maintenance of Internet addresses. The regulation of Internet addresses in the United States and
in foreign countries has changed, and may undergo further change in the near future. Furthermore, the
relationship between regulations governing Internet addresses and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may not be able to protect our own Internet addresses, or prevent third
parties from acquiring Internet addresses that are confusingly similar to, infringe upon, or otherwise decrease the
value of our Internet addresses.
www.petmed.pharmacy,
8
Since all of our operations are housed in a single location, we are more susceptible to business interruption in the
event of damage to, or disruptions in, our facility.
Our headquarters and distribution center are currently located in one location in South Florida, and most of our
shipments of products to our customers are made from this sole distribution center. We have no present plans to
establish any additional distribution centers or offices. Because we consolidate our operations in one location, we
are more susceptible to power and equipment failures, and business interruptions in the event of fires, floods, and
other natural disasters than if we had additional locations. Furthermore, because we are located in South Florida,
which is a hurricane-sensitive area, we are particularly susceptible to the risk of damage to, or total destruction of,
our headquarters and distribution center and surrounding transportation infrastructure caused by a hurricane. We
cannot assure you that we are adequately insured to cover the amount of any losses relating to any of these
potential events, business interruptions resulting from damage to or destruction of our headquarters and
distribution center, or power and equipment failures relating to our call center or websites, or interruptions or
disruptions to major transportation infrastructure, or other events that do not occur on our premises. The
occurrence of one or more of these events could adversely impact our ability to generate revenues in future
periods.
A failure of our information systems and customer-facing technology systems or any security breach or
unauthorized disclosure of confidential information, or other cyber-attacks on our systems, could result in litigation
and regulatory risk, harm our reputation and have a material adverse effect on our business.
Our business is dependent upon the efficient operation of our information systems. In particular, we rely on our
information systems to effectively manage our business model strategy, with tools to track and manage sales,
inventory, marketing, customer service efforts, the preparation of our consolidated financial and operating
data, credit card information, and customer information. The failure of our information systems to perform as
designed or the failure to maintain and enhance or protect the integrity of these systems could disrupt our business
operations, adversely impact sales and the results of operations, expose us to customer or third-party claims, or
result in adverse publicity.
Through our information technology, we are able to provide an improved overall shopping and interconnected
retail experience that empowers our customers to shop and interact with us from computers, tablets, smartphones
and other mobile devices. We use our website and our mobile application both as sales channels for our products
and also as methods of providing product and other relevant information to our customers to drive online sales.
Our online programs, communities and knowledge center allow us to inform, assist and interact with our
customers. We also continually seek to enhance all of our online properties to provide an attractive user-friendly
interface for our customers. Disruptions, failures or other performance issues with these customer-facing
technology systems could impair the benefits that they provide to our online business and negatively affect our
relationship with our customers.
Additionally, we collect, process, and retain sensitive and confidential customer information in the normal
course of our business. Despite the security measures we have in place and any additional measures we may
implement in the future, our facilities and systems, and those of our third-party service providers, could be
vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts
of vandalism, or other events. Any security breach or event resulting in the misappropriation, loss, or other
unauthorized disclosure of confidential information, whether by us directly or our third-party service providers,
could damage our reputation, expose us to the risks of litigation and liability, disrupt our business, or otherwise
affect our results of operations.
Our operating results are difficult to predict and may fluctuate, and a portion of our sales are seasonal.
Factors that may cause our operating results to fluctuate include:
Our ability to obtain new customers at a reasonable cost, retain existing customers, or encourage
reorders;
Our ability to increase the number of visitors to our website, or our ability to convert visitors to our website
into customers;
The mix of medications and other pet products sold by us;
Our ability to manage inventory levels or obtain an adequate supply of products;
Our ability to adequately maintain, upgrade, and develop our website, the systems that we use to process
customers’ orders and payments, or our computer network;
Increased competition within our market niche;
9
Price competition;
New products introduced to the market, including generics;
The amount and timing of operating costs and capital expenditures relating to expansion of our product
Increases in the cost of advertising;
line or operations;
Disruption of our toll-free telephone service, technical difficulties, or systems and Internet outages or
slowdowns;
The impact of COVID-19 on our business operations and generally on the economy, including the
measures taken by governmental authorities to address it; and
Unfavorable general economic trends.
Because our operating results are difficult to predict, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. The majority of our product sales are
affected by the seasons, due to the seasonality of mainly flea, tick, and heartworm medications. For the quarters
ended June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020, Company sales were 28%,
25%, 21%, and 26%, respectively. In addition to the seasonality of our sales, our annual and quarterly operating
results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, including
weather, many of which are out of our control. Any change in one or more of these factors could materially
adversely affect our financial condition and results of operations in future periods.
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft,
subject us to potential liability and potentially disrupt our business.
We accept payments using a variety of methods, including credit and debit cards, PayPal, and checks, and we
may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations,
contractual obligations and compliance requirements, including payment network rules and operating guidelines,
data security standards and certification requirements, and rules governing electronic funds transfers. These
requirements may change over time or be reinterpreted, making compliance more difficult or costly. For certain
payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over
time and raise our operating costs.
We rely on third parties to provide payment processing services, including the processing of credit cards, debit
cards, and other forms of electronic payment. If these companies become unable to provide these services to us,
or if their systems are compromised, it could potentially disrupt our business. The payment methods that we offer
also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated,
seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail
to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is
compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing
banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate
certain types of payments may be impaired. As a result, our business and operating results could be adversely
affected.
The recent outbreak of the COVID-19 global pandemic and related government, private sector and individual
consumer responsive actions may adversely affect our business operations, employee availability, financial
performance, liquidity and cash flow for an unknown period of time.
The outbreak of COVID-19 has been declared a pandemic by the World Health Organization and continues to
spread in the United States, Canada, and in many other countries globally. Related government and private sector
responsive actions may adversely affect our business operations. It is impossible to predict the effect and ultimate
impact of the COVID-19 pandemic, as the situation is rapidly evolving. The COVID-19 pandemic may disrupt the
global supply chain and may cause disruptions to our operations if a significant number of employees are
quarantined or if they are otherwise limited in their ability to work at our fulfillment center. Additional federal or state
mandates could also impact our ability to take or fulfill our customers’ orders and operate our business.
As an essential business, we have been open during our normal business hours without any material
disruptions to our operations. We are dedicated to making every effort to ensure the health and safety of our
employees. We have implemented working from home where possible and enhanced disinfection and social
distancing within our work place. Many of our personnel are working remotely and it is possible that this could
have a negative impact on the execution of our business plans and operations.
10
If a natural disaster, power outage, connectivity issue, or other event occurs that impacts our employees’ ability
to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial
period of time. The increase in remote working may also result in consumer privacy, IT security and fraud concerns
as well as operational inefficiencies.
The operations of our fulfillment center may be substantially disrupted by additional federal or state mandates
ordering shutdowns or by the inability of our employees to travel to work due to COVID-19. The inability to ship
from our fulfillment center due to a COVID-19 outbreak, disruptions to the operations of our fulfillment center, or
increased costs in fulfillment center capacity may negatively impact our financial performance or slow our future
growth.
The uncertainty around the duration of business disruptions and the extent of the spread of the virus in the
United States and to other areas of the world will likely continue to adversely impact the national or global
economy and negatively impact consumer spending. Any of these outcomes could have a material adverse impact
on our business, financial condition, operating results and ability to execute and capitalize on our strategies. The
full extent of COVID-19’s impact on our operations and financial performance depends on future developments
that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and
financial markets and any new information that may emerge concerning the severity of the virus, its spread to other
regions as well as the actions taken to contain it, among others.
Our stock price fluctuates from time to time and may fall below expectations of securities analysts and investors,
and could subject us to litigation, which may result in you suffering a loss on your investment.
The market price of our common stock may fluctuate significantly in response to a number of factors, many of
which are out of our control. These factors include: quarterly variations in operating results; changes in accounting
treatments or principles; announcements by us or our competitors of new products and services offerings;
significant contracts, acquisitions, or strategic relationships; additions or departures of key personnel; any future
sales of our common stock or other securities; stock market price and volume fluctuations of publicly-traded
companies; and general political, economic, and market conditions. In some future quarter our operating results
may fall below the expectations of securities analysts and investors, which could result in a decrease in the trading
price of our common stock. In the past, securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. We may be the target of similar litigation in the
future. Securities litigation could result in substantial costs and divert management's attention and resources,
which could seriously harm our business and operating results.
We may issue additional shares of preferred stock that could defer a change of control or dilute the interests of our
common stockholders. Our charter documents could defer a takeover effort which could inhibit your ability to
receive an acquisition premium for your shares.
Our charter permits our Board of Directors to issue up to 5.0 million shares of preferred stock without
stockholder approval. Currently there are 2,500 shares of our Convertible Preferred Stock issued and outstanding.
This leaves slightly less than 5.0 million shares of preferred stock available for issuance at the discretion of our
Board of Directors. These shares, if issued, could contain dividend, liquidation, conversion, voting, or other rights
which could adversely affect the rights of our common stockholders and which could also be utilized, under some
circumstances, as a method of discouraging, delaying, or preventing a change in control. Provisions of our articles
of incorporation, bylaws and Florida law could make it more difficult for a third party to acquire us, even if many of
our stockholders believe it is in their best interest.
11
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our facilities, including our principal executive offices and distribution center, are located at 420 South
Congress Avenue, Delray Beach, Florida 33445. In January 2016, we completed the acquisition of this real
property located at 420 South Congress Avenue, Delray Beach, Florida 33445, and improvements thereon
(collectively referred to herein as the “Property”), the assignment and assumption of all leases and service
agreements affecting the Property, and certain tangible and intangible personal property related to the Property,
for a purchase price of $18.5 million, plus closing costs. The Property consists of approximately 634,000 square
feet of land or 14.6 acres with two building complexes totaling approximately 185,000 square feet, with additional
land for future use. The first building complex consists of approximately 125,000 square feet and the second
building complex consists of approximately 60,000 square feet each consisting of both office and warehouse
space. The Company occupies approximately 97,000 square feet of the first building for its principal offices and
distribution center. As of March 31, 2020, 48% of the Property was leased to two tenants with a remaining
weighted average lease term of 4.8 years. We believe that our facilities are sufficient for our current needs and
are in good condition in all material respects.
ITEM 3. LEGAL PROCEEDINGS
In January 2019, a putative class action complaint was filed in the United States District Court for the Southern
District of New York alleging that the company’s website, www.1800petmeds.com, did not comply with the ADA,
NYSHRL, and NYCHRL, and discriminated against visually impaired individuals. The Company denied any
wrongdoing, and on July 24, 2019, the Company and the Plaintiff reached a confidential settlement. The Plaintiff
and the Company entered into a consent decree and the matter was dismissed on March 23, 2020, when an order
was issued by the court approving the parties 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
12
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “PETS.”
The prices set forth below reflect the high and low sale prices per share in each of the quarters of fiscal 2020 and
2019 as reported by the NASDAQ.
Fiscal 2020:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2019:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
$23.65
$18.47
$27.37
$28.78
High
$46.17
$44.57
$32.67
$24.32
Low
$15.32
$15.01
$17.87
$22.18
Low
$33.46
$33.01
$22.42
$20.50
There were 96 holders of record of our common stock at May 26, 2020, and approximately 30,700 of our
holders are “street name” or beneficial holders, whose shares are held by banks, brokers, or other financial
institutions.
