======================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 000-28827
________________________________
PETMED EXPRESS, INC.
----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680967
----------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1441 S.W. 29th Avenue, Pompano Beach, Florida 33069
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 979-5995
------------------
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $.001 PAR VALUE 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 [ ] No [X]
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 [ ] No[X]
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of "accelerated filer" or
"large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes
[ ] No [X]
The aggregate market value of the common stock held by non-
affiliates of the registrant as of September 30, 2006, the
last business day of the registrant's most recently
completed second fiscal quarter, was $240,377,000 based on
the closing sales price for 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 June 1, 2007 was 24,335,781.
DOCUMENTS INCORPORATED BY REFERENCE
Information to be set forth in our Proxy Statement
relating to our 2007 Annual Meeting of Stockholders to be
held on August 3, 2007 is incorporated by reference in Items
10, 11, 12, 13, and 14 of Part III of this report.
PETMED EXPRESS, INC.
2007 Annual Report on Form 10-K
TABLE OF CONTENTS
Page
----
PART I....................................................................1
Item 1. Business........................................................1
Item 1A. Risk Factors....................................................5
Item 1B. Unresolved Staff Comments.......................................9
Item 2. Properties......................................................9
Item 3. Legal Proceedings..............................................10
Item 4. Submission of Matters to a Vote of Security Holders............10
PART II..................................................................11
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities............11
Item 6. Selected Financial Data........................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....21
Item 8. Financial Statements and Supplementary Data....................22
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.......................41
Item 9A. Controls and Procedures........................................41
Item 9B. Other Information..............................................41
PART III.................................................................42
Item 10. Directors, Executive Officers, and Corporate Governance........42
Item 11. Executive Compensation.........................................42
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters...............42
Item 13. Certain Relationships and Related Transactions,
and Director Independence....................................42
Item 14. Principal Accounting Fees and Services.........................42
PART IV..................................................................43
Item 15. Exhibits, Financial Statement Schedules........................43
SIGNATURES...............................................................45
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.
When used in this Annual Report on Form 10-K, "PetMed
Express," "1-800-PetMeds," "PetMed," "PetMed Express.com,"
"the Company," "we," "our," and "us" refer to PetMed
Express, Inc. and our 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
television, online, and direct mail/print advertising
campaigns, which aim to increase the recognition of the "1-
800-PetMeds" brand name, 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 located at 1441 S.W. 29th Avenue,
Pompano Beach, Florida 33069, and our telephone number is
(954) 979-5995. The information contained on the Company's
website is not part of our Annual Report.
Our Products
We offer a broad selection of products for dogs, cats,
and horses. These products include a majority of the well-
known brands of medication, such as Frontline Plusr, K9
Advantixr, Advantager, Heartgard Plusr, Sentinelr,
Interceptorr, Programr, Revolutionr, Deramaxxr, and
Rimadylr. Generally, our prices are competitive with the
prices for medications charged by veterinarians and
retailers.
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): Flea and tick control
products, bone and joint care products, vitamins and
nutritional supplements, and hygiene products.
Prescription Medications (Rx): Heartworm treatments,
thyroid and arthritis medications, antibiotics, and other
specialty medications, as well as generic substitutes.
1
Sales
The following table provides a breakdown of the
percentage of our total sales by each category during the
indicated periods:
Year Ended March 31,
2007 2006 2005
------ ------ ------
Non-prescription medications 70% 70% 69%
Prescription medications 29% 29% 30%
Shipping and handling charges and other 1% 1% 1%
------ ------ ------
Total 100% 100% 100%
====== ====== ======
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
the 1-800-PetMeds catalog and postcards. We have designed
both our catalog and 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 customers with increased shopping
flexibility and service.
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. From
our home page, 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 or individual product. We attracted
approximately 14 million visitors to our website during
fiscal year 2007, approximately 9% of those visitors placed
an order, and our website generated approximately 62% of our
total sales for the same time period.
In February 2006, we began sponsorship of a new website
called "PetHealth101" which is located at
www.PetHealth101.com. In PetHealth101, pet owners have
--------------------
access to health information covering pets' behavior and
illnesses-and to the natural and pharmaceutical remedies
specifically for a pet's problems. PetHealth101 is updated
with the latest research for pet owners.
Telephone Contact Center
Our customer care representatives receive and process
inbound customer calls, facilitate our outbound campaigns
around maximizing customers' reorders, 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
goals.
Direct Mail/Print
The 1-800-PetMeds catalog is a full-color catalog that
features our most popular products. The catalog is produced
by a combination of in-house writers, production artists,
and independent contractors. We mail catalogs and postcards
in response to requests generated from our advertising and
as part of direct mail campaigns to our customers.
Our Customers
Approximately 1,900,000 customers have purchased from us
within the last two years. We attracted approximately
681,000 and 624,000 new customers in fiscal 2007 and 2006,
respectively. Our customers are located throughout the
United States, with approximately 50% of customers residing
in California, Florida, Texas, New York, Pennsylvania, New
Jersey, and Virginia.
While our primary focus has been on retail customers, we
have also sold various non-prescription medications
wholesale to a variety of businesses, including pet stores,
groomers and traditional retailers in the United States.
For the fiscal year ended March 31, 2007, the majority of
our sales were made to retail customers with less than 1% of
our sales made to wholesale customers. The average retail
purchase was approximately $79 for fiscal 2007 compared to
$77 for fiscal 2006.
2
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 television
advertising, direct mail/print and e-mail, and online
marketing.
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.
We have used :30 and :15 second television commercials to
attract new customer orders. 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
groups. We believe that television advertising is
particularly effective and instrumental in building brand
awareness.
In January 2007, we began featuring Betty White in our
new 2007 advertising campaign, including in new commercials
airing nationally. Ms. White speaks to pet owners from her
home about the savings and convenience of purchasing the
same exact pet medications from 1-800-PetMeds, compared to
purchasing the medications from a veterinarian.
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.
Online Marketing
We supplement our traditional advertising with online
advertising and marketing efforts. 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, including Google,
Microsoft Network, and Yahoo. We are also members of the
LinkShare Network, which is an affiliate program with
merchant clients and affiliate websites. This network is
designed to develop and build a long-term, branded affiliate
program in order to increase online sales and establish an
Internet presence. The LinkShare Network enables us to
establish link arrangements with other websites, as well as
with portals and search engines.
Operations
Purchasing
We purchase our 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. We purchase the
majority of our health and nutritional supplements directly
from manufacturers. We believe having strong relationships
with product manufacturers will ensure the availability of
an adequate volume of products ordered by our customers, and
will enable us to provide more and better product
information. Historically, substantially all the major
manufacturers of prescription and non-prescription
medications have declined to sell these products to direct
marketing companies. (See Risk Factors.) Part of our
growth strategy includes developing direct relationships
with the leading pharmaceutical manufacturers of the more
popular prescription and non-prescription medications.
Order Processing
We provide our customers with toll-free telephone access
to our customer care representatives. Our call center
generally operates from 8:00 AM to 11:00 PM Monday through
Thursday, 8:00 AM to 9:00 PM on Friday, 9:00 AM to 6:00 PM
on Saturday, and 10:00 AM to 5:00 PM on Sunday, Eastern
Standard Time. The process of customers purchasing products
from 1-800-PetMeds consists of a few simple steps. A
customer first places a call to our toll-free telephone
number or visits our website. The following information is
needed to process prescription orders: general 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.
An invoice is generated and printed in our fulfillment
center, where items are picked for shipping. The product(s)
in the customer's order are then selected from the Company's
inventory and shipped via United States Priority Mail,
United Parcel Service, or Federal Express. Our customers
enjoy the convenience of rapid home delivery, with
approximately 72% of all orders being shipped within 24
hours of ordering. Our website allows customers to easily
browse and purchase substantially 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.
3
Warehousing and Shipping
We inventory our products and fill all customer orders
from our 50,000 square foot facility in Pompano 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, United Parcel 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.
Customer Service and Support
We believe that a high level of customer service 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 and calls that are related to order
status, prices, and shipping. Our customer care
representatives also respond to customers through our live
web chat. If our customer care representatives are unable
to respond to a customer's inquiry at the time of a call, we
strive to provide an answer within 24 hours. We believe our
customer care representatives are a valuable source of
feedback regarding customer satisfaction. Our customer
returns and credits average approximately 1.7 % of total
sales.
Technology
We utilize integrated technologies in call center, e-
commerce, order entry, and inventory control/fulfillment
operations. Our systems are custom configured by the
Company 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 agents with real time product
availability information and updated customer information to
enhance our customer service. 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 phone 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, phone number, e-mail address, fax number,
prescription information, order history, payment history,
and notes.
Competition
The pet medications market is competitive and highly
fragmented. Our competitors consist of veterinarians,
traditional retailers, and other mail-order and online
retailers of pet medications and other health products. 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
* Quality of website content.
We compete with veterinarians in 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, or may be hesitant to
offend their veterinarian by not purchasing these products
from the veterinarian. 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 Manufacturers
Association, pet spending in the United States increased
5.8% to $38.4 billion in 2006. Pet supplies and medications
represented $9.3 billion, or 24% of the total spending on
pets in the United States. The pet medication market size
is estimated to be approximately $3.2 billion, with
veterinarians having the majority of the market share. The
dog and cat population is approximately 163 million, with
approximately 63% of all households owning a pet.
4
We believe that the following are the main competitive
strengths that differentiate 1-800-PetMeds from the
competition:
* "1-800-PetMeds" brand name;
* Exceptional customer service and support;
* Consumer benefit structure of savings and convenience;
* Licensed pharmacy to conduct business in 50 states; and
* Multiple sources of supply of pet medications.
Intellectual Property
We conduct our business under the trade name "1-800-
PetMeds." We believe this name, which is also our toll-free
telephone number, has added significant value and is an
important factor in the marketing of our products. We have
also obtained the right to the Internet addresses
www.1800petmeds.com, www.1888petmeds.com, www.petmedexpress.com,
------------------- ------------------- ---------------------
and www.petmeds.com. As with phone numbers, we do not have
---------------
and cannot acquire any property rights in an Internet address.
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
"PetMed Express[R]," "1888PetMeds[R]," "1-800-PetMeds[R]," and
"PetMeds[R]."
Government Regulation
Dispensing prescription medications is governed at the
state level by the Board 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 by the Florida Board of Pharmacy.
Our current license is valid until February 28, 2009. We
are also licensed and/or regulated by 49 other state
pharmacy boards and 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 operations.
Employees
We currently have 216 full time employees, including: 115
in customer care and marketing; 30 in fulfillment and
purchasing; 59 in our pharmacy; 3 in information technology;
4 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.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties
described below, and all the other information included in
this Annual Report 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.
There can be no assurances that we can sustain profitable
operations in future periods.
