PETMED EXPRESS INC

The Stockholders and the Board of Directors of PetMed Express, Inc. and subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PetMed Express, Inc. and its subsidiaries (the Company) as of March 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated June 13, 2024, expressed an opinion that the Company had not maintained effective internal control over financial reporting as of March 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinion

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Certain Identifiable Intangible Assets Acquired in a Business Combination

As described in Note 4 to the consolidated financial statements, on April 3, 2023, the Company acquired 100% of the issued and outstanding equity interests of PetCareRx for total consideration of $36.1 million. The transaction was accounted for as a business combination using the acquisition method of accounting. The fair values of intangible assets acquired consisted primarily of a trade name, customer relationships, and developed technology, which were estimated by applying various discounted cash flow models such as the relief from royalty rate for the trade name, the multi-period excess earnings method for the customer relationships, and the cost to replace method for the developed technology.

We identified valuation of certain identifiable intangible assets acquired in the business combination as a critical audit matter because of the significant assumptions management used in estimating their fair values. Auditing management’s assumptions used in the estimates of fair value, including projections of revenue and operating margins, and the selection of discount rates and a royalty rate, involved a high degree of auditor judgment and increased audit effort, including the use of our valuation specialists, due to the impact these assumptions have on the estimates of fair value.

Our audit procedures related to the Company’s identifiable intangible assets acquired in the business combination included the following, among others:

•We tested the reasonableness of management’s projections of revenue and operating margins, by comparing them to current industry and market trends, historical results of the acquired business and to other relevant factors.

•We utilized our valuation specialists to assist in the following procedures, among others:

–Evaluating the reasonableness of the discount rates and royalty rate by comparing the inputs used by management to publicly available market data.

–Evaluating the appropriateness of the valuation models used by management and testing their mathematical accuracy.

Goodwill Impairment Testing

As discussed in Notes 2 and 4 to the consolidated financial statements, the Company’s goodwill balance was $26.7 million as of March 31, 2024. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of its reporting unit to its carrying value. The Company determines the fair value of its reporting unit using a combination of an income (discounted cash flow) approach and the market approach. The determination of the fair value using the income approach requires management to make significant assumptions related to terminal value growth rates and weighted-average cost of capital. The determination of the fair value using the market approach requires management to make significant assumptions related to the selection of comparable publicly traded companies and cash flow multiples to determine the fair value.

We identified the Company’s annual goodwill impairment test as a critical audit matter because of the significant assumptions management used in its annual impairment test This required a high degree of auditor judgment and an increased extent of effort, including the need to include our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the terminal value growth rate, weighted-average cost of capital, comparable publicly traded companies, and cash flow multiples.

Our audit procedures related to the Company’s annual goodwill impairment test included the following, among others:

•We evaluated the appropriateness of the model used by management to determine the market capitalization of the Company’s reporting unit and tested its mathematical accuracy.

•We tested the underlying data, such as the number of shares and the quoted market prices used by management in its model for completeness and accuracy.

•With the assistance of our valuation specialists, we evaluated the reasonableness of the Company’s estimated fair value of its reporting unit by performing the following:

–Tested the accuracy of the market data referenced by management in determining the selected control premium by agreeing such market data to independently sourced information.

–We evaluated the terminal value growth rate and weighted-average cost of capital, including testing the underlying source information and the mathematical accuracy of the calculations, and developing ranges of independent estimates and comparing those to the terminal value growth rate and weighted-average cost of capital selected by management.

–We evaluated the selected comparable publicly traded companies and cash flow multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its comparable publicly traded companies.

/s/RSM US LLP

We have served as the Company’s auditor since 2007.

Fort Lauderdale, Florida

June 13, 2024