Dividends
During fiscal 2019 and 2020, our Board of Directors declared the following dividends:
Declaration Date
May 7, 2018
July 23, 2018
October 22, 2018
January 21, 2019
May 6, 2019
July 22, 2019
October 21, 2019
January 21, 2020
Per Share
Dividend
$0.25
$0.27
$0.27
$0.27
$0.27
$0.27
$0.27
$0.27
Record Date
May 18, 2018
August 3, 2018
November 5, 2018
February 4, 2019
May 17, 2019
August 2, 2019
November 4, 2019
February 3, 2020
Total Amount
(In thousands)
$
$
$
$
5,150
5,584
5,582
5,582
$
$
$
$
5,518
5,447
5,447
5,445
Payment Date
May 25, 2018
August 10, 2018
November 16, 2018
February 15, 2019
May 24, 2019
August 9, 2019
November 15, 2019
February 14, 2020
On May 8, 2017, the Company’s Board of Directors declared an increased quarterly dividend of $0.20 per
share, and then on January 22, 2018 the Company’s Board of Directors increased the quarterly dividend to $0.25
per share, on its common stock. On July 23, 2018 the Company’s Board of Directors increased the quarterly
dividend to $0.27 per share, on its common stock. On May 4, 2020, the Company’s Board of Directors declared
an increased quarterly dividend from $0.27 to $0.28 per share, on its common stock. The $5.6 million dividend
was paid on May 22, 2020, to shareholders of record at the close of business on May 15, 2020. The Company
intends to continue to pay regular quarterly dividends; however the declaration and payment of future dividends is
discretionary and will be subject to a determination by the Board of Directors each quarter following its review of
the Company’s financial performance.
Issuer Purchases of Equity Securities
On November 8, 2006, the Company's Board of Directors approved a share repurchase plan of up to $20.0
million. On October 31, 2008, November 1, 2010, and August 1, 2011, the Company’s Board of Directors
approved an increase under the share repurchase plan, each for an additional $20.0 million. The repurchase plan
is intended to be implemented through purchases made from time to time in either the open market or through
private transactions at the Company's discretion, subject to market conditions and other factors, in accordance
with Securities and Exchange Commission requirements.
13
There can be no assurances as to the precise number of shares that will be repurchased under the share
repurchase plan, and the Company may discontinue the share repurchase plan at any time subject to compliance
with applicable regulatory requirements. Shares purchased pursuant to the share repurchase plan will either be
cancelled or held in the Company's treasury. On January 25, 2019 the Company’s Board of Directors authorized
an additional $30.0 million under the repurchase plan. During fiscal 2020 the Company purchased and retired
approximately 613,000 shares of its common stock for approximately $11.5 million, averaging approximately
$18.73 per share. As of March 31, 2020, the Company had approximately $28.7 million remaining under the
Company’s share repurchase plan. Since the inception of the share repurchase plan up to March 31, 2020,
approximately 6.2 million shares have been repurchased under the plan for approximately $81.3 million, averaging
approximately $13.11 per share.
Performance Graph
Set forth below is a line graph comparing the five year cumulative performance of our Common Stock with the
Nasdaq Composite, the Russell 2000, and our SIC Code 5912 (pharmacy peer group) from March 31, 2015 to
March 31, 2020. The graph assumes that $100 was invested on March 31, 2014 in each of our Common Stock,
the Nasdaq Composite, the Russell 2000, and the SIC Code 5912 (pharmacy peer group). Because we have
historically paid dividends on a quarterly basis, the graph assumes that dividends were reinvested. The
performance graph and related information below shall not be deemed “filed” with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act
of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically
incorporate it by reference into such filing.
300.00
250.00
200.00
150.00
100.00
50.00
0.00
5
1
0
2
,
1
3
h
c
r
a
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e
d
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PetMed Express, Inc.
Nasdaq Composite
Russell 2000
SIC Code 5912
3/31/2015
3/31/2016
3/31/2017
3/31/2018
3/31/2019
3/31/2020
Nasdaq Composite
SIC Code 5912
Russell 2000
PetMed Express, Inc.
Performance graph data:
Fiscal Year Ended March 31,
PetMed Express, Inc.
Nasdaq Composite
SIC Code 5912
Russell 2000
2015
100.00
100.00
100.00
100.00
2016
113.21
100.55
101.25
90.24
2018
280.04
149.21
70.02
127.33
2019
158.29
165.07
65.40
129.94
2020
210.77
166.22
62.61
98.77
2017
132.25
123.56
87.24
113.90
14
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth securities authorized for issuance under equity compensation plans, including
individual compensation arrangements, by us under our 2015 Outside Director Equity Compensation Restricted
Stock Plan and 2016 Employee Equity Compensation Restricted Stock Plan as of March 31, 2020:
EQUITY COMPENSATION PLAN INFORMATION
(In thousands)
Number of securities
Number of securities
to be issued upon
Weighted average
remaining available
exercise of outstanding
exercise price of
for future issuance
options, warrants
outstanding options,
under equity
Plan category
and rights
warrants and rights
compensation plans
2015 Outside Director Equity Compensation Restricted Stock Plan
2016 Employee Equity Compensation Restricted Stock Plan
74
109
183
-
-
474
(1)
846
1,320
Total
(1)
The number of shares of common stock available for issuance under the 2015 Outside Director Equity Compensation
Restricted Stock Plan automatically increase on the first trading day of January each calendar year during the term of the
2015 Outside Director Equity Compensation Restricted Stock Plan, by an amount equal to ten percent (10%) of the total
number of shares of common stock authorized under the 2015 Outside Director Equity Compensation Restricted Stock
Plan.
15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial Statements and notes thereto, and
other financial information included elsewhere in this Annual Report on Form 10-K. The Consolidated Statements
of Income data set forth below for the fiscal years ended March 31, 2020, 2019, and 2018 and the Consolidated
Balance Sheet data as of March 31, 2020 and 2019 have been derived from our audited Consolidated Financial
Statements which are included elsewhere in this Annual Report on Form 10-K. The Consolidated Statements of
Income data set forth below for the fiscal years ended March 31, 2017 and 2016 and the Consolidated Balance
Sheet data as of March 31, 2018, 2017 and 2016 have been derived from our audited Consolidated Financial
Statements which are not included in this Annual Report on Form 10-K.
Sales
Cost of sales
Gross profit
Operating expenses
Net income
Net income per common share:
Basic
Diluted
Weighted average number of
common shares outstanding:
Basic
Diluted
Cash dividends declared per
common share
CONSOLIDATED STATEMENTS OF INCOME DATA
(In thousands, except for per share amounts)
2020
2019
2018
2017
2016
Fiscal Year Ended March 31,
$
284,125
202,879
81,246
50,269
25,851
$
283,419
188,105
95,314
49,140
37,740
$
273,800
175,993
97,807
45,671
37,283
$
249,176
169,862
79,314
41,831
23,819
$
234,684
158,388
76,296
43,908
20,567
1.29
1.29
1.84
1.84
1.83
1.82
1.18
1.17
1.02
1.02
20,041
20,055
20,461
20,491
20,346
20,433
20,232
20,378
20,124
20,254
1.08
1.06
0.85
0.76
0.72
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
2020
2019
March 31,
2018
2017
2016
Working capital
Total assets
Total liabilities
Shareholders' equity
$
104,675
155,323
25,313
130,010
$
107,805
154,427
19,747
134,680
$
87,126
134,836
19,105
115,731
$
63,430
112,809
19,443
93,366
$
60,543
90,279
7,084
83,195
NON FINANCIAL DATA (UNAUDITED)
(In thousands)
2020
2019
March 31,
2018
2017
2016
New customers acquired
Total accumulated customers (1)
421
10,998
467
10,577
521
10,110
514
9,589
489
9,075
(1) includes both active and inactive customers
16
ITEM 7. 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 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 in fiscal 2020, compared to 85% in fiscal 2019. The Company’s sales
consist of products sold mainly to retail consumers. The twelve-month average purchase was approximately $87
per order for both of the fiscal years ended March 31, 2020 and 2019.
Critical Accounting Policies
Our discussion and analysis of our financial condition and the results of our operations contained herein are
based upon our Consolidated Financial Statements and the data used to prepare them. The Company’s
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 this 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 uncollectibility of accounts receivable by analyzing
historical bad debts and current economic trends. The allowance for doubtful accounts was approximately
$59,000 at March 31, 2020 compared to $39,000 at March 31, 2019.
17
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 net realizable value using a weighted average cost method. The
Company writes down its inventory for estimated obsolescence. The inventory reserve was approximately
$45,000 and $54,000 at March 31, 2020 and 2019, respectively.
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 the recognition of deferred tax assets and liabilities for the expected future tax
benefits or consequences of events that have been included in the Consolidated Financial Statements or tax
returns. Under this method, deferred tax assets and liabilities are determined based on differences between the
financial reporting carrying values and the tax bases of assets and liabilities, and are measured by applying
enacted tax rates and laws for the taxable years in which those differences are expected to reverse.
Results of Operations
The following should be read in conjunction with the Company’s 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 Consolidated Statements of Comprehensive Income:
Sales
Cost of sales
Gross profit
Operating expenses:
General and administrative
Advertising
Depreciation
Total operating expenses
Income from operations
Total other income
Income before provision for income taxes
Provision for income taxes
Fiscal Year Ended March 31,
2020
2019
2018
100.0
%
100.0
%
100.0
%
71.4
28.6
8.9
8.0
0.8
17.7
10.9
1.0
11.9
2.8
66.4
33.6
8.7
7.8
0.8
17.3
16.3
1.0
17.3
4.0
64.3
35.7
8.9
7.0
0.8
16.7
19.0
0.6
19.6
6.0
Net income
9.1
%
13.3
%
13.6
%
18
Fiscal 2020 Compared to Fiscal 2019
COVID-19
As an essential business, 1-800-PetMeds has been open during our normal business hours without any
material disruptions to our operations. Due to COVID-19, consumer demand has increased for the e-commerce
channel with pet owners shifting their purchases to online. We are dedicated to making every effort to ensure the
health and safety of our employees. We have implemented working from home where possible and enhanced
disinfection and social distancing within our work place. We are also dedicated to making every effort to ensure
our customers’ pets receive the medications they need. See risk factor “The recent outbreak of the COVID-19
global pandemic and related government, private sector and individual consumer responsive actions may
adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for
an unknown period of time” in Part I, Item 1A of this Form 10-K.
Sales
Sales increased slightly to approximately $284.1 million for the fiscal year ended March 31, 2020, from
approximately $283.4 million for the fiscal year ended March 31, 2019. The increase in sales for the fiscal year
ended March 31, 2020 was primarily due to increased reorder sales, offset by decreased new order sales. The
Company acquired approximately 421,000 new customers for the fiscal year ended March 31, 2020, compared to
approximately 467,000 new customers for the same period the prior year. The following chart illustrates sales by
various sales classifications:
Year Ended March 31,
Sales (In thousands)
2020
%
2019
%
$ Variance
% Variance
Reorder Sales
New Order Sales
$
$
248,560
35,565
87.5%
12.5%
$
$
241,780
41,639
85.3%
14.7%
$
$
6,780
(6,074)
2.8%
-14.6%
Total Net Sales
$
284,125
100.0%
$
283,419
100.0%
$
706
Internet Sales
Contact Center Sales
$
$
238,054
46,071
83.8%
16.2%
$
$
240,034
43,385
84.7%
15.3%
$
$
(1,980)
2,686
Total Net Sales
$
284,125
100.0%
$
283,419
100.0%
$
706
0.2%
-0.8%
6.2%
0.2%
Going forward sales may be adversely affected due to COVID-19, increased competition, and consumers
giving more consideration to price. See risk factor “The recent outbreak of the COVID-19 global pandemic and
related government, private sector and individual consumer responsive actions may adversely affect our business
operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time” in
Part I, Item 1A of this Form 10-K. No guarantees can be made that sales will continue to grow in the future. The
majority of our product sales are affected by the seasons, due to the seasonality of mainly flea, tick, and
heartworm medications. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal
2020, the Company’s sales were approximately 28%, 25%, 21%, and 26%, respectively. 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 $14.8 million, or 7.9% to $202.9 million for the fiscal year ended March 31, 2020,
from $188.1 million for the fiscal year ended March 31, 2019. As a percentage of sales, cost of sales was 71.4%
in fiscal 2020, as compared to 66.4% in fiscal 2019. The cost of sales increase and percentage increase 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 fiscal year ended March 31, 2020. One of our long-term strategic
initiatives and primary purchasing goals has always been to have direct purchasing relationships with all major
manufacturers, which we now have.
