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Restatement of Previously Issued Financial Statements | 3 Months Ended
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Jun. 30, 2023
Accounting Changes and Error Corrections [Abstract] |
Restatement of Previously Issued Financial Statements | Restatement of Previously Issued Financial Statements The unaudited quarterly financial statements for the quarters ended June 30, 2023 and 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 in this Amendment. A description of the adjustments and their impacts on the previously issued financial statements are included below. 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 GAAP as it relates to the sales tax liability included in our consolidated financial statements for each of the Affected Periods, and that it improperly valued the deferred tax asset and goodwill reported in the first and second quarter of fiscal year 2024. The restated 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, the Company has corrected its deferred tax asset recognized in connection with its acquisition of PetCareRx on April 3, 2023 (the “Acquisition”). In the accounting for the Acquisition, it was determined that the Company incorrectly valued deferred tax assets associated with loss carryforwards of PetCareRx under section 382 of the Internal Revenue Code. As a result of this error, the amount of deferred tax assets disclosed in the Original Report was overstated by $5.9 million and the amount of goodwill by was understated by $5.9 million. A summary of the impact of the adjustments described above relating to the Misstatements for the quarters ended June 30, 2023 and 2022, is as follows:
|  | Three Months Ended
|  | June 30, 2023 |  | June 30, 2022
(in thousands) |  | As previously reported |  | As restated |  | As previously reported |  | As restated
Sales |  | $ | 78,244 |  |  | $ | 78,244 |  |  | $ | 70,187 |  |  | $ | 70,042 |
Gross profit |  | $ | 22,526 |  |  | $ | 22,526 |  |  | $ | 19,943 |  |  | $ | 19,798 |
(Loss) income from operations |  | $ | (2,128) |  |  | $ | (2,128) |  |  | $ | 3,490 |  |  | $ | 3,311 |
Net (loss) income |  | $ | (887) |  |  | $ | (1,136) |  |  | $ | 2,775 |  |  | $ | 2,687 |
| Three Months Ended
| June 30, 2023 |  | June 30, 2022
| As previously reported |  | As restated |  | As previously reported |  | As restated
Net (loss) income (numerator): |  |  |  |  |  |  |
Net (loss) income | $ | (887) |  |  | $ | (1,136) |  |  | $ | 2,775 |  |  | $ | 2,687 |
Shares (denominator): |  |  |  |  |  |  |
Weighted average number of common shares outstanding used in basic computation | 20,333 |  | 20,333 |  | 20,208 |  | 20,208
Common shares issuable upon vesting of restricted stock | — |  | — |  | 73 |  | 73
Common shares issuable upon conversion of preferred shares | — |  | — |  | 10 |  | 10
Shares used in diluted computation | 20,333 |  | 20,333 |  | 20,291 |  | 20,291
Net (loss) income per common share: |  |  |  |  |  |  |
Basic | $ | (0.04) |  |  | $ | (0.06) |  |  | $ | 0.14 |  |  | $ | 0.13 |
Diluted | $ | (0.04) |  |  | $ | (0.06) |  |  | $ | 0.14 |  |  | $ | 0.13 |
The restated unaudited interim financial information for the relevant unaudited interim financial statements for the quarterly periods ended June 30, 2023 and 2022 is also included below. The categories of restatement adjustments and their impacts on previously reported financial statements are described below and identified in the Restatement Reconciliation Tables in the column entitled "Reference": a.Sales Tax – Sales tax on sales of products and services to customers who were subject to sales tax, inclusive of maximum 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. Condensed 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 condensed consolidated financial statements as of June 30, 2023 and March 31, 2023, and for the three months ended June 30, 2023 and 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
