<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / 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 000-27437
PLANETRX.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3227733
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
349 Oyster Point Blvd. , Suite 201
South San Francisco, California 94080
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 616-1500
---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 // No /x /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
Common Stock, $0.0001 par value 52,083,003
<PAGE>
PLANETRX.COM, INC.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at September 30, 1999 (unaudited) and
December 31, 1998
Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998
(unaudited)
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)
Notes to Condensed Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Signatures
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
PLANETRX.COM, INC.
Condensed Balance Sheets
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,164 $ 935
Short-term investments 3,928 -
Inventories 2,324 18
Prepaid expenses and other current assets 23,476 1,864
-------- -------
Total current assets 73,892 2,817
Property and equipment, net 6,800 2,809
Intangible assets, net 3,675 -
Other assets 188 81
-------- -------
$ 84,555 $ 5,707
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,886 $ 1,600
Accrued expenses 1,110 28
Deferred revenue 7 -
Borrowings, current - 600
Capital lease obligations, current 4 8
Notes payable, current 165 -
-------- -------
Total current liabilities 10,172 2,236
Capital lease obligations, long-term - 2
Notes payable, long-term 6,835 -
-------- -------
17,007 2,238
-------- -------
Commitments and contingencies
Stockholders' equity:
Preferred Stock: issuable in series, $0.0001 par value;
28,000 shares authorized; 24,206 and 11,039 shares
issued and outstanding, respectively (liquidation
value of $101,907) 2 1
Common Stock: $0.0001 par value; 42,000 shares
authorized; 10,178 and 6,592 shares issued and
outstanding, respectively 1 -
Additional paid-in capital 144,464 11,438
Notes receivable from stockholders (35) (35)
Deferred stock-based compensation (24,812) (3,682)
Accumulated deficit (52,072) (4,253)
-------- -------
Total stockholders' equity 67,548 3,469
-------- -------
$ 84,555 $ 5,707
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
PLANETRX.COM, INC.
Condensed Statements of Operations
(unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net revenue:
e-commerce $ 2,670 $ - $ 3,292 $ -
Sponsorship 411 - 606 -
---------- ----------- --------- -----------
3,081 - 3,898 -
Cost of net revenue:
e-commerce 2,535 - 3,229 -
Sponsorship 65 - 100 -
---------- ----------- --------- -----------
2,600 - 3,329 -
---------- ----------- --------- -----------
Gross profit 481 - 569 -
---------- ----------- --------- -----------
Operating expenses:
Marketing and sales 17,240 133 26,700 239
Product development 4,006 53 7,260 56
General and administrative 2,208 18 4,574 20
Amortization of intangible assets 547 - 701 -
Stock-based compensation 3,301 - 7,609 -
---------- ----------- --------- -----------
Total operating expenses 27,302 204 46,844 315
---------- ----------- --------- -----------
Operating loss (26,821) (204) (46,275) (315)
Interest income 681 - 1,080 -
Interest expense (569) - (1,615) -
---------- ----------- --------- -----------
Net loss $(26,709) $(204) $(46,810) $(315)
========== =========== ========= ===========
Plus effect of antidilution provisions
of Series B Preferred Stock - - (1,009) -
---------- ----------- --------- -----------
Net loss available to common
stockholders $(26,709) $ (204) $(47,819) $ (315)
========== =========== ========= ===========
Basic and diluted net loss per share $(7.47) $(1.39) $(16.68) $(6.43)
========== =========== ========= ===========
Basic and diluted pro forma net
loss per share $(0.97) $(0.08) $(2.14) $(0.25)
========== =========== ========= ===========
Weighted average shares used to
compute basic and diluted net
loss per share 3,577 146 2,867 49
========== =========== ========= ===========
Weighted average shares used to
compute pro forma basic and
diluted net loss per share 27,613 2,665 22,303 1,243
========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
PLANETRX.COM, INC.