19
Gross profit
Gross profit decreased by $14.1 million, or 14.8%, to $81.2 million for the fiscal year ended March 31, 2020,
from $95.3 million for the fiscal year ended March 31, 2019. Gross profit as a percentage of sales for fiscal 2020
was 28.6% compared to 33.6% for fiscal 2019. The decrease in gross profit and percentage decrease in fiscal
2020 is directly related to price reductions given to customers to stimulate sales, and an increase to product costs.
We now have direct relationships with all major manufacturers and these manufacturers have minimum advertised
price policies, which should cause a general price discipline in the online market. Going forward gross profit may
be adversely affected due to increased competition and consumers giving more consideration to price.
General and administrative expenses
General and administrative expenses increased by $497,000, or 2.0%, to $25.3 million for the fiscal year
ended March 31, 2020 from $24.8 million for the fiscal year ended March 31, 2019. The increase in general and
administrative expenses for the fiscal year ended March 31, 2020 was primarily due to the following: a $361,000
increase in payroll expenses in the customer care, pharmacy, and information technology departments; a
$107,000 increase to bad debt expense; and a $92,000 increase in bank service fees due to increased sales.
Offsetting the increase was a net decrease of $63,000 to other expenses which include travel and professional
fees. General and administrative expenses as a percentage of sales was 8.9% for the fiscal year ended March 31,
2020, compared to 8.7% for the fiscal year ended March 31, 2019.
Advertising expenses
Advertising expenses increased by approximately $600,000 to approximately $22.7 million for the fiscal year
ended March 31, 2020, from approximately $22.1 million for the fiscal year ended March 31, 2019. The increase
in advertising expenses for fiscal 2020 was intended to stimulate sales and acquire new customers. The
advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers
acquired, was $54 for the fiscal year ended March 31, 2020, compared to $47 for the fiscal year ended March 31,
2019. The increase to customer acquisition costs for the fiscal year ended March 31, 2020 can be attributed to
increased advertising costs, primarily television advertising, and a lower-than-expected consumer response in the
June 2019 and September 2019 quarters, which may be attributed to increased online competition. 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
sales, whereas a less favorable advertising environment may negatively impact future sales.
As a percentage of sales, advertising expense was 8.0% and 7.8% for the fiscal years ended March 31, 2020
and 2019, respectively. The increase in advertising expense as a percentage of total sales for the fiscal year
ended March 31, 2020 can be mainly attributed to increased advertising to stimulate sales and acquire new
customers. The Company currently anticipates advertising as a percentage of sales to be approximately 9% for
fiscal 2021. However, the advertising percentage may fluctuate quarter to quarter due to seasonality and
advertising availability.
Depreciation
Depreciation expense for the fiscal year ended March 31, 2020 increased slightly to approximately $2.3 million
from approximately $2.2 million for the fiscal year ended March 31, 2019. This increase to depreciation expense
for the fiscal year ended March 31, 2020 can be attributed to an increase in new property and equipment additions
in fiscal 2020.
Other income
Other income remained relatively flat at $2.9 million for both the fiscal years ended March 31, 2020 and 2019.
Other income includes interest income, advertising income, and rental income. 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 at March 31, 2020, on any quarterly dividend payment, on its operating activities, or with further
decreases in interest rates.
20
Provision for income taxes
For the fiscal years ended March 31, 2020 and 2019, the Company recorded an income tax provision for
approximately $8.0 million and $11.4 million, respectively. The decrease to the income tax provision for fiscal
2020 is related to a decrease in operating income, and reduction to the Florida state corporate income tax rate.
The effective tax rate for the fiscal years ended March 31, 2020 and 2019 were 23.7% and 23.2%, respectively.
The increase to the effective rate for the fiscal year ended March 31, 2020 can be attributed to a $322,000 income
tax charge related to restricted stock compensation, which was recognized in September 2019. The Company
estimates its effective tax rate will be approximately 23.5% for fiscal 2021.
Net income
Net income decreased by approximately $11.9 million, or 31.5%, to approximately $25.9 million for the fiscal
year ended March 31, 2020 from approximately $37.7 million for the fiscal year ended March 31, 2019. The
decrease to net income was primarily related to a decrease in gross profit due to price reductions given to
customers to stimulate sales, and an increase to product costs.
Fiscal 2019 Compared to Fiscal 2018
Sales
Sales increased by approximately $9.6 million, or 3.5%, to approximately $283.4 million for the fiscal year
ended March 31, 2019, from approximately $273.8 million for the fiscal year ended March 31, 2018. The increase
in sales for the fiscal year ended March 31, 2019 was primarily due to increased reorder sales, offset by decreased
new order sales. The Company acquired approximately 467,000 new customers for the fiscal year ended March
31, 2019, compared to approximately 521,000 new customers for the same period the prior year. The following
chart illustrates sales by various sales classifications:
Year Ended March 31,
Sales (In thousands)
2019
%
2018
%
$ Variance
% Variance
Reorder Sales
New Order Sales
$
$
241,780
41,639
85.3%
14.7%
$
$
227,513
46,287
83.1%
16.9%
$
$
14,267
(4,648)
6.3%
-10.0%
Total Net Sales
$
283,419
100.0%
$
273,800
100.0%
$
9,619
Internet Sales
Contact Center Sales
$
$
240,034
43,385
84.7%
15.3%
$
$
230,319
43,481
84.1%
15.9%
$
$
9,715
(96)
Total Net Sales
$
283,419
100.0%
$
273,800
100.0%
$
9,619
3.5%
4.2%
-0.2%
3.5%
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 flea, tick, and heartworm 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. For the quarters ended June 30, September 30,
December 31, and March 31 of fiscal 2018, the Company’s sales were approximately 29%, 24%, 22%, and 25%,
respectively.
Cost of sales
Cost of sales increased by $12.1 million, or 6.9% to $188.1 million for the fiscal year ended March 31, 2019,
from $176.0 million for the fiscal year ended March 31, 2018. As a percentage of sales, cost of sales was 66.4%
in fiscal 2019, as compared to 64.3% in fiscal 2018. The cost of sales increase is due to increased sales and the
percentage increase can be attributed to increases in discounts given to customers to stimulate sales in response
to increased online competition, and an increase in product costs during the fiscal year.
21
Gross profit
Gross profit decreased by $2.5 million, or 2.6%, to $95.3 million for the fiscal year ended March 31, 2019, from
$97.8 million for the fiscal year ended March 31, 2018. The decrease in gross profit in fiscal 2019 is directly
related to increased discounts given to customers to stimulate sales. Gross profit as a percentage of sales for
fiscal 2019 was 33.6% compared to 35.7% for fiscal 2018. The gross profit percentage decrease in fiscal 2019
can be mainly attributed to increases in discounts given to customers to stimulate sales in response to increased
online competition, and an increase in product costs during the fiscal year. Going forward gross profit may be
adversely affected due to increased competition and consumers giving more consideration to price.
General and administrative expenses
General and administrative expenses increased by $477,000, or 2.0%, to $24.8 million for the fiscal year
ended March 31, 2019 from $24.3 million for the fiscal year ended March 31, 2018. The increase in general and
administrative expenses for the fiscal year ended March 31, 2019 was primarily due to the following: a $291,000
increase in property expenses related to increased property taxes in fiscal 2019; a $257,000 increase in bank
service fees due to increased sales; a $142,000 increase in professional fees which is related to increased legal
and IT related expenses; and a $110,000 increase in travel and related expenses due to participating in a
conference in fiscal 2019. Offsetting the increase was a $167,000 decrease in payroll expenses related to a
decrease in stock compensation expense in fiscal 2019; a $79,000 decrease in insurance expense relating to
reduced premiums; and a $78,000 net decrease to other expenses which include telephone, bad debt, and office
expenses. General and administrative expenses as a percentage of sales were 8.7% for the fiscal year ended
March 31, 2019, compared to 8.9% for the fiscal year ended March 31, 2018.
Advertising expenses
Advertising expenses increased by approximately $2.8 million to approximately $22.1 million for the fiscal year
ended March 31, 2019, from approximately $19.3 million for the fiscal year ended March 31, 2018. The increase
in advertising expenses for fiscal 2019 was intended to stimulate sales and promote brand awareness. The
advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers
acquired, was $47 for the fiscal year ended March 31, 2019, compared to $37 for the fiscal year ended March 31,
2018.
Advertising cost of acquiring a new customer can be impacted by the advertising environment, the
effectiveness of our advertising creative, increased 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 7.8% and 7.0% for the fiscal years ended March 31, 2019
and 2018, respectively. The increase in advertising expense as a percentage of total sales for the fiscal year
ended March 31, 2018 can be mainly attributed to increased online and television advertising to stimulate sales
and promote brand awareness. The Company currently anticipates advertising as a percentage of sales to be
approximately 10% for fiscal 2020. However, the advertising percentage may fluctuate quarter to quarter due to
seasonality and advertising availability.
Depreciation
Depreciation expense for the fiscal year ended March 31, 2019 increased by approximately $99,000, to
approximately $2.2 million from approximately $2.1 million for the fiscal year ended March 31, 2018. This increase
to depreciation expense for the fiscal year ended March 31, 2019 can be attributed to an increase in new property
and equipment additions in fiscal 2019.
Other income
Other income increased by approximately $1.2 million, to approximately $2.9 million for the fiscal year ended
March 31, 2019 from approximately $1.7 million for the fiscal year ended March 31, 2018. The increases to other
income for the fiscal year ended March 31, 2018 are 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 $40.2 million remaining at March 31, 2019, on any quarterly dividend
payment, or on its operating activities.
22
Provision for income taxes
For the fiscal years ended March 31, 2019 and 2018, the Company recorded an income tax provision for
approximately $11.4 million and $16.5 million, respectively. The decrease to the income tax provision for fiscal
2019 is related to a decrease in operating income offset by the income tax rate reduction pursuant to the Tax Cuts
and Jobs Act of 2017 (“2017 Act”). The effective tax rate for the fiscal years ended March 31, 2019 and 2018
were 23.2% and 30.7%, respectively. The decrease to the effective rate for the fiscal year ended March 31, 2019
is due to a reduction in the Company’s corporate tax rate pursuant to the 2017 Act. The Company estimates its
effective tax rate will be approximately 24.0% for fiscal 2020.
Net income
Net income increased by approximately $457,000, or 1.2%, to approximately $37.7 million for the fiscal year
ended March 31, 2019 from approximately $37.3 million for the fiscal year ended March 31, 2018. The increase
was primarily due to a decrease in the tax provision due to a reduction in the effective tax rate, which was offset by
a decrease to gross profit due to increases in discounts given to customers to stimulate sales in response to
increased online competition and increased advertising.
