PetMed Express(PETS) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance and position, including condensed financial statements and management's analysis ITEM 1. CONDENSED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Q2 2023, including balance sheets, income statements, cash flows, and detailed notes on accounting policies and acquisition impacts Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity as of June 30, 2023, and March 31, 2023 Condensed Consolidated Balance Sheets (In thousands) | Item | June 30, 2023 | March 31, 2023 | Change ($) | Change (%) | | :--------------------------------------- | :------------ | :------------- | :--------- | :--------- | | Cash and cash equivalents | $61,534 | $104,086 | $(42,552) | (40.9)% | | Inventories - finished goods | $32,324 | $19,023 | $13,301 | 69.9% | | Total current assets | $105,830 | $131,451 | $(25,621) | (19.5)% | | Goodwill | $20,735 | $– | $20,735 | N/A | | Total assets | $180,737 | $164,117 | $16,620 | 10.1% | | Total current liabilities | $57,322 | $36,497 | $20,825 | 57.1% | | Total liabilities | $62,415 | $40,322 | $22,093 | 54.8% | | Retained earnings | $98,255 | $105,488 | $(7,233) | (6.9)% | | Total shareholders' equity | $118,322 | $123,795 | $(5,473) | (4.4)% | - The significant increase in goodwill to $20,735 thousand as of June 30, 2023, from zero at March 31, 2023, is a direct result of the PetCareRx acquisition[11] Condensed Consolidated Statements of (Loss) Income This section presents the unaudited condensed consolidated statements of (loss) income for the three months ended June 30, 2023 and 2022 Condensed Consolidated Statements of (Loss) Income (In thousands, unaudited) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Sales | $78,244 | $70,187 | $8,057 | 11.5% | | Cost of sales | $55,718 | $50,244 | $5,474 | 10.9% | | Gross profit | $22,526 | $19,943 | $2,583 | 13.0% | | Total operating expenses | $24,654 | $16,453 | $8,201 | 49.8% | | (Loss) income from operations | $(2,128) | $3,490 | $(5,618) | (161.0)% | | Net (loss) income | $(887) | $2,775 | $(3,662) | (132.0)% | | Basic Net (loss) income per common share | $(0.04) | $0.14 | $(0.18) | (128.6)% | | Diluted Net (loss) income per common share | $(0.04) | $0.14 | $(0.18) | (128.6)% | - Despite an 11.5% increase in sales, the company reported a net loss of $(887) thousand for Q2 2023, a significant decline from $2,775 thousand net income in Q2 2022, primarily due to a 49.8% increase in total operating expenses[14] Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows for the three months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (In thousands, unaudited) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $562 | $6,380 | $(5,818) | (91.2)% | | Net cash used in investing activities | $(37,012) | $(5,982) | $(31,030) | 518.7% | | Net cash used in financing activities | $(6,102) | $(6,064) | $(38) | 0.6% | | Net decrease in cash and cash equivalents | $(42,552) | $(5,666) | $(36,886) | 651.0% | | Cash and cash equivalents, at end of period | $61,534 | $105,414 | $(43,880) | (41.6)% | - The substantial increase in cash used in investing activities to $(37,012) thousand in Q2 2023, primarily due to the PetCareRx acquisition, led to a significant net decrease in cash and cash equivalents[16] Notes to Condensed Consolidated Financial Statements This section provides detailed notes explaining significant accounting policies, acquisition impacts, revenue recognition, and other financial disclosures Note 1: Summary of Significant Accounting Policies This note outlines the company's key accounting policies, including business combinations, goodwill, and intangible asset treatment - PetMed Express operates as a direct-to-consumer pet pharmacy and online provider of various pet products and services, with its fiscal year ending on March 31[18][19] - The company accounts for business combinations using the acquisition method, allocating the purchase price to fair value of acquired assets and assumed liabilities, with any excess recorded as goodwill[21] - Goodwill is not amortized but tested for impairment annually on January 1, or more frequently if circumstances indicate impairment, and definite-lived intangible assets are amortized over 3 to 7 years[26][27] Note 2: Revenue Recognition This note details the company's revenue recognition policies for product sales and membership fees, including a breakdown by category - Revenue is generated from selling prescription and non-prescription pet