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FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
[ ] 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.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0680967
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(IRS Employer Identification No.)
1441 SW 29 Avenue, Pompano Beach, Florida 33069
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(Address of principal executive offices)
954-979-5995
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(Issuer's telephone number)
Not applicable
-------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of August 17, 2000, the
registrant had issued and outstanding 6,385,010 shares of common stock.
Transitional Small Business Disclosure Format (check one).
Yes [ ] No [X]
This discussion in this quarterly report regarding PetMed Express, Inc
and our business and operations contains "forward-looking statements." These
forward-looking statements use words such as "believes," "intends," "expects,"
"may," "will," "should," "plan," "projected," "contemplates," "anticipates," or
similar statements. These statements are based on our beliefs, as well as
assumptions we have used based upon information currently available to us.
Because these statements reflect our current views concerning future events,
these statements involve risks, uncertainties and assumptions. Actual future
results may differ significantly from the results discussed in the
forward-looking statements. A reader, whether investing in our common stock or
not, should not place undue reliance on these forward-looking statements, which
apply only as of the date of this quarterly report.
When used in this Quarterly Report on Form 10-QSB, "PetMed Express,"
"we," "our," and "us" refers to PetMed Express, Inc. and our subsidiary
Southeastern Veterinary Exports, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Condensed Consolidated Balance Sheet at June 30, 2000 (unaudited) ........... 3
Condensed Consolidated Statements of Operations for the three months
ended June 30, 2000 (unaudited) and 1999 (unaudited) ............... 5
Condensed Consolidated Statements of Cash Flows for the three months
ended June 30, 2000 (unaudited) and 1999 (unaudited) ............... 6
Notes to Condensed Consolidated Financial Statements (unaudited) ... 8
</TABLE>
2
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PETMED EXPRESS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 183,136
Certificate of deposit 300,000
Accounts receivable, less allowance for doubtful accounts of $46,807 125,330
Inventories 1,340,928
Prepaid expenses and other current assets 31,327
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Total current assets 1,980,721
Property and equipment, net 3,237,784
Other assets, net 112,097
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Total assets $5,330,602
==========
</TABLE>
SEE ACCOMPANYING NOTES.
3
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<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,570,785
Line of credit 610,100
Current portion of capital lease obligations 185,720
Mortgage payable 1,616,394
Current portion of other liabilities 100,000
Accrued expenses 76,409
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Total current liabilities 4,159,408
Deferred membership fee revenue 289,112
Other liabilities, less current portion 105,000
Capital lease obligations, less current portion 184,174
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized; 2,500 convertible
shares issued and outstanding at June 30, 2000
with a liquidation preference of $4 per share 8,898
Common stock, $.001 par value, 20,000,000 shares authorized;
6,385,010 shares issued and outstanding at June 30, 2000 6,385
Additional paid-in capital 4,585,718
Accumulated deficit (4,008,093)
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Total stockholders' equity 592,908
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Total liabilities and stockholders' equity $ 5,330,602
===========
</TABLE>
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PETMED EXPRESS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
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2000 1999
----------- -----------
<S> <C> <C>
Sales $ 2,636,715 $ 4,194,990
Cost of sales 1,683,558 2,156,330
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Gross profit 953,157 2,038,660
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Operating expenses:
General and administrative 1,298,652 1,122,349
Advertising 519,222 386,722
Depreciation and amortization 96,120 78,087
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Total operating expenses 1,913,994 1,587,158
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(Loss) income from operations (960,837) 451,502
Other income (expense):
Interest expense (80,781) (56,142)
Interest income 4,217 7,345
Other, net (543) (25,433)
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(Loss) income before provision for income taxes (1,037,944) 377,272
Provision for income taxes -- --
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Net (loss) income $(1,037,944) $ 377,272
=========== ===========
Basic and diluted (loss) income per common share $ (0.16) $ 0.06
=========== ===========
Weighted average number of common shares
outstanding 6,379,947 6,369,822
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
5
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PETMED EXPRESS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
-----------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(1,037,944) $ 377,272
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation 91,309 40,856
Amortization 4,811 37,231
Amortization of deferred membership fee revenue (119,497) (204,760)
Provision for doubtful accounts 7,500 29,001
In-kind services -- 25,000
Changes in operating assets and liabilities:
Accounts receivable 55,043 53,026
Inventories 411,768 (881,613)
Prepaid expenses and other current assets 319,217 (36,472)
Accounts payable 288,152 (82,034)
Other liabilities (5,000) --
Accrued expenses (18,639) 70,034
Deferred membership fee revenue 135,211 194,937
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Net cash (used in) provided by operating activities 131,931 (377,522)
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INVESTING ACTIVITIES
Purchases of property and equipment (22,525) (15,908)
Other assets -- (13,745)
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Net cash used in investing activities (22,525) (29,653)
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</TABLE>
CONTINUED ON NEXT PAGE.