Liquidity and Capital Resources
The Company’s working capital at March 31, 2020 and 2019 was approximately $104.7 million and
approximately $107.8 million, respectively. The $3.1 million decrease in working capital was primarily attributable
to the share buyback and dividends paid in the period, offset by cash flow generated from operations. Net cash
provided by operating activities was $38.8 million and $45.1 million for the fiscal years ended March 31, 2020 and
2019, respectively. This change can be mainly attributed to a decrease in the Company’s net income for the fiscal
year ended March 31, 2020, offset by a decrease to inventory and an increase to accounts payable compared to
the prior year. Net cash used in investing activities was $2.3 million and $620,000 for the fiscal years ended
March 31, 2020 and 2019, respectively. This change in investing activities is related to increased property and
equipment additions acquired in fiscal 2020. The majority of the increase in investing activities relates primarily to
the Company’s new e-commerce platform. Net cash used in financing activities was $33.3 million and $21.9
million for the fiscal years ended March 31, 2020 and 2019, respectively. 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 June quarter. At March 31, 2020, the Company had approximately $28.7 million remaining
under the Company’s share repurchase plan. Subsequent to March 31, 2020, the Company’s Board of Directors
declared an increased quarterly dividend from $0.27 to $0.28 per share on May 4, 2020. The Board established a
May 15, 2020 record date and a May 22, 2020 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 quarterly dividends, or on its operating activities.
At March 31, 2020 the Company had no material outstanding lease commitments. 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 future increase in our business. To date we have paid for any needed additions to our capital equipment
infrastructure from working capital funds and anticipate this being the case in the future. Presently, we have
approximately $4.5 million forecasted for capital expenditures in fiscal 2021, 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 March 31, 2020.
23
Contractual Obligations and Commitments (In thousands)
The table and information below presents the Company’s significant obligations and commitments at March
31, 2020:
Less than
More than
Total
1 year
1-2 years
3-5 Years
5 years
Executive employment contract
$
210
$
210
$
-
$
-
$
-
Total obligations
$
210
$
210
$
-
$
-
$
-
Recent Accounting Pronouncements
Other than disclosures included in note 1 of the Consolidated Financial Statements, the Company does not
believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a
material effect on the Company’s consolidated financial position, results of operations, or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the value of financial instruments as a result
of movements in interest rates, foreign currency exchange rates, and commodity prices. Our financial instruments
include cash and cash equivalents, accounts receivable, and accounts payable. The book values of cash
equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because
of the short maturity of these instruments. Interest rates affect our return on excess cash and cash equivalents. At
March 31, 2020, we had $103.8 million in cash and cash equivalents, primarily money market accounts. A
majority of our cash and cash equivalents generates interest income based on prevailing interest rates.
A significant change in interest rates could impact the amount of interest income generated from our excess
cash and cash equivalents. It would also impact the market value of our cash and cash equivalents. Our cash
and cash equivalents are subject to market risk, primarily interest rate and credit risk. Our investments 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 investments 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 March 31, 2020, we
had no debt obligations.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PETMED EXPRESS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2020 and 2019
Consolidated Statements of Income for each of the three years in the period
ended March 31, 2020
Consolidated Statements of Changes in Shareholders’ Equity for each of the three years in the period
ended March 31, 2020
Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2020
Notes to Consolidated Financial Statements
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Page
26
27
28
29
30
31
43
44
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of PetMed Express, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PetMed Express, Inc. and its subsidiaries (the
Company) as of March 31, 2020 and 2019, the related consolidated statements of income, shareholders’ equity
and cash flows for each of the three years in the period ended March 31, 2020, and the related notes to the
consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and
the results of their operations and their cash flows for each of the three years in the period ended March 31, 2020,
in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2020, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013, and our report dated May 26, 2020 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company’s auditor since 2007.
West Palm Beach, Florida
May 26, 2020
26
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $59 and $39, respectively
Inventories - finished goods
Prepaid expenses and other current assets
Prepaid income taxes
Total current assets
Noncurrent assets:
Property and equipment, net
Intangible assets
Total noncurrent assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Deferred tax liabilities
Total liabilities
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 5,000 shares authorized;
3 convertible shares issued and outstanding with a
liquidation preference of $4 per share
Common stock, $.001 par value, 40,000 shares authorized;
20,166 and 20,674 shares issued and outstanding, respectively
Additional paid-in capital
Retained earnings
Total shareholders' equity
March 31,
2020
March 31,
2019
$
103,762
$
100,529
$
$
3,843
17,884
3,529
-
2,542
21,370
1,408
582
129,018
126,431
25,445
860
26,305
27,136
860
27,996
155,323
$
154,427
$
19,658
4,214
471
24,343
970
25,313
9
20
3,804
126,177
130,010
16,275
2,351
-
18,626
1,121
19,747
9
21
12,478
122,172
134,680
Total liabilities and shareholders' equity
$
155,323
$
154,427
See accompanying notes to consolidated financial statements.
27
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
Sales
Cost of sales
Gross profit
Operating expenses:
General and administrative
Advertising
Depreciation
Total operating expenses
Income from operations
Other income (expense):
Interest income, net
Other, net
Total other income
Income before provision for income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
2020
Year Ended March 31,
2019
2018
$
284,125
202,879
$
283,419
188,105
$
273,800
175,993
81,246
95,314
97,807
25,264
22,748
2,257
50,269
30,977
1,747
1,169
2,916
33,893
8,042
24,767
22,148
2,225
49,140
46,174
1,864
1,083
2,947
49,121
11,381
24,290
19,255
2,126
45,671
52,136
658
995
1,653
53,789
16,506
$
$
$
$
25,851
$
37,740
$
37,283
1.29
1.29
$
$
1.84
1.84
$
$
1.83
1.82
20,041
20,055
20,461
20,491
20,346
20,433
1.08
$
1.06
$
0.85
See accompanying notes to consolidated financial statements.
28
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended March 31, 2018, March 31, 2019, and March 31, 2020
(In thousands)
Convertible
Preferred Stock
Common
Stock
Shares
Amounts
Shares
Amounts
Additional
Paid-In
Capital
Retained
Earnings
Total
Balance, March 31, 2017
3
$
9
20,526
$
21
$
6,806
$
86,530
$
93,366
Issuance of restricted stock, net
Share based compensation
Dividends declared
Net income
Balance, March 31, 2018
Issuance of restricted stock, net
Share based compensation
Dividends declared
Net income
Balance, March 31, 2019
Issuance of restricted stock, net
Share based compensation
Repurchased and retired shares
Dividends declared
Net income
3
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75
-
-
-
-
-
-
-
-
2,575
-
-
-
-
-
2,575
(17,493)
(17,493)
37,283
37,283
9
20,601
21
9,381
106,320
115,731
73
-
-
-
-
-
-
-
-
3,097
-
-
-
-
-
3,097
(21,888)
(21,888)
37,740
37,740
9
20,674
21
12,478
122,172
134,680
105
-
(613)
-
-
-
-
-
-
-
2,822
(1)
(11,496)
-
-
-
-
2,822
(11,497)
-
-
(21,846)
(21,846)
25,851
25,851
Balance, March 31, 2020
3
$
9
20,166
$
20
$
3,804
$ 126,177
$
130,010
See accompanying notes to consolidated financial statements.
29
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
Share based compensation
Deferred income taxes
Bad debt expense
(Increase) decrease in operating assets
and increase (decrease) in liabilities:
Accounts receivable
Inventories - finished goods
Prepaid income taxes
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid
Repurchase and retirement of common stock
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Property and equipment in current assets
Dividends payable in accrued expenses
Year Ended
March 31,
2019
2018
2020
$
25,851
$
37,740
$
37,283
2,257
2,822
(151)
191
(1,492)
3,486
582
(376)
3,383
1,820
471
38,844
(2,311)
(2,311)
(21,803)
(11,497)
(33,300)
3,233
100,529
2,225
3,097
125
85
(335)
1,967
206
(526)
1,001
(447)
-
45,138
(620)
(620)
(21,925)
-
(21,925)
22,593
77,936
2,126
2,575
(92)
112
(596)
(3,109)
(788)
137
53
337
(659)
37,379
(703)
(703)
(17,470)
-
(17,470)
19,206
58,730
$
$
$
$
103,762
$
100,529
$
77,936
7,140
1,745
246
$
$
$
11,051
-
203
$
$
$
18,046
-
240
See accompanying notes to consolidated financial statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 markets its products through
national advertising campaigns, which aim to increase the recognition of the “1-800-PetMeds” brand name
and “PetMeds” family of trademarks, increase traffic on its website at www.1800petmeds.com, acquire
new customers, and maximize repeat purchases. The majority of all of the Company's sales are to
residents in the United States. The Company’s corporate headquarters and distribution facility are located
in Delray Beach, Florida. The Company's fiscal year end is March 31, and references herein to fiscal
2020, 2019, or 2018 refer to the Company's fiscal years ended March 31, 2020, 2019, and 2018,
respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Revenue Recognition
The Company generates revenue by selling pet medication products and pet supplies. Certain pet
supplies offered on the Company’s website are drop shipped to customers. The Company considers itself
the principal in the arrangement because the Company controls the specified good before it is transferred
to the customer. Revenue contracts contain one performance obligation, which is delivery of the product;
customer care and support is deemed not to be a material right to the contract. The transaction price is
adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which
are estimated based on historical patterns; however this is not considered a key judgment. There are 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:
Sales (In thousands)
2020
%
2019
%
$ Variance % Variance
Year Ended March 31,
Reorder Sales
New Order Sales
$
$
248,560
35,565
87.5%
12.5%
$
$
241,780
41,639
85.3%
14.7%
$
$
6,780
(6,074)
2.8%
-14.6%
Total Net Sales
$
284,125
100.0%
$
283,419
100.0%
$
706
0.2%
Internet Sales
Contact Center Sales
$
$
238,054
46,071
83.8%
16.2%
$
$
240,034
43,385
84.7%
15.3%
$
$
(1,980)
2,686
Total Net Sales
$
284,125
100.0%
$
283,419
100.0%
$
706
-0.8%
6.2%
0.2%
31
(1)
Summary of Significant Accounting Policies (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales (In thousands)
2019
%
2018
%
$ Variance % Variance
Year Ended March 31,
Reorder Sales
New Order Sales
$
$
241,780
41,639
85.3%
14.7%
$
$
227,513
46,287
83.1%
16.9%
$
$
14,267
(4,648)
6.3%
-10.0%
Total Net Sales
$
283,419
100.0%
$
273,800
100.0%
$
9,619
3.5%
Internet Sales
Contact Center Sales
$
$
240,034
43,385
84.7%
15.3%
$
$
230,319
43,481
84.1%
15.9%
$
$
9,715
(96)
Total Net Sales
$
283,419
100.0%
$
273,800
100.0%
$
9,619
4.2%
-0.2%
3.5%
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 accounts receivable balances relative
to sales. The Company had no material contract asset or liability balances as of March 31, 2020 and
2019.
The Company maintains an allowance for doubtful accounts for losses that the Company estimates will
arise from customers’ inability to make required payments, arising from either credit card charge-backs or
insufficient funds checks. The Company determines its estimates of the uncollectibility of accounts
receivable by analyzing historical bad debts and current economic trends. The allowance for doubtful
accounts was approximately $59,000 at March 31, 2020 compared to $39,000 at March 31, 2019.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when
purchased to be cash equivalents. Cash and cash equivalents at March 31, 2020 and 2019 consisted of
the Company’s cash accounts and money market accounts with a maturity of three months or less. The
carrying amount of cash equivalents approximates fair value. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories consist of prescription and non-prescription pet medications and pet supplies that are available
for sale and are priced at the lower of cost or net realizable value using a weighted average cost method.
The Company writes down its inventory for estimated obsolescence. The inventory reserve was
approximately $45,000 and $54,000 at March 31, 2020 and 2019, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the
estimated useful lives of the assets. Our building is being depreciated over a period of thirty years. The
furniture, fixtures, equipment, and computer software are being depreciated over periods ranging from
three to ten years.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Summary of Significant Accounting Policies (Continued)
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of the asset to the undiscounted cash flows expected to be generated from the asset.
