Restatement of Previously Issued Financial Statements

9 Months Ended

Dec. 31, 2023

Accounting Changes and Error Corrections [Abstract]

Restatement of Previously Issued Financial Statements

The unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2022 (collectively, the "Affected Periods") have been restated to account for material misstatements related to the collection of sales taxes on sales of products and services to customers as further described below and the accounting treatment related to the deferred tax asset associated with the Company’s acquisition of PetCareRx in April 2023 (collectively, the “Misstatements”). The Company also restated all amounts impacted within the notes to the financial statements. A description of the adjustments and their impacts on the previously issued financial statements for each of the Affected Periods are included below. As a result of the Misstatements, our previously issued condensed consolidated financial statements for the Affected Periods should no longer be relied upon. In addition, we have filed our 2023 Form 10-K/A and an Amendment No. 1 to our Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2023 and September 30, 2023, to reflect the correction of the Misstatements.

Description of restatement adjustments

In the third quarter of fiscal year 2024, the Company, reviewed the accounting treatment related to its previously reported sales tax accruals as well as the accounting treatment related to the valuation of the deferred tax asset associated with the Company’s acquisition of PetCareRx in April 2023. As a result of this review, management determined that the Company incorrectly applied U.S. GAAP as it relates to the sales tax liability and improperly valued the deferred tax asset and goodwill included in its unaudited condensed consolidated financial statements for each of the Affected Periods.

We corrected the Misstatements relating to sales tax accruals by recording sales tax accruals as of the end of each of the Affected Periods using a legal liability approach under Accounting Standards Codification Topic 405, Liabilities. The sales tax accrual amounts assume that (i) customers who have not yet provided certificates or other documentation of exemption from sales tax are taxable, (ii) total potential interest and penalty assessments may be imposed, and (iii) the Company will not receive waivers of interest and penalties or other benefits under agreements it may obtain with jurisdictions from its outreach with voluntary disclosures. The Company expects to make adjustments to the sales tax liability in future periods as and if it obtains any waivers of interest and penalties or other benefits from its voluntary disclosures and as and if it obtains additional documentation from customers supporting exemption from sales tax.

In addition, we have corrected Misstatements relating to the deferred tax asset we recognized in connection with our acquisition of PetCareRx on April 3, 2023 (the “Acquisition”) as of the end of each of the Affected Periods. In the accounting for the Acquisition, it was determined that we incorrectly valued deferred tax assets associated with loss carryforwards of PetCareRx under section 382 of the Internal Revenue Code.

A summary of the impact of the adjustments described above relating to the Misstatements in each of the Affected Periods, is as follows:


	December 31, 2022
	Three Months Ended				Nine Months Ended
(in thousands)	As previously reported		As restated		As previously reported		As restated
Sales	$	58,870	$	58,870	$	194,451	$	194,172
Gross profit	$	15,238	$	15,238	$	53,632	$	53,353
(Loss) income from operations	$	(769)	$	(769)	$	5,682	$	6,263
Net (loss) income	$	(19)	$	(212)	$	5,335	$	5,356


	December 31, 2022
	Three Months Ended				Nine Months Ended
	As previously reported		As restated		As previously reported		As restated
Net (loss) income (numerator):
Net (loss) income	$	(19)	$	(212)	$	5,335	$	5,356

Shares (denominator):

Weighted average number of common shares outstanding used in basic computation	20,301,384		20,301,384		20,257,145		20,257,145
Common shares issuable upon vesting of restricted stock	—		—		71,794		71,794
Common shares issuable upon conversion of preferred shares	—		—		10,125		10,125
Shares used in diluted computation	20,301,384		20,301,384		20,339,064		20,339,064

Net (loss) income per common share:

Basic	$	—	$	(0.01)	$	0.26	$	0.26
Diluted	$	—	$	(0.01)	$	0.26	$	0.26

The restated unaudited interim financial information for the relevant unaudited interim financial statements for the quarterly period ended December 31, 2022 is also included below and identified in the Restatement Reconciliation Tables in the column entitled "Reference".

The categories of restatement adjustments and their impacts on previously reported financial statements are described below:

a.Sales Tax – Sales tax on sales of services to customers who were subject to sales tax, inclusive of total potential penalties and interest, that was not previously accrued by the Company is corrected by an increase to sales tax liabilities on the consolidated balance sheets. The effect of the adjustments on the consolidated statements of operations were recorded as a reduction to sales for the amount of tax, an increase to general and administrative expenses for accrued penalties and interest is included in other interest(expense) on the consolidated statements of operations.

b.Tax provision / accrual – Tax provisions, deferred tax assets and liabilities were adjusted based on restated net income and restated deferred assets valuation in connection with the acquisition of PetCareRx.

c.Deferred tax asset adjustment - Deferred tax asset recognized in connection with the acquisition of PetCareRx on April 3, 2023.

Consolidated Financial Statements - Restatement Reconciliation Tables

In light of the foregoing, in accordance with ASC 250, Accounting Changes and Error Corrections, we are restating the previously issued unaudited consolidated financial statements as of, and for the three and nine months ended December 31, 2022, to reflect the effects of the restatement adjustments and to make certain corresponding disclosures. In the following tables, we have presented a reconciliation of our consolidated balance sheets, statements of operations, and cash flows as previously reported for these prior periods to the restated and revised amounts.