We reported net income of $14,444,000, $12,064,000, and
$8,010,000 for the fiscal years ended March 31, 2007, 2006,
and 2005, respectively. Our profitability during fiscal
2007 was due to increases in our reorder and new order
revenue. There are no assurances we will continue to
generate revenues at this increased level, or that we will
remain profitable during fiscal 2008 and beyond. If our
operations were to cease being profitable, our liquidity in
future periods would be adversely affected.
5
We may fail to comply with various state regulations
covering the dispensing of prescription pet medications. We
could be subject 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.
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 distribution of
prescription medications to pet owners could cease, which
could have a material adverse effect on our operations.
While we make every effort to fully comply with the
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 continue to
be the subject of administrative complaints in the future.
We cannot guarantee you that we will not be subject to
reprimand, sanctions, probations, or fines, or that one or
more of our pharmacy licenses may not be suspended or
revoked. See Item 3. Legal Proceedings.
We currently purchase a portion of our prescription and non-
prescription medications from third party distributors and
we are not an authorized distributor of these products. We
do not have any guaranteed supply of these medications at
any pre-established prices.
For the fiscal years ended March 31, 2007 and 2006, the
majority of our sales were attributable to sales of
prescription and non-prescription medications.
Historically, substantially all the major pharmaceutical
manufacturers have declined to sell prescription and non-
prescription pet medications directly to us. In order to
assure a supply of these products, we purchase medications
from various secondary sources, including a variety of
domestic distributors. Our business strategy includes
seeking to establish direct purchasing arrangements with
major pet pharmaceutical manufacturing companies. If we are
not successful in achieving this goal, we will continue to
rely upon secondary sources.
We cannot guarantee that if we continue to purchase
prescription and non-prescription pet medications from
secondary sources that we will be able to purchase an
adequate supply to meet our customers' demands, or that we
will be able to purchase these products at competitive
prices. As these products represent a significant portion
of our sales, our failure to fill customer orders for these
products could adversely impact our sales. If we are forced
to pay higher prices for these products to ensure an
adequate supply, we cannot guarantee that we will be able to
pass along to our customers any increases in the prices we
pay for these medications. This inability to pass along
increased prices could materially adversely affect our
financial condition and results of operations.
Our failure to properly manage our inventory may result in
excessive inventory carrying costs, which could materially
adversely affect our financial condition and results of
operations.
Our current product line contains approximately 750 SKUs.
A significant portion of our sales is attributable to
products representing approximately 90 SKUs. 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.
6
Resistance from veterinarians to authorize prescriptions, or
attempts/efforts on their part to discourage pet owners to
purchase from internet 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. Some veterinarians have also
tried to discourage pet owners from purchasing from internet
pharmacies. Sales of prescription medications represented
approximately 29% of our sales for the fiscal year.
Although veterinarians in some states are required by law to
provide the pet owner with this prescription information, 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 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
seven 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, 2007 were made to customers located in the
states of California, Florida, Texas, New York,
Pennsylvania, New Jersey, 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 financial condition and results of operations
may be materially adversely affected.
We face significant competition from veterinarians and
traditional and online 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 of pet
medications and health and nutritional supplements. 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 order to effectively compete in the
future, we may be required to offer promotions and other
incentives, which may result in lower operating margins or
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 retail and online 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.
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 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.
7
We may not be able to protect our intellectual property
rights, and 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 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, and to determine
the validity and scope of the proprietary rights of others.
Any litigation or adverse priority 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 markets 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. See Item 3. Legal
Proceedings.
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 Internet addresses, www.1800petmeds.com, www.1888petmeds.com,
------------------- -------------------
www.petmedexpress.com, and www.petmeds.com 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. We are aware of substantially
similar Internet addresses, including www.petmed.com, 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.
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 located in
the same building in South Florida, and all 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.
A portion of our sales are seasonal and our operating
results are difficult to predict and may fluctuate.
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 heartworm
and flea and tick medications. Seasonality trends are
divided into percentage of sales by quarter. For the
quarters ended June 30, 2006, September 30, 2006, December
31, 2006, and March 31, 2007, Company sales were 31%, 27%,
19%, and 23%, respectively.
8
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, many of which are out of our control.
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;
* Price competition;
* Increases in the cost of advertising;
* The amount and timing of operating costs and capital
expenditures relating to expansion of our product line or
operations; and
* Disruption of our toll-free telephone service, technical
difficulties, systems and Internet outages, or slowdowns.
Any change in one or more of these factors could materially
adversely affect our financial condition and results of
operations in future periods.
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, some of
which are beyond 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 targets 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
5,000,000 shares of preferred stock without stockholder
approval. Currently there are 2,500 shares of our
Convertible Preferred Stock issued and outstanding. This
leaves 4,997,500 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our facilities, including our principal executive
offices, are located at 1441 S.W. 29th Avenue, Pompano
Beach, Florida 33069. The Company leases its 50,000 square
foot executive offices and warehouse facility under a non-
cancelable operating lease, through May 31, 2009. The
Company is responsible for certain maintenance costs, taxes,
and insurance under this lease. The future minimum annual
lease payments are as follows: $500,000 for fiscal 2008,
$520,000 for fiscal 2009, and $87,000 for fiscal 2010.
9
ITEM 3. LEGAL PROCEEDINGS
On January 19, 2006, PetMed Express, Inc. was added as a
defendant in the matter of Yali Golan v. Marc Puleo (former
President and Chairman of the Board of Directors of the
Company), filed in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida. On
March 6, 2006, the Company filed a motion to dismiss all
counts of the complaint against the Company and on March 30,
2007, the United States District Court for the Southern
District of Florida granted the Company's motion to dismiss
in its entirety.
The Company was a defendant in a multi-defendant lawsuit,
filed in August 2006 in the United States District Court For
The Eastern District of Texas, Marshall Division, seeking
injunctive and monetary relief styled Ronald A. Katz
Technology Licensing, L.P., v. Aetna Inc. et al., Cause No.
206CV 335. The lawsuit alleged that the Company was
infringing on certain telephone call manipulation technology-
related patents owned by the plaintiff. Without admitting
any liability or wrongdoing, and with no finding or
admission as to the merit or lack of merit of any claim or
defense asserted in connection with the litigation, in
January, 2007, the Company entered into a licensing
agreement for a confidential amount, and a Stipulation of
Dismissal with Prejudice was filed with the Court,
dismissing the lawsuit against the Company.
Routine Proceedings
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. 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. Legal
costs related to the above matters are expensed as incurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our stockholders
during the fourth quarter of the fiscal year ended March 31,
2007.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common shares are traded on the NASDAQ
Global Select Market ("NASDAQ") under the symbol "PETS."
The prices set forth below reflect the range of high and low
closing sale prices per share in each of the quarters of
fiscal 2007 and 2006 as reported by the NASDAQ. These
prices represent quotations among dealers without
adjustments for retail mark-ups, markdowns or commissions,
and may not represent actual transactions.
Fiscal 2007: High Low
First Quarter $17.72 $10.97
Second Quarter $13.08 $9.44
Third Quarter $14.19 $10.13
Fourth Quarter $14.17 $11.74
Fiscal 2006: High Low
First Quarter $8.21 $6.50
Second Quarter $11.64 $7.63
Third Quarter $15.52 $9.83
Fourth Quarter $19.99 $14.34
There were 86 holders of record of our common stock at May
31, 2007, and we estimate there were approximately 10,900
beneficial stockholders on that date.
Dividend Policy
The Company has never paid cash dividends on our common
stock. We presently intend to retain future earnings to
finance the expansion of our business. Our future dividend
policy will depend on our earnings, capital requirements,
expansion plans, financial condition, and other relevant
factors.
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 1998
Stock Option Plan, 2006 Employee Equity Compensation
Restricted Stock Plan, and 2006 Outside Director Equity
Compensation Restricted Stock Plan as of March 31, 2007:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
to be issued upon Weighted average
exercise of outstanding exercise price of Number of securities
options, warrants outstanding options, remaining available
Plan category and rights warrants and rights for future issuance
-----------------------------------------------------------------------------------------------------
(a) (b) (c)
1998 Stock Option Plan 665,768 $8.65 810,068
2006 Employee Restricted Stock Plan 136,625 - 863,375
2006 Director Restricted Stock Plan 20,000 - 180,000
--------- ---------
Total 822,393 1,853,443
========= =========
Share Repurchase Plan
On November 8, 2006, the Company's Board of Directors
approved a share repurchase plan of up to $20 million. This
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 cancelled or held in the
Company's treasury. Any share repurchase would reduce our
available cash. As of the date of this report no shares
have been repurchased under this share repurchase plan.
11
Performance Graph
Set forth below is a graph comparing the cumulative
performance of our Common Stock with the Standard & Poor's
Composite-500 Stock Index (the "S&P 500") and the Nasdaq
Composite, from March 31, 2002 to March 31, 2007. The graph
assumes that $100 was invested on March 31, 2002 in each of
our Common Stock, the S&P 500 and the Nasdaq Composite and
that all dividends were reinvested.
[GRAPHIC OF GRAPH]
Performance graph data:
Fiscal Year Ended March 31,
----------------------------------------------
2002 2003 2004 2005 2006 2007
----------------------------------------------
Nasdaq Composite 100.00 72.68 108.07 108.34 126.79 131.23
S&P 500 100.00 73.92 98.15 102.89 112.85 123.83
PetMed Express, Inc. 100.00 295.00 1375.00 926.25 2221.25 1481.25
12
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, 2007, 2006, and 2005 and the consolidated balance sheet
data as of March 31, 2007 and 2006 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, 2004 and 2003 and the
consolidated balance sheet data as of March 31, 2005, 2004
and 2003 have been derived from our audited consolidated
financial statements which are not included in this Annual
Report on Form 10-K.
STATEMENTS OF INCOME
Fiscal Year Ended March 31,
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------------------------------------------------------------------------
Sales $ 162,246,407 $ 137,583,155 $ 108,357,747 $ 93,994,233 $ 54,974,916
Cost of sales 97,680,238 83,244,366 64,700,002 55,824,406 31,517,639
Gross profit 64,566,169 54,338,789 43,657,745 38,169,827 23,457,277
Operating expenses 43,066,144 36,193,545 31,156,119 28,958,433 19,974,270
Net income 14,443,502 12,063,514 8,010,370 5,813,604 3,257,565
Net income per common share:
Basic 0.60 0.51 0.35 0.30 0.19
Diluted 0.60 0.50 0.34 0.25 0.16
Weighted average number of
common shares outstanding:
Basic 24,109,035 23,658,722 22,862,417 19,471,681 17,300,130
Diluted 24,270,879 24,211,955 23,833,189 23,689,866 20,749,515
BALANCE SHEET DATA
March 31,
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------------------------------------------------------------------------
Working capital $ 50,613,455 $ 34,968,771 $ 21,968,784 $ 11,338,004 $ 3,017,641
Total assets 61,218,487 42,624,159 28,119,483 18,480,808 9,025,796
Total liabilities 7,354,914 4,984,630 3,902,419 4,486,299 3,433,108
Shareholders' equity 53,863,573 37,639,529 24,217,064 13,994,509 5,592,688
NON FINANCIAL DATA (UNAUDITED)
March 31,
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------------------------------------------------------------------------
New customers acquired 681,000 624,000 510,000 572,000 414,000
Total accumulated customers (1) 3,136,000 2,455,000 1,831,000 1,321,000 749,000
(1) includes both active and inactive customers
13
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, and issued its first
catalog in the fall of 1997. This catalog displayed
approximately 1,200 items, including prescription and non-
prescription pet medications, other pet health products, and
pet accessories. In fiscal 2001, the Company focused its
product line on approximately 600 of the most popular pet
medications and other health products for dogs and cats.
