PETS 10-K & 10-Q changes, risk factors and insider trading

Our current product line contains approximately 10,0006,400 SKUs including the SKUs acquired in our acquisition of PetCareRx.SKUs. A significant portion of PetMeds 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.

We have direct buying relationships with all the major pet medication manufacturers and distributors each contractual relationship depends on our compliance with each respective manufacturer’s minimum advertised pricing policies (MAPP).

The Company maintains direct purchasing relationships with all the major pet medication manufacturers.manufacturers and distributors. 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, should they occur, would 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, including websites, email newsletters, forums, and auction sites.

We have direct purchasing relationships with all of the major pet medication manufacturers,manufacturers and distributors, from the majority of which we purchase significant quantities of pet medication products..products. We do maintain annual purchasing contracts with these major manufacturers. While we believe that our supplier relationships are good, a supplier could discontinue selling to us at any time, or stop paying cooperative fees to us at any time .time. The loss of any of our key suppliers of pet medications offered by us, or the loss of vendor cooperative payments, would have a negative impact on our business, financial condition, and results of operations.

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 proprietary property, including 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 websites 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 or intellectual property.property particularly with the use or adoption of new and emerging technologies such as AI. 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.grows and the use of AI tools and features become more prevalent. 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.

Since most of our operations are housed intwo a single location,locations, we are more susceptible to a business interruption in the event of damage to, or disruptions in, our facility, particularly with respect to extreme weather events.

The PetMeds headquarters and principal 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 primary distribution center. Our PetcareRxPetCareRx principal distribution center is located in one location in New York. Because we consolidate our operations for each brand in onetwo location,locations, 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 our largest distribution center is located in South Florida, which is a hurricane-sensitive area and is susceptible to sea-level rise, 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 or rising sea levels. Additionally, intense weather conditions may cause property insurance premiums to significantly increase in the future. We recognize that the frequency and intensity of extreme weather events, sea-level rise, and other climatic changes may continue to increase and, as a result, our exposure to these events may increase.

As a result of our services being web based, we collect, process, transmit and store large amounts of data about our customers, employees, suppliers and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information. We also employ third-party service providers for a variety of reasons, including storing, processing and transmitting proprietary, personal and confidential information on our behalf. While we rely on tokenization solutions licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers, advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of these solutions to protect confidential and sensitive information from being breached or compromised. Similarly, our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems or those of our third-party service providers. Distributed Denial-of-Service ("DDoS") attacks, viruses, malicious software, break-ins, phishing attacks, ransomware, social engineering, security breaches or other cybersecurity incidents and similar disruptions that may jeopardize the security of information stored in or transmitted by our websites, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems, may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods. The integration of AI technologies into our platform and systems could increase cybersecurity and privacy risks and could lead to potential unauthorized access, misuse, acquisition, release, disclosure, alteration or destruction of company or customer data or other confidential or proprietary information. Further, threat actors may leverage AI technologies to launch more sophisticated, automated, targeted and coordinated attacks that are more difficult to detect. We and our service providers may not anticipate or prevent all types of attacks until after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, cybersecurity incidents can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.

As an established web-based seller of pet products, we rely on a combination of legacy public-facing websites, internal applications and services, and back-end business intelligenceERP systems. We are in the process of migrating and upgrading many of our platforms and applications to more modular, web-basedcloud-based and SaaS systems. If we are not able to realize the anticipated benefits of our migration to this new infrastructure, our business could be harmed. There may be unforeseen issues as a result of these migrations that may cause disruptions to the availability of our products due to service outages, downtime or other similar issues that could harm our business. We also may be subject to additional risk of cybersecurity breaches or other improper access to our data or confidential information following our migration to these new computing platforms. In addition, our new platforms may operate differently than anticipated when introduced or when new versions or enhancements are released. As we increase our reliance on our systems, our exposure to damage from service interruptions may increase. Further, our transition could involve significant time and expense and could negatively impact our ability to deliver our products and services, which could harm our financial condition and results of operations.

