pets20200331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2020

☐ 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.)

420 South Congress Avenue, Delray Beach, Florida 33445
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (561) 526-4444
Securities registered under Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock,	PETS	The NASDAQ Stock Market LLC
$.001 Par value per share		(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 ☒

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 ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of September 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $349.1 million based on the closing sales price of the registrant’s Common Stock on that date, as reported on the NASDAQ Global Select Market.

The number of shares of the registrant’s Common Stock outstanding as of May 26, 2020 was 20,166,382.

DOCUMENTS INCORPORATED BY REFERENCE

Information to be set forth in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders to be held on July 31, 2020 is incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III of this report.

Certain information in this Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the words "believes," "intends," "expects," "may," "will," "should," "plan," "projects," "contemplates," "intends," "budgets," "predicts," "estimates," "anticipates," or similar expressions. These statements are based on our beliefs, as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. A reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K. When used in this Annual Report on Form 10-K, "PetMed Express," "1-800-PetMeds," “PetMeds,” "PetMed," “PetMeds.com,” "PetMed Express.com," "the Company," "we," "our," and "us" refer to PetMed Express, Inc. and our wholly-owned subsidiaries.

PetMed Express, Inc. and subsidiaries, d/b/a 1-800-PetMeds, is a leading nationwide pet pharmacy. The Company markets prescription and non-prescription pet medications, and other health products for dogs, cats, and horses direct to the consumer. The Company offers consumers an attractive alternative for obtaining pet medications in terms of convenience, price, and speed of delivery.

The Company markets its products through national advertising campaigns, which aim to increase the recognition of the “1-800-PetMeds” brand name, and “PetMeds” family of trademarks, increase traffic on its website at www.1800petmeds.com, acquire new customers, and maximize repeat purchases. Our fiscal year end is March 31, our executive offices are currently located at 420 South Congress Avenue, Delray Beach, Florida 33445, and our telephone number is (561) 526-4444.

We offer a broad selection of products for dogs, cats, and horses. Our current product line contains approximately 2,500 SKUs of the most popular pet medications, health products, and supplies. These products include a majority of the well-known brands of pet medications. Generally, our prices are competitive with the prices for medications charged by veterinarians, online retailers and other retailers. We also offer for sale additional pet supplies on our website, which are drop shipped to our customers by third parties. These pet supplies include: food, beds, crates, stairs, strollers, and other popular pet supplies. We research new products, and regularly select new products or the latest generation of existing products to become part of our product selection. In addition, we also refine our current products to respond to changing consumer-purchasing habits. Our website is designed to give us the flexibility to change featured products or promotions. Our product line provides customers with a wide variety of selections across the most popular health categories for dogs, cats, and horses. Our current products include:

Non-Prescription Medications (OTC) and supplies: Flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and supplies.

Prescription Medications (Rx): Heartworm and flea and tick preventatives, arthritis, dermatitis, thyroid, diabetes, pain medications, heart/blood pressure, and other specialty medications, as well as generic substitutes.

We offer our products through three main sales channels: Internet through our website, telephone contact center through our toll-free number, and direct mail/print through brochures and postcards. We have designed our website to provide a convenient, cost-effective, and informative shopping experience that encourages consumers to purchase products important for a pet’s health and quality of life. We believe that these multiple channels allow us to increase the visibility of our brand name and provide our customers with increased shopping flexibility and excellent service.

We seek to combine our product selection and pet health information with the shopping ease of the Internet to deliver a convenient and personalized shopping experience. Our website offers health and nutritional product selections for dogs, cats, and horses, and relevant editorial and easily obtainable or retrievable resource information. Customers can search our website for products and access resources on a variety of information on dogs, cats, and horses. Customers can shop at our website by category, product line, individual product, or symptom. We attracted approximately 30 million visits to our website during fiscal 2020, approximately 9% of those visits resulted in an order, and our website generated approximately 84% of our total sales for the same time period. On our website pet owners have access to health information covering pets’ behavior and illnesses, and natural and pharmaceutical remedies specifically for a pet’s problem. The pet education content on our main website is periodically updated with the latest research for pet owners. As part of our multichannel strategy, we also offer mobile versions of our website (www.1800petmeds.com) and an application for mobile phones, tablets, and other devices. In February 2017, we released our mobile application, which offers customers a more streamlined shopping experience. Mobile application features include: “ask-the-vet”; live web chat; easy refill medication reminders; local veterinarian finder; and express checkout to provide our customers with fast, easy, and helpful service from their mobile devices.

Our customer care representatives receive and process inbound and outbound customer calls, facilitate our live web chat, and process customer e-mails. Our telephone system is equipped with certain features including pop-up screens and call blending capabilities that give us the ability to efficiently utilize our customer care representatives’ time, providing excellent customer care, service, and support. Our customer care representatives receive a base salary and are rewarded with commissions for sales, and bonuses and other awards for achieving certain quality goals.

We mail brochures and postcards in response to requests generated from our advertising and as part of direct mail campaigns to our customers.

Approximately 2.3 million customers have purchased from us within the last two years. We attracted approximately 421,000 and 467,000 new customers in fiscal 2020 and 2019, respectively. Our customers are located throughout the United States, with approximately 50% of customers residing in California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia. Our primary focus has been on retail customers and the average purchase was approximately $87 for both fiscal 2020 and fiscal 2019.

The goal of our marketing strategy is to build brand recognition, increase customer traffic, add new customers, build strong customer loyalty, maximize reorders, and develop incremental revenue opportunities. We have an integrated marketing campaign that includes online marketing, television advertising, and direct mail/print and e-mail.

We advertise and market our products primarily online. We make our brand available to Internet consumers by purchasing targeted keywords and achieving prominent placement on the top search engines and search engine networks. We utilize Internet display and video advertisements, social media, and comparison shopping, and we are also members of an affiliate program with merchant clients and affiliate websites.

Our television advertising is designed to build brand equity, create brand awareness, and generate initial purchases of products via the telephone and the Internet. Our television commercials typically focus on our ability to rapidly deliver to customers the same medications offered by veterinarians, but at reduced prices. We generally purchase advertising on national cable channels to target our key demographic group – women, ages 30 to 65. We believe that television advertising is particularly effective and instrumental in building brand awareness. Our most current television commercial, airing nationally, speaks to pet owners about the savings and convenience of purchasing the same exact pet medications from 1-800-PetMeds.

We use direct mail/print and e-mail to acquire new customers and to remind our existing customers to reorder.

Our website allows customers to easily browse and purchase all of our products online. Our website is designed to be fast, secure, and easy to use with order and shipping confirmations, and with online order tracking capabilities. We provide our customers with toll-free telephone access to our customer care representatives. Our call center generally operates from 7:00 AM to 11:00 PM, Monday through Thursday, 7:00 AM to 9:00 PM on Friday, 9:00 AM to 6:00 PM on Saturday, and 9:00 AM to 5:00 PM on Sunday, Eastern Time. The process of customers purchasing products from 1-800-PetMeds consists of a few simple steps. A customer first places an order online or by calling our toll-free telephone number. The following information is needed to process prescription orders: pet information, prescription information, and the veterinarian’s name and phone number. This information is entered into our computer system. Then our pharmacists and pharmacy technicians verify all prescriptions. The order process system checks for the verification for prescription medication orders and a valid payment method for all orders. Verified orders are then sent to our fulfillment center, where items are picked, and then shipped via the United States Postal Service and Federal Express. Our customers enjoy the convenience of rapid home delivery, with the majority of all orders being shipped within 24 hours of ordering.

We believe that a high level of customer care and support is critical in retaining and expanding our customer base. Customer care representatives participate in ongoing training programs under the supervision of our training managers. These training sessions include a variety of topics such as product knowledge, computer usage, customer service tips, and the relationship between our Company and veterinarians. Our customer care representatives respond to customers’ e-mails, calls, and live web chats that are related to products, order status, prices, and shipping. We believe our customer care representatives are a valuable source of feedback regarding customer satisfaction.

We inventory our products and fill most customer orders from our corporate headquarters in Delray Beach, Florida. We have an in-house fulfillment and distribution operation, which is used to manage the entire supply chain, beginning with the placement of the order, continuing through order processing, and then fulfilling and shipping of the product to the customer. We offer a variety of shipping options, including next day delivery. We ship to anywhere in the United States served by the United States Postal Service or Federal Express. Priority orders are expedited in our fulfillment process. Our goal is to ship the products the same day that the order is received. For prescription medications, our goal is to ship the product immediately after the prescription has been authorized by the customer’s veterinarian.

We purchase our products from a variety of sources, including certain manufacturers, domestic distributors, and wholesalers. There were three suppliers from whom we purchased approximately 60% of all products in fiscal 2020. We believe having strong relationships with product manufacturers and distributors will ensure the availability of an adequate volume of products ordered by our customers. In the past some of the major manufacturers of prescription and non-prescription medications have declined to sell these products to direct marketing companies, such as our company. Part of our growth strategy included developing direct relationships with all of the leading pharmaceutical manufacturers of the more popular prescription and non-prescription medications. We now have direct relationships with all major manufacturers.

We utilize integrated technologies in our call centers, e-commerce, order entry, and inventory control/fulfillment operations. Our systems are custom configured by us to optimize our computer telephone integration and mail-order processing. The systems are designed to maintain a large database of specialized information and process a large volume of orders efficiently and effectively. Our systems provide our customer care representatives, and our customers on our website, including on our mobile application, with real time product availability information and updated customer information to enhance our customer care. We also have an integrated direct connection for processing credit cards to ensure that a valid credit card number and authorization have been received at the same time our customer care representatives are on the telephone with the customer or when a customer submits an order on our website. Our information systems provide our customer care representatives with records of all prior contact with a customer, including the customer’s address, telephone number, e-mail address, prescription information, order history, payment history, and notes.

The pet medications market is competitive and highly fragmented. Our competitors consist of veterinarians, and online and traditional retailers. We believe that the following are the principal competitive factors in our market:

We compete with veterinarians, and online and traditional retailers for the sale of prescription and non-prescription pet medications and other health products. Many pet owners may prefer the convenience of purchasing their pet medications or other health products at the time of a veterinarian visit. In order to effectively compete with veterinarians, we must continue to educate pet owners about the service, convenience, and savings offered by our Company.

According to the American Pet Products Association, pet spending in the United States increased 5.7% to $95.7 billion in 2019. Veterinary care and Rx medications represented $29.3 billion, or 31% of the total spending on pets in the United States. The pet medication market that we participate in is estimated to be approximately $5.5 billion, with veterinarians having the majority of the market share. The dog and cat population is approximately 184 million, with approximately 67% of all households having a pet.