Intangible Assets
The intangible assets consist of a toll-free telephone number and an internet domain name. In accordance
with the ASC Topic 350 (“Goodwill and Other Intangible Assets”) the intangible assets are not being
amortized, and are subject to an annual review for impairment.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, and accounts
payable approximate fair value due to the short-term nature of these instruments.
Advertising
The Company's advertising expense consists primarily of Internet marketing, direct mail/print, and
television advertising. Internet costs are expensed in the month incurred and direct mail/print advertising
costs are expensed when the related catalogs, brochures, and postcards are produced, distributed, or
superseded. Television advertising costs are expensed as the advertisements are televised.
Comprehensive Income
The Company applies ASC Topic 220 (“Reporting Comprehensive Income”) which requires that all items
that are recognized under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other financial statements. The items
of other comprehensive income that are typically required to be displayed are foreign currency items,
minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and
equity securities. For the fiscal years ended March 31, 2020, 2019 and 2018 the Company had no
unrealized gains or losses.
Income Taxes
The Company accounts for income taxes under the provisions of ASC Topic 740 (“Accounting for Income
Taxes”) which generally requires the recognition of deferred tax assets and liabilities for the expected
future tax benefits or consequences of events that have been included in the consolidated financial
statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting carrying values and the tax bases of assets and liabilities, and
are measured by applying enacted tax rates and laws for the taxable years in which those differences are
expected to reverse. As required by “Accounting for Uncertainty in Income Taxes” guidance, which
clarifies ASC Topic 740, the Company recognizes the financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely than not sustain the position following an
audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the
Consolidated Financial Statements is the largest benefit that has a greater than 50 percent likelihood of
being realized upon ultimate settlement with the relevant tax authority.
The Company applies “Accounting for Uncertainty in Income Taxes” guidance to all tax positions for which
the statute of limitations remains open. The Company files tax returns in the U.S. federal jurisdiction and
Florida and Virginia. With few exceptions, the Company is no longer subject to U.S. federal, state or local
income tax examinations by tax authorities for years ending March 31, 2013, or earlier. Any interest and
penalties related to income taxes will be recorded to other income (expenses).
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Summary of Significant Accounting Policies (Continued)
Business Concentrations
The Company purchases its products from a variety of sources, including certain manufacturers, domestic
distributors, and wholesalers. We have multiple suppliers for each of our products to obtain the lowest
cost. There were three suppliers from whom we purchased approximately 60% of all products in fiscal
2020. There were four suppliers from whom we purchased approximately 50% of all products in fiscal
2019.
Accounting for Share Based Compensation
The Company records compensation expense associated with restricted stock in accordance with ASC
Topic 718 (“Share Based Payment”). The compensation expense related to all of the Company’s stock-
based compensation arrangements is recorded as a component of general and administrative expenses.
Recent Accounting Pronouncements
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 March 31, 2020, the current operating liability and corresponding right of
use asset was approximately $110,000. The lease liability and right of use asset is reflected in the
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 consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which
modifies the measurement of expected credit losses on certain financial instruments. The Company is
currently evaluating the impact of ASU 2016-13. The Company will adopt ASU 2016-13 on April 1, 2020.
The Company does not expect this ASU to have a material impact on the Company’s consolidated
financial statements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic
740): Simplification and reduce the cost of accounting for income taxes (“ASU 2019-12”). The Company is
currently evaluating the impact of ASU 2019-12. The Company will adopt ASU 2019-12 on April 1, 2021.
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.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2)
Property and Equipment
Major classifications of property and equipment consist of the following (in thousands):
Building
Land
Building Improvements
Computer Software
Furniture, fixtures and equipment
Less: accumulated depreciation
Property and equipment, net
March 31,
2020
2019
$
$
14,997
3,700
2,823
6,043
8,536
36,099
(10,654)
$
25,445
$
14,997
3,700
2,817
5,891
8,128
35,533
(8,397)
27,136
(3)
Valuation and Qualifying Accounts
Activity in the Company's valuation and qualifying accounts consists of the following (in thousands):
Year Ended March 31,
2019
2020
2018
Allowance for doubtful accounts:
Balance at beginning of period
Provision for doubtful accounts
Write-off of uncollectible accounts receivable
Balance at end of year
$
$
$
39
191
(171)
59
$
$
35
85
(81)
39
$
27
112
(104)
35
(4)
Accrued Expenses and Other Current Liabilities
Major classifications of accrued expenses and other current liabilities consist of the following (in
thousands):
March 31,
2020
2019
$
Accrued sales tax
Accrued credit card fees
Accrued salaries and benefits
Accrued merchandise credits / reward program
Accrued professional expenses
Accrued sales return allowance
Accrued dividends payable
Accrued real estate taxes
Other accrued liabilities
$
627
494
1,242
674
267
244
246
112
308
323
404
685
70
281
184
203
87
114
Accrued expenses and other current liabilities
$
4,214
$
2,351
(5)
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred
tax liabilities are as follows (in thousands):
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5)
Income Taxes (Continued)
March 31,
2020
2019
Deferred tax assets:
Accrued expenses
Deferred stock compensation
Bad debt and inventory reserves
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
$
$
287
469
24
780
(1,750)
Total net deferred tax liabilities
$
(970)
$
At March 31, 2020, the Company had no federal net operating loss carryforwards.
The components of the income tax provision consist of the following (in thousands):
298
412
22
732
(1,853)
(1,121)
Current taxes
Federal
State
Total current taxes
Deferred taxes
Federal
State
Total deferred taxes
2020
Year Ended March 31,
2019
2018
$
$
7,352
841
8,193
$
9,718
1,538
11,256
15,012
1,586
16,598
(135)
(16)
(151)
108
17
125
(83)
(9)
(92)
Total provision for income taxes
$
8,042
$
11,381
$
16,506
The reconciliation of income tax provision computed at the U.S. federal statutory tax rates to income tax
expense is as follows (in thousands):
Income taxes at U.S. statutory rates
State income taxes, net of federal tax benefit
Restricted stock windfall adjustment
Reduction of deferred tax liability due to rate reduction
Other
Total provision for income taxes
$
$
Year Ended March 31,
2019
2020
2018
7,118
649
322
-
(47)
8,042
$
$
10,315
1,233
(176)
-
9
11,381
$
$
16,943
1,078
(1,086)
(430)
1
16,506
The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The
2017 Tax Act made a significant number of changes to the existing U.S. Internal Revenue Code, including
a permanent reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after
December 31, 2017. In accordance with SEC Staff Bulletin No. 118, fiscal year end companies were
required to determine the appropriate blended rate to apply based on their respective fiscal year end
dates. Therefore, instead of applying a 35.0% federal tax rate for the fiscal year ended March 31, 2018,
the Company applied a blended federal rate of 31.5%. This blended rate was applied to fiscal 2018,
resulting in a tax benefit of approximately $1.9 million. As a result, the Company recorded a provisional
income tax benefit of approximately $430,000 related to the re-measurement of deferred tax assets and
liabilities resulting from the reduction of the federal corporate tax rate for the year ended March 31, 2018,
which was reconciled during the year ended March 31, 2019.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5)
Income Taxes (Continued)
In fiscal 2020 the Company recognized a stock compensation shortfall charge of approximately $322,000,
and recognized a one-time benefit of approximately $93,000, related to a return to provision true up of the
fiscal 2019 income tax provision. In fiscal 2019 the Company recognized a stock compensation windfall
benefit of approximately $176,000, and recognized a one-time charge of approximately $8,000 related to a
return to provision true up of the fiscal 2018 income tax provision. In fiscal 2018 the Company also
recognized a stock compensation windfall benefit of approximately $1.1 million, and recognized a one-time
net benefit of approximately $150,000 related to a return to provision true up of the fiscal 2017 income tax
provision.
(6)
Shareholders’ Equity
Preferred Stock
In April 1998, the Company issued 250,000 shares of its $.001 par value preferred stock at a price of
$4.00 per share, less issuance costs of $112,187. Each share of the preferred stock is convertible into
approximately 4.05 shares of common stock at the election of the shareholder. The shares have a
liquidation value of $4.00 per share and may pay dividends at the sole discretion of the Company. The
Company does not anticipate paying dividends to the preferred shareholders in the foreseeable future.
Each share of preferred stock is entitled to one vote on all matters submitted to a vote of shareholders of
the Company. At March 31, 2020 and 2019, 2,500 shares of the convertible preferred stock remained
unconverted and outstanding.
Share Repurchase Plan
On November 8, 2006, the Company's Board of Directors approved a share repurchase plan of up to
$20.0 million. On October 31, 2008, November 1, 2010, and August 1, 2011, the Company’s Board of
Directors approved an increase under the repurchase plan each for an additional $20.0 million. On
January 25, 2019 the Company’s Board of Directors authorized an additional $30.0 million under the
repurchase plan. The repurchase plan is intended to be implemented through purchases made from time
to time in either the open market or through private transactions at the Company's discretion, subject to
market conditions and other factors, in accordance with Securities and Exchange Commission
requirements. There can be no assurances as to the precise number of shares that will be repurchased
under the share repurchase plan, and the Company may discontinue the share repurchase plan at any
time subject to compliance with applicable regulatory requirements. Shares purchased pursuant to the
share repurchase plan will either be retired or held in the Company's treasury. During fiscal 2020 the
Company purchased and retired approximately 613,000 shares of its common stock for approximately
$11.5 million. During fiscal 2019 the Company had no share repurchases. At March 31, 2020 the
Company had approximately $28.7 million remaining under the Company’s share repurchase plan.
Dividends
On May 8, 2017 the Company’s Board of Directors increased the quarterly dividend to $0.20 per share,
then on January 22, 2018 the Company’s Board of Directors increased the quarterly dividend to $0.25 per
share, and then on July 23, 2018 the Company’s Board of Directors increased the quarterly dividend to
$0.27 per share, on its common stock. The Company intends to continue to pay regular quarterly
dividends; however the declaration and payment of future dividends is discretionary and will be subject to
a determination by the Board of Directors each quarter following its review of the Company’s financial
performance. During fiscal 2020, our Board of Directors declared the following dividends:
Declaration Date
May 6, 2019
July 22, 2019
October 21, 2019
January 21, 2020
Per Share
Dividend
Record Date
Total Amount
(In thousands)
Payment Date
$0.27
$0.27
$0.27
$0.27
May 17, 2019
August 2, 2019
November 4, 2019
February 3, 2020
$
$
$
$
5,518
5,447
5,447
5,445
May 24, 2019
August 9, 2019
November 15, 2019
February 14, 2020
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7)
Net Income Per Share
In accordance with the provisions of ASC Topic 260 (“Earnings Per Share”) basic net income per share is
computed by dividing net income available to common shareholders by the weighted average number of
common shares outstanding during the period. Diluted net income per common share includes the dilutive
effect of potential restricted 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 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):
Net income (numerator):
Net income
Shares (denominator)
Weighted average number of common shares
outstanding used in basic computation
Common shares issuable upon the vesting
of restricted stock
Common shares issuable upon conversion
of preferred shares
Shares used in diluted computation
Net income per common share:
Year Ended March 31,
2019
2018
2020
$
25,851
$
37,740
$
37,283
20,041
20,461
20,346
4
20
77
10
20,055
10
20,491
10
20,433
Basic
Diluted
$
$
1.29
1.29
$
$
1.84
1.84
$
$
1.83
1.82
At March 31, 2020, 2019, and 2018, 72,120, 126,751 and 77,350 shares of common restricted stock,
respectively, 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.