Condensed Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------------------
1999 1998
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(46,810) $ (315)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,321 12
Non-cash interest charges related to
purchase option and warrant 1,359 -
Amortization of deferred stock-based
compensation 6,330 -
Amortization of intangible assets 701 -
Issuance of Preferred Stock and warrant for
services 77 50
Issuance of Common Stock for services 1,045 -
Stock option exercises for services 21 -
Changes in assets and liabilities:
Inventories (2,306) (10)
Prepaid expenses and other current assets (14,243) (10)
Other assets (107) -
Accounts payable 7,286 47
Accrued expenses 1,082 (26)
Deferred revenue 7 -
------------ ----------
Net cash used in operating activities (44,237) (252)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,312) (414)
Purchases of short-term investments (3,928) -
------------ ----------
Net cash used in investing activities (9,240) (414)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock for cash, net 85,273 5,199
Proceeds from exercise of purchase option 3,500 -
Proceeds from exercises of Common Stock options 1,539 -
Proceeds from notes payable 6,400 -
Principal payments on capital lease obligations (6) (6)
------------ ----------
Net cash provided by financing activities 96,706 5,193
------------ ----------
Increase in cash and cash equivalents 43,229 4,527
Cash and cash equivalents at beginning of period 935 15
------------ ----------
Cash and cash equivalents at end of period $ 44,164 $4,542
============ ==========
Supplemental cash flow information:
Cash paid for interest $ 181 $ -
============ ==========
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Supplemental non-cash financing activity:
Issuance of Common Stock for notes receivable from
stockholders $ - $ 35
============ ==========
Issuance of Common Stock in exchange for services, a
prepaid asset in 1998, and reclassified to
intangible asset in 1999 $ 614 $ -
============ ==========
Issuance of purchase option and warrant for Series B
Preferred Stock for financing $ 1,842 $ -
============ ==========
Effect of antidilution provision of Series B Preferred
Stock $ 1,009 $ -
============ ==========
Issuance of Series C Preferred Stock for advertising $ 7,500 $ -
============ ==========
Issuance of Common Stock in exchange for intangible
assets $ 3,762 $ -
============ ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE>
PLANETRX.COM, INC.
Notes to Condensed Financial Statements
(unaudited)
Note 1--The Company and Basis of Presentation
PlanetRx.com, Inc. ("PlanetRx" or the "Company") is an online healthcare
destination for commerce, content and community. The Company was incorporated
in Delaware on March 31, 1995 and was in the development stage through December
31, 1998.
The accompanying unaudited condensed financial statements reflect all
adjustments, which in the opinion of management, are necessary for the fair
presentation of the results of operations for the periods shown. The results of
operations for such periods are not necessarily indicative of the results to be
expected for the full fiscal year or any future period. These financial
statements should be read in conjunction with the Company's Registration
Statement on Form S-1.
In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes accounting
and reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will adopt SFAS 133 in its quarter ending June 30, 2000 and does not expect such
adoption to have an impact on the Company's results of operations, financial
position or cash flows.
Note 2--Short-term investments
The Company considers all investments with original maturities of less than
one year at the respective balance sheet date to be short-term investments. In
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company has
categorized its marketable securities as "available-for-sale." At September 30,
1999, amortized cost approximated fair value and unrealized gains and losses
were insignificant.
Note 3--Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ----------------
Prepaid expenses and other current assets:
<S> <C> <C>
Prepaid advertising $14,325 $1,250
Prepaid content 7,325 --
Prepaid debt issuance costs 497 --
Prepaid (intangible assets) -- 614
Other 1,329 --
------------------ ----------------
$23,476 $1,864
================== ================
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ----------------
<S> <C> <C>
Accrued expenses:
Compensation and benefits $ 680 $28
Other 430 --
------------------ ----------------
$1,110 $28
================== ================
</TABLE>
Note 4--Net loss per share
Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of shares of
Common Stock outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and common equivalents, if
dilutive. Common equivalent shares consist of the incremental common shares
subject to issuance upon conversion of the convertible preferred stock (using
the if-converted method) and shares issuable upon the exercise of stock options
and warrants, and the common shares outstanding subject to repurchase. The
periods presented below exclude potential common shares as the effect of such
shares on a weighted average basis is anti-dilutive.
7
<PAGE>
PLANETRX.COM, INC.