We believe that the following are the main competitive strengths that differentiate 1-800-PetMeds from the competition:

We conduct our business under the trade name “1-800-PetMeds” and use a family of trade names all containing the term “PetMeds” or “PetMed” in some form. We believe the “1-800-PetMeds” trade name, which is also our toll-free telephone number, and the “PetMeds” family of trademarks, have added significant value and are important factors in the marketing of our products. We have also obtained the right to use and control the Internet addresses www.1800petmeds.com, www.1888petmeds.com, www.petmedexpress.com, www.petmed.com, and www.petmeds.com.

We also obtained the right to use and control the Internet addresses www.petmeds.pharmacy, www.petmed.pharmacy, and www.1800petmeds.pharmacy, through a National Association of Boards of Pharmacy® initiative to ensure high standards for online pharmacies. We do not expect to lose the ability to use the Internet addresses; however, there can be no assurance in this regard and the loss of these addresses may have a material adverse effect on our financial position and results of operations. We are the exclusive owners of United States Trademark Registrations for “America’s Largest Pet Pharmacy®,” “America’s Most Trusted Pet Pharmacy®,” “Trusted Pet Medication Experts®,” “PetMed Express and Design®,” “1888PetMeds and Design®,” “1-800-PetMeds and Design®,” 1-800-PetMeds®,” and “PetMeds®,” among numerous others.

Dispensing prescription medications is governed at the state level by Boards of Pharmacy, or similar regulatory agencies, of each state where prescription medications are dispensed. We are subject to regulation by the State of Florida and are licensed as a community pharmacy by the Florida Board of Pharmacy. Our current license is valid until February 28, 2021, and prior to that date a renewal application will be submitted to the Board of Pharmacy. During fiscal 2015 we obtained a federal registration, and state registrations/permits as required, to dispense Schedule IV controlled substances. We also updated our federal registration and state registrations/permits as required to include the ability to dispense Schedule V controlled substances. Our pharmacy practice is also licensed and/or regulated by 49 other state pharmacy boards, the District of Columbia Board of Pharmacy, and the United States Drug Enforcement Administration, and with respect to our products, by other regulatory authorities including, but not necessarily limited to, the United States Food and Drug Administration (“FDA”) and the United States Environmental Protection Agency. As a licensed pharmacy in the State of Florida, we are subject to the Florida Pharmacy Act and regulations promulgated thereunder. To the extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy, or if we do not maintain the licenses granted by other state pharmacy boards, or if we become subject to actions by the FDA, or other enforcement regulators, our distribution of prescription medications to pet owners could cease, which could have a material adverse effect on our financial condition and results of operations.

We currently have 214 full time employees, including: 116 in customer care and marketing; 30 in fulfillment and purchasing; 54 in our pharmacy; 6 in information technology; 3 in administrative positions; and 5 in management. None of our employees are represented by a labor union, or governed by any collective bargaining agreements. We consider relations with our employees to be satisfactory.

We file annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange Commission ("SEC"). Our SEC filings, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the Exchange Act are available free of charge over the Internet on our website at www.1800petmeds.com or at the SEC's web site at www.sec.gov. Our SEC filings will be available through our website as soon as reasonably practicable after we have electronically filed or furnished them to the SEC. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.

You should carefully consider the risks and uncertainties described below, and all the other information included in this Annual Report on Form 10-K before you decide to invest in our common stock. Any of the following risks could materially adversely affect our business, financial condition, or operating results and could result in a loss of your investment.

We may inadvertently fail to comply with various state or federal regulations covering the dispensing of prescription pet medications which may subject us to reprimands, sanctions, probations, fines, suspensions, or the loss of one or more of our pharmacy licenses.

The sale and delivery of prescription pet medications is generally governed by state laws and state regulations, and with respect to controlled substances, also by federal law. Since our pharmacy is located in the State of Florida, the Company is governed by the laws and regulations of the State of Florida. Each prescription pet medication sale we make is likely also to be covered by the laws of the state where the customer is located. The laws and regulations relating to the sale and delivery of prescription pet medications vary from state to state, but generally require that prescription pet medications be dispensed with the authorization from a prescribing veterinarian. To the extent that we are unable to maintain our license as a community pharmacy with the Florida Board of Pharmacy, or if we do not maintain the licenses granted by other state boards, or if we become subject to actions by the FDA, or other enforcement regulators, our dispensing of prescription medications to pet owners could cease, which could have a material adverse effect on our operations.

The Company is a party to routine litigation and administrative complaints incidental to its business. Management does not believe that the resolution of any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Company’s financial condition or results of operations. While we make every effort to fully comply with all applicable state rules, laws, and regulations, from time to time we have been the subject of administrative complaints regarding the authorization of prescriptions prior to shipment. We cannot assure you that we will not be the subject of administrative complaints in the future. We cannot guarantee you that we will not be subject to reprimands, sanctions, probations, or fines, or that one or more of our pharmacy licenses will not be suspended or revoked. If we were unable to maintain our license as a community pharmacy in the State of Florida, or if we are not granted licensure in a state that begins to require licensure, or if one or more of the licenses granted by other state boards should be suspended or revoked, our ability to continue to sell prescription medications and to continue our business as it is presently conducted could be in jeopardy.

Our failure to properly manage our inventory may result in excessive inventory carrying costs, or inadequate supply of products, which could materially adversely affect our financial condition and results of operations.

Our current product line contains approximately 2,500 SKUs. A significant portion of our sales is attributable to products representing approximately 100 SKUs, including the most popular flea and tick, and heartworm preventative brands. We need to properly manage our inventory to provide an adequate supply of these products and avoid excessive inventory of the products representing the balance of the SKUs. We generally place orders for products with our suppliers based upon our internal estimates of the amounts of inventory we will need to fill future orders. These estimates may be significantly different from the actual orders we receive.

In the event that subsequent orders fall short of original estimates, we may be left with excess inventory. Significant excess inventory could result in price discounts and increased inventory carrying costs. Similarly, if we fail to have an adequate supply of some SKUs, we may lose sales opportunities. We cannot guarantee that we will maintain appropriate inventory levels. Any failure on our part to maintain appropriate inventory levels may have a material adverse effect on our financial condition and results of operations.

Resistance from veterinarians to authorize prescriptions, or attempts/efforts on their part to discourage pet owners from purchasing from internet mail-order pharmacies could cause our sales to decrease and could materially adversely affect our financial condition and results of operations.

Since we began our operations some veterinarians have resisted providing our customers with a copy of their pet’s prescription or authorizing the prescription to our pharmacy staff, thereby effectively preventing us from filling such prescriptions under state law. We have also been informed by customers and consumers that veterinarians have tried to discourage pet owners from purchasing from internet mail-order pharmacies.

Although veterinarians in some states are required by law to provide a pet owner with a prescription if medically appropriate, if the number of veterinarians who refuse to authorize prescriptions should increase, or if veterinarians are successful in discouraging pet owners from purchasing from internet mail-order pharmacies, our sales could decrease and our financial condition and results of operations may be materially adversely affected.

Significant portions of our sales are made to residents of eight states. If we should lose our pharmacy license in one or more of these states, our financial condition and results of operations would be materially adversely affected.

While we ship pet medications to customers in all 50 states, approximately 50% of our sales for the fiscal year ended March 31, 2020 were made to customers located in the states of California, Florida, Texas, New York, Pennsylvania, North Carolina, Georgia, and Virginia. If for any reason our license to operate a pharmacy in one or more of those states should be suspended or revoked, or if it is not renewed, our ability to sell prescription medications to residents of those states would cease and our financial condition and results of operations in future periods would be materially adversely affected.

We face significant competition from veterinarians and online and traditional retailers and may not be able to compete profitably with them.

We compete directly and indirectly with veterinarians for the sale of pet medications and other health products. Veterinarians hold a competitive advantage over us because many pet owners may find it more convenient or preferable to purchase these products directly from their veterinarians at the time of an office visit. We also compete directly and indirectly with both online and traditional retailers. Both online and traditional retailers may hold a competitive advantage over us because of longer operating histories, established brand names, greater resources, and/or an established customer base. Online retailers may have a competitive advantage over us because of established affiliate relationships to drive traffic to their website. Traditional retailers may hold a competitive advantage over us because pet owners may prefer to purchase these products from a store instead of online or through catalog or telephone methods. In addition, we face growing competition from online and multichannel retailers, some of whom may have a lower cost structure than ours, as customers now routinely use computers, tablets, smartphones, and other mobile devices and mobile applications to shop online and compare prices and products in real time. In order to effectively compete in the future, we may be required to offer promotions and other incentives, which may result in lower operating margins and adversely affect the results of operations. We also face a significant challenge from our competitors forming alliances with each other, such as those between online and traditional retailers. These relationships may enable both their online and retail stores to negotiate better pricing and better terms from suppliers by aggregating the demand for products and negotiating volume discounts, which could be a competitive disadvantage to us.

We now have direct buying relationships with all of the major pet medication manufacturers; the contractual relationship depends on our compliance with their minimum advertised pricing policies (MAPP).

During fiscal 2020, the Company established direct purchasing relationships with all of the major pet medication manufacturers. These relationships entitle the Company to buy directly from the manufacturer under the terms and conditions of a purchasing agreement which dictates purchase pricing of inventory and criteria to obtain additional discounts and rebates. The terms of these agreements also require the Company to comply with the manufacturers’ MAPP. Each advertisement and/or promotion of a product below the MAPP price will be a violation of the policy. This policy applies to all advertisements of products in all media including, without limitation, flyers, posters, coupons, mailers, inserts, newspapers, magazines, on-line catalogs, mail order catalogs, public signage and all Internet or similar electronic media, television, radio and public signage. on-line catalogs, mail order catalogs, television, radio, public signage, flyers, posters, coupons, mailers, inserts, newspapers, magazines, and all internet or similar electronic media, including websites, email newsletters, forums, and auction sites.

At the discretion of the manufacturers, non-compliance with the MAPP can result in one or more of the following actions: (1) forfeiture of future rebates or discounts from the manufacturer, (2) suspension of future purchases from the manufacturer, (3) or termination of current or future business relationship. The Company has and will make every attempt to abide by the manufacturers MAPP. However, no assurances can be made that the Company will not violate MAPP inadvertently. A reduction or discontinuance of these rebates or discounts would increase our costs and could reduce our profitability. If any of these major pet medication manufacturers were to terminate our purchasing relationship it could materially adversely affect our business. If the manufacturers are not able to enforce their MAPP industry-wide, then our profit margins and results of operations may also be impacted negatively.