Presently, the Company's product line includes approximately
750 of the most popular pet medications and other health
products for dogs, cats, and horses.
The Company markets its products through national
television, online, and direct mail/print advertising
campaigns which direct consumers to order by phone or on the
Internet, and aim to increase the recognition of the "1-800-
PetMeds" brand name. Currently, approximately 62% of all
sales are generated via the Internet compared to 57% last
year.
The Company's sales consist of products sold mainly to
retail consumers and minimally to wholesale customers.
Typically, the Company's customers pay by credit card or
check at the time the order is shipped. The Company usually
receives cash settlement in two to three banking days for
sales paid by credit cards, which minimizes the accounts
receivable balances relative to the Company's sales. The
Company's sales returns average was approximately 1.7 % and
1.5 % of sales for the fiscal years ended March 31, 2007 and
2006, respectively. The twelve-month average purchase was
approximately $79 and $77 per order for the fiscal years
ended March 31, 2007 and 2006, respectively.
Critical Accounting Policies
Our discussion and analysis of our financial condition
and the results of our operations 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, long-lived assets, income taxes,
litigation and contingencies. 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 primarily to retail consumers and minimally to
wholesale customers. The Company's policy is to recognize
revenue from product sales upon shipment, when the rights of
ownership and risk of loss have passed to the customer.
Outbound shipping and handling fees are included in sales
and are billed upon shipment. Shipping expenses are
included in cost of sales.
The majority of the Company's sales are paid by credit
cards and the Company usually receives the cash settlement
in two 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 the customers'
inability to make required payments, arising from either
credit card charge-backs or insufficient funds checks. The
Company determines its estimates of the uncollectibility of
accounts receivable by analyzing historical bad debts and
current economic trends. At March 31, 2007 and 2006 the
allowance for doubtful accounts was approximately $28,000
and $23,000, respectively.
Valuation of inventory
Inventories consist of prescription and non-prescription
pet medications and pet supplies that are available for sale
and are priced at the lower of cost or market value using a
weighted average cost method. The Company writes down its
inventory for estimated obsolescence. The inventory reserve
was approximately $122,000 and $306,000 for the fiscal years
ended March 31, 2007 and 2006, respectively.
14
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. The furniture, fixtures, equipment,
and computer software are depreciated over periods ranging
from three to seven years. Leasehold improvements and
assets under capital lease agreements are amortized over the
shorter of the underlying lease agreement or the useful life
of the asset.
Long-lived assets
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount may not be recoverable. Recoverability of
assets is measured by a comparison of the carrying amount of
the asset to net future cash flows expected to be generated
from the asset.
Advertising
The Company's advertising expense consists primarily of
television advertising, internet marketing, and direct
mail/print advertising. Television costs are expensed as
the advertisements are televised. Internet costs are
expensed in the month incurred and direct mail/print
advertising costs are expensed when the related catalog and
postcards are produced, distributed, or superseded.
Accounting for income taxes
The Company accounts for income taxes under the provisions
of SFAS No. 109, Accounting for Income Taxes, which
generally requires recognition of deferred tax assets and
liabilities for the expected future tax benefits or
consequences of events that have been included in the
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 Income:
Fiscal Year Ended March 31,
2007 2006 2005
------- ------- -------
Sales 100.0 % 100.0 % 100.0 %
Cost of sales 60.2 60.5 59.7
------- ------- -------
Gross profit 39.8 39.5 40.3
------- ------- -------
Operating expenses:
General and administrative 10.6 10.2 10.6
Advertising 15.6 15.7 17.7
Depreciation and amortization 0.3 0.4 0.5
------- ------- -------
Total operating expenses 26.5 26.3 28.8
------- ------- -------
Income from operations 13.3 13.2 11.5
------- ------- -------
Total other income (expense) 1.0 0.7 0.1
------- ------- -------
Income before provision for income taxes 14.3 13.9 11.6
Provision for income taxes 5.4 5.1 4.2
------- ------- -------
Net income 8.9 % 8.8 % 7.4 %
======= ======= =======
15
Fiscal 2007 Compared to Fiscal 2006
Sales
-----
Sales increased $24,663,000, or 17.9%, to $162,246,000 for
the year ended March 31, 2007, from $137,583,000 for the
fiscal year ended March 31, 2006. The increase in sales can
be primarily attributed to increased retail reorders and new
orders, offset by decreased wholesale sales, during the
fiscal year.
The Company has committed certain amounts specifically
designated towards television, direct mail/print and online
advertising to stimulate sales, create brand awareness, and
acquire new customers. Retail reorder sales have increased
by approximately $22,173,000, or 25.1%, to approximately
$110,540,000 for the fiscal year ended March 31, 2007, from
approximately $88,367,000 for the fiscal year ended March
31, 2006. Retail new order sales have increased by
approximately $5,608,000, or 12.3%, to approximately
$51,096,000 for the fiscal year ended March 31, 2007, from
approximately $45,488,000 for the fiscal year ended March
31, 2006. Wholesale sales have decreased by approximately
$3,118,000, or 83.6%, to approximately $610,000 for the
fiscal year ended March 31, 2007, from approximately
$3,728,000 for the fiscal year ended March 31, 2006. We
limited our wholesale sales in fiscal 2007 and we may limit
future wholesale sales to continue to focus our business on
retail sales. The Company acquired approximately 681,000
new customers for the fiscal year ended March 31, 2007,
compared to 624,000 new customers for the same period in the
prior year. There can be no assurances that this growth
trend will continue due to increased price competition from
veterinarians and traditional and online retailers.
The majority of our product sales are affected by the
seasons, due to the seasonality of mainly heartworm and flea
and tick medications. For the quarters ended June 30,
September 30, December 31, and March 31 of fiscal 2007, the
Company's sales were approximately 31%, 27%, 19%, and 23%,
respectively.
Cost of sales
-------------
Cost of sales increased by $14,436,000, or 17.3%, to
$97,680,000 for the fiscal year ended March 31, 2007, from
$83,244,000 for the fiscal year ended March 31, 2006. The
increase in cost of sales is directly related to the
increase in retail sales in fiscal 2007 as compared to
fiscal 2006. As a percent of sales, the cost of sales was
60.2% in fiscal 2007, as compared to 60.5% in fiscal 2006.
The percentage decrease can be mainly attributed to a
decrease in our wholesale sales, which had a higher cost of
sales percentage, and due to a shift in our product mix to
higher gross profit margin items, offset by additional price
discounts given to customers.
Gross profit
------------
Gross profit increased by $10,227,000, or 18.8%, to
$64,566,000 for the fiscal year ended March 31, 2007, from
$54,339,000 for the fiscal year ended March 31, 2006. Gross
profit as a percentage of sales for fiscal 2007 and 2006 was
39.8% and 39.5%, respectively. The gross profit percentage
increase can be mainly attributed to a decrease in our
wholesale sales, which had a lower gross profit percentage,
and due to a shift in our product mix to higher gross profit
margin items, offset by additional price discounts given to
customers.
General and administrative expenses
-----------------------------------
General and administrative expenses increased by
$3,215,000, or 22.8%, to $17,293,000 for the fiscal year
ended March 31, 2007 from $14,078,000 for the fiscal year
ended March 31, 2006. General and administrative expenses
as a percentage of sales was 10.6% compared to 10.2% for the
fiscal years ended March 31, 2007 and 2006, respectively.
The increase in general and administrative expenses for the
fiscal year ended March 31, 2007 was primarily due to the
following: a $2,194,000 increase to payroll expenses, with
$893,000 of the increase due to the recognition of stock
option compensation expense during the period relating to
the implementation of SFAS 123R, " Share Based Payment," and
the remaining increase attributed to the addition of new
employees in the customer care and pharmacy departments
enabling the Company to sustain its growth; a $530,000
increase to credit card and bank service fees which is
directly attributable to increased sales in the fiscal year;
a $260,000 increase to licenses and fees, the majority of
the increase relating to the first time compliance with a
California mill assessment fee on certain products sold in
that state; a $169,000 increase to property expenses
relating to additional rent due to our warehouse expansion;
a $125,000 increase to office expenses which can be directly
attributed to increased sales; a $105,000 increase to
telephone expenses resulting from receiving one-time usage
credits during the prior fiscal year; a $87,000 increase to
insurance expenses, relating to an increase in premiums
paid; and a $36,000 increase to other expenses which
includes bad debt and travel expenses. Offsetting the
increase was a $162,000 one-time charge, relating to
state/county sales tax, which was not collected on behalf of
customers, which was booked in the first quarter of fiscal
2006; and a $129,000 decrease in professional fees,
primarily relating to the reduction of legal fees and
Sarbanes-Oxley compliance fees.
16
Advertising expenses
--------------------
Advertising expenses increased by approximately
$3,672,000, or approximately 17.0%, to approximately
$25,243,000 for the fiscal year ended March 31, 2007 from
approximately $21,571,000 for the fiscal year ended March
31, 2006. The increase in advertising expenses for the
fiscal year ended March 31, 2007 was due to the Company's
plan to commit certain amounts specifically designated
towards television, direct mail/print, and online
advertising to stimulate sales, create brand awareness, and
acquire new customers.
The advertising cost of acquiring a new customer, defined
as total advertising cost divided by new customers acquired,
for the fiscal year ended March 31, 2007 was $37, compared
to $35 for the same period the prior year. 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 from veterinarians and other retailers of
pet medications. Historically, the advertising environment
fluctuates due to supply and demand. A less favorable
advertising environment may negatively impact future new
order sales. As a percentage of sales, advertising expense
was 15.6% in fiscal 2007, as compared to 15.7% in fiscal
2006. The Company currently anticipates advertising as a
percentage of sales to range from approximately 14.0% to
16.0% in fiscal 2008. However, the advertising percentage
will fluctuate quarter to quarter due to seasonality and
advertising availability. For the fiscal year ended March
31, 2007, quarterly advertising expenses as a percentage of
sales ranged between 12% and 18%.
Depreciation and amortization
-----------------------------
Depreciation and amortization decreased by approximately
$15,000, or 2.6%, to approximately $530,000 for the fiscal
year ended March 31, 2007 from approximately $545,000 for
the fiscal year ended March 31, 2006. This decrease to
depreciation and amortization expense for fiscal 2007 can be
attributed to the fact that existing property and equipment
items have been fully depreciated.