(8)
Restricted Stock
On July 28, 2006, the Company received shareholder approval for the adoption of the 2006 Employee
Equity Compensation Restricted Stock Plan (the “2006 Employee Plan”) and the 2006 Outside Director
Equity Compensation Restricted Stock Plan (the “2006 Director Plan”). The purpose of the plans was to
promote the interests of the Company by securing and retaining both employees and outside directors.
The Company had reserved 1.0 million shares of common stock for issuance under the Employee Plan,
and 200,000 shares of common stock for issuance under the Director Plan. In July 2012, the Company
received shareholder approval to ratify the amendment to the Company’s Director Plan passed by the
Board of Directors to increase the number of shares available for issuance under the Director Plan from
200,000 to 400,000. Additionally, the Company received shareholder approval to ratify the amendment
passed by the Board of Directors to provide for a 10% automatic increase every year in the amount of
shares available for issuance under both of the plans. In July 2015, the Company’s 2015 Outside Director
Equity Compensation Restricted Stock Plan (“2015 Director Plan”) became effective upon the approval of
the plan by the Company’s Shareholders. The 2015 Director Plan authorizes 400,000 shares of the
Company's common stock available for issuance under the plan, and provides for an automatic increase
every year in the amount of shares available for issuance under the plan of 10% of the shares authorized
under the plan. In July 2016, the Company’s 2016 Employee Equity Compensation Restricted Stock Plan
(“2016 Employee Plan”) became effective upon the approval of the plan by the Company’s Shareholders.
The 2016 Employee Plan authorizes 1,000,000 shares of the Company's Common stock available for
issuance under the plan. The value of the restricted stock is determined based on the market value of the
stock at the issuance date. The restriction period or forfeiture period is determined by the Company’s
Board and is to be no less than 1 year and no more than ten years.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8)
Restricted Stock (Continued)
At March 31, 2020, the Company had 972,175 restricted common shares issued under the 2006
Employee Plan, 153,608 restricted common shares issued under the 2016 Employee Plan, 272,000
restricted common shares issued under the 2006 Director Plan, and 135,000 restricted common shares
issued under the 2015 Director Plan. The majority of shares were issued subject to a restriction or
forfeiture period which 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. For the fiscal years ended
March 31, 2020, 2019, and 2018, the Company recognized compensation expense related to the
Employee and Director Plans of $2.8 million, $3.1 million, and $2.6 million, respectively. A summary of the
Company’s non-vested restricted stock at March 31, 2020 is as follows (in thousands):
Non-vested restricted stock outstanding at March 31, 2019
Restricted stock granted
Restricted stock vested
Restricted stock forfeited or expired
Non-vested restricted stock outstanding at March 31, 2020
Employee
Plan
Number of
Shares
Director
Plan
Number of
Shares
Both Plans
Number of
Shares
82
77
(41)
(9)
109
68
38
(32)
-
74
150
115
(73)
(9)
183
At March 31, 2020 and 2019, there were 182,695 and 150,017, non-vested restricted stock shares
outstanding, respectively. During the fiscal years ended March 31, 2020 and 2019, the Company issued,
net of forfeitures, 105,925 and 72,899 restricted shares, respectively. At March 31, 2020 and 2019, there
were $2.6 million and $3.9 million of unrecognized compensation cost related to the non-vested restricted
stock awards, respectively, which is expected to be recognized over the remaining weighted average
vesting period of 1.8 years and 1.7 years for fiscal 2020 and 2019, respectively.
(9)
Fair Value Measurements
The Company carries cash and cash equivalents and investments at fair value in the 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. The Company’s cash equivalents are classified
within Level 1. At March 31, 2020 and 2019 the Company had invested the majority of its cash and cash
equivalents balance in money market funds (level 1).
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10)
Commitments and Contingencies
Legal Matters and Routine Proceedings
In January 2019, a putative class action complaint was filed in the United States District Court for the
Southern District of New York alleging that company’s website, www.1800petmeds.com, did not comply
with the ADA, NYSHRL, and NYCHRL, and discriminated against visually impaired individuals. The
Company denied any wrongdoing, and on July 24, 2019, the Company and the Plaintiff reached a
confidential settlement. The Plaintiff and the Company entered into a consent decree and the matter was
dismissed on March 23, 2020, when an order was issued by the court approving the parties 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.
Operating Leases
Upon acquisition of the Delray Beach property in January 2016, 48% of the property, approximately
88,000 square feet of the property was leased to two tenants. At March 31, 2020, the leases with these
two tenants had a remaining weighted average lease term of 4.8 years. The Company recorded
approximately $645,000 and $622,000 in rental revenue in fiscal 2020 and 2019, respectively, which was
included in other income. The Company expects to receive the following future lease payments over the
next five years: $670,000 in fiscal 2021; $689,000 in fiscal 2022; $710,000 in fiscal 2023; $731,000 in
fiscal 2024, and $566,000 in fiscal 2025.
Employment Agreements
On January 29, 2016, the Company entered into Amendment No. 5 to the Executive Employment
Agreement with Menderes Akdag, the Company’s President and Chief Executive Officer, as well as a
Director, effective March 16, 2016. The term of the Agreement was for three years, with an increase in
salary to $600,000 per year throughout the term of the Agreement, and a grant of 120,000 shares of
restricted stock in accordance with the Company’s 2006 Employee Equity Compensation Restricted Stock
Plan, with the restrictions lapsing ratably over a three-year period. On March 15, 2019, the day before Mr.
Akdag’s Agreement was set to expire, the Company entered into Amendment No. 5a extending the term to
May 13, 2019 at his then-current salary. Following the Compensation Committee of the Board of Directors
having worked with a nationally recognized compensation consulting firm to ensure executive pay to the
Chief Executive Officer of the Company was consistent with a selected peer group and contained
appropriate performance bench marks, on May 13, 2019, the Company entered into Amendment No. 6 to
the Agreement. That Agreement amended certain provisions of the Executive Employment Agreement as
follows: the term of the Executive Employment Agreement was extended until the earlier of (i) the date of
the Company’s 2020 Annual Stockholders Meeting, or (ii) August 1, 2020; and Mr. Akdag’s salary
remained at $600,000 per year throughout the term of the Agreement subject to a percentage increase
adjustment, if any, commencing on the pay period ending on May 17, 2019, based on pre-determined
individual and corporate performance goals and objectives for fiscal 2019 approved by the Board.
According to the Agreement, on July 26, 2019 Mr. Akdag was also to be granted 40,000 restricted shares
of the Company’s common stock to vest on July 26, 2020, with the Company paying Mr. Akdag an
additional amount (“Gross-Up Payment”) to cover Mr. Akdag’s withholding taxes which are required to be
paid as a result of the issuance of the restricted shares.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10)
Commitments and Contingencies (Continued)
On July 12, 2019, the Company entered into Amendment No. 7 providing that in the event that a Change
in Control (as was thereinafter defined) of the Company was to occur at any time, Mr. Akdag would have
the right to terminate his employment for “Good Reason,” (as was thereinafter defined) upon thirty (30)
days written notice given at any time within one (1) year after the occurrence of such event, and upon such
termination Mr. Akdag would be entitled to a one-time payment of two times his salary as of the date of
such termination.
(11)
Employee Benefit Plan
The Company maintains a 401(k) Savings Plan for eligible employees. The plan is a defined contribution
plan that is administered by the Company. All regular, full-time employees are eligible for voluntary
participation upon completing one year of service and having attained the age of 21. The plan provides for
growth in savings through contributions and income from investments. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended. Plan participants are allowed to
contribute a specified percentage of their base salary. In 2006, the Company approved a matching
contribution which is funded subsequent to the calendar year. During the fiscal years ended March 31,
2020, 2019, and 2018, the Company charged $211,000, $192,000, and $166,000, respectively, of 401(k)
matching contribution and administration expense to general and administrative expenses.
(12)
COVID-19
On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had
become a pandemic, and on March 13, 2020, the U.S. President declared a National Emergency
concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic
operating area began instituting preventative shut down measures in order to combat the novel
coronavirus pandemic. The coronavirus and actions taken to mitigate the spread of it have had and are
expected to continue to have an adverse impact on the economies and financial markets of the
geographical area in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) was enacted to amongst other provisions, provide emergency
assistance for individuals, families and businesses affected by the novel coronavirus pandemic. The
Company’s business being deemed essential resulted in incremental financial performance that may not
be indicative of future financial results and there remains uncertainty and increased risks concerning its
employees, customers, supply chain and government regulation. Going forward sales may be adversely
affected due to COVID-19, increased competition, and consumers giving more consideration to price.
(13)
Subsequent Events
On May 4, 2020, the Company’s Board of Directors declared an increased quarterly dividend from $0.27 to
$0.28 per share on its common stock. The $5.6 million dividend was paid on May 22, 2020, to
shareholders of record at the close of business on May 15, 2020.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Quarterly Financial Data (Unaudited)
Summarized unaudited quarterly financial data for fiscal 2020 and 2019 is as follows (in thousands, except
for per share amounts):
Quarter Ended:
June 30, 2019
September 30, 2019
December 31, 2019 March 31, 2020
Sales
Gross Profit
Income from operations
Net income
Diluted net income per common share
$
$
$
$
$
79,988
21,861
6,161
5,343
0.26
$
$
$
$
$
69,936
20,002
8,371
6,665
0.33
$
$
$
$
$
59,915
17,697
7,932
6,840
0.34
$
$
$
$
$
74,286
21,686
8,513
7,003
0.35
Quarter Ended:
June 30, 2018
September 30, 2018
December 31, 2018 March 31, 2019
Sales
Gross Profit
Income from operations
Net income
Diluted net income per common share
$
$
$
$
$
87,390
29,954
15,757
12,582
0.62
$
$
$
$
$
71,396
25,255
13,203
10,752
0.52
$
$
$
$
$
60,068
19,381
9,413
7,787
0.38
$
$
$
$
$
64,565
20,724
7,802
6,620
0.32
42
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for the preparation and integrity of the Consolidated Financial
Statements appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity
with generally accepted accounting principles appropriate in the circumstances and, accordingly, include certain
amounts based on our best judgments and estimates. Financial information in the Annual Report on Form 10-K is
consistent with that in the financial statements.
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934
(“Exchange Act”). The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial
Statements. Our internal control over financial reporting is supported by a team of consultants and appropriate
reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and
a written Corporate Code of Business Conduct and Ethics adopted by our Company’s Board of Directors,
applicable to all Company Directors and all officers and employees of our Company and subsidiaries.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements
and even when determined to be effective, can only provide reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Audit Committee (“Committee”) of our Company’s Board of Directors, comprised solely of Directors who are
independent in accordance with the requirements of The NASDAQ Stock Market LLC listing standards, the
Exchange Act and the Company’s Corporate Governance Guidelines, meets with the independent auditors and
management periodically to discuss internal control over financial reporting, and auditing and financial reporting
matters. The Committee reviews with the independent auditors the scope and results of the audit effort. The
Committee also meets periodically with the independent auditors without management present to ensure that the
independent auditors have free access to the Committee. Our Audit Committee’s Report can be found in the
Company’s 2020 Proxy Statement.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31,
2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework - 2013. Based on
our assessment, management believes that the Company maintained effective internal control over financial
reporting as of March 31, 2020.
The Company’s independent auditors, RSM US LLP, a registered public accounting firm, are appointed by the
Audit Committee of the Company’s Board of Directors, subject to ratification by our Company’s shareholders.
RSM US LLP have audited and reported on the Consolidated Financial Statements of PetMed Express, Inc. and
subsidiaries, and issued a report on the Company’s internal control over financial reporting. The reports of the
independent auditors are contained in our Annual Report on Form 10-K.