During fiscal 2020, the Company established direct purchasing relationships with all of the major pet medication manufacturers. We purchase significant quantities of pet medication products, with the majority from these major manufacturers. We do maintain annual purchasing contracts with these major manufacturers. While we believe that our vendor relationships are good, a vendor could discontinue selling to us at any time. The loss of any of our key vendors of pet medications offered by us would have a negative impact on our business, financial condition and results of operations.

The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.

Because we post product and pet health information and other content on our website, we face potential liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or other claims based on the nature and content of the materials we post. Various claims have been brought, and sometimes successfully prosecuted, against Internet content distributors. We could be exposed to liability with respect to the unauthorized duplication of content or unauthorized use of other parties’ proprietary technology. Although we maintain general liability insurance, our insurance may not cover potential claims of this type, or may not be adequate to indemnify us for all liability that may be imposed. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely affect our financial condition and results of operations.

We may not be able to protect our intellectual property rights, and/or we may be found to infringe on the proprietary rights of others.

We rely on a combination of trademarks, trade secrets, copyright laws, and contractual restrictions to protect our intellectual property rights. These afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our non-prescription private label or generic equivalents, when and if developed, as well as aspects of our sales formats, or to obtain and use information that we regard as proprietary, including the technology used to operate our website and our content, and our trademarks. Litigation or proceedings before the United States Patent and Trademark Office or other bodies may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and domain names, or to determine the validity and scope of the proprietary rights of others. Any litigation or adverse proceeding could result in substantial costs and diversion of resources, and could seriously harm our business and operating results. Third parties may also claim infringement by us with respect to past, current, or future technologies. We expect that participants in our market will be increasingly involved in infringement claims as the number of services and competitors in our industry segment grows. Any claim, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays, or require us to enter into royalty or licensing agreements. These royalty or licensing agreements might not be available on terms acceptable to us or at all.

If we are unable to protect our Internet addresses or to prevent others from using Internet addresses that are confusingly similar, our business may be adversely impacted.

Our Internet addresses, www.1800petmeds.com, www.1888petmeds.com, www.petmedexpress.com, www.petmed.com, www.petmeds.com, www.petmeds.pharmacy, www.petmed.pharmacy, and www.1800petmeds.pharmacy, are critical to our brand recognition and our overall success. If we are unable to protect these Internet addresses, our competitors could capitalize on our brand recognition. There may be similar Internet addresses used by competitors. Governmental agencies and their designees generally regulate the acquisition and maintenance of Internet addresses. The regulation of Internet addresses in the United States and in foreign countries has changed, and may undergo further change in the near future. Furthermore, the relationship between regulations governing Internet addresses and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may not be able to protect our own Internet addresses, or prevent third parties from acquiring Internet addresses that are confusingly similar to, infringe upon, or otherwise decrease the value of our Internet addresses.

Since all of our operations are housed in a single location, we are more susceptible to business interruption in the event of damage to, or disruptions in, our facility.

Our headquarters and distribution center are currently located in one location in South Florida, and most of our shipments of products to our customers are made from this sole distribution center. We have no present plans to establish any additional distribution centers or offices. Because we consolidate our operations in one location, we are more susceptible to power and equipment failures, and business interruptions in the event of fires, floods, and other natural disasters than if we had additional locations. Furthermore, because we are located in South Florida, which is a hurricane-sensitive area, we are particularly susceptible to the risk of damage to, or total destruction of, our headquarters and distribution center and surrounding transportation infrastructure caused by a hurricane. We cannot assure you that we are adequately insured to cover the amount of any losses relating to any of these potential events, business interruptions resulting from damage to or destruction of our headquarters and distribution center, or power and equipment failures relating to our call center or websites, or interruptions or disruptions to major transportation infrastructure, or other events that do not occur on our premises. The occurrence of one or more of these events could adversely impact our ability to generate revenues in future periods.

A failure of our information systems and customer-facing technology systems or any security breach or unauthorized disclosure of confidential information, or other cyber-attacks on our systems, could result in litigation and regulatory risk, harm our reputation and have a material adverse effect on our business.

Our business is dependent upon the efficient operation of our information systems. In particular, we rely on our information systems to effectively manage our business model strategy, with tools to track and manage sales, inventory, marketing, customer service efforts, the preparation of our consolidated financial and operating data, credit card information, and customer information. The failure of our information systems to perform as designed or the failure to maintain and enhance or protect the integrity of these systems could disrupt our business operations, adversely impact sales and the results of operations, expose us to customer or third-party claims, or result in adverse publicity.

Through our information technology, we are able to provide an improved overall shopping and interconnected retail experience that empowers our customers to shop and interact with us from computers, tablets, smartphones and other mobile devices. We use our website and our mobile application both as sales channels for our products and also as methods of providing product and other relevant information to our customers to drive online sales. Our online programs, communities and knowledge center allow us to inform, assist and interact with our customers. We also continually seek to enhance all of our online properties to provide an attractive user-friendly interface for our customers. Disruptions, failures or other performance issues with these customer-facing technology systems could impair the benefits that they provide to our online business and negatively affect our relationship with our customers.

Additionally, we collect, process, and retain sensitive and confidential customer information in the normal course of our business. Despite the security measures we have in place and any additional measures we may implement in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential information, whether by us directly or our third-party service providers, could damage our reputation, expose us to the risks of litigation and liability, disrupt our business, or otherwise affect our results of operations.

Our operating results are difficult to predict and may fluctuate, and a portion of our sales are seasonal.

Because our operating results are difficult to predict, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. The majority of our product sales are affected by the seasons, due to the seasonality of mainly flea, tick, and heartworm medications. For the quarters ended June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020, Company sales were 28%, 25%, 21%, and 26%, respectively. In addition to the seasonality of our sales, our annual and quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, including weather, many of which are out of our control. Any change in one or more of these factors could materially adversely affect our financial condition and results of operations in future periods.

We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business.

We accept payments using a variety of methods, including credit and debit cards, PayPal, and checks, and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements may change over time or be reinterpreted, making compliance more difficult or costly. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs.

We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could potentially disrupt our business. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. As a result, our business and operating results could be adversely affected.

The recent outbreak of the COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time.

The outbreak of COVID-19 has been declared a pandemic by the World Health Organization and continues to spread in the United States, Canada, and in many other countries globally. Related government and private sector responsive actions may adversely affect our business operations. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic, as the situation is rapidly evolving. The COVID-19 pandemic may disrupt the global supply chain and may cause disruptions to our operations if a significant number of employees are quarantined or if they are otherwise limited in their ability to work at our fulfillment center. Additional federal or state mandates could also impact our ability to take or fulfill our customers’ orders and operate our business.

As an essential business, we have been open during our normal business hours without any material disruptions to our operations. We are dedicated to making every effort to ensure the health and safety of our employees. We have implemented working from home where possible and enhanced disinfection and social distancing within our work place. Many of our personnel are working remotely and it is possible that this could have a negative impact on the execution of our business plans and operations.

If a natural disaster, power outage, connectivity issue, or other event occurs that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in consumer privacy, IT security and fraud concerns as well as operational inefficiencies.

The operations of our fulfillment center may be substantially disrupted by additional federal or state mandates ordering shutdowns or by the inability of our employees to travel to work due to COVID-19. The inability to ship from our fulfillment center due to a COVID-19 outbreak, disruptions to the operations of our fulfillment center, or increased costs in fulfillment center capacity may negatively impact our financial performance or slow our future growth.

The uncertainty around the duration of business disruptions and the extent of the spread of the virus in the United States and to other areas of the world will likely continue to adversely impact the national or global economy and negatively impact consumer spending. Any of these outcomes could have a material adverse impact on our business, financial condition, operating results and ability to execute and capitalize on our strategies. The full extent of COVID-19’s impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets and any new information that may emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, among others.

Our stock price fluctuates from time to time and may fall below expectations of securities analysts and investors, and could subject us to litigation, which may result in you suffering a loss on your investment.

The market price of our common stock may fluctuate significantly in response to a number of factors, many of which are out of our control. These factors include: quarterly variations in operating results; changes in accounting treatments or principles; announcements by us or our competitors of new products and services offerings; significant contracts, acquisitions, or strategic relationships; additions or departures of key personnel; any future sales of our common stock or other securities; stock market price and volume fluctuations of publicly-traded companies; and general political, economic, and market conditions. In some future quarter our operating results may fall below the expectations of securities analysts and investors, which could result in a decrease in the trading price of our common stock. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources, which could seriously harm our business and operating results.

We may issue additional shares of preferred stock that could defer a change of control or dilute the interests of our common stockholders. Our charter documents could defer a takeover effort which could inhibit your ability to receive an acquisition premium for your shares.

Our charter permits our Board of Directors to issue up to 5.0 million shares of preferred stock without stockholder approval. Currently there are 2,500 shares of our Convertible Preferred Stock issued and outstanding. This leaves slightly less than 5.0 million shares of preferred stock available for issuance at the discretion of our Board of Directors. These shares, if issued, could contain dividend, liquidation, conversion, voting, or other rights which could adversely affect the rights of our common stockholders and which could also be utilized, under some circumstances, as a method of discouraging, delaying, or preventing a change in control. Provisions of our articles of incorporation, bylaws and Florida law could make it more difficult for a third party to acquire us, even if many of our stockholders believe it is in their best interest.

Our facilities, including our principal executive offices and distribution center, are located at 420 South Congress Avenue, Delray Beach, Florida 33445. In January 2016, we completed the acquisition of this real property located at 420 South Congress Avenue, Delray Beach, Florida 33445, and improvements thereon (collectively referred to herein as the “Property”), the assignment and assumption of all leases and service agreements affecting the Property, and certain tangible and intangible personal property related to the Property, for a purchase price of $18.5 million, plus closing costs. The Property consists of approximately 634,000 square feet of land or 14.6 acres with two building complexes totaling approximately 185,000 square feet, with additional land for future use. The first building complex consists of approximately 125,000 square feet and the second building complex consists of approximately 60,000 square feet each consisting of both office and warehouse space. The Company occupies approximately 97,000 square feet of the first building for its principal offices and distribution center. As of March 31, 2020, 48% of the Property was leased to two tenants with a remaining weighted average lease term of 4.8 years. We believe that our facilities are sufficient for our current needs and are in good condition in all material respects.