products, food, supplements, supplies, and veterinary services, with product revenue recognized at the point of shipment when control transfers to the customer[31][32] - Membership fees, including PetPlus and partner programs, provide discounted pricing, free shipping, and telehealth services, with revenue recognized ratably over the membership term, typically one year for PetPlus[34][96] Revenue Breakdown (In thousands) for Three Months Ended June 30 | Revenue Category | 2023 ($) | 2023 (%) | 2022 ($) | 2022 (%) | $ Variance | % Variance | | :--------------- | :------- | :------- | :------- | :------- | :--------- | :--------- | | Reorder sales | 68,038 | 87.0% | 63,339 | 90.2% | 4,699 | 7.4% | | New order sales | 7,820 | 10.0% | 6,848 | 9.8% | 972 | 14.2% | | Membership fees | 2,386 | 3.0% | – | –% | 2,386 | –% | | Total net sales | 78,244 | 100.0% | 70,187 | 100.0% | 8,057 | 11.5% | Note 3: Acquisition This note provides details on the PetCareRx acquisition, including the purchase price, strategic rationale, and preliminary purchase price allocation - On April 3, 2023, the company acquired 100% of PetCareRx, Inc. for $36.1 million in cash, significantly expanding its product catalog, especially non-medication products like food, and increasing distribution capabilities[37][38][39][104] - The acquisition resulted in the recognition of approximately $20.7 million in preliminary goodwill, representing synergies from an increased customer base, vendor relationships, a broader product catalog, and an assembled workforce[40] Purchase Price Allocation for PetCareRx Acquisition (In thousands) | Asset/Liability | Amount | | :--------------------------------------- | :----- | | Cash and cash equivalents | $220 | | Accounts receivable, net | $125 | | Other receivables | $506 | | Inventory | $3,116 | | Other current assets | $835 | | Property and equipment | $1,065 | | Deferred tax assets | $6,192 | | Goodwill | $20,735 | | Intangible assets, net | $12,300 | | Right of use assets | $2,220 | | Total assets | $47,394 | | Accounts payable | $5,713 | | Accrued liabilities | $131 | | Deferred revenue | $2,993 | | Other current liabilities | $206 | | Lease liabilities | $2,272 | | Total liabilities | $11,315 | | Total purchase consideration | $36,079 | Note 4: Net (Loss) Income Per Share This note presents the calculation of basic and diluted net (loss) income per common share, including anti-dilutive exclusions Net (Loss) Income Per Common Share (In thousands, except per share amounts) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net (loss) income | $(887) | $2,775 | | Weighted average common shares outstanding (basic) | 20,333 | 20,208 | | Shares used in diluted computation | 20,333 | 20,291 | | Basic Net (loss) income per common share | $(0.04) | $0.14 | | Diluted Net (loss) income per common share | $(0.04) | $0.14 | - For the three months ended June 30, 2023, 418,386 shares issuable upon vesting of restricted stock and 10,125 shares issuable upon conversion of preferred shares were excluded from diluted EPS computation due to their anti-dilutive effect[49] Note 5: Stock-Based Compensation This note details stock-based compensation expense, unrecognized costs, and recent RSU and PSU grants to executives Stock-Based Compensation Expense (In millions) | Period | Compensation Expense | | :------------------------------- | :------------------- | | Three Months Ended June 30, 2023 | $1.8 | | Three Months Ended June 30, 2022 | $1.5 | - As of June 30, 2023, there was $9.0 million of unrecognized compensation cost related to non-vested restricted stock awards, expected to be recognized over the next one to three years[54] - In June 2023, the CFO was granted 11,750 RSUs and 8,000 PSUs, with PSU vesting tied to the Company's Total Shareholder Return (TSR) relative to the S&P 600 Specialty Retail Index over a three-year performance period[53][57] Note 6: Fair Value This note defines fair value measurement and categorizes the company's cash and cash equivalents within the fair value hierarchy - The company's cash and cash equivalents, totaling $61.5 million at June 30, 2023, are primarily invested in money market funds and classified within Level 1 of the fair value hierarchy[64] - Fair value is defined as an exit price, determined based on assumptions market participants would use, and categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[63] Note 7: Intangible and Other Assets, Net This note provides a breakdown of intangible and other assets, including