| June 30, 2023 |  | March 31, 2023
| As Previously Reported |  | Restatement Adjustments |  | Refer-ence |  | As Restated |  | As Previously Reported |  | Restatement Adjustments |  | Refer-ence |  | As Restated
ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 61,534 |  |  | $ | — |  |  |  |  | $ | 61,534 |  |  | $ | 104,086 |  |  | $ | — |  |  |  |  | $ | 104,086 |
Accounts receivable, less allowance for doubtful accounts of $38 and $35, respectively | 1,894 |  |  | — |  |  |  |  | 1,894 |  |  | 1,740 |  |  | — |  |  |  |  | 1,740 |
Inventories - finished goods | 32,324 |  |  | — |  |  |  |  | 32,324 |  |  | 19,023 |  |  | — |  |  |  |  | 19,023 |
Prepaid expenses and other current assets | 8,530 |  |  | — |  |  |  |  | 8,530 |  |  | 4,719 |  |  |  |  |  |  | 4,719 |
Prepaid income taxes | 1,548 |  |  | (1,020) |  |  | b |  | 528 |  |  | 1,883 |  |  | (1,020) |  |  | b |  | 863 |
Total current assets | 105,830 |  |  | (1,020) |  |  |  |  | 104,810 |  |  | 131,451 |  |  | (1,020) |  |  |  |  | 130,431 |
Noncurrent assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Property and equipment, net | 27,207 |  |  | — |  |  |  |  | 27,207 |  |  | 26,178 |  |  | — |  |  |  |  | 26,178 |
Intangible and other assets | 17,671 |  |  | — |  |  |  |  | 17,671 |  |  | 5,860 |  |  | — |  |  |  |  | 5,860 |
Goodwill | 20,735 |  |  | 5,922 |  |  | c |  | 26,657 |  |  | — |  |  | — |  |  |  |  | — |
Operating lease right-of-use assets, net | 2,024 |  |  | – |  |  |  |  | 2,024 |  |  | — |  |  | – |  |  |  |  | – |
Deferred tax assets, net | 7,270 |  |  | (1,364) |  |  | b, c |  | 5,906 |  |  | 628 |  |  | 4,381 |  |  | b |  | 5,009 |
Total noncurrent assets | 74,907 |  |  | 4,558 |  |  |  |  | 79,465 |  |  | 32,666 |  |  | 4,381 |  |  |  |  | 37,047 |
Total assets | $ | 180,737 |  |  | $ | 3,538 |  |  |  |  | $ | 184,275 |  |  | $ | 164,117 |  |  | $ | 3,361 |  |  |  |  | $ | 167,478 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable | $ | 40,037 |  |  | $ | — |  |  |  |  | $ | 40,037 |  |  | $ | 25,208 |  |  | $ | — |  |  |  |  | $ | 25,208 |
Sales tax payable | — |  |  | 26,614 |  |  | a |  | 26,614 |  |  | — |  |  | 26,113 |  |  | a |  | 26,113 |
Accrued expenses and other current liabilities | 13,240 |  |  | (5,173) |  |  | a |  | 8,067 |  |  | 11,289 |  |  | (5,098) |  |  | a |  | 6,191 |
Current lease liabilities | 799 |  |  | — |  |  |  |  | 799 |  |  | — |  |  | — |  |  |  |  | — |
Deferred revenue | 3,246 |  |  | — |  |  |  |  | 3,246 |  |  | — |  |  | — |  |  |  |  | — |
Total current liabilities | 57,322 |  |  | 21,441 |  |  |  |  | 78,763 |  |  | 36,497 |  |  | 21,015 |  |  |  |  | 57,512 |
Deferred tax liabilities | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Long-term lease liabilities | 1,268 |  |  | — |  |  |  |  | 1,268 |  |  | — |  |  | — |  |  |  |  | — |
Other long-term liabilities | 3,825 |  |  | (3,825) |  |  | a |  | — |  |  | 3,825 |  |  | (3,825) |  |  | a |  | — |
Total liabilities | 62,415 |  |  | 17,616 |  |  |  |  | 80,031 |  |  | 40,322 |  |  | 17,190 |  |  |  |  | 57,512 |
Commitments and contingencies | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Shareholders' equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock, $.001 par value, 5,000 shares authorized; 3 convertible shares issued and outstanding with a liquidation preference of $4 per share | 9 |  |  | — |  |  |  |  | 9 |  |  | 9 |  |  | — |  |  |  |  | 9 |