In January 2019, a putative class action complaint was filed in the United States District Court for the Southern District of New York alleging that the company’s website, www.1800petmeds.com, did not comply with the ADA, NYSHRL, and NYCHRL, and discriminated against visually impaired individuals. The Company denied any wrongdoing, and on July 24, 2019, the Company and the Plaintiff reached a confidential settlement. The Plaintiff and the Company entered into a consent decree and the matter was dismissed on March 23, 2020, when an order was issued by the court approving the parties joint proposed consent decree.

The Company has settled complaints that had been filed with various states’ pharmacy boards in the past. There can be no assurances made that other states will not attempt to take similar actions against the Company in the future. The Company initiates litigation to protect its trade or service marks. There can be no assurance that the Company will be successful in protecting its trade or service marks. Legal costs related to the above matters are expensed as incurred.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “PETS.” The prices set forth below reflect the high and low sale prices per share in each of the quarters of fiscal 2020 and 2019 as reported by the NASDAQ.

There were 96 holders of record of our common stock at May 26, 2020, and approximately 30,700 of our holders are “street name” or beneficial holders, whose shares are held by banks, brokers, or other financial institutions.

During fiscal 2019 and 2020, our Board of Directors declared the following dividends:

On May 8, 2017, the Company’s Board of Directors declared an increased quarterly dividend of $0.20 per share, and then on January 22, 2018 the Company’s Board of Directors increased the quarterly dividend to $0.25 per share, on its common stock. On July 23, 2018 the Company’s Board of Directors increased the quarterly dividend to $0.27 per share, on its common stock. On May 4, 2020, the Company’s Board of Directors declared an increased quarterly dividend from $0.27 to $0.28 per share, on its common stock. The $5.6 million dividend was paid on May 22, 2020, to shareholders of record at the close of business on May 15, 2020. The Company intends to continue to pay regular quarterly dividends; however the declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors each quarter following its review of the Company’s financial performance.

There can be no assurances as to the precise number of shares that will be repurchased under the share repurchase plan, and the Company may discontinue the share repurchase plan at any time subject to compliance with applicable regulatory requirements. Shares purchased pursuant to the share repurchase plan will either be cancelled or held in the Company's treasury. On January 25, 2019 the Company’s Board of Directors authorized an additional $30.0 million under the repurchase plan. During fiscal 2020 the Company purchased and retired approximately 613,000 shares of its common stock for approximately $11.5 million, averaging approximately $18.73 per share. As of March 31, 2020, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan. Since the inception of the share repurchase plan up to March 31, 2020, approximately 6.2 million shares have been repurchased under the plan for approximately $81.3 million, averaging approximately $13.11 per share.

Set forth below is a line graph comparing the five year cumulative performance of our Common Stock with the Nasdaq Composite, the Russell 2000, and our SIC Code 5912 (pharmacy peer group) from March 31, 2015 to March 31, 2020. The graph assumes that $100 was invested on March 31, 2014 in each of our Common Stock, the Nasdaq Composite, the Russell 2000, and the SIC Code 5912 (pharmacy peer group). Because we have historically paid dividends on a quarterly basis, the graph assumes that dividends were reinvested. The performance graph and related information below shall not be deemed “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following table sets forth securities authorized for issuance under equity compensation plans, including individual compensation arrangements, by us under our 2015 Outside Director Equity Compensation Restricted Stock Plan and 2016 Employee Equity Compensation Restricted Stock Plan as of March 31, 2020:

The following selected financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and notes thereto, and other financial information included elsewhere in this Annual Report on Form 10-K. The Consolidated Statements of Income data set forth below for the fiscal years ended March 31, 2020, 2019, and 2018 and the Consolidated Balance Sheet data as of March 31, 2020 and 2019 have been derived from our audited Consolidated Financial Statements which are included elsewhere in this Annual Report on Form 10-K. The Consolidated Statements of Income data set forth below for the fiscal years ended March 31, 2017 and 2016 and the Consolidated Balance Sheet data as of March 31, 2018, 2017 and 2016 have been derived from our audited Consolidated Financial Statements which are not included in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The Company markets its products through national advertising campaigns which aim to increase the recognition of the “1-800-PetMeds” brand name, and “PetMeds” family of trademarks, increase traffic on its website at www.1800petmeds.com, acquire new customers, and maximize repeat purchases. Approximately 84% of all sales were generated via the Internet in fiscal 2020, compared to 85% in fiscal 2019. The Company’s sales consist of products sold mainly to retail consumers. The twelve-month average purchase was approximately $87 per order for both of the fiscal years ended March 31, 2020 and 2019.

Our discussion and analysis of our financial condition and the results of our operations contained herein are based upon our Consolidated Financial Statements and the data used to prepare them. The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. On an ongoing basis we re-evaluate our judgments and estimates including those related to product returns, bad debts, inventories, and income taxes. We base our estimates and judgments on our historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. Actual results may differ from these estimates under different assumptions or conditions. Our estimates are guided by observing the following critical accounting policies.

The Company generates revenue by selling pet medication products and pet supplies mainly to retail customers. Certain pet supplies offered on the Company’s website are drop shipped to customers. The Company considers itself the principal in the arrangement because the Company controls the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right to the contract. The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns; however this is not considered a key judgment. There are no amounts excluded from variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which shipment of the product occurs. This key judgment is determined as the shipping point represents the point in time in which the Company has a present right to payment, title has transferred to the customer, and the customer has assumed the risks and rewards of ownership.

Outbound shipping and handling fees are an accounting policy election, and are included in sales as the Company considers itself the principal in the arrangement given responsibility for supplier selection and discretion over pricing. Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales. The majority of the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to sales.

The Company maintains an allowance for doubtful accounts for losses that the Company estimates will arise from customers’ inability to make required payments, arising from either credit card charge-backs or insufficient funds checks. The Company determines its estimates of the uncollectibility of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for doubtful accounts was approximately $59,000 at March 31, 2020 compared to $39,000 at March 31, 2019.

Inventories consist of prescription and non-prescription pet medications and pet supplies that are available for sale and are priced at the lower of cost or net realizable value using a weighted average cost method. The Company writes down its inventory for estimated obsolescence. The inventory reserve was approximately $45,000 and $54,000 at March 31, 2020 and 2019, respectively.

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

The Company accounts for income taxes under the provisions of ASC Topic 740, (“Accounting for Income Taxes”), which generally requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the Consolidated Financial Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities, and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse.

The following should be read in conjunction with the Company’s Consolidated Financial Statements and the related notes thereto included elsewhere herein. The following table sets forth, as a percentage of sales, certain operating data appearing in the Company’s Consolidated Statements of Comprehensive Income:

As an essential business, 1-800-PetMeds has been open during our normal business hours without any material disruptions to our operations. Due to COVID-19, consumer demand has increased for the e-commerce channel with pet owners shifting their purchases to online. We are dedicated to making every effort to ensure the health and safety of our employees. We have implemented working from home where possible and enhanced disinfection and social distancing within our work place. We are also dedicated to making every effort to ensure our customers’ pets receive the medications they need. See risk factor “The recent outbreak of the COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time” in Part I, Item 1A of this Form 10-K.

Sales increased slightly to approximately $284.1 million for the fiscal year ended March 31, 2020, from approximately $283.4 million for the fiscal year ended March 31, 2019. The increase in sales for the fiscal year ended March 31, 2020 was primarily due to increased reorder sales, offset by decreased new order sales. The Company acquired approximately 421,000 new customers for the fiscal year ended March 31, 2020, compared to approximately 467,000 new customers for the same period the prior year. The following chart illustrates sales by various sales classifications:

Going forward sales may be adversely affected due to COVID-19, increased competition, and consumers giving more consideration to price. See risk factor “The recent outbreak of the COVID-19 global pandemic and related government, private sector and individual consumer responsive actions may adversely affect our business operations, employee availability, financial performance, liquidity and cash flow for an unknown period of time” in Part I, Item 1A of this Form 10-K. No guarantees can be made that sales will continue to grow in the future. The majority of our product sales are affected by the seasons, due to the seasonality of mainly flea, tick, and heartworm medications. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2020, the Company’s sales were approximately 28%, 25%, 21%, and 26%, respectively. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2019, the Company’s sales were approximately 31%, 25%, 21%, and 23%, respectively.

Cost of sales increased by $14.8 million, or 7.9% to $202.9 million for the fiscal year ended March 31, 2020, from $188.1 million for the fiscal year ended March 31, 2019. As a percentage of sales, cost of sales was 71.4% in fiscal 2020, as compared to 66.4% in fiscal 2019. The cost of sales increase and percentage increase can be attributed to price reductions given to customers to stimulate sales in response to increased online competition, and an increase to product costs during the fiscal year ended March 31, 2020. One of our long-term strategic initiatives and primary purchasing goals has always been to have direct purchasing relationships with all major manufacturers, which we now have.

Gross profit decreased by $14.1 million, or 14.8%, to $81.2 million for the fiscal year ended March 31, 2020, from $95.3 million for the fiscal year ended March 31, 2019. Gross profit as a percentage of sales for fiscal 2020 was 28.6% compared to 33.6% for fiscal 2019. The decrease in gross profit and percentage decrease in fiscal 2020 is directly related to price reductions given to customers to stimulate sales, and an increase to product costs. We now have direct relationships with all major manufacturers and these manufacturers have minimum advertised price policies, which should cause a general price discipline in the online market. Going forward gross profit may be adversely affected due to increased competition and consumers giving more consideration to price.

General and administrative expenses increased by $497,000, or 2.0%, to $25.3 million for the fiscal year ended March 31, 2020 from $24.8 million for the fiscal year ended March 31, 2019. The increase in general and administrative expenses for the fiscal year ended March 31, 2020 was primarily due to the following: a $361,000 increase in payroll expenses in the customer care, pharmacy, and information technology departments; a $107,000 increase to bad debt expense; and a $92,000 increase in bank service fees due to increased sales. Offsetting the increase was a net decrease of $63,000 to other expenses which include travel and professional fees. General and administrative expenses as a percentage of sales was 8.9% for the fiscal year ended March 31, 2020, compared to 8.7% for the fiscal year ended March 31, 2019.