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PETMED EXPRESS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
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2000 1999
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<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sale of common stock $ -- $ 9,000
Payments on capital lease obligations (56,498) --
Repayments under line of credit (166,100) --
Exercise of stock options -- 247,998
Payments on mortgage payable (15,518) --
Repayments under note payable to related party -- (1,500,000)
Proceeds from mortgage payable -- 1,680,000
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Net cash (used in) provided by financing activities (238,116) 436,998
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Net (decrease) increase in cash and cash equivalents (128,710) 29,823
Cash and cash equivalents at beginning of fiscal year 311,846 685,749
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Cash and cash equivalents at end of quarter $ 183,136 $ 715,572
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 93,720 $ 56,142
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES
Equipment purchased through capital lease
obligations $ -- $ 223,284
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
7
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PETMED EXPRESS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PetMed Express, Inc. and subsidiary (the Company) is a direct marketer
of household pet medications and other pet products and is located in the Ft.
Lauderdale, Florida area. The Company distributes catalogs to its customers and
potential customers and takes orders by telephone, Internet and mail. Almost all
of the Company's sales are to residents of the United States. During fiscal
2000, the Company changed its name to PetMedExpress.com, Inc. and then
subsequently changed its name back to PedMed Express, Inc.
During April 1999, the Company acquired at nominal cost the outstanding
common stock of an affiliate that had an immaterial amount of assets and
liabilities. The Company had previously utilized the services of the affiliate
for purchasing purposes.
The Company's fiscal year end is March 31. References herein to fiscal
2001, 2000 or 1999 refer to the Company's fiscal years ended March 31, 2001,
2000 and 1999, respectively.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements are
unaudited. These statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the condensed consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to state fairly the consolidated financial position and
consolidated results of operations as of and for the periods indicated. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the year ended March 31,
2000, included in the Company's Form 10-KSB as filed with the Securities and
Exchange Commission.
The Company's condensed consolidated financial statements include the
accounts of PetMed Express, Inc. and its wholly-owned subsidiary. All
significant intercompany transactions have been eliminated in consolidation.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant Risks and Uncertainties-Product Supply
Two multi-national pharmaceutical companies which manufacture, among
other products, heartworm medication and flea and tick control products, two of
the best-selling products of the Company, have refused to sell these items
directly to the Company. Therefore, the Company must obtain its inventory of
these items through cooperating wholesale sources. To the extent that the
Company is unable to purchase these products from other sources or if they can
only be purchased at prices that make their resale uncompetitive in the
marketplace, it could have a materially adverse impact on the Company's sales.
However, the multi-national company's patent for the heartworm medication
expired in June 1999 and the Company anticipates being able to purchase generic
forms of this medication from other manufacturers.
Comprehensive Income
The Company has adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The items of
other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There
were no items of other comprehensive income for any periods presented herein.
Reclassifications
Certain reclassifications have been made to the 1999 statement of
operations to conform to the 2000 presentation.
2. GOING CONCERN AND MANAGEMENT'S PLANS
For the three months ended June 30, 2000, the Company has incurred
significant operating losses and a cash flow deficiency. These financial
statements have been prepared assuming that the Company will continue as a going
concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company had an operating loss
of $960,837 for the three months ended June 30, 2000 and negative working
capital of $2,178,687 at June 30, 2000. In addition, the Company was in
violation of certain of its debt covenants at June 30, 2000.