Common stock, $.001 par value, 40,000 shares authorized; 21,170 and 21,084 shares issued and outstanding, respectively | 21 |  |  | — |  |  |  |  | 21 |  |  | 21 |  |  | — |  |  |  |  | 21 |
Additional paid-in capital | 20,037 |  |  | — |  |  |  |  | 20,037 |  |  | 18,277 |  |  | — |  |  |  |  | 18,277 |
Retained earnings | 98,255 |  |  | (14,078) |  |  | a, b, c |  | 84,177 |  |  | 105,488 |  |  | (13,829) |  |  | a, b |  | 91,659 |
Total shareholders' equity | 118,322 |  |  | (14,078) |  |  |  |  | 104,244 |  |  | 123,795 |  |  | (13,829) |  |  |  |  | 109,966 |
Total liabilities and shareholders' equity | $ | 180,737 |  |  | $ | 3,538 |  |  |  |  | $ | 184,275 |  |  | $ | 164,117 |  |  | $ | 3,361 |  |  |  |  | $ | 167,478 |
Summary of Restatement - Consolidated Statements of Operations
| Three Months Ended June 30, 2023 |  | Three Months Ended June 30, 2022
| As Previously Reported |  | Restatement Adjustments |  | Refer-ence |  | As Restated |  | As Previously Reported |  | Restatement Adjustments |  | Refer-ence |  | As Restated
Sales | $ | 78,244 |  |  | $ | — |  |  |  |  | $ | 78,244 |  |  | $ | 70,187 |  |  | $ | (145) |  |  | a |  | $ | 70,042 |
Cost of sales | 55,718 |  |  | — |  |  |  |  | 55,718 |  |  | 50,244 |  |  | — |  |  |  |  | 50,244 |
Gross profit | 22,526 |  |  | — |  |  |  |  | 22,526 |  |  | 19,943 |  |  | (145) |  |  |  |  | 19,798 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General and administrative | 15,711 |  |  | — |  |  |  |  | 15,711 |  |  | 9,351 |  |  | 34 |  |  | a |  | 9,385 |
Advertising | 7,265 |  |  | — |  |  |  |  | 7,265 |  |  | 6,349 |  |  | — |  |  |  |  | 6,349 |
Depreciation and amortization | 1,678 |  |  | — |  |  |  |  | 1,678 |  |  | 753 |  |  | — |  |  |  |  | 753 |
Total operating expenses | 24,654 |  |  | — |  |  |  |  | 24,654 |  |  | 16,453 |  |  | 34 |  |  |  |  | 16,487 |
(Loss) income from operations | (2,128) |  |  | — |  |  |  |  | (2,128) |  |  | 3,490 |  |  | (179) |  |  |  |  | 3,311 |
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income (expense), net | 620 |  |  | (426) |  |  | a |  | 194 |  |  | 117 |  |  | (391) |  |  | a |  | (274) |
Other, net | 506 |  |  | — |  |  |  |  | 506 |  |  | 198 |  |  | — |  |  |  |  | 198 |
Total other income (loss) | 1,126 |  |  | (426) |  |  |  |  | 700 |  |  | 315 |  |  | (391) |  |  |  |  | (76) |
(Loss) income before (benefit) provision for income taxes | (1,002) |  |  | (426) |  |  |  |  | (1,428) |  |  | 3,805 |  |  | (570) |  |  |  |  | 3,235 |
(Benefit) provision for income taxes | (115) |  |  | (177) |  |  | b |  | (292) |  |  | 1,030 |  |  | (482) |  |  | b |  | 548 |
Net (loss) income | $ | (887) |  |  | $ | (249) |  |  |  |  | $ | (1,136) |  |  | $ | 2,775 |  |  | $ | (88) |  |  |  |  | $ | 2,687 |
Net (loss) income per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic | $ | (0.04) |  |  | $ | (0.02) |  |  |  |  | $ | (0.06) |  |  | $ | 0.14 |  |  | $ | (0.01) |  |  |  |  | $ | 0.13 |
Diluted | $ | (0.04) |  |  | $ | (0.02) |  |  |  |  | $ | (0.06) |  |  | $ | 0.14 |  |  | $ | (0.01) |  |  |  |  | $ | 0.13 |
Weighted average number of common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic | 20,333 |  |  | — |  |  |  |  | 20,333 |  |  | 20,208 |  |  | — |  |  |  |  | 20,208 |
Diluted | 20,333 |  |  | — |  |  |  |  | 20,333 |  |  | 20,291 |  |  | — |  |  |  |  | 20,291 |
Cash dividends declared per common share | $ | 0.30 |  |  | $ | — |  |  |  |  | $ | 0.30 |  |  | $ | 0.30 |  |  | $ | — |  |  |  |  | $ | 0.30 |
Summary of Restatement - Consolidated Cash Flow Statement
|  | Three Months Ended June 30, 2023 |  | Three Months Ended June 30, 2022
|  | As Previously Reported |  | Restatement Adjustments |  | Refer-ence |  | As Restated |  | As Previously Reported |  | Restatement Adjustments |  | Refer-ence |  | As Restated