/s/ Menderes Akdag
Menderes Akdag
President, Chief Executive Officer, Director
May 26, 2020
/s/ Bruce S. Rosenbloom
Bruce S. Rosenbloom
Chief Financial Officer
May 26, 2020
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of PetMed Express, Inc. and subsidiaries
Opinion on the Internal Control Over Financial Reporting
We have audited PetMed Express, Inc. and subsidiaries’ (the Company) internal control over financial reporting
as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements of the Company and our report dated May 26,
2020 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ RSM US LLP
West Palm Beach, Florida
May 26, 2020
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. 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(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as
of March 31, 2020, the end of the period covered by this report (the "Evaluation Date"). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date, that our
disclosure controls and procedures were effective such that the information relating to PetMed Express, Inc.,
including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission
(“SEC”) reports (i) is recorded, processed, summarized, and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated to our management including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as of March 31, 2020 based on the framework in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework,
management concluded that our internal control over financial reporting was effective, as of March 31, 2020, as
stated in our report which is included herein. Our internal control over financial reporting as of March 31, 2020 has
been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report which is
contained in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting during the fourth quarter ended
March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
45
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item will be set forth in our Proxy Statement, to be filed with the SEC within
120 days after the end of the fiscal year ended March 31, 2020, relating to our 2020 Annual Meeting of
Stockholders to be held on July 31, 2020, and is incorporated herein by reference.
We adopted a Corporate Code of Business Conduct and Ethics applicable to all officers, directors, and
employees. The Company’s Corporate Code of Business Conduct and Ethics is available on our website at
www.1800petmeds.com under “About Us - Corporate Governance”. You may also obtain a copy of our Corporate
Code of Business Conduct and Ethics free of charge by contacting Investor Relations at 1-800-738-6337.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in our Proxy Statement, to be filed with the SEC within
120 days after the end of the fiscal year ended March 31, 2020, relating to our 2020 Annual Meeting of
Stockholders to be held on July 31, 2020, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item (other than information required by Item 201(d) of Regulation S-K with
respect to equity compensation plans, which is set forth under Item 5. in this Annual Report on Form 10-K) will be
set forth in our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year ended
March 31, 2020, relating to our 2020 Annual Meeting of Stockholders to be held on July 31, 2020, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in our Proxy Statement, to be filed with the SEC within
120 days after the end of the fiscal year ended March 31, 2020, relating to our 2020 Annual Meeting of
Stockholders to be held on July 31, 2020, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be set forth in our Proxy Statement, to be filed with the SEC within
120 days after the end of the fiscal year ended March 31, 2020, relating to our 2020 Annual Meeting of
Stockholders to be held on July 31, 2020, and is incorporated herein by reference.
46
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K.
(1) Consolidated Financial Statements – See the Index to Consolidated Financial Statements in Item 8
of this Annual Report on Form 10-K.
The following exhibits are filed as part of this Annual Report on Form 10-K or hereby incorporated by
reference to exhibits previously filed with the SEC.
(3) Articles of Incorporation and By-Laws
3.1
3.2
3.4
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form 10-SB, File No. 000-28827, filed January 10, 2000).
Articles of Amendment to the Amended and Restated Articles of Incorporation filed June 6, 2001
(incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-K for the year ended March 31,
2015).
Second Amended and Restated By-Laws of PetMed Express, Inc. (incorporated by reference to
Exhibit 3.1 of the Registrant’s Form 8-K, filed March 26, 2020).
(4) Instruments Defining the Rights of Security Holders
4.1
Specimen common stock certificate (incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form 10-SB, File No. 000-28827, filed January 10, 2000).
Description of Securities*
4.2
(10) Material Contracts
10.1+ Employment Agreement with Menderes Akdag (incorporated by reference to Exhibit 10 of the
Registrant’s Form 8-K filed March 30, 2001).
10.2+ Employment Letter with Bruce Rosenbloom dated May 30, 2001 (incorporated by reference to Exhibit
10.9 of the Registrant’s Form 8-K filed April 7, 2009).
10.3+ 2015 Outside Director Equity Compensation Restricted Stock Plan (incorporated by reference to
Exhibit B of our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders filed June 8,
2015).
10.3.1
Form of Restricted Stock Agreement used for grants of restricted stock under the 2015
Outside Director Equity Compensation Restricted Stock Plan (incorporated by reference
to Exhibit 10.10.1 of the Registrant’s Form 10-K for the year ended March 31, 2017 filed
May 23, 2017).
10.4+ Agreement of Purchase and Sale [420 South Congress Avenue] (incorporated by reference to Exhibit
10.11 of the Registrant’s Form 10-Q for the quarter ended December 31, 2015, filed February 2,
2016).
10.5+ Amendment Number 5 to Executive Employment Agreement with Menderes Akdag (incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 8-K filed February 2, 2016).
10.6+ 2016 Employee Equity Compensation Restricted Stock Plan, including form of Restricted Stock
Agreement used for grants of restricted stock (incorporated by reference to Exhibit A of our definitive
Proxy Statement for our 2016 Annual Meeting of Stockholders filed June 13, 2016).
10.7+ Amendment No. 1 to Offer Letter with Bruce Rosenbloom, Chief Financial Officer (incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2017,
filed October 31, 2017).
10.8+ Amendment Number 5a to Executive Employment Agreement with Menderes Akdag (incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 8-K filed March 18, 2019).
10.9+ Amendment Number 6 to Executive Employment Agreement with Menderes Akdag (incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 8-K filed May 13, 2019).
10.10+ Amendment Number 7 to Executive Employment Agreement with Menderes Akdag (incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 8-K filed July 12, 2019).
47
(21) Subsidiaries of Registrant
21.1
Subsidiaries of Registrant*
(23) Consents of Experts and Counsel
23.1 Consent of RSM US LLP*
(31) Certifications
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).*
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).*
(32) Certifications
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 1350.**
___________
*Filed herewith
**Furnished herewith
+ Indicated a management contract or compensatory plan or arrangement
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
*** 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.
ITEM 16. FORM 10–K SUMMARY.
None.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 26, 2020
PETMED EXPRESS, INC.
(the “registrant”)
By: /s/ Menderes Akdag
Menderes Akdag
Chief Executive Officer and President
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities on May 26, 2020.
SIGNATURE
TITLE
/s/ Menderes Akdag
Menderes Akdag
Chief Executive Officer and President
(principal executive officer)
Officer and Director
/s/ Robert C. Schweitzer
Chairman of the Board
Robert C. Schweitzer
Director
/s/ Bruce S. Rosenbloom
Bruce S. Rosenbloom
/s/ Ronald J. Korn
Ronald J. Korn
/s/ Gian M. Fulgoni
Gian M. Fulgoni
/s/ Frank J. Formica
Frank J. Formica
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
Officer
Director
Director
Director
/s/ Leslie C.G. Campbell
Director
Leslie C.G. Campbell
49
DESCRIPTION OF THE COMPANY’S SECURITIES REGISTERED
PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
The following is a brief description of the common stock, $0.001 par value per share (the “Common
Stock”), of PetMed Express, Inc., a Florida corporation (the “Company”), which is the only security of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”).
Exhibit 4.2
Description of Common Stock
General
The following descriptions of our Common Stock and of certain provisions of Florida law do not purport to
be complete and are subject to and qualified in their entirety by reference to our amended and restated articles of
incorporation, our amended and restated bylaws and the Florida Business Corporation Act, as amended (the
“Florida Act”). The Company has authorized 40,000,000 shares of Common Stock of which as of May 26, 2020,
20,166,382 shares of Common Stock are issued and outstanding. All of our outstanding shares of Common Stock
are fully paid and non-assessable. Our Common Stock is listed on the NASDAQ Global Select Market under the
symbol “PETS.”
Common Stock
Holders of the Common Stock have no pre-emptive, redemption, subscription or conversion rights. Each
outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of the Company's
shareholders. Subject to the dividend rights of the holders of any outstanding preferred stock, each share of
Common Stock is entitled to participate equally with respect to dividends as may be declared by the board of
directors out of funds legally available therefor. In the case of voluntary or involuntary liquidation, distribution or
sale of assets, dissolution, or winding up of the Company, holders of our Common Stock are entitled to receive a
pro rata share of the amount distributed after provisions for payment of all debts, other liabilities and any liquidation
preferences of outstanding preferred stock. The Florida Act also may affect the terms of these securities.
Limitations on Rights of Holders of Common Stock – Preferred Stock
The rights of holders of Common Stock may be materially limited or qualified by the rights of holders of
preferred stock that we may issue in the future. Set forth below is a description of the Company’s authority to issue
preferred stock and the possible terms of that stock.
Our amended and restated articles of incorporation authorizes our board of directors, without further
shareholder action, to provide for the issuance of up to 5,000,000 shares of preferred stock, with a par value of
$.001 per share, in one or more series, and to fix the designations, preferences, conversion rights, cumulative,
relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions,
redemption and liquidation preferences of each of these series. Of the preferred stock, 250,000 shares have been
designated Convertible Preferred Stock of which as of May 26, 2020, 3,000 shares of Convertible Preferred Stock
are issued and outstanding. We may amend from time to time our amended and restated articles of incorporation
to increase the number of authorized shares of preferred stock. Any such amendment would require the approval
of the holders of a majority of our shares of Common Stock entitled to vote.
Shareholder Action by Written Consent and Special Meeting
Our amended and restated bylaws provide for action by our shareholders without a meeting with the
written consent of shareholders holding the number of shares necessary to approve such action if it were taken at
a meeting at which all shares entitled to vote thereon were present. Our amended and restated bylaws also
provide that shareholder action can be taken at an annual meeting of the shareholders or at a special meeting
which may be called, for any purpose or purposes, by the board of directors or the person or persons authorized to
do so by the board of directors and must be called by the Secretary if the holders of not less than ten percent of all
votes entitled to be cast on any issue proposed to be considered at such special meeting sign, date and deliver to
the Secretary one or more written demands for a special meeting, describing the purpose or purposes for which it
is to be held.
Exhibit 4.2 Page 1 of 3
Authorized but Unissued Shares
Our authorized but unissued shares of Common Stock and preferred stock are available for future
issuance without shareholder approval, subject to the requirements of applicable law or regulation, including any
listing requirement of the principal stock exchange on which our Common Stock is then listed. These additional
shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of
Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of a
majority of our Common Stock by means of a proxy contest, tender offer, merger or otherwise.
Board Authority to Amend Bylaws
Under our amended and restated bylaws, our board of directors has the authority to adopt, amend or
repeal the bylaws without the approval of our shareholders unless the Florida Act reserves the power to amend a
particular bylaw provision exclusively to the shareholders.
Certain Anti-Takeover provisions of Florida Law and our Bylaws
Florida Business Corporation Act
We are subject to certain anti-takeover provisions that apply to public corporations under Florida law.
Pursuant to Section 607.0901 of the Florida Act, a publicly held Florida corporation may not engage in a broad
range of business combinations or other extraordinary corporate transactions with an “interested shareholder”
without the approval of the holders of two-thirds of the voting shares of such corporation (excluding shares held by
the interested shareholder), unless:
the transaction is approved by a majority of disinterested directors before the shareholder becomes an
interested shareholder;
the interested shareholder has owned at least 80% of the corporation’s outstanding voting shares for at
least five years preceding the announcement date of any such business combination;
the interested shareholder is the beneficial owner of at least 90% of the outstanding voting shares of the
corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a
majority of the disinterested directors; or
the consideration paid to the holders of the corporation’s voting stock is at least equal to certain fair price
criteria.
An “interested shareholder” is defined as a person who together with affiliates and associates beneficially
owns more than 10% of a corporation’s outstanding voting shares. We have not made an election in our amended
and restated articles of incorporation to opt out of Section 607.0901.