Notes to Condensed Financial Statements
(unaudited)
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding and the assumed conversion of the Company's Series
A, B, C, and D Preferred Stock into shares of the Company's Common Stock at the
date of original issuance.
The following table sets forth the computation of basic and diluted net
loss per share and pro forma basic and diluted net loss per share for the
periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(26,709) $ (204) $(46,810) $ (315)
Effect of anti-dilution provisions of
Series B Preferred Stock -- -- (1,009) --
------------- -------------- -------------- --------------
Net loss available to common stockholders $(26,709) $ (204) $(47,819) $ (315)
============= ============== ============== ==============
Denominator:
Weighted average common shares 10,030 3,047 9,226 2,883
Weighted average unvested common shares
subject to repurchase (6,453) (2,901) (6,359) (2,834)
------------- -------------- -------------- --------------
Denominator for basic and diluted
calculation 3,577 146 2,867 49
------------- -------------- -------------- --------------
Weighted average effect of pro forma
conversion of preferred stock:
Series A Preferred Stock 11,159 2,519 11,093 1,194
Series B Preferred Stock 5,911 - 5,320 -
Series C Preferred Stock 6,833 - 2,978 -
Series D Preferred Stock 133 - 45 -
------------- -------------- -------------- --------------
Denominator for pro forma basic and
diluted calculation 27,613 2,665 22,303 1,243
============= ============== ============== ==============
Net loss per share:
Basic and diluted $ (7.47) $ (1.39) $(16.68) $ (6.43)
============= ============== ============== ==============
Pro forma basic and diluted $ (0.97) $ (0.08) $(2.14) $ (0.25)
============= ============== ============== ==============
</TABLE>
Note 5--Non-cash financing activity
Common Stock for services and intangible assets
During 1998, the Company issued 198,000 shares of Common Stock to an
employee of the Company for services rendered in connection with the acquisition
and transfer of certain domain names. The Company recorded the estimated fair
value of the stock of $614,000 as a prepaid asset, and reclassified such amount
to intangible assets upon the transfer of such rights in January 1999. The fair
value of the stock will be amortized over the estimated useful life, which is
deemed to be two years.
During 1999, the Company issued 342,000 shares of Common Stock to a company
affiliated with an employee of the Company for additional domain names. The
Company recorded the estimated fair value of the stock of $3.8 million as an
intangible asset. The fair value of the stock will be amortized over the
estimated useful life, which is deemed to be two years.
Series B Preferred Stock purchase option and warrant for financing
In January 1999, the Company issued a purchase option for up to 700,000
shares of Series B Preferred Stock at $5.00 per share in conjunction with the
$7.0 million line of credit. The Company recorded prepaid debt issuance costs of
$1.8 million using the Black-Scholes pricing model and recognizes non-cash
interest expense over the term of the agreement. In August 1999, the purchase
option was exercised and approximately 732,000 shares of Series B Preferred
Stock were issued.
Effect of antidilution provision of Series B Preferred Stock
In June 1999, upon the change of the conversion ratio of Series B, the
Company recorded $1.0 million associated with the then outstanding Series B
stock, warrants and purchase option. The change of the conversion ratio was
valued using the difference of the fair value of the Preferred Stock in January
and June of 1999, and a calculation of potential incremental Common Shares of
approximately 274,000.
Series C Preferred Stock for advertising
In June 1999, in conjunction with the sale of Series C Preferred Stock, the
Company issued approximately 1,714,000 shares of Series C Preferred Stock to a
third-party for $7.5 million in cash and $7.5 million for future advertising
services. The services may be utilized within a two-year period. The Company
originally recorded the value of the future services as prepaid advertising. The
Company recognizes advertising expense during the period in which the services
are provided based upon the rate card value of such services.
Note 6--Subsequent Events
Initial Public Offering
In October 1999, PlanetRx.com completed its initial public offering of 6.9
million shares (including the exercise of the underwriters' overallotment
option) at a price of $16.00 per share. The Company received net cash proceeds
of approximately $101.0 million, after underwriting discounts and offering
costs.