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net (loss) income |  | $ | (887) |  |  | $ | (249) |  |  | a |  | $ | (1,136) |  |  | $ | 2,775 |  |  | $ | (88) |  |  | a |  | $ | 2,687 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 1,678 |  |  | — |  |  |  |  | 1,678 |  |  | 753 |  |  | — |  |  |  |  | 753 |
Share based compensation |  | 1,760 |  |  | — |  |  |  |  | 1,760 |  |  | 1,536 |  |  | — |  |  |  |  | 1,536 |
Deferred income taxes |  | (450) |  |  | (177) |  |  | b |  | (627) |  |  | (294) |  |  | (482) |  |  | b |  | (776) |
Bad debt expense |  | 19 |  |  | — |  |  |  |  | 19 |  |  | 45 |  |  | — |  |  |  |  | 45 |
(Increase) decrease in operating assets and increase (decrease) in liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  | (46) |  |  | — |  |  |  |  | (46) |  |  | 86 |  |  | — |  |  |  |  | 86 |
Inventories - finished goods |  | (10,185) |  |  | — |  |  |  |  | (10,185) |  |  | 9,880 |  |  | — |  |  |  |  | 9,880 |
Prepaid income taxes |  | 335 |  |  | — |  |  |  |  | 335 |  |  | 681 |  |  | — |  |  |  |  | 681 |
Prepaid expenses and other current assets |  | (2,390) |  |  | — |  |  |  |  | (2,390) |  |  | 451 |  |  | — |  |  |  |  | 451 |
Operating lease right-of-use assets, net |  | 196 |  |  | — |  |  |  |  | 196 |  |  | — |  |  | — |  |  |  |  | — |
Accounts payable |  | 9,115 |  |  | — |  |  |  |  | 9,115 |  |  | (10,469) |  |  | — |  |  |  |  | (10,469) |
Sales tax payable |  | — |  |  | 500 |  |  | a |  | 500 |  |  | — |  |  | 498 |  |  | a |  | 498 |
Accrued expenses and other current liabilities |  | 1,369 |  |  | (74) |  |  | a |  | 1,295 |  |  | 97 |  |  | 72 |  |  | a |  | 169 |
Lease liabilities |  | (205) |  |  | — |  |  |  |  | (205) |  |  | — |  |  | — |  |  |  |  | — |
Deferred revenue |  | 253 |  |  | — |  |  |  |  | 253 |  |  | — |  |  | — |  |  |  |  | — |
Income taxes payable |  | — |  |  | — |  |  |  |  | — |  |  | 839 |  |  | — |  |  |  |  | 839 |
Net cash provided by operating activities |  | $ | 562 |  |  | $ | — |  |  |  |  | $ | 562 |  |  | $ | 6,380 |  |  | $ | — |  |  |  |  | $ | 6,380 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchase of minority interest investment in Vetster |  | — |  |  | — |  |  |  |  | — |  |  | (5,000) |  |  | — |  |  |  |  | (5,000) |
Acquisition of PetCareRx, net of cash acquired |  | (35,859) |  |  | — |  |  |  |  | (35,859) |  |  | — |  |  | — |  |  |  |  | — |
Purchases of property and equipment |  | (1,153) |  |  | — |  |  |  |  | (1,153) |  |  | (982) |  |  | — |  |  |  |  | (982) |
Net cash used in investing activities |  | $ | (37,012) |  |  | $ | — |  |  |  |  | $ | (37,012) |  |  | $ | (5,982) |  |  | $ | — |  |  |  |  | $ | (5,982) |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends paid |  | (6,102) |  |  | — |  |  |  |  | (6,102) |  |  | (6,064) |  |  | — |  |  |  |  | (6,064) |
Net cash used in financing activities |  | $ | (6,102) |  |  | $ | — |  |  |  |  | $ | (6,102) |  |  | $ | (6,064) |  |  | $ | — |  |  |  |  | $ | (6,064) |
Net (decrease) increase in cash and cash equivalents |  | (42,552) |  |  | — |  |  |  |  | (42,552) |  |  | (5,666) |  |  | — |  |  |  |  | (5,666) |
Cash and cash equivalents, at beginning of year |  | 104,086 |  |  | — |  |  |  |  | 104,086 |  |  | 111,080 |  |  | — |  |  |  |  | 111,080 |
Cash and cash equivalents, at end of year |  | $ | 61,534 |  |  | $ | — |  |  |  |  | $ | 61,534 |  |  | $ | 105,414 |  |  | $ | — |  |  |  |  | $ | 105,414 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends payable in accrued expenses |  | $ | 1,507 |  |  | $ | — |  |  |  |  | $ | 1,507 |  |  | $ | 791 |  |  | $ | — |  |  |  |  | $ | 791 |

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