Other income
------------
Other income increased by approximately $811,000, or
91.1%, to approximately $1,701,000 for the fiscal year ended
March 31, 2007, from approximately $890,000 for the fiscal
year ended March 31, 2006. The increase to other income can
be primarily attributed to increased interest income due to
increases in the Company's cash balance, which is swept into
an interest bearing overnight account, and a tax-free short
term investment account. The increase can also be
attributed to additional advertising revenue generated from
our website. Interest income may decrease in future years
if the Company utilizes its cash balances on its $20,000,000
share repurchase plan or on its operating activities.
Provision for income taxes
--------------------------
For the fiscal years ended March 31, 2007 and 2006, the
Company recorded an income tax provision for approximately
$8,757,000 and $6,972,000, respectively, which resulted in
an effective tax rate of 37.7% and 36.6%, respectively.
Net income
----------
Net income increased by approximately $2,380,000, or
19.7%, to approximately $14,444,000 for the fiscal year
ended March 31, 2007 from approximately $12,064,000 for the
fiscal year ended March 31, 2006. The increase was mainly
attributable to the Company's sales growth and profitable
operations.
17
Fiscal 2006 Compared to Fiscal 2005
Sales
-----
Sales increased $29,225,000, or 27.0%, to $137,583,000 for
the year ended March 31, 2006, from $108,358,000 for the
year ended March 31, 2005. The increase in sales can be
primarily attributed to increased retail new orders, retail
reorders and wholesale sales, during the fiscal year.
The Company has committed certain amounts specifically
designated towards television, direct mail/print and online
advertising to stimulate sales, create brand awareness, and
acquire new customers. Retail reorder sales have increased
by approximately $19,648,000, or 28.6%, to approximately
$88,367,000 for the fiscal year ended March 31, 2006, from
approximately $68,719,000 for the fiscal year ended March
31, 2005. Retail new order sales have increased by
approximately $8,280,000, or 22.3%, to approximately
$45,488,000 for the fiscal year ended March 31, 2006, from
approximately $37,208,000 for the fiscal year ended March
31, 2005. Wholesale sales have increased by approximately
$1,297,000, or 53.4%, to approximately $3,728,000 for the
fiscal year ended March 31, 2006, from approximately
$2,431,000 for the fiscal year ended March 31, 2005. We may
limit our wholesale sales in the future to focus our
business on retail sales. The Company acquired
approximately 624,000 new customers for the year ended March
31, 2006, compared to 510,000 new customers for the same
period in the prior year. The increase in retail sales
growth for fiscal 2006 compared to fiscal 2005 can be
attributed to increased advertising effectiveness, due to a
more favorable advertising environment, with more effective
creative, and discount offers. There can be no assurances
that this trend will continue due to increased price
competition from veterinarians and traditional and online
retailers.
The majority of our product sales are affected by the
seasons, due to the seasonality of mainly heartworm and flea
and tick medications. For the quarters ended June 30,
September 30, December 31, and March 31 of fiscal 2006, the
Company's sales were approximately 32%, 28%, 19%, and 21%,
respectively.
Cost of sales
-------------
Cost of sales increased by $18,544,000, or 28.7%, to
$83,244,000 for the fiscal year ended March 31, 2006, from
$64,700,000 for the fiscal year ended March 31, 2005. The
increase in cost of sales is directly related to the
increase in retail and wholesale sales in fiscal 2006 as
compared to fiscal 2005. As a percent of sales, the cost of
sales was 60.5% in fiscal 2006, as compared to 59.7% in
fiscal 2005. The percentage increase can be attributed to
increases in our product and freight costs, discounts given
to our customers, and increases in our wholesale sales,
which have a lower gross profit percentage.
Gross profit
------------
Gross profit increased by $10,681,000, or 24.5%, to
$54,339,000 for the fiscal year ended March 31, 2006, from
$43,658,000 for the fiscal year ended March 31, 2005. Gross
profit as a percentage of sales for fiscal 2006 and 2005 was
39.5% and 40.3%, respectively. The gross profit percentage
decrease can be attributed to increases in our product and
freight costs, discounts given to our customers, and
increases in our wholesale sales, which have a lower gross
profit percentage.
General and administrative expenses
-----------------------------------
General and administrative expenses increased by
$2,682,000, or 23.5%, to $14,078,000 for the fiscal year
ended March 31, 2006 from $11,396,000 for the fiscal year
ended March 31, 2005. However, general and administrative
expense as a percentage of sales was 10.2% compared to 10.6%
for the fiscal years ended March 31, 2006 and 2005,
respectively. The increase in general and administrative
expenses for the year ended March 31, 2006 was primarily due
to the following: a $798,000 increase to payroll expenses
which can be attributed to the addition of new employees in
the customer care and pharmacy departments enabling the
company to sustain its growth; a $663,000 increase to
professional fees, primarily relating to increased
pharmacist, accounting, the majority relating to Sarbanes
Oxley compliance, and legal fees; a $646,000 increase to
credit card and bank service fees which is directly
attributable to increased sales in the period; a $183,000
increase to property expenses, relating to unanticipated
hurricane-related charges, mainly generator and fuel
expenses, during the third quarter and additional rent due
to our warehouse expansion; a $162,000 one-time charge
relating to state/county sales tax which was not collected
on behalf of our customers; a $110,000 increase to telephone
expenses resulting from receiving one time usage credits in
the quarters ended September 30, 2004 and December 31, 2004;
a $85,000 increase to office expenses which can be directly
attributed to increased sales and unanticipated hurricane-
related charges in the period; a $36,000 increase to
insurance expenses, relating to an increase in premiums
paid; and a $1,000 decrease to other expenses.
18
Advertising expenses
--------------------
Advertising expenses increased by approximately
$2,385,000, or approximately 12.4%, to approximately
$21,571,000 for the fiscal year ended March 31, 2006 from
approximately $19,186,000 for the fiscal year ended March
31, 2005. The increase in advertising expenses for the
fiscal year ended March 31, 2006 was due to the Company's
plan to commit certain amounts specifically designated
towards television, direct mail/print, and online
advertising to stimulate sales, create brand awareness, and
acquire new customers.
The advertising costs of acquiring a new customer, defined
as total advertising costs divided by new customers
acquired, for the fiscal year ended March 31, 2006 was $35,
compared to $38 for the same period the prior year. We can
attribute this reduction to an increase in advertising
efficiency due to a more favorable advertising environment.
There can be no assurances made that this favorable
advertising environment will continue. Historically, the
advertising environment fluctuates due to supply and demand.
A less favorable advertising environment may negatively
impact new order sales. As a percentage of sales,
advertising expense was 15.7% in fiscal 2006, as compared to
17.7% in fiscal 2005. The Company currently anticipates
advertising as a percentage of sales to range from
approximately 15.0% to 16.0% in fiscal 2007. However, the
advertising percentage will fluctuate quarter to quarter due
to seasonality and advertising availability. For the year
ended March 31, 2006, quarterly advertising expenses as a
percentage of sales ranged between 12% and 18%.
Depreciation and amortization
-----------------------------
Depreciation and amortization decreased by approximately
$29,000, or 5.1%, to approximately $545,000 for the fiscal
year ended March 31, 2006 from approximately $574,000 for
the fiscal year ended March 31, 2005. This decrease to
depreciation and amortization expense for fiscal 2006 can be
attributed to decreased property and equipment additions
since the first quarter of fiscal 2005.
Other income
------------
Other income increased by approximately $788,000 to
approximately $890,000 for the fiscal year ended March 31,
2006, from approximately $102,000 for the fiscal year ended
March 31, 2005. The increase to other income can be
primarily attributed to increased interest income due to
increases in the Company's cash balance, which is swept into
an interest bearing overnight account and tax-free short
term investment account, and to advertising revenue
generated from our website. Interest income may decrease in
future years as the Company utilizes its cash balances on
operating activities.
Provision for income taxes
--------------------------
For the fiscal years ended March 31, 2006 and 2005, the
Company recorded an income tax provision for approximately
$6,972,000 and $4,593,000, respectively, which resulted in
an effective tax rate of 36.6% and 36.4%, respectively.
Net income
----------
Net income increased by approximately $4,054,000, or
50.6%, to approximately $12,064,000 for the fiscal year
ended March 31, 2006 from approximately $8,010,000 for the
fiscal year ended March 31, 2005. The significant increase
was mainly attributable to the Company's sales growth and
profitable operations and the leverage of general and
administrative and advertising expenses.
Liquidity and Capital Resources
The Company's working capital at March 31, 2007 and
2006 was $50,613,000 and $34,969,000, respectively. The
$15,644,000 increase in working capital was primarily
attributable to cash flow generated from operations and the
exercise of stock options. Net cash provided by operating
activities was $16,564,000 and $10,277,000 for the fiscal
years ended March 31, 2007 and 2006, respectively. Net cash
used in investing activities was $17,300,000 and $11,808,000
for the fiscal years ended March 31, 2007 and 2006,
respectively. This $5,492,000 increase can be attributed to
increased temporary investments and increased property and
equipment additions to support the Company's growth, the
addition of back-up infrastructure, the upgrade to its e-
commerce platform, and the maintenance of existing assets in
fiscal 2007. Net cash provided by financing activities was
$685,000 and $1,016,000 for the fiscal years ended March 31,
2007 and 2006, respectively. This $331,000 decrease can be
attributed to a decrease in the number of stock options
exercised in fiscal 2007 compared to fiscal 2006.
19
As of March 31, 2007 and 2006 the Company had no
outstanding lease commitments except for the lease for its
executive offices and warehouse. On May 18, 2005 the
Company signed an amendment to extend the current lease
agreement through May 31, 2009. The amendment terms are
similar to the existing lease agreement, and the Company
exercised its option to lease an additional 3,600 square
feet. On November 28, 2005 the Company signed an amendment
to its current lease agreement, to lease an additional 7,000
square feet to expand its warehouse and pharmacy. This
addition to the warehouse and pharmacy was necessary to
increase the Company's capacity to store additional
inventory and expand its fulfillment operations. The Company
had financed certain equipment acquisitions with capital
leases.
Presently, the Company has approximately $500,000 planned
for capital expenditure commitments to further the Company's
growth during fiscal 2008, which will be funded through cash
from operations. The Company's source of working capital
includes cash from operations and the exercise of stock
options. The Company presently has no need for other
alternative sources of working capital and at this time, has
no commitments or plans to obtain additional capital. If in
the future the Company seeks to raise additional capital
through the sale of equity securities, no assurances can be
given that the Company will be successful in obtaining
additional capital, or that such capital will be available
in terms acceptable to the Company. Further, there can be
no assurances that even if such additional capital is
obtained the Company will sustain profitability or positive
cash flow.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109" ("FIN 48"), which provides criteria for
the recognition, measurement, presentation, and disclosure
of uncertain tax positions. A tax benefit from an uncertain
position may be recognized only if it is "more likely than
not" that the position is sustainable based on its technical
merits. The provisions of FIN 48 were effective for the
Company's fiscal year beginning April 1, 2007. We do not
expect FIN 48 will have a material effect on our
consolidated financial position, results of operations, or
cash flows.