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2. GOING CONCERN AND MANAGEMENT'S PLANS (CONTINUED)
As a result, the Company is dependent upon capital from outside sources
in order to fund future operations. These matters raise substantial doubt about
the entity's ability to continue as a going concern. These financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Management is actively seeking to raise additional capital through the
sale of equity securities and through the possible sale and leaseback of its
land and building. In addition, management has a plan whereby certain personnel
and administrative costs may be reduced so that the Company may continue to meet
its operating and financing obligations as they come due. No assurances can be
given that the Company will be successful in obtaining additional capital, or
that such capital will be available on terms acceptable to the Company. Further,
there can be no assurances that even if such additional capital is obtained or
the planned cost reductions are implemented that the Company will achieve
profitability or positive cash flow.
3. MORTGAGE PAYABLE AND LINE OF CREDIT AGREEMENT
In September 1999, the Company entered into a $1,000,000 line of credit
agreement with SouthTrust Bank. Borrowings under the line of credit are limited
to 40% of the value of the Company's eligible inventory and accrue interest at
the lending institution's base rate plus 1% (10.5% at June 30, 2000). The line
of credit is secured by substantially all the assets of the Company. At June 30,
2000, $610,100 was outstanding under the line of credit agreement. Both the line
of credit and mortgage payable contain various financial and operating
covenants.
On February 24, 2000, the Company agreed to maintain $300,000 with
SouthTrust Bank, as additional collateral on the mortgage and line of credit, in
exchange for waivers/amendments to three financial covenants. The restriction to
maintain these funds expires no later than December 24, 2000. At March 31, 2000
and June 30, 2000, the Company was in violation of certain of its financial
covenants, including those which had been previously amended. The Company
obtained waivers/amendments in July 2000, which suspended the fixed charge
coverage, working capital and bank debt to adjusted net worth requirements of
the covenants through April 1, 2001. Since these covenants were not suspended
beyond April 1, 2001, the Company classified its entire mortgage obligation as
current in the accompanying balance sheet. Had these waivers not been obtained,
the Company would have been in default of its mortgage payable and line of
credit agreement at June 30, 2000.
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4. STOCKHOLDERS' EQUITY
In-Kind Contribution of Services
During the quarter ended June 30, 1999, the Company's President and
Chief Executive Officer (CEO) did not receive a salary for services performed on
behalf of the Company. The Company does not intend to pay the President and CEO
for these services but has recorded compensation expense for these contributed
services with an offsetting increase in additional paid-in capital. Several
factors were considered in estimating the amount of contributed services,
including the level and type of services provided as well as the amount of
compensation received by other senior executives of the Company. The CEO began
receiving payment for his current services in May 2000.
5. EARNINGS PER SHARE
The Company adopted SFAS No. 128, EARNINGS PER SHARE, effective March
31, 1998. In accordance with the requirements of SFAS No. 128, basic earnings
per share is computed by dividing net income by the weighted average number of
shares outstanding and diluted earnings per share reflects the dilutive effects
of stock options (as calculated utilizing the treasury stock method) and the
equivalent common shares of outstanding convertible preferred stock. Options
were not included in the calculation of earnings per share for the three months
ended June 30, 1999 and 2000 because their effect would have been antidilutive.
6. COMMITMENTS AND CONTINGENCIES
During fiscal 2000 and 2001, various complaints were filed against the
company with the Florida Board of Pharmacy and Florida Agency for Health Care
Administration for alleged violations of the Florida Pharmacy Act related to the
Company's alleged failure to verify prescriptions. We were also subject to
similar complaints in several other states. In addition, during fiscal 2001 a
complaint was filed by the Attorney General of Missouri alleging that the
Company failed to verify certain prescriptions. During fiscal 2000, three of
these complaints were settled for fines of $35,000 and costs of $10,671.