Laws and regulations relating to privacy, data protection, cybersecurity, marketing and advertising, and consumer protection are evolving and subject to potentially differing interpretations. While we strive to comply with all such regulations and believe that we are good stewards of our customers’ data, this area is rapidly evolving,evolving (particularly as companies such as ours increase their adoption of AI-based tools and features), and it is possible that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. If so, we may be subject to proceedings or actions against us by governmental entities or others, and we may suffer damage to our reputation as a result of such proceedings or actions. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy, data protection, cybersecurity or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.

•The impact of further outbreaks of COVID-19, and any future outbreaks similar outbreak,to COVID-19 on our business operations and generally on the economy, including the measures taken by governmental authorities to address it;

We have grown, andmay continue to seek to grow our business through acquisitions of, or investments in, new or complementary businesses, facilities, technologies, offerings, or products, or through strategic alliances, and the failure to manage these acquisitions, investments, or other strategic alliances, or to integrate them with our existing business, could have a material adverse effect on us.

DuringIn theApril past two years,2023, we acquired one company (PetCareRx) and entered into a strategic partnership to enable us to offer telehealth services to our customers. Wewe expect that we may in the future consider additional opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, offerings, or products, or enter into other strategic alliances,alliances whichor maystrategic enhancepartnerships with third parties, for the purpose of enhancing our capabilities, complement our current products and services or expand the breadth of our markets. Acquisitions, investments and other strategic alliances, involve numerous risks, including:

It is uncertain whether the telemedicine market and our approach to pet telehealth with our partnerspartner in that industry will achieve and sustain high levels of demand, consumer acceptance and market adoption. The COVID-19 pandemic increased acceptance and utilization of telemedicine services, but it is uncertain whether such increase in demand will continue.

Our success will depend to a substantial extent on the willingness of our customers to use, and to increase the frequency and extent of their utilization of, our solution being offered in conjunction with our telehealth partnerspartner as well as on our ability to demonstrate the value of pet telehealth and telemedicine to veterinarians and pet owners. Negative publicity concerning the pet telehealth and telemedicine market could limit market acceptance of our solutions and services.

We have identified material weaknesses in our internal controlscontrol over financial reporting, and management has determined that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K. Our business and share price may be adversely affected if we fail to implement and maintain effective disclosure controls and procedures and internal control over financial reporting.

For the periods ended March 31, 20242024, 2025, and 2025,2026, our management identifiedconcluded material weaknesses existed in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknessweaknesses identified in our internal control over financial reporting as of March 31, 2025,2026, as well as our remediation plans, are described in Part II, Item 9A, “Controls and Procedures.” While we believe these efforts will be sufficient to remediate the material weakness, we cannot provide assurance that we will be able to complete our evaluation, testing or any required remediation in a timely fashion, or at all. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. Because of the inherent limitations in a cost-effective control system, misstatements in our financial statements due to error or fraud may occur and require restatement, such as those errors that resulted in the restatement of our previously issued audited consolidated financial statements describedas previously reported in this Comprehensive Form 10-K, Amendment No.1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended March 31, 2023 (the “2023 Form 10-K/A”), and the restatement of our previously issued unaudited condensed consolidated financial statements described in Amendment No.1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “2024 Q1 Form 10-Q/A”) and Amendment No.1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “2024 Q2 Form 10-Q/A”, and together with the 2024 Q1 Form 10-Q/A and 2023 Form 10-K/A, the “Amended Reports”) as well as fiscal 2023 amounts restated in our Quarterly Report on Form 10-Q for the three and nine months ended December 31, 2023.2025.

We may face litigation and other risks as a result of the restatements describedas previously reported in thisour ComprehensiveAnnual Report on Form 10-K andfor the Amendedyear Reportsended March 31, 2025 and material weaknesses in our internal control over financial reporting.