those acquired from PetCareRx, and related amortization expense Intangible and Other Assets, Net (In thousands) | Asset Category | June 30, 2023 (Net Carrying Value) | March 31, 2023 (Net Carrying Value) | | :--------------------------------------- | :--------------------------------- | :---------------------------------- | | Toll-free telephone number | $375 | $375 | | Internet domain names | $485 | $485 | | Trade Names - PetCareRx | $2,600 | $– | | Customer Relationships - PetCareRx | $6,461 | $– | | Developed Technology - PetCareRx | $2,750 | $– | | Initial minority interest investment in Vetster | $5,000 | $5,000 | | Total Intangible and Other Assets, Net | $17,671 | $5,860 | - The PetCareRx acquisition introduced new indefinite-lived intangible assets (Trade Names - PetCareRx) and definite-lived assets (Customer Relationships, Developed Technology) which are being amortized over 3 to 7 years[65] - Amortization expense for intangible assets was $0.5 million for the three months ended June 30, 2023, compared to zero in the prior year, reflecting the newly acquired amortizable assets[65] Note 8: Leases This note describes the company's operating lease activities, primarily from the PetCareRx acquisition, and related lease metrics - The company's leasing activities primarily consist of real estate operating leases acquired during the PetCareRx acquisition, with remaining maturity dates ranging from 2024 to 2027[69] Operating Lease Metrics (June 30, 2023) | Metric | Value | | :--------------------------------------- | :------ | | Weighted average remaining lease term | 3.4 years | | Weighted average discount rate | 6.6% | | Total lease cost (Q2 2023) | $229k | | Right-of-use assets obtained from acquisition | $2,220k | | Present value of lease liabilities | $2,030k | Note 9: Commitments and Contingencies This note outlines the company's policies for recording legal liabilities and discloses an increase in potential sales tax exposure - The company records liabilities for legal matters when a loss is probable and reasonably estimable, and reviews the status of significant matters periodically[78] - Following an evaluation of sales tax filings related to the Wayfair decision, the company recorded an increase of $7.8 million for potential sales tax exposure, split between current and long-term liabilities[79] Note 10: Changes in Shareholders' Equity This note details changes in shareholders' equity, including the impact of net loss, dividends, and remaining share repurchase authorization Changes in Shareholders' Equity (In thousands) | Item | March 31, 2023 Balance | Q2 2023 Activity | June 30, 2023 Balance | | :------------------------------- | :--------------------- | :--------------- | :-------------------- | | Common Stock | $21 | $– | $21 | | Additional Paid-In Capital | $18,277 | $1,760 | $20,037 | | Retained Earnings | $105,488 | $(6,346) (Dividends) | $98,255 | | | | $(887) (Net Loss) | | | Total | $123,786 | $(5,473) | $118,313 | - Retained earnings decreased by $7.233 million in Q2 2023 due to a net loss of $(887) thousand and $6.346 million in dividends declared[80] - As of June 30, 2023, the company had approximately $28.7 million remaining under its share repurchase plan[80] Note 11: Income Taxes This note explains the income tax (benefit) provision and effective tax rate, including the impact of acquired net operating losses Income Tax (Benefit) Provision and Effective Tax Rate | Period | Income Tax (Benefit) Provision (In millions) | Effective Tax Rate | | :------------------------------- | :--------------------------------------- | :----------------- | | Three Months Ended June 30, 2023 | $(0.1) | 11.5% | | Three Months Ended June 30, 2022 | $1.0 | 27.1% | - The decrease in tax provision and effective tax rate for Q2 2023 is primarily due to the utilization of net operating losses (NOLs) made available by the PetCareRx acquisition and other deductible expenses[81] - A Section 382 analysis following the PetCareRx acquisition limited the acquired net operating losses and disallowed interest expense from approximately $96.0 million to $35.0 million[83] Note 12: Subsequent Events This note discloses significant events occurring after the reporting period, including dividend declarations and RSU grants - On July 31, 2023, the Board of Directors declared a quarterly dividend of $0.30 per share, estimated to be approximately $6.4 million[84] - Subsequent to June 30, 2023, the Board approved and granted 2,500 Restricted Stock