Advertising expenses increased by approximately $600,000 to approximately $22.7 million for the fiscal year ended March 31, 2020, from approximately $22.1 million for the fiscal year ended March 31, 2019. The increase in advertising expenses for fiscal 2020 was intended to stimulate sales and acquire new customers. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $54 for the fiscal year ended March 31, 2020, compared to $47 for the fiscal year ended March 31, 2019. The increase to customer acquisition costs for the fiscal year ended March 31, 2020 can be attributed to increased advertising costs, primarily television advertising, and a lower-than-expected consumer response in the June 2019 and September 2019 quarters, which may be attributed to increased online competition. Advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, advertising spending, and price competition. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future sales, whereas a less favorable advertising environment may negatively impact future sales.

As a percentage of sales, advertising expense was 8.0% and 7.8% for the fiscal years ended March 31, 2020 and 2019, respectively. The increase in advertising expense as a percentage of total sales for the fiscal year ended March 31, 2020 can be mainly attributed to increased advertising to stimulate sales and acquire new customers. The Company currently anticipates advertising as a percentage of sales to be approximately 9% for fiscal 2021. However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability.

Depreciation expense for the fiscal year ended March 31, 2020 increased slightly to approximately $2.3 million from approximately $2.2 million for the fiscal year ended March 31, 2019. This increase to depreciation expense for the fiscal year ended March 31, 2020 can be attributed to an increase in new property and equipment additions in fiscal 2020.

Other income remained relatively flat at $2.9 million for both the fiscal years ended March 31, 2020 and 2019. Other income includes interest income, advertising income, and rental income. Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $28.7 million remaining at March 31, 2020, on any quarterly dividend payment, on its operating activities, or with further decreases in interest rates.

For the fiscal years ended March 31, 2020 and 2019, the Company recorded an income tax provision for approximately $8.0 million and $11.4 million, respectively. The decrease to the income tax provision for fiscal 2020 is related to a decrease in operating income, and reduction to the Florida state corporate income tax rate. The effective tax rate for the fiscal years ended March 31, 2020 and 2019 were 23.7% and 23.2%, respectively. The increase to the effective rate for the fiscal year ended March 31, 2020 can be attributed to a $322,000 income tax charge related to restricted stock compensation, which was recognized in September 2019. The Company estimates its effective tax rate will be approximately 23.5% for fiscal 2021.

Net income decreased by approximately $11.9 million, or 31.5%, to approximately $25.9 million for the fiscal year ended March 31, 2020 from approximately $37.7 million for the fiscal year ended March 31, 2019. The decrease to net income was primarily related to a decrease in gross profit due to price reductions given to customers to stimulate sales, and an increase to product costs.

Sales increased by approximately $9.6 million, or 3.5%, to approximately $283.4 million for the fiscal year ended March 31, 2019, from approximately $273.8 million for the fiscal year ended March 31, 2018. The increase in sales for the fiscal year ended March 31, 2019 was primarily due to increased reorder sales, offset by decreased new order sales. The Company acquired approximately 467,000 new customers for the fiscal year ended March 31, 2019, compared to approximately 521,000 new customers for the same period the prior year. The following chart illustrates sales by various sales classifications:

Going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price. No guarantees can be made that sales will grow in the future. The majority of our product sales are affected by the seasons, due to the seasonality of mainly flea, tick, and heartworm medications. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2019, the Company’s sales were approximately 31%, 25%, 21%, and 23%, respectively. For the quarters ended June 30, September 30, December 31, and March 31 of fiscal 2018, the Company’s sales were approximately 29%, 24%, 22%, and 25%, respectively.

Cost of sales increased by $12.1 million, or 6.9% to $188.1 million for the fiscal year ended March 31, 2019, from $176.0 million for the fiscal year ended March 31, 2018. As a percentage of sales, cost of sales was 66.4% in fiscal 2019, as compared to 64.3% in fiscal 2018. The cost of sales increase is due to increased sales and the percentage increase can be attributed to increases in discounts given to customers to stimulate sales in response to increased online competition, and an increase in product costs during the fiscal year.

Gross profit decreased by $2.5 million, or 2.6%, to $95.3 million for the fiscal year ended March 31, 2019, from $97.8 million for the fiscal year ended March 31, 2018. The decrease in gross profit in fiscal 2019 is directly related to increased discounts given to customers to stimulate sales. Gross profit as a percentage of sales for fiscal 2019 was 33.6% compared to 35.7% for fiscal 2018. The gross profit percentage decrease in fiscal 2019 can be mainly attributed to increases in discounts given to customers to stimulate sales in response to increased online competition, and an increase in product costs during the fiscal year. Going forward gross profit may be adversely affected due to increased competition and consumers giving more consideration to price.

General and administrative expenses increased by $477,000, or 2.0%, to $24.8 million for the fiscal year ended March 31, 2019 from $24.3 million for the fiscal year ended March 31, 2018. The increase in general and administrative expenses for the fiscal year ended March 31, 2019 was primarily due to the following: a $291,000 increase in property expenses related to increased property taxes in fiscal 2019; a $257,000 increase in bank service fees due to increased sales; a $142,000 increase in professional fees which is related to increased legal and IT related expenses; and a $110,000 increase in travel and related expenses due to participating in a conference in fiscal 2019. Offsetting the increase was a $167,000 decrease in payroll expenses related to a decrease in stock compensation expense in fiscal 2019; a $79,000 decrease in insurance expense relating to reduced premiums; and a $78,000 net decrease to other expenses which include telephone, bad debt, and office expenses. General and administrative expenses as a percentage of sales were 8.7% for the fiscal year ended March 31, 2019, compared to 8.9% for the fiscal year ended March 31, 2018.

Advertising expenses increased by approximately $2.8 million to approximately $22.1 million for the fiscal year ended March 31, 2019, from approximately $19.3 million for the fiscal year ended March 31, 2018. The increase in advertising expenses for fiscal 2019 was intended to stimulate sales and promote brand awareness. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $47 for the fiscal year ended March 31, 2019, compared to $37 for the fiscal year ended March 31, 2018.

Advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, increased advertising spending, and price competition. Historically, the advertising environment fluctuates due to supply and demand. A more favorable advertising environment may positively impact future new order sales, whereas a less favorable advertising environment may negatively impact future new order sales.

As a percentage of sales, advertising expense was 7.8% and 7.0% for the fiscal years ended March 31, 2019 and 2018, respectively. The increase in advertising expense as a percentage of total sales for the fiscal year ended March 31, 2018 can be mainly attributed to increased online and television advertising to stimulate sales and promote brand awareness. The Company currently anticipates advertising as a percentage of sales to be approximately 10% for fiscal 2020. However, the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability.

Depreciation expense for the fiscal year ended March 31, 2019 increased by approximately $99,000, to approximately $2.2 million from approximately $2.1 million for the fiscal year ended March 31, 2018. This increase to depreciation expense for the fiscal year ended March 31, 2019 can be attributed to an increase in new property and equipment additions in fiscal 2019.

Other income increased by approximately $1.2 million, to approximately $2.9 million for the fiscal year ended March 31, 2019 from approximately $1.7 million for the fiscal year ended March 31, 2018. The increases to other income for the fiscal year ended March 31, 2018 are primarily related to increased interest income due to increased interest rates. Interest income may decrease in the future as the Company utilizes its cash balances on its share repurchase plan, with approximately $40.2 million remaining at March 31, 2019, on any quarterly dividend payment, or on its operating activities.

For the fiscal years ended March 31, 2019 and 2018, the Company recorded an income tax provision for approximately $11.4 million and $16.5 million, respectively. The decrease to the income tax provision for fiscal 2019 is related to a decrease in operating income offset by the income tax rate reduction pursuant to the Tax Cuts and Jobs Act of 2017 (“2017 Act”). The effective tax rate for the fiscal years ended March 31, 2019 and 2018 were 23.2% and 30.7%, respectively. The decrease to the effective rate for the fiscal year ended March 31, 2019 is due to a reduction in the Company’s corporate tax rate pursuant to the 2017 Act. The Company estimates its effective tax rate will be approximately 24.0% for fiscal 2020.

Net income increased by approximately $457,000, or 1.2%, to approximately $37.7 million for the fiscal year ended March 31, 2019 from approximately $37.3 million for the fiscal year ended March 31, 2018. The increase was primarily due to a decrease in the tax provision due to a reduction in the effective tax rate, which was offset by a decrease to gross profit due to increases in discounts given to customers to stimulate sales in response to increased online competition and increased advertising.

The Company’s working capital at March 31, 2020 and 2019 was approximately $104.7 million and approximately $107.8 million, respectively. The $3.1 million decrease in working capital was primarily attributable to the share buyback and dividends paid in the period, offset by cash flow generated from operations. Net cash provided by operating activities was $38.8 million and $45.1 million for the fiscal years ended March 31, 2020 and 2019, respectively. This change can be mainly attributed to a decrease in the Company’s net income for the fiscal year ended March 31, 2020, offset by a decrease to inventory and an increase to accounts payable compared to the prior year. Net cash used in investing activities was $2.3 million and $620,000 for the fiscal years ended March 31, 2020 and 2019, respectively. This change in investing activities is related to increased property and equipment additions acquired in fiscal 2020. The majority of the increase in investing activities relates primarily to the Company’s new e-commerce platform. Net cash used in financing activities was $33.3 million and $21.9 million for the fiscal years ended March 31, 2020 and 2019, respectively. The increase to financing activities relates to the Company purchasing approximately 613,000 shares of its common stock for approximately $11.5 million during the June quarter. At March 31, 2020, the Company had approximately $28.7 million remaining under the Company’s share repurchase plan. Subsequent to March 31, 2020, the Company’s Board of Directors declared an increased quarterly dividend from $0.27 to $0.28 per share on May 4, 2020. The Board established a May 15, 2020 record date and a May 22, 2020 payment date. Depending on future market conditions the Company may utilize its cash and cash equivalents on the remaining balance of its current share repurchase plan, on quarterly dividends, or on its operating activities.

At March 31, 2020 the Company had no material outstanding lease commitments. We are not currently bound by any long or short term agreements for the purchase or lease of capital expenditures. Any material amounts expended for capital expenditures would be the result of an increase in the capacity needed to adequately provide for any future increase in our business. To date we have paid for any needed additions to our capital equipment infrastructure from working capital funds and anticipate this being the case in the future. Presently, we have approximately $4.5 million forecasted for capital expenditures in fiscal 2021, which will be funded through cash from operations. The Company’s primary source of working capital is cash from operations. The Company presently has no need for alternative sources of working capital, and has no commitments or plans to obtain additional capital.