Management is continuing discussions in an attempt to reach a resolution of
balance of these matters. Management is unable to determine what, if any,
potential liability may be incurred as a result of the ultimate outcome of the
remaining complaints.
In July 1999, the U.S. Food and Drug Administration (FDA) issued a
warning letter to the Company regarding an unspecified instance where the
Company allegedly dispensed prescription veterinary drugs without obtaining a
lawful written or oral order from a licensed veterinarian within the course of
the veterinarian's professional practice. In February 2000, the U.S.
Environmental Protection Agency (EPA) issued a Stop Sale, Use or Removal Order
to the Company regarding the alleged distribution or sale of misbranded
medication in violation of the Federal Insecticide, Fungicide and Rodenticide
Act, as amended. The FDA and EPA have not asserted claims for damages or
penalties. The Company has submitted written responses to both the letter and
the order indicating that the Company reviewed its internal procedures relating
to the matters raised by these regulatory agencies and the Company believes that
it is in compliance with all applicable rules and regulations.
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6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During fiscal 2001, the Indiana Pharmacy Board advised the Company that
its application for non-resident pharmacy registration was denied based upon the
alleged discipline that was taken on the Company's license in Florida as
discussed above. The Company is contesting the denial and is continuing
discussions in an effort to reach a resolution of the matter. Management is
unable to determine at this time the result of the ultimate outcome of this
matter.
During fiscal 2001, the Company was notified that the Hawaii Regulated
Industries Complaints Office was prepared to file a petition for disciplinary
action against the Company for alleged violations of the Hawaii Administrative
Rules for purportedly failing to report a change of address within 10 days and
for alleged failing to report in writing the alleged disciplinary decision
issued in Florida within 30 days. The Company is continuing discussions to
resolve the matter. Management is unable to determine at this time the results
of the ultimate outcome of this matter.
Litigation
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the Company's
results of operations or financial position.
Employment Agreement
In June 2000, the Company entered into an employment agreement with an
individual for future services as the Company's new chief executive officer. The
agreement is effective beginning September 18, 2000, expires in September 2003,
contains provisions for nondisclosure, severance and benefits, and provides for
an eighteen month noncompete following termination of the agreement. The
agreement also entitles the individual to 450,000 options to purchase shares of
the Company's common stock at $1.25 per share.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Sales
Sales decreased by $1,558,275, or 37%, for the three months ended June
30, 2000 from the three months ended June 30, 1999. This decrease was primarily
attributable to a decline in retail sales of $803,985, or 28%, and a decline in
wholesale sales of $754,290, or 56%, due to a decrease in television advertising
and increased price competition. Membership fees remained consistent as a
proportionate share of sales.
The following table provides a breakdown of our sales by product
category for the three months ended June 30, 1999 and 2000:
THREE MONTHS ENDED JUNE 30,
----------------------------
1999 2000
------ -----
Prescription medications 52.8% 49.1%
Non-prescription medications 21.8 22.0
Health and nutritional supplements 2.2 3.0
Accessories 1.9 2.9
Memberships, shipping charges and other 21.3 23.0
------ -----
Total sales 100.0% 100.0%
Gross Profit
Gross profit as a percentage of sales decreased by approximately 12.5%,
to approximately 36.1% for the three months ended June 30, 2000 from
approximately 48.6% for the three months ended June 30, 1999. This decrease in
gross profit as a percentage of sales is the result of increased price
competition and product costs.
Operating Expenses
GENERAL AND ADMINISTRATIVE. General and administrative expense
increased $176,303, or approximately 15.7% for the three months ended June 30,
2000 from the three months ended June 30, 1999. The increase in general and
administrative is primarily due to additional professional fees as a result of
our increased reporting responsibilities as a public company as well, as fees we
incurred to respond to the various administrative actions initiated by several
of the states in which we sell our products (see Note 6 in the Condensed
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Consolidated Financial Statements (unaudited)). General and administrative
expense as a percentage of sales was approximately 26.8% and approximately 49.3%
for the three months ended June 30, 1999 and 2000, respectively. The significant
increase in general and administrative expense as a percentage of sales is
primarily attributable to the decrease in sales for the quarter ended June 30,
2000 compared with the year earlier period.