Units (RSUs) to employees[84] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of financial condition and results of operations, covering key drivers, accounting policies, acquisition impacts, economic challenges, and liquidity for Q2 2023 Executive Summary This section provides an overview of PetMed Express's business as a direct-to-consumer pet pharmacy, its expanded product line, and marketing strategies - PetMed Express is a leading direct-to-consumer pet pharmacy, offering a wide range of pet medications, food, and supplies, with its product line expanding to approximately 15,000 items, including 10,000 from the PetCareRx acquisition[89][90] - The company markets through national advertising and social media to enhance brand recognition, drive website traffic, acquire new customers, and maximize repeat purchases[91] Average Purchase Value | Period | Average Purchase Value | | :------------------------------- | :--------------------- | | Quarter ended June 30, 2023 | $97 | | Quarter ended June 30, 2022 | $95 | Critical Accounting Policies This section highlights key accounting policies requiring significant management judgment, including revenue recognition, business combinations, and income taxes - Key accounting policies requiring significant management judgment and estimates include revenue recognition (product sales at shipment, membership fees ratably), business combinations (acquisition method, fair value allocation, goodwill), use of estimates, and income taxes (deferred tax assets/liabilities, Section 382 analysis for NOLs)[92][94][96][98][100][102][103] - The allowance for doubtful accounts was approximately $38 thousand at June 30, 2023, compared to $35 thousand at March 31, 2023, reflecting estimated losses from customer inability to pay[97] Acquisition This section details the strategic rationale and financial impact of the PetCareRx acquisition, including the valuation of acquired intangible assets - The acquisition of PetCareRx on April 3, 2023, for $36.1 million in cash, was a strategic move to expand product offerings and distribution capabilities[104] - Fair values of acquired intangible assets (trade name, customer relationships, developed technology) were estimated using discounted cash flow models, with a discount rate of 12%[105] Economic Conditions, Challenges, and Risks This section discusses the impact of macroeconomic factors such as inflation, interest rates, and supply chain disruptions on the company's operations - Macroeconomic factors such as inflation, increased interest rates, capital market volatility, and supply chain disruptions are impacting the company's operations, customer demand, and revenue growth rates[106] - These challenges are expected to continue affecting the company's operations for the remainder of fiscal 2024, making future consumer spending patterns difficult to forecast[106] Results of Operations This section provides a detailed analysis of the company's sales, cost of sales, gross profit, and operating expenses for the reporting period Sales This section analyzes sales performance, including total net sales, new customer acquisition, and the contribution of the AutoShip program Sales Performance (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | Total net sales | $78,244 | $70,187 | $8,057 | 11.5% | | New customers acquired | 86,000 | 69,000 | 17,000 | 24.6% | | AutoShip percentage of net sales | 48.7% | 33.9% | 14.8 pp | 43.7% | | Sales as % of annual sales | 27% | 29% | (2 pp) | (6.9)% | - Sales increased by 11.5% due to incremental sales from the PetCareRx acquisition and growth in new PetMeds customers, despite declines in PetMeds reorder sales[116] - The AutoShip program's contribution to net sales significantly increased to 48.7% in Q2 2023, up from 33.9% in the prior year, with a fiscal 2024 goal of 50% of PetMeds net sales[118] Cost of Sales This section examines the cost of sales, its increase in line with sales volume, and its percentage of total sales Cost of Sales (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | Cost of sales | $55,718 | $50,244 | $5,474 | 10.9% | | Cost of sales as % of sales | 71.2% | 71.6% | (0.4 pp) | (0.6)% | - Cost of sales increased by 10.9% to $55.7 million, primarily driven by higher sales volume, while as a percentage of sales, it slightly decreased to 71.2%[120] Gross Profit This section analyzes the increase in gross profit and the improvement in gross profit percentage, driven by favorable rebates Gross Profit (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | Gross profit | $22,526 | $19,943 | $2,583 | 13.0% | | Gross profit as % of sales | 28.8% | 28.4% | 0.4 pp | 1.4% | - Gross profit increased by 13.0% to $22.5 million, and the gross profit percentage improved to 28.8%, mainly due to favorable rebates resulting from the PetCareRx acquisition[121] General and Administrative Expenses This section details the significant increase in general and administrative expenses, primarily due to payroll, professional fees, and acquisition-related costs General and Administrative Expenses (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | G&A expenses | $15,711 | $9,351 | $6,360 | 68.0% | | G&A expenses as % of sales | 20.2% | 13.3% | 6.9 pp | 51.9% | - The 68.0% increase in G&A expenses to $15.7 million was primarily driven by a $3.3 million increase in payroll (including stock compensation and severance), $1.6 million in professional fees (including acquisition costs), and higher software/systems and other overhead expenses related to the PetCareRx acquisition[122] Advertising Expenses This section reviews advertising expenses, noting an increase in spend but a decrease in customer acquisition cost due to marketing efficiency Advertising Expenses (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | Advertising expenses | $7,265 | $6,349 | $916 | 14.4% | | Advertising expenses as % of sales | 9.3% | 9.0% | 0.3 pp | 3.3% | | Customer acquisition cost | $84 | $91 | $(7) | (7.7)% | - Advertising expenses increased by 14.4% due to higher media spend and agency fees, but the cost of acquiring a new customer decreased to $84, reflecting more efficient variable marketing and a broader product offering[123] Depreciation and Amortization This section explains the substantial increase in depreciation and amortization expense, driven by new assets and acquired intangibles Depreciation and Amortization Expense (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | D&A expense | $1,678 | $753 | $925 | 122.8% | | D&A expense as % of sales | 2.1% | 1.1% | 1.0 pp | 90.9% | - Depreciation and amortization expense more than doubled, increasing by 122.8% to $1.7 million, primarily due to new property and equipment additions and the amortization of intangibles acquired from PetCareRx[125] Other Income This section analyzes the significant increase in other income, primarily from higher interest income and rental income from the acquisition Other Income (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | Total other income | $1,126 | $315 | $811 | 257.5% | | Total other income as % of sales | 1.4% | 0.4% | 1.0 pp | 250.0% | - Other income significantly increased to $1.1 million, primarily driven by higher interest income due to rising interest rates and increased rental income from PetCareRx[126] Provision for Income Taxes This section details the income tax benefit recorded, primarily due to the utilization of net operating losses from the PetCareRx acquisition Income Tax (Benefit) Provision (In thousands) for Three Months Ended June 30 | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------- | :----- | :----- | :--------- | :--------- | | (Benefit) provision for income taxes | $(115) | $1,030 | $(1,145) | (111.2)% | | (Benefit) provision for income taxes as % of sales | (0.1)% | 1.4% | (1.5 pp) | (107.1)% | - The company recorded an income tax benefit of $(0.1) million for Q2 2023, a reversal from a $1.0 million provision in Q2 2022, primarily due to the utilization of net operating losses from the PetCareRx acquisition and deductible expenses[127] Non-GAAP Financial Measures (Adjusted EBITDA) This section reconciles GAAP net income to Adjusted EBITDA, explaining its use by management and the factors contributing to its decrease Reconciliation of GAAP Net Income to Adjusted EBITDA (In thousands) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net (loss) income | $(887) | $2,775 | $(3,662) | (132)% | | Add (subtract): | | | | | | Share-based Compensation | $1,760 | $1,536 | $224 | 15% | | Income Taxes | $(115) | $1,030 | $(1,145) | (111)% | | Depreciation and Amortization | $1,678 | $753 | $925 | 123% | | Interest (Income)/Expense | $(620) | $(117) | $(503) | 430% | | Acquisition/Partnership Transactions and Other Items | $1,126 | $355 | $771 | n/m | | Employee Severance | $393 | $– | $393 | n/m | | Adjusted EBITDA | $3,335 | $6,332 | $(2,997) | (47)% | - Adjusted EBITDA decreased by 47% to $3,335 thousand in Q2 2023, reflecting the impact of increased