In addition, we are subject to Section 607.0902 of the Florida Act which prohibits the voting of shares in a
publicly held Florida corporation that are acquired in a “control share acquisition” unless (i) our board of directors
approved such acquisition prior to its consummation or (ii) after such acquisition, in lieu of prior approval by our
board of directors, the holders of a majority of the corporation’s voting shares, exclusive of shares owned by
officers of the corporation, employee directors or the acquiring party, approve the granting of voting rights as to the
shares acquired in the control share acquisition. A “control share acquisition” is defined as an acquisition that
immediately thereafter entitles the acquiring party to 20% or more of the total voting power in an election of
directors.
These statutory provisions may prevent takeover attempts that might result in a premium over the market
price for shares of our common stock.
Exhibit 4.2 Page 2 of 3
Advance Notice of Shareholder Proposals or Nominations
Our amended and restated bylaws provide that shareholders at an annual meeting may only consider
proposals or nominations (i) specified in the notice of meeting given by or at the direction of the Board, (ii) properly
brought before the meeting by or at the direction of the Board or (iii) otherwise properly brought before the meeting
by a shareholder of the Company who was a shareholder of record on (a) the date of the giving of timely notice to
our Corporate Secretary and (b) the record date for the meeting, who is entitled to vote at the meeting and who
has given our Corporate Secretary timely written notice, in proper form. In addition to certain other applicable
requirements, for business to be properly brought before an annual meeting by a shareholder, such shareholder
generally must have given notice thereof in proper written form to our Corporate Secretary not less than 90 days
nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of
shareholders. Our amended and restated bylaws may have the effect of precluding the conduct of certain business
at a meeting if the proper procedures are not followed or may discourage or defer a potential acquiror from
conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
Proxy Access
Our By-Laws permit a shareholder (or a group of up to 20 shareholders) owning three percent (3%) or
more of our common stock continuously for at least three years to nominate and include in our proxy statement
candidates for up to the greater of 2 of 20% of our Board. To be timely, a notice of a nomination under our proxy
access bylaw provisions must be delivered to or mailed and received at the principal executive offices of the
Company not less than one-hundred twenty (120) days nor more than one-hundred fifty (150) days prior to the
anniversary of the date that the Company first distributed its proxy statement to shareholders for the immediately
preceding annual meeting of shareholders. The notice must contain certain information specified in our amended
and restated bylaws.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's common stock is Continental Stock Transfer & Trust
Company.
Exhibit 4.2 Page 3 of 3
Exhibit 21.1
SUBSIDIARIES OF PETMED EXPRESS, INC.
PetMed Express, Inc. directly owns all of the outstanding interests in the following subsidiaries:
Southeastern Veterinary Exports, Inc., a Florida Corporation
First Image Marketing, Inc., a Florida Corporation
Global Veterinary Supply, Inc., a Florida Corporation
420 South Congress Avenue LLC, a Florida Limited Liability Company
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in these Registration Statements (No. 333-218917, No. 333-
145179, No. 333-145180) on Form S-8 and related Reoffer Prospectus of PetMed Express, Inc. of our reports
dated May 26, 2020, relating to the consolidated financial statements of PetMed Express, Inc., and the
effectiveness of internal control over financial reporting appearing in the Annual Report on Form 10-K of PetMed
Express, Inc. for the year ended March 31, 2020.
We also consent to the reference to our firm under the heading “Experts” in such Reoffer Prospectus.
Exhibit 23.1
/s/ RSM US LLP
West Palm Beach, Florida
May 26, 2020
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Menderes Akdag, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of PetMed Express, Inc. for the fiscal year ended
March 31, 2020;
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;
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;
The registrant’s other certifying officer 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 officer 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.
May 26, 2020
By: /s/ Menderes Akdag
Menderes Akdag
Chief Executive Officer and President
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bruce S. Rosenbloom, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of PetMed Express, Inc. for the fiscal year ended
March 31, 2020;
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;
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;
The registrant’s other certifying officer 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 officer 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.
May 26, 2020
By: /s/ Bruce S. Rosenbloom
Bruce S. Rosenbloom
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Menderes Akdag, and I, Bruce S. Rosenbloom, each certify to the best of our knowledge, based upon a review
of the Annual Report on Form 10-K for the year ended March 31, 2020 (the “Report”) of PetMed Express, Inc. (the
“Registrant”), that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
the information contained in the Report, fairly presents, in all material respects, the financial condition
and results of operations of the Registrant.
Date: May 26, 2020
By:_/s/ Menderes Akdag__________
Menderes Akdag
Chief Executive Officer and President
By:_/s/ Bruce S. Rosenbloom_______
Bruce S. Rosenbloom
Chief Financial Officer
[This page intentionally left blank]
To My Fellow Stockholders:
Fiscal 2020 was a transition year for the online pet medication market. The market was much more competitive with
new participants offering aggressive pricing, which negatively impacted our gross margins. One of our long-term
initiatives was to obtain direct purchasing relationships with all of the major manufacturers, which we accomplished
in fiscal 2020. The manufacturers introduced Minimum Advertised Price policies, which stabilized the pricing in the
market later in the fiscal year. For the fiscal year ended March 31, 2020 sales increased slightly to $284.1 million com-
pared to $283.4 million for the prior fiscal year. During fiscal 2020, our reorder sales were $248.6 million, compared to
$241.8 million, for the year ended March 31, 2019, an increase of 2.8%. For the fiscal year ended March 31, 2020, net
income was $25.9 million, or $1.29 diluted per share compared to $37.7 million, or $1.84 diluted per share a year ago,
a decrease to net income of 31%. At March 31, 2020, the Company had $103.8 million in cash and cash equivalents
with no debt. Net cash provided by operating activities decreased to $38.8 million for fiscal 2020 compared to $45.1
million for fiscal 2019.
During the quarter ended March 31, 2020, along with the rest of the country we were dealing with the uncertainty
and challenges of COVID-19. The demand for pet medications in the e-commerce channel increased with consumers
shifting their purchases to online, which positively impacted our sales. As an essential business, 1-800-PetMeds has
been open during our normal business hours without any material disruptions to our operations. We are dedicated
to making every effort to ensure the health and safety of our employees. We have implemented working from home
PERFORMANCE
SUMMARY
Sales
($ in millions)
$234.7
$249.2
$273.8
$283.4
$284.1
where possible and enhanced disinfection and social distancing within our work place. We are also dedicated to mak-
ing every effort to ensure our customers’ pets receive the medications they need.
2016 2017 2018 2019 2020
Company’s financial performance. Since fiscal 2010 the Company has returned almost $185 million in dividends to
1-800-PetMeds continues to be committed to returning capital to our stockholders. During fiscal 2020, we paid $1.08
per share in dividends to our stockholders, and recently increased our quarterly dividend to $0.28 per share. While the
Company intends to continue to pay regular quarterly dividends, the declaration and payment of future dividends is
discretionary and will be subject to a determination by our Board of Directors each quarter, following its review of the
Net Income
($ in millions)
$37.3
$37.7
$25.9
$23.8
$20.6
our stockholders. In fiscal 2020, we also repurchased approximately 613,000 shares of our common stock for approxi-
mately $11.5 million, averaging approximately $18.73 per share, and have approximately $28.7 million remaining
under the Company’s share repurchase plan.
According to the American Pet Products Association, pet spending in the United States increased 5.7% to $95.7 billion
in 2019. Veterinary care and prescription medications represented $29.3 billion, or 31% of the total spending on pets
in the United States. The pet medication market that we participate in is estimated to be approximately $5.5 billion,
with veterinarians having the majority of the market share. The dog and cat population is approximately 184 million,
with approximately 67% of all households having a pet.
2016 2017 2018 2019 2020
We are a licensed pharmacy to dispense prescription medications in all 50 states. We offer a wide selection of prod-
Earnings per share EPS
(Diluted)
ucts, including a variety of private label products. We regularly research new products, and select new products or
the latest generation of existing products to become part of our product selection, so that we can offer our customers
$1.82
$1.84
$1.29
$1.17
$1.02
the best medications, supplements, and supplies for dogs, cats, and horses at affordable prices. Our customers can
enjoy either the convenience of ordering online at our top-rated website www.petmeds.com or through our mobile
app, or over the telephone, where they can experience 1-800-PetMeds’ exceptional customer care.
In fiscal 2021 we will continue focusing on optimizing our marketing in this more competitive environment and be-
ing more efficient with our advertising spending. In addition, we will continue investing in our e-commerce platform
to better service our customers. As the national brand leader and America’s Largest and Most Trusted Pet Pharmacy,
2016 2017 2018 2019 2020
we continue to make it the goal of everyone at 1-800-PetMeds to provide “Fast, Easy, and Helpful Service with Great
Dividends declared
(Per share)
Savings!” We have served over 10 million satisfied customers, with approximately 2.3 million customers having pur-
chased from us within the last two years. We are proud of our outstanding customer satisfaction rating.
$1.06
$1.08
We thank you, our loyal customers, dedicated employees, and stockholders, for your ongoing support of
1-800-PetMeds, and we hope everyone is keeping safe and healthy.
$0.72
$0.76
$0.85
Sincerely,
2016 2017 2018 2019 2020
(all above fiscal years ended on March 31st)
Menderes Akdag
President, Chief Executive Officer, Director
June 19, 2020
www.petmeds.com
America’s Most Trusted Pet Pharmacy®
Corporate Information:
Directors, Executive Officers, and Corporate Secretary
Robert C. Schweitzer
Chairman of the Board
and Independent Director
Chief Executive Officer of
RCS Mediation & Consulting Services
Menderes Akdag
Director, Chief Executive Officer
and President of the Company
Frank J. Formica
Independent Director
Legal Consultant
Leslie C.G. Campbell
Independent Director
Ronald J. Korn
Independent Director
President of Ronald Korn Consulting
Dr. Gian M. Fulgoni
Independent Director
Venture Partner, 4490 Ventures
Executive Chairman, Varcode, Ltd.
Bruce S. Rosenbloom, CPA
Chief Financial Officer and Treasurer
of the Company
Alison Berges, Esq.
Corporate Secretary and
General Counsel to the Company
Corporate Headquarters
PetMed Express, Inc.
420 South Congress Ave., Suite 100
Delray Beach, Florida 33445
Independent Registered Public Accounting Firm
RSM US LLP
West Palm Beach, Florida
Transfer Agent
Continental Stock Transfer & Trust Company
New York, New York
Stock Exchange Listing
The NASDAQ Stock Market LLC
Trading Symbol: PETS
Annual Meeting
The Annual Meeting of Stockholders will be held at 1 p.m. Eastern Time,
July 31, 2020.
Investor Relations
PetMed Express, Inc. welcomes inquiries from stockholders and other
interested investors. You may contact us by phone: (800) 738-6337 or
(561) 526-4444 or by writing to the corporate headquarters address above.
QUARTERLY
STOCK
PRICE RANGE
First Quarter
Fiscal 2020
High
Low
$23.65
$15.32
Fiscal 2019
High
Low
$46.17
$33.46
Second Quarter
Fiscal 2020
High
Low
$18.47
$15.01
Fiscal 2019
High
Low
$44.57
$33.01
Third Quarter
Fiscal 2020
High
Low
$27.37
$17.87
Fiscal 2019
High
Low
$32.67
$22.42
Fourth Quarter
Fiscal 2020
High
Low
$28.78
$22.18
Fiscal 2019
High
Low
$24.32
$20.50
PetMed Express, Inc.
PetMed Express, Inc.
Fast, Easy, Helpful Service with Great Savings!
You’re 100% satisfied
or your money back!
www.petmeds.com
America’s Most Trusted Pet Pharmacy®
www.petmeds.com
America’s Most Trusted Pet Pharmacy®
2020
ANNUAL REPORT
PetMed Express, Inc.