ADVERTISING EXPENSE. Advertising expense increased by $132,500, or
approximately 34.3%, for the three months ended June 30, 2000 from the three
months ended June 30, 1999. The increase in advertising expense was primarily
due to catalog production and distribution expense, which increased to
approximately $323,000 during the three months ended June 30, 2000 from
approximately $173,055 during the three months ended June 30, 1999. This
increase was offset by a decrease in television advertising of $140,028 during
the three months ended June 30, 2000 from the three months ended June 30, 1999.
The Company also wrote off approximately $157,000 of catalogs during the three
months ended June 30, 2000 which the Company was unable to distribute.
Other Income (Expense)
INTEREST EXPENSE. Interest expense increased $24,639, or approximately
43.9%, for the three months ended June 30, 2000 from the three months ended June
30, 1999, as a result of the increase in indebtedness and borrowings under our
line of credit in order to finance the acquisition of our headquarters and
distribution center and subsequent capital improvements in April and May 1999.
Provision for Income Taxes
We have incurred significant net losses since our inception in 1996.
These losses have resulted in net operating loss carryforwards and deferred tax
assets, which have been used by us to offset tax liabilities which may have been
incurred in prior periods. We have recorded a valuation allowance against the
deferred income tax assets since future utilization of these assets is subject
to our ability to generate taxable income.
Net (Loss) Income
Net (loss) income was a net loss of $1,037,944 for the three months
ended June 30, 2000 as compared to net income of $377,272 for the three months
ended June 30, 1999. The increase was attributable to the aforementioned.
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Liquidity and Capital Resources
Our working capital deficiency at June 30, 2000 was $2,178,687 as
compared to working capital of $398,218 at March 31, 2000. The primary change in
working capital at June 30, 2000 is the result of classifying all of our
mortgage obligation as a current liability at June 30, 2000. The
reclassification, which has not resulted in a change in the repayment schedule
of our mortgage, was required as a result of our violation of certain debt
covenants at June 30, 2000 and failure to obtain waivers beyond April 1, 2000.
The balance of the change in working capital at June 30, 2000 compared with
March 31, 2000 was primarily attributable to:
o A decrease of $411,768 in our inventories as a result of a lower
investment in inventory,
o A decrease in our prepaid and other current assets of $319,217 as a
result of a decrease in prepaid advertising and marketing,
o An increase in our accounts payable of $288,152, and
o A decrease of $166,100 in borrowings under our line of credit.
Net cash provided by operating activities was $131,931 for the three
months ended June 30, 2000 as compared to net cash used in operating activities
of $377,522 for the three months ended June 30, 1999. This change was primarily
the result of an increase in cash provided by inventories of $1,293,381 and
accounts payable of $370,186, reduced by our net loss of $1,037,944 for the
three months ended June 30, 2000 as compared to our net income of $377,272 for
the comparable period in fiscal 2000.
Net cash used in investing activities decreased to $22,525 for the
three months ended June 30, 2000 as compared to net cash used in investing
activities of $29,653 for the three months ended June 30, 1999. Net cash used by
financing activities for the three months ended June 30, 2000 was $238,116 as
compared with net cash provided by financing activities of $436,998 for the
three months ended June 30, 1999. This change was primarily attributable to a
reduction of net proceeds from the sale of common stock and proceeds from
capital lease obligations, and an increase in payments of capital lease
obligations and borrowings under our line of credit at June 30, 2000 as compared
to June 30, 1999.
Since inception, we have primarily funded our growth through the
private placement of securities, bank borrowings and capital leases.
In March 1999, we purchased a 50,000 square foot building, which serves
as our headquarters and distribution center. In May 1999, we moved our
operations to this location following a renovation of the facility. We currently
have a $1,616,394 mortgage on the building and a $1,000,000 line of credit from
SouthTrust Bank. Borrowings under the line of credit are limited to 40% of our
eligible inventory value up to $1,000,000. The line of credit is secured by
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substantially all of our assets, and interest is at the bank's base lending rate
plus 1%, which equaled 10.5% at June 30, 2000. As of June 30, 2000, we had
$610,100 outstanding under the line of credit. On February 24, 2000, we agreed
to maintain $300,000 with SouthTrust Bank, as additional collateral on the
mortgage, in exchange for waivers and amendments to three financial covenants.