The table and information below presents the Company’s significant obligations and commitments at March 31, 2020:

Other than disclosures included in note 1 of the Consolidated Financial Statements, the Company does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates, and commodity prices. Our financial instruments include cash and cash equivalents, accounts receivable, and accounts payable. The book values of cash equivalents, accounts receivable, and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. Interest rates affect our return on excess cash and cash equivalents. At March 31, 2020, we had $103.8 million in cash and cash equivalents, primarily money market accounts. A majority of our cash and cash equivalents generates interest income based on prevailing interest rates.

A significant change in interest rates could impact the amount of interest income generated from our excess cash and cash equivalents. It would also impact the market value of our cash and cash equivalents. Our cash and cash equivalents are subject to market risk, primarily interest rate and credit risk. Our investments are managed by a limited number of outside professional managers within investment guidelines set by our Board of Directors. Such guidelines include security type, credit quality, and maturity, and are intended to limit market risk by restricting our investments to high-quality debt instruments with both short and long term maturities. We do not hold any derivative financial instruments that could expose us to significant market risk. At March 31, 2020, we had no debt obligations.

To the Shareholders and the Board of Directors of PetMed Express, Inc. and subsidiaries

We have audited the accompanying consolidated balance sheets of PetMed Express, Inc. and its subsidiaries (the Company) as of March 31, 2020 and 2019, the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated May 26, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

(1)

Summary of Significant Accounting Policies

Organization

PetMed Express, Inc. and subsidiaries, d/b/a 1-800-PetMeds (the “Company”), is a leading nationwide pet pharmacy. The Company markets prescription and non-prescription pet medications, health products, and supplies for dogs, cats, and horses, direct to the consumer. The Company markets its products through national advertising campaigns, which aim to increase the recognition of the “1-800-PetMeds” brand name and “PetMeds” family of trademarks, increase traffic on its website at www.1800petmeds.com, acquire new customers, and maximize repeat purchases. The majority of all of the Company's sales are to residents in the United States. The Company’s corporate headquarters and distribution facility are located in Delray Beach, Florida. The Company's fiscal year end is March 31, and references herein to fiscal 2020, 2019, or 2018 refer to the Company's fiscal years ended March 31, 2020, 2019, and 2018, respectively.

Principles of Consolidation

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

Revenue Recognition

The Company generates revenue by selling pet medication products and pet supplies. Certain pet supplies offered on the Company’s website are drop shipped to customers. The Company considers itself the principal in the arrangement because the Company controls the specified good before it is transferred to the customer. Revenue contracts contain one performance obligation, which is delivery of the product; customer care and support is deemed not to be a material right to the contract. The transaction price is adjusted at the date of sale for any applicable sales discounts and an estimate of product returns, which are estimated based on historical patterns; however this is not considered a key judgment. There are no amounts excluded from variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which shipment of the product occurs. This key judgment is determined as the shipping point represents the point in time in which the Company has a present right to payment, title has transferred to the customer, and the customer has assumed the risks and rewards of ownership. Outbound shipping and handling fees are an accounting policy election, and are included in sales as the Company considers itself the principal in the arrangement given responsibility for supplier selection and discretion over pricing. Shipping costs associated with outbound freight after control over a product has transferred to a customer are an accounting policy election and are accounted for as fulfillment costs and are included in cost of sales.

The Company disaggregates revenue in the following two categories: (1) reorder revenue vs new order revenue, and (2) internet revenue vs contact center revenue. The following table illustrates revenue by various classifications:

Year Ended March 31,
Sales (In thousands)	2020		%			2019		%			$ Variance			% Variance

Reorder Sales	$	248,560		87.5	%	$	241,780		85.3	%	$	6,780		2.8%
New Order Sales	$	35,565		12.5	%	$	41,639		14.7	%	$	(6,074	)	-14.6%

Total Net Sales	$	284,125		100.0	%	$	283,419		100.0	%	$	706		0.2%

Internet Sales	$	238,054		83.8	%	$	240,034		84.7	%	$	(1,980	)	-0.8%
Contact Center Sales	$	46,071		16.2	%	$	43,385		15.3	%	$	2,686		6.2%

Total Net Sales	$	284,125		100.0	%	$	283,419		100.0	%	$	706		0.2%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Summary of Significant Accounting Policies (Continued)

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

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

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

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

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

The majority of the Company’s sales are paid by credit cards and the Company usually receives the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to sales. The Company had no material contract asset or liability balances as of March 31, 2020 and 2019.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents at March 31, 2020 and 2019 consisted of the Company’s cash accounts and money market accounts with a maturity of three months or less. The carrying amount of cash equivalents approximates fair value. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Inventories

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Our building is being depreciated over a period of thirty years. The furniture, fixtures, equipment, and computer software are being depreciated over periods ranging from three to ten years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Summary of Significant Accounting Policies (Continued)

Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the asset to the undiscounted cash flows expected to be generated from the asset.

Intangible Assets

The intangible assets consist of a toll-free telephone number and an internet domain name. In accordance with the ASC Topic 350 (“Goodwill and Other Intangible Assets”) the intangible assets are not being amortized, and are subject to an annual review for impairment.

Fair Value of Financial Instruments

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these instruments.

Advertising

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

Comprehensive Income

The Company applies ASC Topic 220 (“Reporting Comprehensive Income”) which requires that all items that are recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. For the fiscal years ended March 31, 2020, 2019 and 2018 the Company had no unrealized gains or losses.

Income Taxes

The Company accounts for income taxes under the provisions of ASC Topic 740 (“Accounting for Income Taxes”) which generally requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities, and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. As required by “Accounting for Uncertainty in Income Taxes” guidance, which clarifies ASC Topic 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Consolidated Financial Statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company applies “Accounting for Uncertainty in Income Taxes” guidance to all tax positions for which the statute of limitations remains open. The Company files tax returns in the U.S. federal jurisdiction and Florida and Virginia. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years ending March 31, 2013, or earlier. Any interest and penalties related to income taxes will be recorded to other income (expenses).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Summary of Significant Accounting Policies (Continued)

Business Concentrations

The Company purchases its products from a variety of sources, including certain manufacturers, domestic distributors, and wholesalers. We have multiple suppliers for each of our products to obtain the lowest cost. There were three suppliers from whom we purchased approximately 60% of all products in fiscal 2020. There were four suppliers from whom we purchased approximately 50% of all products in fiscal 2019.

Accounting for Share Based Compensation

The Company records compensation expense associated with restricted stock in accordance with ASC Topic 718 (“Share Based Payment”). The compensation expense related to all of the Company’s stock-based compensation arrangements is recorded as a component of general and administrative expenses.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases in the statement of financial position. Accounting applied by lessors will remain largely consistent with previous guidance. Additional changes are set to align lessor accounting with the revised lessee model and the FASB’s revenue recognition guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard on April 1, 2019, using this effective date as the date of initial application. Consequently, on adoption, the Company recognized an additional current operating liability, with a corresponding right of use asset of approximately the same amount based on the present value of the remaining rental payments under current leasing standards for existing operating leases. As of March 31, 2020, the current operating liability and corresponding right of use asset was approximately $110,000. The lease liability and right of use asset is reflected in the consolidated balance sheet as part of accrued expenses and other current liabilities and as part of prepaid expenses and other current assets. The amended guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company is currently evaluating the impact of ASU 2016-13. The Company will adopt ASU 2016-13 on April 1, 2020. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplification and reduce the cost of accounting for income taxes (“ASU 2019-12”). The Company is currently evaluating the impact of ASU 2019-12. The Company will adopt ASU 2019-12 on April 1, 2021.

The Company does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

(5)

Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)

Income Taxes (Continued)

	March 31,
	2020			2019
Deferred tax assets:
Accrued expenses	$	287		$	298
Deferred stock compensation		469			412
Bad debt and inventory reserves		24			22

Total deferred tax assets		780			732

Deferred tax liabilities:
Property and equipment		(1,750	)		(1,853	)

Total net deferred tax liabilities	$	(970	)	$	(1,121	)

At March 31, 2020, the Company had no federal net operating loss carryforwards.

The components of the income tax provision consist of the following (in thousands):

	Year Ended March 31,
	2020			2019		2018

Current taxes
Federal	$	7,352		$	9,718	$	15,012
State		841			1,538		1,586
Total current taxes		8,193			11,256		16,598

Deferred taxes
Federal		(135	)		108		(83	)
State		(16	)		17		(9	)
Total deferred taxes		(151	)		125		(92	)

Total provision for income taxes	$	8,042		$	11,381	$	16,506

The reconciliation of income tax provision computed at the U.S. federal statutory tax rates to income tax expense is as follows (in thousands):

	Year Ended March 31,
	2020			2019			2018

Income taxes at U.S. statutory rates	$	7,118		$	10,315		$	16,943
State income taxes, net of federal tax benefit		649			1,233			1,078
Restricted stock windfall adjustment		322			(176	)		(1,086	)
Reduction of deferred tax liability due to rate reduction		-			-			(430	)
Other		(47	)		9			1
Total provision for income taxes	$	8,042		$	11,381		$	16,506

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017. The 2017 Tax Act made a significant number of changes to the existing U.S. Internal Revenue Code, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. In accordance with SEC Staff Bulletin No. 118, fiscal year end companies were required to determine the appropriate blended rate to apply based on their respective fiscal year end dates. Therefore, instead of applying a 35.0% federal tax rate for the fiscal year ended March 31, 2018, the Company applied a blended federal rate of 31.5%. This blended rate was applied to fiscal 2018, resulting in a tax benefit of approximately $1.9 million. As a result, the Company recorded a provisional income tax benefit of approximately $430,000 related to the re-measurement of deferred tax assets and liabilities resulting from the reduction of the federal corporate tax rate for the year ended March 31, 2018, which was reconciled during the year ended March 31, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)

Income Taxes (Continued)

In fiscal 2020 the Company recognized a stock compensation shortfall charge of approximately $322,000, and recognized a one-time benefit of approximately $93,000, related to a return to provision true up of the fiscal 2019 income tax provision. In fiscal 2019 the Company recognized a stock compensation windfall benefit of approximately $176,000, and recognized a one-time charge of approximately $8,000 related to a return to provision true up of the fiscal 2018 income tax provision. In fiscal 2018 the Company also recognized a stock compensation windfall benefit of approximately $1.1 million, and recognized a one-time net benefit of approximately $150,000 related to a return to provision true up of the fiscal 2017 income tax provision.