Express Scripts
In connection with the completion of the Company's initial public offering,
the Company closed a series of agreements with Express Scripts, Inc. and its
wholly owned subsidiary, YourPharmacy.com, Inc. The Company issued 10,369,990
shares of its Common Stock, valued at approximately $168.0 million to Express
Scripts, in exchange for selected assets and liabilities of YourPharmacy.com.
The total preliminary purchase price of approximately $194.7 million also
consisted of the estimated fair value of 1,810,019 options to purchase
8
<PAGE>
PLANETRX.COM, INC.
Notes to Condensed Financial Statements
(unaudited)
the Company's Common Stock issued in exchange for outstanding YourPharmacy.com
options, as well as direct acquisition costs. The preliminary allocation of the
purchase price resulted in a preliminary excess purchase consideration over
tangible net liabilities of approximately $195.0 million, which has been
allocated primarily to goodwill with an estimated useful life of 5 years. The
Company expects to amortize approximately $10.0 million of the remainder in
1999, $39.0 million in 2000, 2001, 2002 and 2003, and $29.0 million in 2004.
The Company is also obligated to pay five annual payments of $14.7 million
to Express Scripts for promotion of the Company's website. The Company may be
obligated to pay additional incremental amounts based on Express Scripts' member
activity on the PlanetRx.com website.
The following table illustrates the components of net revenues and net loss
attributable to PlanetRx.com and Your.Pharmacy.com for the periods presented, as
if the purchase had occurred at the beginning of the period.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenue:
PlanetRx.com $ 3,081 $ - $ 3,898 $ -
YourPharmacy.com 183 - 258 -
------------ ------------- ----------- -------------
$ 3,264 $ - $ 4,156 $ -
============ ============= =========== =============
Net loss available to
common stockholders:
PlanetRx.com $(26,709) $(204) $(47,819) $(315)
YourPharmacy.com (3,312) - (5,636) -
------------ ------------- ----------- -------------
$(30,021) $(204) $(53,455) $(315)
============ ============= =========== =============
</TABLE>
Stock and stock option grants
In October 1999, the Company granted incentive stock options to an employee
to purchase 750,000 shares of Common Stock at an exercise price of $9.00 and
250,000 shares of Common Stock at an exercise price of $16.00. In connection
with the stock option grants with an exercise price of $9.00, the Company
recorded unearned compensation of approximately $5,250,000 which is being
amortized over the four-year vesting period of the related options.
In October 1999, the Company issued 25,000 shares of Common Stock to an
employee and recorded $400,000 in stock-based compensation expense.
In connection with the stock option and stock grants, the Company entered
into a full-recourse note receivable with an employee for $700,000 bearing
interest at 8.25% per annum payable over three years. Repayment of a portion of
the note may be due upon the employee's sale of any Company Common Stock,
subject to the Company's discretion. Such repayment will not exceed 50% of the
net gain earned on the stock sold.
9
<PAGE>
ITEM 2. Mangement's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including, without limitation, statements regarding the Company's
expectations, beliefs, intentions or future strategies that are signified by the
words "expects", "anticipates", "intends", "believes", or similar language. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements. In
evaluating the Company's business, prospective investors should carefully
consider the information set forth below under the caption "Additional Factors
That May Affect Future Results" in addition to the other information set forth
herein. The Company cautions investors that its business and financial
performance are subject to substantial risks and uncertainties.
Overview
PlanetRx.com is a leading online healthcare destination for commerce,
content and community. Our e-commerce website, www.PlanetRx.com, which we
launched on March 18, 1999, provides a convenient, private and informative
shopping experience for health and personal care products. We offer products in
six categories: prescription drugs; non-prescription drugs; personal care;
beauty and spa; vitamins, herbs and nutrition; and medical supplies. Our
eCenters, located within the PlanetRx.com website, incorporate content that
addresses a variety of health-related topics. In addition, we own and operate a
network of websites targeting specific healthcare conditions by providing
relevant content and a destination for online communities. These condition-
specific websites, which include diabetes.com, depression.com, obesity.com, and
alzheimers.com, are linked to the PlanetRx.com website.
Results of Operations
Because we launched our website on March 18, 1999 and have a short
operating history, we believe that period-to-period comparisons prior to 1999
are less meaningful than an analysis of recent quarterly operating results.