The requirement to maintain the funds expires no later than December 24, 2000.
We have been the subject of administrative complaints filed with the
Florida Board of Pharmacy and Florida Agency for Health Care Administration, as
well as similar agencies in other states in which we are licensed as a pharmacy,
for allegedly failing to verify prescriptions. See Note 6 Commitments and
Contingencies to the Condensed Consolidated Financial Statements (unaudited)
appearing elsewhere in this Quarterly Report, and Part II, Item 1. Legal
Proceedings of this Quarterly Report. In the past we have settled some of these
complaints which resulted in our payment of fines and costs. Other of these
complaints are pending and we are not able to estimate at this time the effect,
if any, of the resolution of those pending matters. We believe we are operating
our business in accordance with the rules of the various states in which we are
licensed as a pharmacy, and that the majority of these complaints were initiated
by veterinarians with whom we compete in the sale of prescription medications.
We have, however, recently experienced a slight increase in the number of
complaints filed against us. We are attempting to resolve these complaints with
as little financial impact on us as possible; however, we cannot predict at this
time the likelihood of success on our part or what the short or long term effect
will be to PetMed as a result of these pending, or any future, complaints which
may be filed against us.
For the three months ended June 30, 2000, we have incurred significant
operating losses and cash flow deficiencies. This discussion has been prepared
assuming that we will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. We had an operating loss of approximately $960,837 for the three
months ended June 30, 2000 and negative working capital of $2,178,687 at June
30, 2000. In addition, we were in violation of certain of our debt covenants at
June 30, 2000 which resulted in classifying all of our mortgage payable as a
current liability. As a result, we are dependent upon capital from outside
sources in order to fund future operations. These matters raise substantial
doubt about our ability to continue as a going concern. This discussion
regarding our results of operations as well as our financial statements which
are included elsewhere herein do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
We are actively seeking to raise additional capital through the sale of
equity securities and through the sale and leaseback of its land and building.
In addition, we have a plan whereby certain personnel and administrative costs
may be reduced so that we may continue to meet its operating and financing
obligations as they come due. No assurances can be given that we will be
successful in obtaining additional capital, or that such capital will be
available in terms acceptable to us. Further, there can be no assurance that
even if such additional capital is obtained or the planned cost reductions are
implemented, that we will achieve profitability or positive cash flow.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During fiscal 2001, the Indiana Pharmacy Board advised us that our
application for non-resident pharmacy registration was denied based upon the
alleged discipline that was taken on our license in Florida as discussed in Note
6 Commitments and Contingencies to the Condensed Consolidated Financial
Statements (unaudited) appearing elsewhere in this Quarterly Report. We are
contesting the denial and are continuing discussions in an effort to reach a
resolution of the matter. We are unable to determine at this time the result of
the ultimate outcome of this matter.
During fiscal 2001, we were notified that the Hawaii Regulated
Industries Complaints Office was prepared to file a petition for disciplinary
action against us for alleged violations of the Hawaii Administrative Rules for
purportedly failing to report a change of address within 10 days and for alleged
failing to report in writing the alleged disciplinary decision issued in Florida
within 30 days. We are continuing discussions to resolve the matter. We are
unable to determine at this time the results of the ultimate outcome of this
matter.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item6. Exhibits and Reports on Form 8-K.
(a) Exhibits
NO. DESCRIPTION
--- -----------
27 Financial Data Schedule
(b) None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PetMed Express, Inc.,
a Florida corporation
Date: August 18, 2000 /s/ Marc A. Puleo
--------------------------------
Marc A. Puleo, M.D.,
Chief Executive Officer
/s/ John S. Vermaaten
--------------------------------
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
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INDEX TO EXHIBITS
NO. DESCRIPTION
--- -----------
27 Financial Data Schedule