(6)

Shareholders’ Equity

Preferred Stock

In April 1998, the Company issued 250,000 shares of its $.001 par value preferred stock at a price of $4.00 per share, less issuance costs of $112,187. Each share of the preferred stock is convertible into approximately 4.05 shares of common stock at the election of the shareholder. The shares have a liquidation value of $4.00 per share and may pay dividends at the sole discretion of the Company. The Company does not anticipate paying dividends to the preferred shareholders in the foreseeable future. Each share of preferred stock is entitled to one vote on all matters submitted to a vote of shareholders of the Company. At March 31, 2020 and 2019, 2,500 shares of the convertible preferred stock remained unconverted and outstanding.

Share Repurchase Plan

On November 8, 2006, the Company's Board of Directors approved a share repurchase plan of up to $20.0 million. On October 31, 2008, November 1, 2010, and August 1, 2011, the Company’s Board of Directors approved an increase under the repurchase plan each for an additional $20.0 million. On January 25, 2019 the Company’s Board of Directors authorized an additional $30.0 million under the repurchase plan. The repurchase plan is intended to be implemented through purchases made from time to time in either the open market or through private transactions at the Company's discretion, subject to market conditions and other factors, in accordance with Securities and Exchange Commission requirements. There can be no assurances as to the precise number of shares that will be repurchased under the share repurchase plan, and the Company may discontinue the share repurchase plan at any time subject to compliance with applicable regulatory requirements. Shares purchased pursuant to the share repurchase plan will either be retired or held in the Company's treasury. During fiscal 2020 the Company purchased and retired approximately 613,000 shares of its common stock for approximately $11.5 million. During fiscal 2019 the Company had no share repurchases. At March 31, 2020 the Company had approximately $28.7 million remaining under the Company’s share repurchase plan.

Dividends

On May 8, 2017 the Company’s Board of Directors increased the quarterly dividend to $0.20 per share, then on January 22, 2018 the Company’s Board of Directors increased the quarterly dividend to $0.25 per share, and then on July 23, 2018 the Company’s Board of Directors increased the quarterly dividend to $0.27 per share, on its common stock. The Company intends to continue to pay regular quarterly dividends; however the declaration and payment of future dividends is discretionary and will be subject to a determination by the Board of Directors each quarter following its review of the Company’s financial performance. During fiscal 2020, our Board of Directors declared the following dividends:

Declaration Date	Per Share Dividend	Record Date	Total Amount (In thousands)		Payment Date

May 6, 2019	$0.27	May 17, 2019	$	5,518	May 24, 2019
July 22, 2019	$0.27	August 2, 2019	$	5,447	August 9, 2019
October 21, 2019	$0.27	November 4, 2019	$	5,447	November 15, 2019
January 21, 2020	$0.27	February 3, 2020	$	5,445	February 14, 2020

(8)

Restricted Stock

On July 28, 2006, the Company received shareholder approval for the adoption of the 2006 Employee Equity Compensation Restricted Stock Plan (the “2006 Employee Plan”) and the 2006 Outside Director Equity Compensation Restricted Stock Plan (the “2006 Director Plan”). The purpose of the plans was to promote the interests of the Company by securing and retaining both employees and outside directors. The Company had reserved 1.0 million shares of common stock for issuance under the Employee Plan, and 200,000 shares of common stock for issuance under the Director Plan. In July 2012, the Company received shareholder approval to ratify the amendment to the Company’s Director Plan passed by the Board of Directors to increase the number of shares available for issuance under the Director Plan from 200,000 to 400,000. Additionally, the Company received shareholder approval to ratify the amendment passed by the Board of Directors to provide for a 10% automatic increase every year in the amount of shares available for issuance under both of the plans. In July 2015, the Company’s 2015 Outside Director Equity Compensation Restricted Stock Plan (“2015 Director Plan”) became effective upon the approval of the plan by the Company’s Shareholders. The 2015 Director Plan authorizes 400,000 shares of the Company's common stock available for issuance under the plan, and provides for an automatic increase every year in the amount of shares available for issuance under the plan of 10% of the shares authorized under the plan. In July 2016, the Company’s 2016 Employee Equity Compensation Restricted Stock Plan (“2016 Employee Plan”) became effective upon the approval of the plan by the Company’s Shareholders. The 2016 Employee Plan authorizes 1,000,000 shares of the Company's Common stock available for issuance under the plan. The value of the restricted stock is determined based on the market value of the stock at the issuance date. The restriction period or forfeiture period is determined by the Company’s Board and is to be no less than 1 year and no more than ten years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8)

Restricted Stock (Continued)

At March 31, 2020, the Company had 972,175 restricted common shares issued under the 2006 Employee Plan, 153,608 restricted common shares issued under the 2016 Employee Plan, 272,000 restricted common shares issued under the 2006 Director Plan, and 135,000 restricted common shares issued under the 2015 Director Plan. The majority of shares were issued subject to a restriction or forfeiture period which lapses ratably on the first, second, and third anniversaries of the date of grant, and the fair value of which is being amortized over the three-year restriction period. For the fiscal years ended March 31, 2020, 2019, and 2018, the Company recognized compensation expense related to the Employee and Director Plans of $2.8 million, $3.1 million, and $2.6 million, respectively. A summary of the Company’s non-vested restricted stock at March 31, 2020 is as follows (in thousands):

	Employee Plan Number of Shares			Director Plan Number of Shares			Both Plans Number of Shares
Non-vested restricted stock outstanding at March 31, 2019		82			68			150
Restricted stock granted		77			38			115
Restricted stock vested		(41	)		(32	)		(73	)
Restricted stock forfeited or expired		(9	)		-			(9	)
Non-vested restricted stock outstanding at March 31, 2020		109			74			183

At March 31, 2020 and 2019, there were 182,695 and 150,017, non-vested restricted stock shares outstanding, respectively. During the fiscal years ended March 31, 2020 and 2019, the Company issued, net of forfeitures, 105,925 and 72,899 restricted shares, respectively. At March 31, 2020 and 2019, there were $2.6 million and $3.9 million of unrecognized compensation cost related to the non-vested restricted stock awards, respectively, which is expected to be recognized over the remaining weighted average vesting period of 1.8 years and 1.7 years for fiscal 2020 and 2019, respectively.

(10)

Commitments and Contingencies

Legal Matters and Routine Proceedings

In January 2019, a putative class action complaint was filed in the United States District Court for the Southern District of New York alleging that company’s website, www.1800petmeds.com, did not comply with the ADA, NYSHRL, and NYCHRL, and discriminated against visually impaired individuals. The Company denied any wrongdoing, and on July 24, 2019, the Company and the Plaintiff reached a confidential settlement. The Plaintiff and the Company entered into a consent decree and the matter was dismissed on March 23, 2020, when an order was issued by the court approving the parties joint proposed consent decree.

Operating Leases

Upon acquisition of the Delray Beach property in January 2016, 48% of the property, approximately 88,000 square feet of the property was leased to two tenants. At March 31, 2020, the leases with these two tenants had a remaining weighted average lease term of 4.8 years. The Company recorded approximately $645,000 and $622,000 in rental revenue in fiscal 2020 and 2019, respectively, which was included in other income. The Company expects to receive the following future lease payments over the next five years: $670,000 in fiscal 2021; $689,000 in fiscal 2022; $710,000 in fiscal 2023; $731,000 in fiscal 2024, and $566,000 in fiscal 2025.

Employment Agreements

On January 29, 2016, the Company entered into Amendment No. 5 to the Executive Employment Agreement with Menderes Akdag, the Company’s President and Chief Executive Officer, as well as a Director, effective March 16, 2016. The term of the Agreement was for three years, with an increase in salary to $600,000 per year throughout the term of the Agreement, and a grant of 120,000 shares of restricted stock in accordance with the Company’s 2006 Employee Equity Compensation Restricted Stock Plan, with the restrictions lapsing ratably over a three-year period. On March 15, 2019, the day before Mr. Akdag’s Agreement was set to expire, the Company entered into Amendment No. 5a extending the term to May 13, 2019 at his then-current salary. Following the Compensation Committee of the Board of Directors having worked with a nationally recognized compensation consulting firm to ensure executive pay to the Chief Executive Officer of the Company was consistent with a selected peer group and contained appropriate performance bench marks, on May 13, 2019, the Company entered into Amendment No. 6 to the Agreement. That Agreement amended certain provisions of the Executive Employment Agreement as follows: the term of the Executive Employment Agreement was extended until the earlier of (i) the date of the Company’s 2020 Annual Stockholders Meeting, or (ii) August 1, 2020; and Mr. Akdag’s salary remained at $600,000 per year throughout the term of the Agreement subject to a percentage increase adjustment, if any, commencing on the pay period ending on May 17, 2019, based on pre-determined individual and corporate performance goals and objectives for fiscal 2019 approved by the Board. According to the Agreement, on July 26, 2019 Mr. Akdag was also to be granted 40,000 restricted shares of the Company’s common stock to vest on July 26, 2020, with the Company paying Mr. Akdag an additional amount (“Gross-Up Payment”) to cover Mr. Akdag’s withholding taxes which are required to be paid as a result of the issuance of the restricted shares.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10)

Commitments and Contingencies (Continued)

On July 12, 2019, the Company entered into Amendment No. 7 providing that in the event that a Change in Control (as was thereinafter defined) of the Company was to occur at any time, Mr. Akdag would have the right to terminate his employment for “Good Reason,” (as was thereinafter defined) upon thirty (30) days written notice given at any time within one (1) year after the occurrence of such event, and upon such termination Mr. Akdag would be entitled to a one-time payment of two times his salary as of the date of such termination.

Management of the Company is responsible for the preparation and integrity of the Consolidated Financial Statements appearing in our Annual Report on Form 10-K. The financial statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, accordingly, include certain amounts based on our best judgments and estimates. Financial information in the Annual Report on Form 10-K is consistent with that in the financial statements.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934 (“Exchange Act”). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements. Our internal control over financial reporting is supported by a team of consultants and appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel, and a written Corporate Code of Business Conduct and Ethics adopted by our Company’s Board of Directors, applicable to all Company Directors and all officers and employees of our Company and subsidiaries.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Audit Committee (“Committee”) of our Company’s Board of Directors, comprised solely of Directors who are independent in accordance with the requirements of The NASDAQ Stock Market LLC listing standards, the Exchange Act and the Company’s Corporate Governance Guidelines, meets with the independent auditors and management periodically to discuss internal control over financial reporting, and auditing and financial reporting matters. The Committee reviews with the independent auditors the scope and results of the audit effort. The Committee also meets periodically with the independent auditors without management present to ensure that the independent auditors have free access to the Committee. Our Audit Committee’s Report can be found in the Company’s 2020 Proxy Statement.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework - 2013. Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of March 31, 2020.