We have identified material weaknesses in our internal control over financial reporting, including in connection with the restatements describedas previously reported in thisour ComprehensiveAnnual Report on Form 10-K andfor the Amendedyear Reports.ended March 31, 2025, certain of which remained unremediated as of the date of this Annual Report. As a result of such material weaknesses and the restatement, we could face regulatory action by the SEC or other regulatory authorities, potential litigation, or other disputes, including claims invoking federal and state securities laws, contractual claims or other claims arising from the restatement and the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition, and results of operations.

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. 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. In order to stay competitive, we may need to accelerate our adoption of and investment in AI-based technologies and features. 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.

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 could include: changes in accounting treatments or principles; announcements by 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; unsolicited offers or indications of interest to purchase our company; 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 addition, if the Company fails to meet expectations related to future growth, profitability, dividends, or other market expectations, the price of the Company’s common stock may decline significantly, which could have a material adverse impact on investor confidence and employee retention. 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 market our products through national and local advertising campaigns which aim to increase the recognition of the “PetMeds” brand name and "PetCareRx" brand name, increase traffic on our websites at www.petmeds.com and www.petcarerx.com, acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers. The twelve-month average purchase increased slightly at approximately $97$98 and $94$97 per order for the fiscal years ended March 31, 2025,2026, and March 31, 2024,2025, respectively.

We account for revenue under Accounting Standards Codification (“ASC”) Topic 606606, ("Revenue from Contracts with Customers") and generate revenue by selling prescription and non-prescription pet medication productsproducts, pet food, supplements, supplies, membership fees, and petveterinary suppliesservice mainly to retail customers. Certain pet supplies offered on our website are drop shipped to customers. We consider ourselfare the principal in the arrangementarrangement, becauseas we control the specifiedgoods good before it is transferredprior to thetransfer customer.and are responsible for supplier selection, pricing, and returns for damaged or missing products. 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.product. 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 the variable consideration. Revenue is recognized when control transfers to the customer at the point in time in which the shipment of the product occurs. This key judgment is determined as the shipping point, which represents the point in time where we have 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 product sales asupon we consider ourself the principal in the arrangement given responsibility for supplier selection and discretion over pricing.shipment. 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.

Membership fees representrevenue the amountsis recognized periodically from two membershipmodels: models.(1) ThePetPlus firstmemberships isfor PetCareRx customers and (2) employer-sponsored partner memberships that provide access to the PetPlus membership for PetCareRx customers, and the second is a partner membership provided through PetCareRx.program. These memberships provideoffer discounted pricing, free standard shipping, veterinary telehealth services and localalong Caremarkwith Pharmacyother prescription pickupbenefits, which together represent a single stand-ready performance obligation to provide these benefits. The PetPlus membership fee is an upfront annual charge and automatically renews one year from the initial enrollment date. The Company recognizes the revenue ratably over the term of the PetPlus membership which is generally one year.obligation.

We maintain an allowance for credit losses that we estimate will arise from customers’ inability to make required payments, arising from either credit card chargebacks or insufficient funds checks. We determine our estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends. The allowance for credit losses was approximately $91$25 thousand and $273$91 thousand atas of March 31, 20252026 and 2024,2025, respectively.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. GoodwillThe Company is notrequired amortizedto butassess instead is testedgoodwill for impairment annually on January 1,annually, or more frequently if events or changes in circumstances indicate goodwillimpairment mightmay behave impaired.occurred. WhenThe testingCompany performs its annual impairment assessment in the fourth fiscal quarter of each year. An impairment test of goodwill forconsists impairmentof by determining whethercomparing the carrying valueamount of eachthe single reporting unit exceedsto its estimatedthe fair value.value we haveof the optionunit. An impairment loss is recognized by the amount that the carrying amount exceeds the fair value, limited to choose whether it will apply a qualitative assessment first and then a quantitative assessment, if necessary, or to apply the quantitativeamount assessmentof directly.goodwill. WeThe haveCompany has concluded that weit havehas one reporting unit and has assigned the entire balance of goodwill to this reporting unit.