In June 2006, the FASB's Emerging Issues Task Force
("EITF") reached a consensus on Issue No. 06-3, "How Taxes
Collected from Customers and Remitted to Governmental
Authorities Should be Presented in the Income Statement
(That Is, Gross versus Net Presentation)." The scope of
EITF 06-3 includes sales, use, value added, and some excise
taxes that are assessed by a governmental authority on
specific revenue-producing transactions between a seller and
customer. EITF 06-3 requires disclosure of the method of
accounting for the applicable assessed taxes and the amount
of assessed taxes that are included in revenues if they are
accounted for under the gross method. EITF 06-3 is
effective for the Company's fiscal year beginning April 1,
2007. EITF 06-3 will not impact the method for recording
these taxes in the Company's consolidated financial
statements as the Company historically has presented sales
excluding these taxes.
In September 2006, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 108,
"Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements." SAB 108 provides guidance on the consideration
of effects of the prior year misstatements in quantifying
current year misstatements for the purpose of a materiality
assessment. The SEC staff believes registrants must
quantify errors using both a balance sheet and income
statement approach and evaluate whether either approach
results in quantifying a misstatement that, when all
relevant quantitative and qualitative factors are
considered, is material. SAB 108 is effective for the first
annual period ending after November 15, 2006 with early
application encouraged. The Company adopted SAB 108 in
fiscal 2007.
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.
20
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, temporary investments,
accounts receivable, accounts payable, line of credit, and
debt obligations. The book values of cash equivalents,
temporary investments, accounts receivable, and accounts
payable are considered to be representative of fair value
because of the short maturity of these instruments. At
March 31, 2007, we had no debt obligations.
We do not utilize financial instruments for trading
purposes and we do not hold any derivative financial
instruments that could expose us to significant market risk.
The Company has no material exposure to market risk for
changes in interest rates.
The above sensitivity analysis for interest rate risk
excludes accounts receivable, accounts payable, and accrued
liabilities because of the short-term maturity of such
instruments. The analysis does not consider the effect this
movement may have on other variables including changes in
revenue volumes that could be indirectly attributed to
changes in interest rates. The actions that management
would take in response to such a change are also not
considered. If it were possible to quantify this impact,
the results could well be different than the sensitivity
effects shown above.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PETMED EXPRESS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm 23
Consolidated Balance Sheets as of March 31, 2007 and March 31, 2006 24
Consolidated Statements of Income for each of the three
years in the period ended March 31, 2007 25
Consolidated Statements of Changes in Shareholders' Equity
for each of the three years in the period ended March 31, 2007 26
Consolidated Statements of Cash Flows for each of the three
years in the period ended March 31, 2007 27
Notes to Consolidated Financial Statements 28
Report of Management on Internal Control Over Financial Reporting 39
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting 40
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
PetMed Express, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of PetMed Express, Inc. and Subsidiaries (the "Company") as
of March 31, 2007 and 2006, and the related consolidated
statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended
March 31, 2007. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of PetMed Express, Inc.
and Subsidiaries as of March 31, 2007 and 2006, and the
results of their operations and their cash flows for each of
the three years in the period ended March 31, 2007, in
conformity with accounting principles generally accepted in
the United States of America.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it
accounts for share-based compensation effective April 1,
2006.
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the effectiveness of the Company's internal control
over financial reporting as of March 31, 2007, based on
criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our
report dated May 31, 2007 expressed an unqualified opinion
thereon.
/s/ Goldstein Golub Kessler LLP
-------------------------------
Goldstein Golub Kessler LLP
New York, New York
May 31, 2007
23
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2007 2006
------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 316,470 $ 366,907
Temporary investments 39,125,000 22,850,000
Accounts receivable, less allowance for doubtful
accounts of $28,000 and $23,000, respectively 1,369,521 1,155,781
Inventories - finished goods 16,086,207 14,997,675
Prepaid expenses and other current assets 1,071,171 583,038
------------- -------------
Total current assets 57,968,369 39,953,401
Property and equipment, net 1,990,578 1,497,589
Deferred income taxes 894,540 794,002
Intangible asset 365,000 365,000
Other assets - 14,167
------------- -------------
Total assets $ 61,218,487 $ 42,624,159
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 5,859,756 $ 3,052,953
Income taxes payable 229,321 958,318
Accrued expenses and other current liabilities 1,265,837 973,359
------------- -------------
Total liabilities 7,354,914 4,984,630
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized;
2,500 convertible shares issued and outstanding with a
liquidation preference of $4 per share 8,898 8,898
Common stock, $.001 par value, 40,000,000 shares authorized;
24,309,417 and 23,967,390 shares issued and outstanding,
respectively 24,309 23,967
Additional paid-in capital 15,213,254 13,433,054
Retained earnings 38,617,112 24,173,610
------------- -------------
Total shareholders' equity 53,863,573 37,639,529
------------- -------------
Total liabilities and shareholders' equity $ 61,218,487 $ 42,624,159
============= =============
See accompanying notes to consolidated financial statements.
24
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
2007 2006 2005
-------------- -------------- --------------
Sales $ 162,246,407 $ 137,583,155 $ 108,357,747
Cost of sales 97,680,238 83,244,366 64,700,002
-------------- -------------- --------------
Gross profit 64,566,169 54,338,789 43,657,745
-------------- -------------- --------------
Operating expenses:
General and administrative 17,292,675 14,078,343 11,396,320
Advertising 25,243,029 21,570,667 19,185,982
Depreciation and amortization 530,440 544,535 573,817
-------------- -------------- --------------
Total operating expenses 43,066,144 36,193,545 31,156,119
-------------- -------------- --------------
Income from operations 21,500,025 18,145,244 12,501,626
-------------- -------------- --------------
Other income (expense):
Interest income, net 1,266,150 676,083 98,079
Other, net 435,824 215,586 3,710
Loss on disposal of property and equipment (1,250) (1,719) -
-------------- -------------- --------------
Total other income (expense) 1,700,724 889,950 101,789
-------------- -------------- --------------
Income before provision for income taxes 23,200,749 19,035,194 12,603,415
Provision for income taxes 8,757,247 6,971,680 4,593,045
-------------- -------------- --------------
Net income $ 14,443,502 $ 12,063,514 $ 8,010,370
Net income per common share: ============== ============== ==============
Basic $ 0.60 $ 0.51 $ 0.35
============== ============== ==============
Diluted $ 0.60 $ 0.50 $ 0.34
============== ============== ==============
Weighted average number of common shares outstanding:
Basic 24,109,035 23,658,722 22,862,417
============== ============== ==============
Diluted 24,270,879 24,211,955 23,833,189
============== ============== ==============
See accompanying notes to consolidated financial statements.
25
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fiscal years ended March 31, 2005, March 31, 2006 and March 31, 2007
Convertible Common Additional
Preferred Stock Stock Paid-In Retained
----------------- ---------------------
Shares Amounts Shares Amounts Capital Earnings Total
------------------------------------------------------------------------------------------
Balance, March 31, 2004 2,500 $ 8,898 21,860,057 $ 21,860 $ 9,864,025 $ 4,099,726 $ 13,994,509
Issuance of common stock from
exercise of stock options - - 1,058,668 1,059 1,076,130 - 1,077,189
Issuance of common stock from
exercise of warrants and other - - 540,000 540 215,707 - 216,247
Tax benefit related to stock
options exercised - - - - 918,749 - 918,749
Net income - - - - - 8,010,370 8,010,370
------ -------- ---------- --------- ------------- ------------ -------------
Balance, March 31, 2005 2,500 $ 8,898 23,458,725 $ 23,459 $ 12,074,611 $ 12,110,096 $ 24,217,064
Issuance of common stock from
exercise of stock options - - 508,665 508 1,015,523 - 1,016,031
Tax benefit related to stock
options exercised - - - - 342,920 - 342,920
Net income - - - - - 12,063,514 12,063,514
------ -------- ---------- --------- ------------- ------------ -------------
Balance, March 31, 2006 2,500 $ 8,898 23,967,390 $ 23,967 $ 13,433,054 $ 24,173,610 $ 37,639,529
Issuance of common stock from
exercise of stock options - - 185,402 185 441,899 - 442,084
Issuance of restricted stock - - 156,625 157 (157) - -
Share based compensation - - - - 1,095,740 - 1,095,740
Tax benefit related to stock
options exercised - - - - 242,718 - 242,718
Net income - - - - - 14,443,502 14,443,502
------ -------- ---------- --------- ------------- ------------ -------------
Balance, March 31, 2007 2,500 $ 8,898 24,309,417 $ 24,309 $ 15,213,254 $ 38,617,112 $ 53,863,573
====== ======== ========== ========= ============= ============ =============
See accompanying notes to consolidated financial statements.
26
PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
2007 2006 2005
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 14,443,502 $ 12,063,514 $ 8,010,370
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 530,440 544,535 573,817
Share based compensation 1,095,740 - -
Tax benefit related to stock options exercised - 342,920 918,749
Deferred income taxes (100,538) (211,156) (1,490)
Loss on disposal of property and equipment 1,250 1,719 -
Bad debt expense (recovery) 29,554 (1,709) 16,092
(Increase) decrease in operating assets
and increase (decrease) in liabilities:
Accounts receivable (243,294) 642,684 (679,547)
Inventories - finished goods (1,088,532) (3,817,342) (475)
Prepaid expenses and other current assets (488,133) (369,886) 19,066
Other assets 14,167 - 7,655
Accounts payable 2,806,803 327,963 (548,072)
Income taxes payable (728,997) 356,783 179,090
Accrued expenses and other current liabilities 292,478 397,465 (146,456)
------------- ------------- -------------
Net cash provided by operating activities 16,564,440 10,277,490 8,348,799
------------- ------------- -------------
Cash flows from investing activities:
Net change in temporary investments (16,275,000) (11,050,000) (11,800,000)
Purchases of property and equipment (1,025,079) (758,176) (171,757)
Net proceeds from the sale of property and equipment 400 600 -
------------- ------------- -------------
Net cash used in investing activities (17,299,679) (11,807,576) (11,971,757)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants
and other transactions 442,084 1,016,031 1,293,436
Tax benefit related to stock options exercised 242,718 - -
Payments on the loan obligation - - (68,442)
------------- ------------- -------------
Net cash provided by financing activities 684,802 1,016,031 1,224,994
------------- ------------- -------------
Net decrease in cash and cash equivalents (50,437) (514,055) (2,397,964)
Cash and cash equivalents, at beginning of the year 366,907 880,962 3,278,926
------------- ------------- -------------
Cash and cash equivalents, at end of year $ 316,470 $ 366,907 $ 880,962
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ - $ 884
============= ============= =============
Cash paid for income taxes $ 9,344,063 $ 6,483,132 $ 3,496,696
============= ============= =============
See accompanying notes to consolidated financial statements.