Summary of Restatement - Consolidated Balance Sheets


	December 31, 2022
	As Previously Reported		Restatement Adjustments		Reference	As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	102,428	$	—		$	102,428
Accounts receivable, less allowance for doubtful accounts of $40	1,944		—			1,944
Inventories - finished goods	22,402		—			22,402
Prepaid expenses and other current assets	5,637		—			5,637
Prepaid income taxes	1,608		—			1,608
Total current assets	134,019		—			134,019

Noncurrent assets:
Property and equipment, net	25,242		—			25,242
Intangible and other assets	5,860		—			5,860
Deferred tax assets	—		4,493		b, c	4,493
Total noncurrent assets	31,102		4,493			35,595

Total assets	$	165,121	$	4,493		$	169,614

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	24,317	$	—		$	24,317
Sales tax payable	—		26,448		a	26,448
Accrued expenses and other current liabilities	6,754		(2,775)		a	3,979
Total current liabilities	31,071		23,673			54,744

Deferred tax liabilities	465		(465)		c	—

Total liabilities	31,536		23,208			54,744

Commitments and contingencies	—		—			—

Shareholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; 2,500 convertible shares issued and outstanding with a liquidation preference of $4 per share	9		—			9
Common stock, $0.001 par value, 40,000,000 shares authorized; 21,077,077 shares issued and outstanding	21		—			21
Additional paid-in capital	16,647		—			16,647
Retained earnings	116,908		(18,715)		a, b, c	98,193

Total shareholders' equity	133,585		(18,715)			114,870

Total liabilities and shareholders' equity	$	165,121	$	4,493		$	169,614

Summary of Restatement - Consolidated Statements of Operations


	Three Months Ended December 31, 2022							Nine Months Ended December 31, 2022
	As Previously Reported		Restatement Adjustments		Refer-ence	As Restated		As Previously Reported		Restatement Adjustments		Refer-ence	As Restated
Sales	$	58,870	$	—		$	58,870	$	194,451	$	(279)	a	$	194,172
Cost of sales	43,632		—			43,632		140,819		—			140,819

Gross profit	15,238		—			15,238		53,632		(279)			53,353

Operating expenses:
General and administrative	10,425		—			10,425		30,529		(860)		a	29,669
Advertising	4,641		—			4,641		14,869		—			14,869
Depreciation	941		—			941		2,552		—			2,552
Total operating expenses	16,007		—			16,007		47,950		(860)			47,090

(Loss) income from operations	(769)		—			(769)		5,682		581			6,263

Other income:
Interest income, net	708		(409)		a	299		1,213		(1,202)		a	11
Other, net	259		—			259		718		—			718
Total other income	967		(409)			558		1,931		(1,202)			729

Income (loss) before provision for income taxes	198		(409)			(211)		7,613		(621)			6,992

Provision for income taxes	217		(216)		b	1		2,278		(642)		b	1,636

Net (loss) income	$	(19)	$	(193)		$	(212)	$	5,335	$	21		$	5,356

Net (loss) income per common share:
Basic	$	—	$	(0.01)		$	(0.01)	$	0.26	$	—		$	0.26
Diluted	$	—	$	(0.01)		$	(0.01)	$	0.26	$	—		$	0.26

Weighted average number of common shares outstanding:
Basic	20,301,384		—			20,301,384		20,257,145		—			20,257,145
Diluted	20,301,384		—			20,301,384		20,339,064		—			20,339,064

Cash dividends declared per common share	$	0.30	$	—		$	0.30	$	0.90	$	—		$	0.90

Summary of Restatement - Consolidated Cash Flow Statement


	Nine Months Ended December 31, 2022
	As Previously Reported		Restatement Adjustments		Reference	As Restated
Cash flows from operating activities:
Net income	$	5,335	$	21	a	$	5,356
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,552		—			2,552
Share based compensation	4,987		—			4,987
Deferred income taxes	(471)		(643)		b	(1,114)
Bad debt expense	292		—			292
(Increase) decrease in operating assets and increase (decrease) in liabilities:
Accounts receivable	(324)		—			(324)
Inventories - finished goods	10,053		—			10,053
Prepaid income taxes	(927)		—			(927)
Prepaid expenses and other current assets	(771)		—			(771)
Accounts payable	(3,183)		—			(3,183)
Sales tax payable	—		2,291		a	2,291
Accrued expenses and other current liabilities	536		(1,669)		a	(1,133)
Net cash provided by operating activities	18,079		—			18,079

Cash flows from investing activities:
Purchase of minority interest investment in Vetster	(5,000)		—			(5,000)
Purchases of property and equipment	(3,329)		—			(3,329)
Net cash used in investing activities	(8,329)		—			(8,329)

Cash flows from financing activities:
Dividends paid	(18,402)		—			(18,402)
Net cash used in financing activities	(18,402)		—			(18,402)

Net (decrease) increase in cash and cash equivalents	(8,652)		—			(8,652)

Cash and cash equivalents, at beginning of year	111,080		—			111,080

Cash and cash equivalents, at end of year	$	102,428	$	—		$	102,428

Supplemental disclosure of cash flow information:

Cash paid for income taxes	$	3,870	$	—		$	3,870

Dividends payable in accrued expenses	$	1,079	$	—		$	1,079