We account for income taxes under the provisions of ASC Topic 740740, (“Accounting for Income Taxes”),Taxes, which generally requires recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in our 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, we recognize 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.

Results of Operations (As Restated)

To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding share-based compensation expense (benefit); depreciation and amortization; income tax provision; interest income (expense); and other non-operational expenses. We have provided reconciliations below of adjusted EBITDA to net (loss) income,income to adjusted EBITDA, the most directly comparable GAAP financial measures.

We believe it is useful to exclude non-cash charges, such as share-based compensation expense (benefit) and depreciation and amortization from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision and interest income (expense), as neither are components of our core business operations. We also believe that it is useful to exclude other non-operational expenses, including the investment banking fee related to the Vetster partnership, acquisition costs related to PetCareRx, employee severanceseverance, impairment of goodwill and intangible assets, and interest expense relating to an estimated unremitted prior period state sales tax accrual as these items are not indicative of our ongoing operations. Adjusted EBITDA has limitations as a financial measure, and these non-GAAP measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•Although depreciation isand aamortization are non-cash charge,charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures;

•Adjusted EBITDA does not reflect net share-based compensation. Share-based compensation has been, and will continue to be for the foreseeable future, a material recurring expense in our business and an important part of our compensation strategy;

•Adjusted EBITDA does not reflect noncertain operatingnon-operating expenses (income) including sales tax expense (income) relating to recording a liability for sales tax we did not collect from our customers or recognizing a gain on settlement from settling a state liability for less than recorded.;

The following tabletables presentspresent a reconciliation of net loss, the most directly comparable GAAP measure to Adjusted EBITDA for each of the periods indicated:

Reorder salesSales decreased by approximately $34.6$48.0 million,million or 15.5%,21.1%, to approximately $188.0$179.0 million for the fiscal year ended March 31, 2025,2026, compared to approximately $222.6 million$227.0 for the fiscal year ended March 31, 2024.2025. The decrease in reorder sales for the fiscal year ended March 31, 20252026 iswas primarily duedriven toby a decline in prescription medication sales.sales slightly offset by lower consumer promotional usage.

New orderReorder sales decreased by approximately $10.6$40.2 millionmillion, or 25.5%,21.4%, to approximately $31.1$147.8 million for the fiscal year ended March 31, 2025,2026, compared to $41.7approximately $188.0 million for the fiscal year ended March 31, 2024.2025. The decrease in reorder sales for the fiscal year ended March 31, 2025 in new order sales2026 is primarily due to a strategic reductiondecline in advertising.prescription medication sales.

The Company changed the definition of a new order sale on July 1, 2024, to include sales from customers who have not previously ordered from the Company over the past twelve months compared to the prior definition which was thirty-six months. The reorder and new order sales amounts for theboth yearsperiods ended March 31, 2025presented reflect this new customer definition change. Under the previous definition of a new customer, reorder and new order sales were $241 million and $23.7 million, respectively, for the year ended March 31, 2024.definition.

Cost of sales (As Restated)

Cost of sales decreased by approximately $31.5$29.0 million, or 16.6%18.4% to $128.8 million for the fiscal year ended March 31, 2026, from $157.8 million for the fiscal year ended March 31, 2025, from $189.3 million for the fiscal year ended March 31, 2024.2025. The cost of sales decrease can be directly related to the decrease in sales during fiscal year 2025.2026. As a percentage of sales, cost of sales was 71.9% in fiscal year 2026, as compared to 69.5% in fiscal year 2025,2025. asThe comparedfiscal year ended March 31, 2026 includes the impact of the $2.1 million inventory write-down, primarily related to 69.1%non-prescription inmedication fiscalproducts, 2024.pet food, and supplements, originally acquired for a wholesale transaction that did not materialize. The year over year increase infor cost of sales, as a percentage of sales,sales for the fiscal year ended March 31, 20252026 compared to the fiscal year ended March 31, 20242025 was primarily due to anthe increaseimpact inof discountthe activity.inventory write-down.