27
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 and sells prescription
and non-prescription pet medications and other health
products for dogs, cats, and horses direct to the
consumer.
The Company markets its products through national
television, online and direct mail/print advertising
campaigns, which aim to increase the recognition of the
"1-800-PetMeds" brand name, 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 executive offices are located in
Pompano Beach, Florida. The Company's fiscal year end
is March 31. References herein to fiscal 2007, 2006,
or 2005 refer to the Company's fiscal years ended March
31, 2007, 2006 and 2005, respectively.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its two wholly owned
subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
Revenue Recognition
The Company generates revenue by selling pet medication
products primarily to retail consumers and minimally to
wholesale customers. The Company's policy is to
recognize revenue from product sales upon shipment,
when the rights of ownership and risk of loss have
passed to the consumer. Outbound shipping and handling
fees are included in sales and are billed upon
shipment. Shipping expenses are included in cost of
sales.
The majority of the Company's sales are paid by credit
cards and the Company usually receives the cash
settlement in two to three banking days. Credit card
sales minimize the accounts receivable balances
relative to sales. The Company maintains an allowance
for doubtful accounts for losses that the Company
estimates will arise from the customers' inability to
make required payments, arising from either credit card
charge-backs or insufficient funds checks. The Company
determines its estimates of the uncollectibility of
accounts receivable by analyzing historical bad debts
and current economic trends. At March 31, 2007 and
2006, the allowance for doubtful accounts was
approximately $28,000 and $23,000, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents at
March 31, 2007 and 2006, consisted of the Company's
cash accounts, overnight repurchase agreements, and
short-term investments 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.
Temporary Investments
The Company has reclassified its auction rate
securities ("ARS") from cash and cash equivalents to
temporary investments on its balance sheet in
accordance with recent accounting pronouncements. This
reclassification affected both the balance sheet in
fiscal 2006 and 2007 and cash flow statement in fiscal
2005, 2006, and 2007, it did not affect net income or
working capital in fiscal 2005, 2006, or 2007. In
accordance with Staff Accounting Bulletin ("SAB") No.
108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current
Year Financial Statements," no changes to financial
statements issued in prior years were deemed necessary.
In accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities,
temporary investments are accounted for as trading
securities. Trading securities are securities that are
bought and held principally for the purpose of selling
in the near term. The Company has not changed its
investment policy. The Company believes that
notwithstanding the reclassification, the investments
in ARS are: short term and highly liquid, readily
convertible to known amounts of cash, and present an
insignificant risk of change in value due to market
changes in interest rates.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies (Continued)
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 market value using a weighted average cost method.
The Company writes down its inventory for estimated
obsolescence. The inventory reserve was approximately
$122,000 and $306,000 at March 31, 2007 and 2006,
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. The furniture,
fixtures, equipment, and computer software are
depreciated over periods ranging from three to seven
years. Leasehold improvements and assets under capital
lease agreements are amortized over the shorter of the
underlying lease agreement or the useful life of the
asset.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount may not be recoverable. Recoverability
of assets is measured by a comparison of the carrying
amount of the asset to net future cash flows expected
to be generated from the asset.
Intangible Asset
The intangible asset consists of a toll-free telephone
number. In accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, the intangible asset is not
being amortized, and is subject to an annual review for
impairment.
Advertising
The Company's advertising expenses consists primarily
of television advertising, internet marketing, and
direct mail/print advertising. Television costs are
expensed as the advertisements are televised. Internet
costs are expensed in the month incurred and direct
mail/print advertising costs are expensed when the
related catalog and postcards are produced,
distributed, or superseded.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash
equivalents, temporary investments, accounts receivable,
and accounts payable approximate fair value due to the
short-term nature of these instruments.
Comprehensive Income
The Company applies SFAS No. 130, 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. There were no items of other comprehensive
income for any periods presented herein.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company accounts for income taxes under the
provisions of SFAS No. 109, Accounting for Income
Taxes, which generally requires recognition of deferred
tax assets and liabilities for the expected future tax
benefits or consequences of events that have been
included in the 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.
Accounting for Share Based Compensation
Stock Options
Effective April 1, 2006, the Company began recording
compensation expense associated with stock options in
accordance with SFAS No. 123R, "Share Based Payment,"
which is a revision of SFAS No. 123. Prior to April 1,
2006, the Company accounted for stock-based
compensation related to stock options under the
recognition and measurement principles of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." At that time the
Company measured compensation expense for its stock
option plans using the intrinsic value method, that is,
as the excess, if any, of the fair market value of the
Company's stock at the grant date over the amount
required to be paid to acquire the stock, and provided
the disclosures required by SFAS Nos. 123 and 148. The
Company has adopted the modified prospective transition
method provided under SFAS No. 123R, and as a result,
has not retroactively adjusted results from prior
periods. Under this transition method, compensation
expense associated with stock options recognized in the
first quarter of fiscal year 2007, and in subsequent
quarters, includes: 1) expense related to the remaining
unvested portion of all stock option awards granted
prior to April 1, 2006, based on the grant date fair
value estimated in accordance with the original
provisions of SFAS No. 123; and 2) expense related to
all stock option awards granted, or modified,
subsequent to April 1, 2006, based on the grant date
fair value estimated in accordance with the provisions
of SFAS No. 123R.
As a result of the adoption of SFAS No. 123R, the
Company's net income for the year ended March 31, 2007
includes $893,000 of compensation expense. The
compensation expense related to all of the Company's
stock-based compensation arrangements is recorded as a
component of general and administrative expenses.
For stock options granted prior to April 1, 2006, the
estimated fair value of each option award granted was
determined on the date of grant using the Black-Scholes
option valuation model. For stock option grants on and
after April 1, 2006, the estimated fair value of each
option award granted will be determined on the date of
grant using the Black-Scholes option-pricing model or a
lattice-based option valuation model. The per share
weighted-average fair value of stock options granted
during fiscal 2006 and 2005 was $3.51 and $5.45,
respectively, on the date of grant using the Black-
Scholes option-pricing model, as prescribed by SFAS No.
123, with the following weighted-average assumptions:
no dividend yield; risk-free interest rates ranging
from 4 to 6 percent; expected lives of 3-5 years, and
expected volatility of 66 percent and 86 percent,
respectively. The risk-free interest rates for fiscal
2006 and 2005 were based on the prime interest rate at
the date of grant. The expected volatility was based
on the historical volatility of the Company's stock.
No assumptions were necessary for fiscal 2007, due to
the fact that no stock options were granted during the
year.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies (Continued)
The following table illustrates the pro forma effect on
net income and earnings per common share as if the
Company has applied the fair value recognition
provisions of SFAS No. 123, as amended by SFAS No. 148,
and related interpretations in accounting for its stock
options in determining stock-based compensation for
awards under the plan:
Year Ended March 31, 2006 2005
-------------------- ------------- -------------
Reported net income: $ 12,063,514 $ 8,010,370
Deduct: total stock-based employee compensation
expense determined under fair-value based method
for all awards, net of related tax effects 596,434 501,244
------------- -------------
Pro forma net income: $ 11,467,080 $ 7,509,126
============= =============
Reported basic net income per share: $ 0.51 $ 0.35
============= =============
Pro forma basic net income per share: $ 0.48 $ 0.33
============= =============
Reported diluted net income per share: $ 0.50 $ 0.34
============= =============
Pro forma diluted net income per share: $ 0.48 $ 0.32
============= =============
Restricted Stock
On July 28, 2006, the Company received shareholder
approval for the adoption of the 2006 Employee Equity
Compensation Restricted Stock Plan (the "Employee
Plan") and the 2006 Outside Director Equity
Compensation Restricted Stock Plan (the "Director
Plan"). The purpose of the plans is to promote the
interests of the Company by securing and retaining both
employees and outside directors. The Company has
reserved 1,000,000 shares of common stock for issuance
under the Employee Plan. The Company has reserved
200,000 shares of common stock for issuance under the
Director Plan. The value of the restricted stock is
determined based on the market value of the common
stock at the issuance date. The restriction period or
forfeiture period is determined by the Company's Board,
to be no less than 1 year and no more than ten years.
The Company had 136,625 restricted common shares issued
under the Employee Plan and 20,000 restricted common
shares issued under the Director Plan at March 31,
2007, the fair value of which is being amortized over a
three-year period. For the year ended March 31, 2007
the Company recognized $203,000 of compensation expense
related to the Employee and Director Plans. The
compensation expense related to all of the Company's
stock-based compensation arrangements is recorded as a
component of general and administrative expenses. At
March 31, 2007, there was $1,668,000 of unrecognized
compensation cost related to the non-vested restricted
stock awards, which is expected to be recognized over
the remaining weighted average vesting period of 2.70
years.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes - an interpretation of
FASB Statement No. 109" ("FIN 48"), which provides
criteria for the recognition, measurement,
presentation, and disclosure of uncertain tax
positions. A tax benefit from an uncertain position
may be recognized only if it is "more likely than not"
that the position is sustainable based on its technical
merits. The provisions of FIN 48 were effective for
the Company's fiscal year beginning April 1, 2007. We
do not expect FIN 48 will have a material effect on our
consolidated financial position, results of operations
or cash flows.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies (Continued)
In June 2006, the FASB's Emerging Issues Task Force
("EITF") reached a consensus on Issue No. 06-3, "How
Taxes Collected from Customers and Remitted to
Governmental Authorities Should be Presented in the
Income Statement (That Is, Gross versus Net
Presentation)." The scope of EITF 06-3 includes sales,
use, value added, and some excise taxes that are
assessed by a governmental authority on specific
revenue-producing transactions between a seller and
customer. EITF 06-3 requires disclosure of the method
of accounting for the applicable assessed taxes and the
amount of assessed taxes that are included in revenues
if they are accounted for under the gross method. EITF
06-3 is effective for the Company's fiscal year
beginning April 1, 2007. EITF 06-3 will not impact the
method for recording these taxes in the Company's
consolidated financial statements as the Company
historically has presented sales excluding these taxes.
In September 2006, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin
("SAB") No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current
Year Financial Statements." SAB 108 provides guidance
on the consideration of effects of the prior year
misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. The SEC
staff believes registrants must quantify errors using
both a balance sheet and income statement approach and
evaluate whether either approach results in quantifying
a misstatement that, when all relevant quantitative and
qualitative factors are considered, is material. SAB
108 is effective for the first annual period ending
after November 15, 2006 with early application
encouraged. The Company adopted SAB 108 in fiscal 2007.
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.