The Company’s independent auditors, RSM US LLP, a registered public accounting firm, are appointed by the Audit Committee of the Company’s Board of Directors, subject to ratification by our Company’s shareholders. RSM US LLP have audited and reported on the Consolidated Financial Statements of PetMed Express, Inc. and subsidiaries, and issued a report on the Company’s internal control over financial reporting. The reports of the independent auditors are contained in our Annual Report on Form 10-K.

To the Shareholders and the Board of Directors of PetMed Express, Inc. and subsidiaries

We have audited PetMed Express, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated May 26, 2020 expressed an unqualified opinion.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of March 31, 2020, the end of the period covered by this report (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date, that our disclosure controls and procedures were effective such that the information relating to PetMed Express, Inc., including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2020 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective, as of March 31, 2020, as stated in our report which is included herein. Our internal control over financial reporting as of March 31, 2020 has been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report which is contained in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

There have been no changes in our internal controls over financial reporting during the fourth quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information required by this item will be set forth in our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2020, relating to our 2020 Annual Meeting of Stockholders to be held on July 31, 2020, and is incorporated herein by reference.

We adopted a Corporate Code of Business Conduct and Ethics applicable to all officers, directors, and employees. The Company’s Corporate Code of Business Conduct and Ethics is available on our website at www.1800petmeds.com under “About Us - Corporate Governance”. You may also obtain a copy of our Corporate Code of Business Conduct and Ethics free of charge by contacting Investor Relations at 1-800-738-6337.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item (other than information required by Item 201(d) of Regulation S-K with respect to equity compensation plans, which is set forth under Item 5. in this Annual Report on Form 10-K) will be set forth in our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2020, relating to our 2020 Annual Meeting of Stockholders to be held on July 31, 2020, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

(a) The following documents are filed as part of this Annual Report on Form 10-K.

(1) Consolidated Financial Statements – See the Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

The following exhibits are filed as part of this Annual Report on Form 10-K or hereby incorporated by reference to exhibits previously filed with the SEC.

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

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on May 26, 2020.

		Page
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosures	12

PART II		13
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	45
Item 9A.	Controls and Procedures	45
Item 9B.	Other Information	45

PART III		46
Item 10.	Directors, Executive Officers, and Corporate Governance	46
Item 11.	Executive Compensation	46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13.	Certain Relationships and Related Transactions, and Director Independence	46
Item 14.	Principal Accountant Fees and Services	46

PART IV		47
Item 15.	Exhibits, Financial Statement Schedules	47
Item 16.	Form 10-K Summary	48

SIGNATURES		49

Fiscal 2020:	High	Low
First Quarter	$23.65	$15.32
Second Quarter	$18.47	$15.01
Third Quarter	$27.37	$17.87
Fourth Quarter	$28.78	$22.18

Fiscal 2019:	High	Low
First Quarter	$46.17	$33.46
Second Quarter	$44.57	$33.01
Third Quarter	$32.67	$22.42
Fourth Quarter	$24.32	$20.50

	Fiscal Year Ended March 31,
	2015	2016	2017	2018	2019	2020
PetMed Express, Inc.	100.00	113.21	132.25	280.04	158.29	210.77
Nasdaq Composite	100.00	100.55	123.56	149.21	165.07	166.22
SIC Code 5912	100.00	101.25	87.24	70.02	65.40	62.61
Russell 2000	100.00	90.24	113.90	127.33	129.94	98.77

EQUITY COMPENSATION PLAN INFORMATION
(In thousands)
	Number of securities			Number of securities
	to be issued upon		Weighted average	remaining available
	exercise of outstanding		exercise price of	for future issuance
	options, warrants		outstanding options,	under equity
Plan category	and rights		warrants and rights	compensation plans

2015 Outside Director Equity Compensation Restricted Stock Plan		74	-		474	(1)

2016 Employee Equity Compensation Restricted Stock Plan		109	-		846

Total		183			1,320

CONSOLIDATED STATEMENTS OF INCOME DATA
(In thousands, except for per share amounts)
	Fiscal Year Ended March 31,
	2020		2019		2018		2017		2016

Sales	$	284,125	$	283,419	$	273,800	$	249,176	$	234,684
Cost of sales		202,879		188,105		175,993		169,862		158,388
Gross profit		81,246		95,314		97,807		79,314		76,296
Operating expenses		50,269		49,140		45,671		41,831		43,908
Net income		25,851		37,740		37,283		23,819		20,567
Net income per common share:
Basic		1.29		1.84		1.83		1.18		1.02
Diluted		1.29		1.84		1.82		1.17		1.02
Weighted average number of common shares outstanding:
Basic		20,041		20,461		20,346		20,232		20,124
Diluted		20,055		20,491		20,433		20,378		20,254
Cash dividends declared per common share		1.08		1.06		0.85		0.76		0.72

CONSOLIDATED BALANCE SHEET DATA
(In thousands)
	March 31,
	2020		2019		2018		2017		2016

Working capital	$	104,675	$	107,805	$	87,126	$	63,430	$	60,543
Total assets		155,323		154,427		134,836		112,809		90,279
Total liabilities		25,313		19,747		19,105		19,443		7,084
Shareholders' equity		130,010		134,680		115,731		93,366		83,195

NON FINANCIAL DATA (UNAUDITED)
(In thousands)
	March 31,
	2020		2019		2018		2017		2016

New customers acquired		421		467		521		514		489
Total accumulated customers (1)		10,998		10,577		10,110		9,589		9,075

	Total		Less than 1 year		1-2 years		3-5 Years		More than 5 years

Executive employment contract	$	210	$	210	$	-	$	-	$	-
Total obligations	$	210	$	210	$	-	$	-	$	-

	Page

Report of Independent Registered Public Accounting Firm	26

Consolidated Balance Sheets as of March 31, 2020 and 2019	27

Consolidated Statements of Income for each of the three years in the period ended March 31, 2020	28

Consolidated Statements of Changes in Shareholders’ Equity for each of the three years in the period ended March 31, 2020	29

Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 2020	30

Notes to Consolidated Financial Statements	31

Report of Management on Internal Control Over Financial Reporting	43

Report of Independent Registered Public Accounting Firm	44

PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for per share amounts)

PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)

	Convertible				Common						Additional
	Preferred Stock				Stock						Paid-In			Retained
	Shares		Amounts		Shares			Amounts			Capital			Earnings			Total

Balance, March 31, 2017		3	$	9		20,526		$	21		$	6,806		$	86,530		$	93,366

Issuance of restricted stock, net		-		-		75			-			-			-			-

Share based compensation		-		-		-			-			2,575			-			2,575

Dividends declared		-		-		-			-			-			(17,493	)		(17,493	)

Net income		-		-		-			-			-			37,283			37,283

Balance, March 31, 2018		3		9		20,601			21			9,381			106,320			115,731

Issuance of restricted stock, net		-		-		73			-			-			-			-

Share based compensation		-		-		-			-			3,097			-			3,097

Dividends declared		-		-		-			-			-			(21,888	)		(21,888	)

Net income		-		-		-			-			-			37,740			37,740

Balance, March 31, 2019		3		9		20,674			21			12,478			122,172			134,680

Issuance of restricted stock, net		-		-		105			-			-			-			-

Share based compensation		-		-		-			-			2,822			-			2,822

Repurchased and retired shares		-		-		(613	)		(1	)		(11,496	)		-			(11,497	)

Dividends declared		-		-		-			-			-			(21,846	)		(21,846	)

Net income		-		-		-			-			-			25,851			25,851

Balance, March 31, 2020		3	$	9		20,166		$	20		$	3,804		$	126,177		$	130,010

PETMED EXPRESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Year Ended
	March 31,
	2020			2019			2018
Cash flows from operating activities:
Net income	$	25,851		$	37,740		$	37,283
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,257			2,225			2,126
Share based compensation		2,822			3,097			2,575
Deferred income taxes		(151	)		125			(92	)
Bad debt expense		191			85			112
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable		(1,492	)		(335	)		(596	)
Inventories - finished goods		3,486			1,967			(3,109	)
Prepaid income taxes		582			206			(788	)
Prepaid expenses and other current assets		(376	)		(526	)		137
Accounts payable		3,383			1,001			53
Accrued expenses and other current liabilities		1,820			(447	)		337
Income taxes payable		471			-			(659	)
Net cash provided by operating activities		38,844			45,138			37,379

Cash flows from investing activities:
Purchases of property and equipment		(2,311	)		(620	)		(703	)
Net cash used in investing activities		(2,311	)		(620	)		(703	)

Cash flows from financing activities:
Dividends paid		(21,803	)		(21,925	)		(17,470	)
Repurchase and retirement of common stock		(11,497	)		-			-
Net cash used in financing activities		(33,300	)		(21,925	)		(17,470	)

Net increase in cash and cash equivalents		3,233			22,593			19,206

Cash and cash equivalents, at beginning of year		100,529			77,936			58,730

Cash and cash equivalents, at end of year	$	103,762		$	100,529		$	77,936

Supplemental disclosure of cash flow information:

Cash paid for income taxes	$	7,140		$	11,051		$	18,046

Property and equipment in current assets	$	1,745		$	-		$	-

Dividends payable in accrued expenses	$	246		$	203		$	240

Quarter Ended:	June 30, 2019		September 30, 2019		December 31, 2019		March 31, 2020

Sales	$	79,988	$	69,936	$	59,915	$	74,286
Gross Profit	$	21,861	$	20,002	$	17,697	$	21,686
Income from operations	$	6,161	$	8,371	$	7,932	$	8,513
Net income	$	5,343	$	6,665	$	6,840	$	7,003
Diluted net income per common share	$	0.26	$	0.33	$	0.34	$	0.35

Quarter Ended:	June 30, 2018		September 30, 2018		December 31, 2018		March 31, 2019

Sales	$	87,390	$	71,396	$	60,068	$	64,565
Gross Profit	$	29,954	$	25,255	$	19,381	$	20,724
Income from operations	$	15,757	$	13,203	$	9,413	$	7,802
Net income	$	12,582	$	10,752	$	7,787	$	6,620
Diluted net income per common share	$	0.62	$	0.52	$	0.38	$	0.32

	PETMED EXPRESS, INC.
	(the “registrant”)

	By: /s/ Menderes Akdag
	Menderes Akdag Chief Executive Officer and President (principal executive officer)

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

/s/ Leslie C.G. Campbell		Director
Leslie C.G. Campbell