Gross profit (As Restated)

Gross profit decreased by approximately $15.6$18.9 million, or 18.4%,27.4%, to $50.2 million for the fiscal year ended March 31, 2026, from $69.1 million for the fiscal year ended March 31, 2025, from $84.8 million for the fiscal year ended March 31, 2024.2025. The decrease in gross profit can be directly related to the decrease in sales and lower profit margins during fiscal 2025.2026. Gross profit as a percentage of sales for fiscal 20252026 was 30.5%28.0% compared to 30.9%30.5% for fiscal 2024.2025. The decrease in gross profit and gross profitmargin percentage decreased for the fiscal year ended March 31, 20252026 compared to the previous fiscal year.year was primarily due to the impact of the inventory write-down and lower sales.

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and trading price of our common stock. Please refer to our 2025Annual Report on Form 10-K for the fiscal year ended March 31, 2026 for additional information concerning these and other uncertainties that could negatively impact the Company. WithThere thehave exceptionbeen ofno thematerial riskchanges factor noted below, which updatesto the risk factors disclosed in our Annual Report filed on Form 10-K for the fiscal year ended March 31, 2025, there have been no material changes from the risk factors previously disclosed therein.2026.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended DecemberJune 31,30, 2025,2026, and our 20252026 Form 10-K.

Certain information in this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. You can identify these forward-looking statements by the words "“believes,"” "“intends,"” "“expects,"” "“may,"” "“will,"” "“should,"” "“plans,"” "“projects,"” "“contemplates,"” "intends,"“budgets,” "budgets,"“predicts,” "predicts,"“estimates,” "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. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our 20252026 Form 10-K under the heading “Risk Factors.” A reader, whether investing in our common stock or not, should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

When used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise indicates, "“PetMed Express,"” "“PetMeds,"” "“PetMed,"” "“the Company,"” "“we,"” "“our,"” and "“us"” refersrefer to PetMed Express, Inc. and its direct and indirect wholly owned subsidiaries, taken as a whole.

Presently, our product line includes approximately 7,2006,500 SKUs of the most popular pet medications, health products and foodsupplies for dogs, cats, and horses.

We market our products through national and local advertising campaigns which aim to increase the recognition of the “PetMeds®” brand name, and "PetCareRx" brand name, increase traffic toon our websites at www.petmeds.com and www.petcarerx.com, acquire new customers, and maximize repeat purchases. Our sales consist of products sold mainly to retail consumers. The average purchaseorder value was approximately $97$101 and $99 per order for both the quarters ended DecemberJune 31,30, 2026, and June 30, 2025, and December 31, 2024.respectively.

Critical Accounting Policies and Estimates

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our 2026 Annual Report on Form 10-K, filed on OctoberJune 14,2, 2025, except as noted below:2026.

Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and political, global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify. In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns. We also expect the current macroeconomic environment and enterpriseconsumer customerdiscretionary cost optimization effortsspending to impact our revenue growth rates. We expect some or all of these factors to continue to impact our operations for the remainder of fiscal 2026.2027.

To provide investors and the market with additional information regarding our financial results, we have disclosed (see below) adjusted EBITDA, a non-GAAP financial measure that we calculate as net income excluding share-based compensation expense (benefit), depreciation and amortization, income tax provision, interest income (expense), and other non-operational expenses. We have provided reconciliations below offrom net income to adjusted EBITDA,loss, the most directly comparable GAAP financial measures.measure, to adjusted EBITDA.