(2) Temporary Investments
The following is a summary of trading securities:
March 31,
2007 2006
------------- -------------
Trading Securities $ 39,125,000 $ 22,850,000
------------- -------------
Total temporary investments $ 39,125,000 $ 22,850,000
============= =============
(3) Property and Equipment
Major classifications of property and equipment consist
of the following:
March 31,
2007 2006
----------- -----------
Leasehold improvements $ 428,768 $ 409,164
Computer software 945,356 427,447
Furniture, fixtures and equipment 2,942,461 2,456,695
----------- -----------
4,316,585 3,293,306
Less: accumulated depreciation and amortization (2,326,007) (1,795,717)
----------- -----------
Property and equipment, net $ 1,990,578 $ 1,497,589
=========== ===========
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Accrued Expenses and Other Liabilities
Major classifications of accrued expenses and other
liabilities consist of the following:
March 31,
2007 2006
----------- -----------
Accrued credit card fees $ 285,972 $ 232,022
Accrued salaries and benefits 266,002 170,846
Accrued professional expenses 212,500 300,500
Accrued advertising expenses 173,000 99,000
Other accrued liabilities 328,363 170,991
----------- -----------
Accrued expenses and other liabilities $ 1,265,837 $ 973,359
=========== ===========
(5) 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. As
of March 31, 2007 and 2006, 2,500 shares of the
convertible preferred stock remained unconverted and
outstanding.
(6) 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:
March 31,
2007 2006
----------- -----------
Deferred tax assets:
Bad debt and inventory reserves $ 57,779 $ 123,991
Accrued expenses 227,841 233,644
Deferred stock compensation 154,951 -
Net operating loss carryforward 1,065,092 1,139,232
----------- -----------
Deferred tax assets 1,505,663 1,496,867
Less: valuation allowance (551,340) (638,066)
----------- -----------
Total deferred tax assets 954,323 858,801
Deferred tax liabilities:
Depreciation (59,783) (64,799)
----------- -----------
Total net deferred taxes $ 894,540 $ 794,002
=========== ===========
The change in the valuation allowance for the years
ended March 31, 2007 and 2006 was approximately $87,000
and $79,000, respectively. At March 31, 2007, the
Company had net operating loss carryforwards of
approximately $2,761,093. The net operating loss
carryforwards expire in the years 2013 through 2020.
The use of such net operating loss carryforwards is
limited to approximately $266,000 annually due to a
change of control on November 22, 2000.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Income Taxes (Continued)
The components of the income tax provision consist of
the following:
Year Ended March 31,
2007 2006 2005
----------- ----------- -----------
Current taxes
Federal $ 7,594,848 $ 6,114,087 $ 3,911,564
State 1,262,937 1,046,607 682,971
----------- ----------- -----------
Total current taxes 8,857,785 7,160,694 4,594,535
----------- ----------- -----------
Deferred taxes
Federal (86,204) (161,388) (1,490)
State (14,334) (27,626) -
----------- ----------- -----------
Total deferred taxes (100,538) (189,014) (1,490)
----------- ----------- -----------
Total provision for income taxes $ 8,757,247 $ 6,971,680 $ 4,593,045
=========== =========== ===========
The reconciliation of income tax provision computed at
the U.S. federal statutory tax rates to income tax
expense is as follows:
Year Ended March 31,
2007 2006 2005
----------- ----------- -----------
Income taxes at U.S. statutory rates $ 8,120,262 $ 6,471,966 $ 4,285,161
State income taxes, net of federal tax benefit 829,427 690,978 457,504
Permanent differences (226,620) (186,470) 9,178
Other 120,904 74,689 (72,445)
Change in valuation allowance (86,726) (79,483) (86,353)
----------- ----------- -----------
Total provision for income taxes $ 8,757,247 $ 6,971,680 $ 4,593,045
=========== =========== ===========
(7) Stock Options and Warrants
Stock Options Granted to Employees
The Company established the 1998 Stock Option Plan (the
"Plan") effective July 31, 1998, which provides for the
issuance of qualified options to officers and key
employees, and nonqualified options to directors,
consultants and other service providers. The Company
has reserved 5,000,000 shares of common stock for
issuance under the Plan. The exercise prices of
options issued under the Plan must be equal to or
greater than the market price of the Company's common
stock as of the date of issuance. The Company had
665,768 and 851,170 options outstanding under the Plan
at March 31, 2007 and 2006, respectively. Options
generally vest ratably over a three-year period
commencing on the first anniversary of the grant with
respect to options granted to employees under the Plan.
The 1998 Plan expires on July 31, 2008. In addition
the Company issued options prior to July 31, 1998,
which are not included in the Plan.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Stock Options and Warrants (Continued)
A summary of the status of the Company's stock option
plan as of March 31, 2007 is as follows:
Weighted- Weighted-
Average Average
Exercise Remaining Aggregate
Number of Price per Contractural Intrinsic
Shares Share Term (years) Value
---------- -------- ------------ -------------
Options outstanding at March 31, 2006 851,170 $ 7.28
Options granted - -
Options exercised (185,402) 2.38
Options forfeited or expired - -
---------- -------- ------------ -------------
Options outstanding at March 31, 2007 665,768 $ 8.65 2.40 $ 5,758,430
========== ======== ============ =============
Options vested and exercisable at March 31, 2007 464,934 $ 9.25 1.92 $ 4,298,441
========== ======== ============ =============
Cash received from stock options exercised for fiscal
2007 and 2006 was $442,000 and $1,016,000,
respectively. The income tax benefit from stock
options exercised totaled $243,000 and $343,000 for the
years ended March 31, 2007 and 2006, respectively. At
March 31, 2007 and 2006, the number of options
exercisable was 464,934 and 390,834, respectively, and
the weighted-average exercise price of those options
was $9.25 and $6.67, respectively. Adjustments were
made for options forfeited prior to vesting.
A summary of the status of the Company's non-vested
shares as of March 31, 2007 is presented below:
Weighted- Weighted-
Average Average
Exercise Remaining
Number of Price per Contractural
Shares Share Term (years)
--------- ---------- -------------
Non-vested shares at March 31, 2006 460,336 $ 7.81
Options granted - -
Options vested (259,502) 8.22
Options forfeited or expired - -
--------- ---------- -------------
Non-vested shares at March 31, 2007 200,834 $ 7.27 3.52
========= ========== =============
As of March 31, 2007, there was $1,065,000 of
unrecognized compensation cost related to non-vested
stock option awards, which is expected to be recognized
over a remaining weighted average vesting period of
2.25 years.
Warrants
On November 22, 2000, Tricon Holdings, LLC, a Florida
limited liability corporation ("Tricon"), acquired
10,000,000 shares of the Company's authorized and
unissued shares of common stock and warrants to
purchase 3,000,000 shares of the Company's authorized
and unissued shares of common stock. The warrants were
exercisable at $.33 per share and were assigned a value
of $601,260 using the Black-Scholes option-pricing
model, with the following weighted-average assumptions:
dividend yield of 0.0 percent; risk-free interest rates
of 6.00 percent; expected lives of 3-5 years, and
expected volatility of 91 percent. As of March 31,
2005 all of the 3,000,000 warrants issued on November
22, 2000 were exercised.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Net Income Per Share
In accordance with the provisions of SFAS No. 128,
"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 stock options exercised and the effects of
the potential conversion of preferred shares,
calculated using the treasury stock method.
Outstanding stock options 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:
Year Ended March 31,
2007 2006 2005
------------- ------------- -------------
Net income (numerator):
Net income $ 14,443,502 $ 12,063,514 $ 8,010,370
============= ============= =============
Shares (denominator)
Weighted average number of common shares
outstanding used in basic computation 24,109,035 23,658,722 22,862,417
Common shares issuable upon exercise
of stock options and warrants 151,719 543,108 960,647
Common shares issuable upon conversion
of preferred shares 10,125 10,125 10,125
------------- ------------- -------------
Shares used in diluted computation 24,270,879 24,211,955 23,833,189
============= ============= =============
Net income per common share:
Basic $ 0.60 $ 0.51 $ 0.35
============= ============= =============
Diluted $ 0.60 $ 0.50 $ 0.34
============= ============= =============
At March 31, 2007 and 2006, all common stock options
were included in the diluted net income per common
share computation as their exercise prices were less
than the average market price of the common shares for
the period. At March 31, 2005, 485,500 common stock
options, with a weighted average exercise price of
$9.69, were excluded from the diluted net income per
share computation as their exercise prices were greater
than the average market price of the common shares for
the period, therefore the effect would have been anti-
dilutive.
(9) Valuation and Qualifying Accounts
Activity in the Company's valuation and qualifying
accounts consists of the following:
Year Ended March 31,
2007 2006 2005
----------- ----------- -----------
Allowance for doubtful accounts:
Balance at beginning of period $ 23,426 $ 36,535 $ 22,987
Provision (recovery) for doubtful accounts 29,554 (1,709) 16,092
Write-off of uncollectible accounts receivable (25,253) (11,400) (2,544)
----------- ----------- -----------
Balance at end of period $ 27,727 $ 23,426 $ 36,535
=========== =========== ===========
Valuation allowance for deferred tax assets:
Balance at beginning of period $ 638,066 $ 717,549 $ 803,902
(Deletions) / additions (86,726) (79,483) (86,353)
----------- ----------- -----------
Balance at end of period $ 551,340 $ 638,066 $ 717,549
=========== =========== ===========
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Commitments and Contingencies
Legal Matters
On January 19, 2006, PetMed Express, Inc. was added as
a defendant in the matter of Yali Golan v. Marc Puleo
(former President and Chairman of the Board of
Directors of the Company), filed in the Circuit Court
of the Eleventh Judicial Circuit in and for Miami-Dade
County, Florida. On March 6, 2006, the Company filed a
motion to dismiss all counts of the complaint against
the Company and on March 30, 2007, the United States
District Court for the Southern District of Florida
granted the Company's motion to dismiss in its
entirety.
The Company was a defendant in a multi-defendant
lawsuit, filed in August 2006 in the United States
District Court For The Eastern District of Texas,
Marshall Division, seeking injunctive and monetary
relief styled Ronald A. Katz Technology Licensing,
L.P., v. Aetna Inc. et al., Cause No. 206CV 335. The
lawsuit alleged that the Company was infringing on
certain telephone call manipulation technology-related
patents owned by the plaintiff. Without admitting any
liability or wrongdoing, and with no finding or
admission as to the merit or lack of merit of any claim
or defense asserted in connection with the litigation,
in January, 2007, the Company entered into a licensing
agreement for a confidential amount, and a Stipulation
of Dismissal with Prejudice was filed with the Court,
dismissing the lawsuit against the Company.
Routine Proceedings
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. 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. Legal costs related to the
above matters are expensed as incurred.
Employment Agreements
On March 16, 2001, the Company entered into an
Executive Employment Agreement with its Chief Executive
Officer ("CEO") and President, Menderes Akdag ("Mr.
Akdag"). Under the terms of this three-year agreement
the Company paid the CEO an annual salary of $150,000
for the first six months of the agreement, and
thereafter his annual salary was increased to $200,000.