operating expenses and acquisition-related costs, despite higher sales[115] - Adjusted EBITDA is used by management to evaluate operating performance by excluding non-cash charges (share-based compensation, D&A), income tax, interest, and other non-operational expenses like acquisition costs and severance[109][110][111] Liquidity and Capital Resources This section discusses the company's liquidity position, changes in working capital, cash flow activities, and capital allocation plans Liquidity and Cash Flow (In millions) | Metric | June 30, 2023 | March 31, 2023 | Change ($) | | :------------------------------- | :------------ | :------------- | :--------- | | Working capital | $48.5 | $95.0 | $(46.5) | | Net cash provided by operating activities (Q2) | $0.6 | N/A | N/A | | Net cash used in investing activities (Q2) | $(37.0) | N/A | N/A | | Net cash used in financing activities (Q2) | $(6.1) | N/A | N/A | - Working capital decreased significantly by $46.4 million to $48.5 million, primarily due to the $36.1 million PetCareRx acquisition and a $10.2 million increase in inventory[128] - The company has approximately $28.7 million remaining under its share repurchase plan and declared a $0.30 per share quarterly dividend on July 31, 2023[129] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section addresses the company's exposure to market risks, primarily interest rate risk affecting its cash and cash equivalents. The company manages this risk by investing in highly-liquid, short-maturity instruments and has no debt obligations or derivative financial instruments - The primary market risk for the company is interest rate risk, which impacts the return on its $61.5 million in cash and cash equivalents[131] - Cash and cash equivalents are managed within investment guidelines, primarily in federally-insured bank deposit accounts and highly-liquid investments with maturities of three months or less, to limit market risk[131] - The company has no debt obligations or derivative financial instruments, limiting its exposure to other market risks[131] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness as of June 30, 2023. It also addresses the remediation of a previously identified material weakness in internal control over financial reporting related to segregation of duties Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, as concluded by management - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, subject to external audit testing[132] Changes in Internal Control Over Financial Reporting This section reports the remediation of a material weakness in internal control over financial reporting related to segregation of duties - A material weakness identified in the fiscal year 2023 Form 10-K, concerning a lack of segregation of duties over journal entries, has been fully remediated through increased resources and modified processes[134][135] - Management believes the remediation plan has addressed the material weakness, subject to external audit testing, and there were no other material changes to internal control over financial reporting during the quarter[135][136] PART II - OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS This section states that the company is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings[140] ITEM 1A. RISK FACTORS This section confirms that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2023 - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2023[141] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section indicates that there were no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds occurred during the three months ended June 30, 2023[142] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the three months ended June 30, 2023[143] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[144] ITEM 5. OTHER INFORMATION This section reports that no director or officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023 - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[145] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications from executive officers, material contracts, and various Inline XBRL documents - The exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1) as required by the Securities Exchange Act and Sarbanes-Oxley Act[149] - Material contracts, such as Restricted Stock Agreements, are incorporated by reference[148][149] - Inline XBRL documents, including the Instance Document, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents, are filed[150]