We believe it is useful to exclude non-cash charges, such as net stock-basedshare-based compensation expense (benefit), and depreciation and amortization from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax provision and interest income (expense), as neither are components of our core business operations. We also believe that it is useful to exclude other non-operational expenses, includingemployee acquisitionseverance, costsimpairment relatedof goodwill and intangible assets, and interest expense relating to PetCareRx, employee severance andan estimated stateunremitted prior sales tax accruals and settlementsaccrual as these items are not indicative of our ongoing operations. Adjusted EBITDA has limitations as a financial measure, and these non-GAAP measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Sales decreased by approximately $11.3$10.2 million, or 21.7%,19.9%, to approximately $40.7$41.0 million for the quarterthree months ended DecemberJune 31,30, 2025,2026, compared to approximately $52.0$51.2 million for the quarter ended December 31, 2024. Sales decreased by approximately $40.0 million, or 22.7%, to approximately $136.2 million for the ninethree months ended DecemberJune 31,30, 2025, compared to approximately $176.2 million for the nine months ended December 31, 2024.2025. The decrease in sales for the quarter ended and ninethree months ended DecemberJune 31,30, 20252026 was primarily driven by a decline in prescription medication sales andslightly higheroffset by lower consumer promotional usage.

Reorder sales decreased by approximately $10.2$8.5 million, or 23.0%,20.5%, to approximately $34.0$32.8 million for the quarterthree months ended DecemberJune 31,30, 2025,2026, compared to approximately $44.2$41.3 million for the quarter ended December 31, 2024. Reorder sales decreased by approximately $33.0 million, or 22.6%, to approximately $112.7 million for the ninethree months ended DecemberJune 31,30, 2025, compared to approximately $145.7 million for the nine months ended December 31, 2024.2025. The decrease in reorder sales for the three and nine months ended DecemberJune 31,30, 20252026 is primarily due to a decline in prescription medication sales.

New order sales decreased by approximately $0.9$1.7 million or 15.5%,20.2%, to approximately $5.0$6.6 million for the quarterthree months ended DecemberJune 31,30, 2025,2026, compared to $6.0$8.2 million for the quarter ended December 31, 2024. New order sales decreased by approximately $5.7 million or 23.4%, to approximately $18.6 million for the ninethree months ended DecemberJune 31,30, 2025, compared to $24.3 million for the nine months ended December 31, 2024.2025. The decrease for the quarter ended December 31, 2025 in new order sales is primarily due to less efficient variable marketing spend. The decrease for the ninethree months ended DecemberJune 31,30, 20252026 in new order sales is primarily due to decreased and less efficient variable marketing spend.

We acquired approximately 59,00070,000 new customers for the quarterthree months ended DecemberJune 31,30, 20252026 compared to approximately 63,00085,000 new customers for the quarter ended December 31, 2024. We acquired approximately 202,000 new customers for the ninethree months ended DecemberJune 31,30, 2025 compared to approximately 260,000 new customers for nine months ended the December 31, 2024.2025. The following tables illustrate revenue by various revenue classifications:

Recurring net sales, which includes AutoShip & Save subscriptions, and membership- related revenue, as a percentage of total gross sales was 61.5% for the most recent quarter ended DecemberJune 31,30, 2025,2026, up from 56.2%57.6% for the same period last year.

Cost of sales decreased by approximately $4.6$7.1 million, or 12.9%,19.3%, to approximately $31.2$29.7 million for the quarterthree months ended DecemberJune 31,30, 2025,2026, from approximately $35.8$36.8 million for the quarter ended December 31, 2024. Cost of sales decreased by approximately $22.3 million, or 18.3%, to approximately $99.9 million for the ninethree months ended DecemberJune 31,30, 2025, from approximately $122.3 million for the nine months ended December 31, 2024.2025. Cost of sales, as a percentage of sales, was 76.7%72.4% for the quarterthree months ended DecemberJune 31,30, 2025,2026, compared to 69.0%71.9% for the quarter ended December 31, 2024. Cost of sales, as a percentage of sales, was 73.4% for the ninethree months ended DecemberJune 31,30, 2025, compared to 69.4% for the nine months ended December 31, 2024. The three and nine months ended December 31, 2025 includes the impact of the inventory write-down (see Note 2 for additional information).2025. The year over year increase for cost of sales, as a percentage of sales for the three and nine months ended DecemberJune 31,30, 20252026 compared to the three and nine months ended DecemberJune 31,30, 20242025 was primarily due to thelower impactmanufacturer rebates as a percentage of thesales, inventorypartially write-downoffset andby higherlower promotionalnet usage.freight costs per order.