The Company also granted the CEO options to purchase
750,000 shares of its common stock under the Company's
1998 Stock Option Plan at an exercise price of $.32 per
share, which vested at the rate of 187,500 options on
each of March 16, 2001, 2002, 2003 and 2004.
On March 16, 2004, the Company amended the CEO's
existing Executive Employment Agreement. The
amendments were as follows: the term of the agreement
was for three years, commencing on March 16, 2004; Mr.
Akdag's salary was increased to $250,000 per year
throughout the term of the agreement, and Mr. Akdag was
granted 250,000 incentive stock options under the
Company's 1998 Stock Option Plan at an exercise price
of $10.64 per share, which vested at the rate of 83,333
options on each of March 16, 2005 and 2006, and 83,334
options on March 16, 2007.
On February 27, 2007, the Company amended the CEO's
existing Executive Employment Agreement and entered
into Amendment No. 2 to the Executive Employment
Agreement ("Agreement") with Mr. Akdag. The Agreement
amended certain provisions of the Executive Employment
Agreement as follows: the term of the Agreement will be
for three years, commencing on March 16, 2007; Mr.
Akdag's salary will be increased to $450,000 per year
throughout the term of the Agreement, and Mr. Akdag
shall be granted 90,000 shares of restricted stock.
The restricted stock was granted on February 27, 2007,
in accordance with the Company's 2006 Employee Equity
Compensation Restricted Stock Plan and the restrictions
shall lapse ratably over a three-year period.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Commitments and Contingencies (Continued)
Operating Lease
The Company leases its 50,000 square foot executive
offices and warehouse facility under a non-cancelable
operating lease, through May 31, 2009. The Company is
responsible for certain maintenance costs, taxes and
insurance under this lease. The future minimum annual
lease payments are as follows:
Years Ending March 31,
2008 $ 500,000
2009 520,000
2010 87,000
------------
Total lease payments $ 1,107,000
============
Rent expense was $481,000, $435,000 and $383,000 for
the years ended March 31, 2007, 2006 and 2005,
respectively.
(11) Sales by Category
The following table provides a breakdown of the
percentage of our total sales by each category during
the indicated periods:
Year Ended March 31,
2007 2006 2005
------ ------ ------
Non-prescription medications 70% 70% 69%
Prescription medications 29% 29% 30%
Shipping and handling charges and other 1% 1% 1%
------ ------ ------
Total 100% 100% 100%
====== ====== ======
(12) Quarterly Financial Data (Unaudited)
Summarized unaudited quarterly financial data for
fiscal 2007 and 2006 is as follows:
Quarter Ended: June 30, 2006 September 30, 2006 December 31, 2006 March 31, 2007
------------------------------------------------------------------
Sales $ 50,673,353 $ 43,812,754 $ 31,352,277 $ 36,408,023
Gross Profit $ 20,124,325 $ 16,922,641 $ 12,788,877 $ 14,730,326
Income from operations $ 7,211,684 $ 4,800,446 $ 3,865,329 $ 5,622,566
Net income $ 4,750,258 $ 3,314,971 $ 2,754,234 $ 3,624,039
Diluted net income per common share $ 0.20 $ 0.14 $ 0.11 $ 0.15
Quarter Ended: June 30, 2005 September 30, 2005 December 31, 2005 March 31, 2006
------------------------------------------------------------------
Sales $ 43,631,758 $ 38,652,674 $ 25,890,095 $ 29,408,628
Gross Profit $ 16,858,586 $ 14,850,852 $ 10,276,380 $ 12,352,971
Income from operations $ 5,273,844 $ 3,987,598 $ 3,891,063 $ 4,992,739
Net income $ 3,541,586 $ 2,710,826 $ 2,672,092 $ 3,139,010
Diluted net income per common share $ 0.15 $ 0.11 $ 0.11 $ 0.13
38
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 2007 Proxy Statement.
Management assessed the effectiveness of the Company's
internal control over financial reporting as of March 31,
2007. 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. Based on our assessment,
management believes that the Company maintained effective
internal control over financial reporting as of March 31,
2007.
The Company's independent auditors, Goldstein Golub Kessler
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.
Goldstein Golub Kessler LLP have audited and reported on the
Consolidated Financial Statements of PetMed Express, Inc.
and subsidiaries, management's assessment of the
effectiveness of the Company's internal control over
financial reporting, and the effectiveness of the Company's
management's assessment of the effectiveness of our 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
Chief Executive Officer, President, Director
May 31, 2007
/s/ Bruce S. Rosenbloom
-----------------------
Bruce S. Rosenbloom
Chief Financial Officer
May 31, 2007
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders
PetMed Express, Inc.:
We have audited management's assessment, included in the
accompanying Management's Report on Internal Control over
Financial Reporting, that PetMed Express, Inc. maintained
effective internal control over financial reporting as of
March 31, 2007, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
PetMed Express, Inc.'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. Our
responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the
company's internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United
States). 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, evaluating management's assessment,
testing and evaluating the design and operating
effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for
our opinion.
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.
In our opinion, management's assessment that PetMed
Express, Inc. maintained effective internal control over
financial reporting as of March 31, 2007 is fairly stated,
in all material respects, based on criteria established
in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also in our opinion, PetMed Express, Inc.
maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2007, based
on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the March 31, 2007 consolidated financial
statements of PetMed Express, Inc. and our report dated May
31, 2007 expressed an unqualified opinion on those financial
statements.
/s/ Goldstein Golub Kessler LLP
-------------------------------
Goldstein Golub Kessler LLP
New York, New York
May 31, 2007
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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-14(c) promulgated under the Securities Exchange Act
of 1934, as amended) as of the year ended March 31, 2007,
the end of the period covered by this report (the
"Evaluation Date"). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are effective
for timely gathering, analyzing, and disclosing the
information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934, as amended.
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 Rules 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 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, our management concluded that the
Company maintained effective internal control over financial
reporting as of March 31, 2007. Our management's assessment
of the effectiveness of our internal control over financial
reporting as of March 31, 2007 has been audited by Goldstein
Golub Kessler LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
Changes in Internal Controls over Financial Reporting
There have been no significant changes made in our
internal controls over financial reporting or in other
factors that could significantly affect our internal
controls over financial reporting during our last fiscal
quarter identified in connection with the evaluation
referred to above.
ITEM 9B. OTHER INFORMATION
Not applicable.
41
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item will be set forth in
our Proxy Statement relating to our 2007 Annual Meeting of
Stockholders to be held on August 3, 2007, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in
our Proxy Statement relating to our 2007 Annual Meeting of
Stockholders to be held on August 3, 2007, 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 relating to our 2007 Annual
Meeting of Stockholders to be held on August 3, 2007, 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 relating to our 2007 Annual Meeting of
Stockholders to be held on August 3, 2007, and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in
our Proxy Statement relating to our 2007 Annual Meeting of
Stockholders to be held on August 3, 2007, and is
incorporated herein by reference.
42
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report on Form 10-K.
(1) Consolidated Financial Statements
The following exhibits are filed as part of this report on Form 10-K.
(3) Articles of Incorporation and By-Laws
3.1 Amended and Restated Articles of Incorporation (1)
3.2 By-Laws of the Corporation (1)
(4) Instruments Defining the Rights of Security Holders
4.1 Form of Warrant issued to Noble International Investments, Inc. (1)
4.2 Specimen common stock certificate (1)
(10) Material Contracts
10.1 1998 Stock Option Plan (1)
10.2 Employment Agreement with Menderes Akdag (incorporated by
reference to Exhibit 10 of the Registrant's Form 8-K on March 16,
2001, Commission File No. 000-28827).
10.3 Agreement for the Sale and Leaseback of the Land and
Building (incorporated by reference to Exhibit 99.1 of the
Registrant's Form 8-K on June 14, 2001, Commission File No. 000-
28827).
10.4 Amendment Number 1 to Executive Employment Agreement with
Menderes Akdag (incorporated by reference to Exhibit 99.1 of the
Registrant's Form 8-K on March 16, 2004, Commission File No. 000-
28827).
10.5 Termination of Marc Puleo's Executive Employment Agreement
(incorporated by reference to Exhibit 10.13 of the Registrant's
Form 8-K on August 1, 2005, Commission File No. 000-28827).
10.6 Amendment Number 2 to Executive Employment Agreement with
Menderes Akdag (incorporated by reference to Exhibit 99.1 of the
Registrant's Form 8-K on March 16, 2007, Commission File No. 000-
28827).
10.7 2006 Employee Equity Compensation Restricted Stock Plan
(incorporated by reference in our definitive Proxy Statement for
our 2006 Annual Meeting of Stockholders held on July 28, 2006).
10.8 2006 Outside Director Equity Compensation Restricted Stock
Plan (incorporated by reference in our definitive Proxy Statement
for our 2006 Annual Meeting of Stockholders held on July 28,
2006).
(14) Corporate Code of Ethics
14.1 Corporate Code of Ethics (incorporated by reference in our
definitive Proxy Statement for our 2004 Annual Meeting of
Stockholders held on August 6, 2004).
(21) Subsidiaries of Registrant
21.1 Subsidiaries of Registrant (filed herewith).
43
(31) Certifications
31.1 Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, promulgated under the
Securities Exchange Act of 1934, as amended (filed herewith to
Exhibit 31.1 of the Registrant's Report on Form 10-K for the year
ended March 31, 2007, Commission File No. 000-28827).
31.2 Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, promulgated under the
Securities Exchange Act of 1934, as amended (filed herewith to
Exhibit 31.2 of the Registrant's Report on Form 10-K for the year
ended March 31, 2007, Commission File No. 000-28827).
(32) Certifications
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith to Exhibit 32.1 of the Registrant's Report on
Form 10-K for the year ended March 31, 2007, Commission
File No. 000-28827).
(1) Incorporated by reference to the Registration Statement on
Form 10-SB, File No. 000-28827, as amended, as filed with the
Securities and Exchange Commission.
44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: June 1, 2007
PETMED EXPRESS, INC.
(the "Registrant")
By: /s/ Menderes Akdag
--------------------------
Menderes Akdag
Chief Executive Officer and President
(principal executive officer)
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on June 1, 2007.
SIGNATURE TITLE
/s/ Menderes Akdag Chief Executive Officer and President
-------------------------- (principal executive officer)
Menderes Akdag Officer and Director
/s/ Robert C. Schweitzer Chairman of the Board
--------------------------
Robert C. Schweitzer Director
/s/ Bruce S. Rosenbloom Chief Financial Officer and Treasurer
-------------------------- (principal financial and accounting officer)
Bruce S. Rosenbloom Officer
/s/ Ronald J. Korn Director
--------------------------
Ronald J. Korn
/s/ Gian M. Fulgoni Director
--------------------------
Gian M. Fulgoni
/s/ Frank J. Formica Director
--------------------------
Frank J. Formica
45