General and administrative expenses increaseddecreased by approximately $1.4$1.8 million, or 13.1%,13.5%, to approximately $12.2$11.2 million for the quarterthree months ended DecemberJune 31,30, 2025,2026, from approximately $10.8$12.9 million for the quarterthree months ended DecemberJune 31,30, 2024.2025. GeneralThe decrease to general and administrative expenses increased by approximately $13.2 million, or 50.3%, to approximately $39.3 million for the ninethree months ended DecemberJune 31,30, 2025,2026 fromwas approximatelyprimarily $26.2driven by the decrease of non operating professional fees of $(1.0) million forand theseverance nineof months$(0.1) endedmillion, Decemberas 31,well 2024.as a decrease of share-based compensation of $(0.4) million, lower credit card processing fees of ($0.2M), and ($0.1M) lower other general and administrative expenses.

Advertising expenses increaseddecreased by approximately $1.1$1.8 million, or 26.7%,30.2%, to approximately $5.3 million for the quarter ended December 31, 2025, from approximately $4.2 million for the quarterthree months ended DecemberJune 31,30, 2024.2026, The increase for the quarter ended December 31, 2025 can mainly be attributed to higher gross media spend. Advertising expenses decreased byfrom approximately $2.6 million, or 14.2%, to approximately $15.7$6.0 million for the ninethree months ended DecemberJune 31,30, 2025, from approximately $18.3 million for the nine months ended December 31, 2024.2025. The decrease for the ninethree months ended DecemberJune 31,30, 20252026 can be mainly attributed to lowerthe strategic reduction in gross media spend and the elimination of unproductive media spend. As a percentage of sales, advertising expense was 13.1%10.3% and 8.1%11.8% for the quarters ended December 31, 2025 and 2024, respectively. As a percentage of sales, advertising expense was 11.5% and 10.4% for ninethree months ended DecemberJune 31,30, 20252026 and 2024,2025, respectively. The advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability.

The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $90$60 for the quarterthree months ended DecemberJune 31,30, 20252026 compared to $66$71 for the quarter ended December 31, 2024. The advertising costs of acquiring a new customer, defined as total advertising costs divided by new customers acquired, was $78 for the ninethree months ended DecemberJune 31,30, 2025 compared to $70 for the nine months ended December 31, 2024.2025. The increasedecrease to customer acquisition costs for the quarter and ninethree months ended DecemberJune 31,30, 2025,2026, was due to lessadvertising efficientand variablemedia spend optimization, including the elimination of unproductive media spend and overall strategic reductions in certain other marketing spend.costs. The advertising cost of acquiring a new customer can be impacted by the advertising environment, the effectiveness of our advertising creative, 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.

Other (expense) income, net decreasedincreased to approximately $0.1 million for the three months ended June 30, 2026 compared to approximately $(0.111) millionthousand for the quarter ended December 31, 2025 compared to approximately $0.2 million for the quarter ended December 31, 2024. Other (expense) income, net decreased to approximately $(0.2) million for the ninethree months ended DecemberJune 31,30, 2025 compared to approximately $0.9 million for the nine months ended December 31, 2024.2025. The decreaseincrease to other (expense) income for the quarter and the ninethree months ended DecemberJune 31,30, 20252026 was due to lower invested balances, and higher interestsinterest expense accrualaccruals on sales tax liabilities.liabilities which was slightly offset by an increase in rental income from the Delray Beach property. Interest income may increase or decrease in thefuture futureperiods based on several factors, including utilizationchanges ofin our cash balances ondriven by operational cash flows, future investmentsinvestments, or partnerships,proceeds orfrom onpotential ourasset operatingdispositions, activities.as Additionally,well interestas incomeshifts could increase or decrease ifin the currentprevailing interest rate environment changes.environment.