Accordingly, we are providing a discussion and analysis of our results of
operations that compares the quarter ended September 30, 1999 to the quarter
ended June 30, 1999.
The following table sets forth unaudited quarterly statement of operations
data for the three quarters ended September 30, 1999. This unaudited quarterly
information has been derived from our unaudited financial statements and
reflects all adjustments, which in the opinion of management, are necessary for
the fair presentation of the results of operations for the periods shown. The
results of operations for such periods are not necessarily indicative of the
results to be expected for the full fiscal year or any future period.
10
<PAGE>
PlanetRx.com, Inc.
Unaudited Quarterly Results Of Operations
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------
September 30, June 30, March 31,
1999 1999 1999
-------------------------------------------------------
<S> <C> <C> <C>
Net revenue:
e-commerce $ 2,670 $ 595 $ 27
Sponsorship 411 160 35
-------- -------- -------
3,081 755 62
-------- -------- -------
Cost of net revenue:
e-commerce 2,535 654 40
Sponsorship 65 18 17
-------- -------- -------
2,600 672 57
-------- -------- -------
Gross profit 481 83 5
-------- -------- -------
Operating expenses:
Marketing and sales 17,240 7,021 2,439
Product development 4,006 1,843 1,411
General and administrative 2,208 1,443 923
Amortization of intangible assets 547 77 77
Stock-based compensation 3,301 3,100 1,208
-------- -------- -------
Total operating expenses 27,302 13,484 6,058
-------- -------- -------
Operating loss (26,821) (13,401) (6,053)
Interest income (expense), net 112 (272) (375)
-------- -------- -------
Net loss $(26,709) $(13,673) $(6,428)
======== ======== =======
</TABLE>
Net Revenue
Net revenue for the three months ended September 30, 1999 was approximately
$3.1 million, a 308% increase over second quarter revenues of $755,000. E-
commerce revenues increased to $2.7 million for the quarter, a 349% increase
from the $595,000 in the second quarter. Sponsorship revenues increased by
157%, reaching $411,000 in the third quarter as compared to $160,000 in the
second quarter.
Cost of Net Revenue
Our cost of net revenue for the three months ended September 30, 1999 was
approximately $2.6 million. Our gross margin for the three months ended
September 30, 1999 was approximately 16%, as compared to 11% for the second
quarter. Gross margins on e-commerce rose to 5% in the third quarter, as
compared to a negative margin of 10% in the second quarter. We expect that our
e-commerce margins will fluctuate in the future as we continue with our customer
acquisition programs. Our Sponsorship margin declined to 84% in the third
quarter from the 89% achieved in the second quarter, primarily due to increased
third party fees.
Operating Expenses
11
<PAGE>
Marketing and Sales. Marketing and sales expenses increased to
approximately $17.2 million during the three months ended September 30, 1999
from approximately $7.0 million in the second quarter of 1999. This increase is
due primarily to costs relating to marketing and promotional campaigns as well
as costs related to order processing and growth in headcount. We expect that as
our e-commerce revenue increases and as we continue to focus on aggressively
marketing the PlanetRx.com brand, our marketing and sales expenses will increase
both in absolute dollars and as a percentage of net revenue.
Product Development. Product development expenses increased to
approximately $4.0 million during the three months ended September 30, 1999 from
approximately $1.8 million during the three months ended June 30, 1999. This
increase is related to the expansion of our websites and system development and
related increased headcount. We believe that continued investment in product
development is critical to attaining our strategic objectives and, as a result,
we expect product development expenses to increase in absolute dollars.
General and Administrative. General and administrative expenses increased
to approximately $2.2 million during the three months ended September 30, 1999
from $1.4 million during the three months ended June 30, 1999. This increase is
primarily related to increases in headcount and an increase in professional
service fees. We expect general and administrative expenses to increase in
absolute dollars as we expand our staff and incur additional costs related to
the anticipated growth of our business.
Amortization of Intangible Assets. Amortization of intangible assets
increased to $547,000 in third quarter of 1999 from $77,000 in the second
quarter. This increase is attributable to the amortization of additional domain
names we acquired, for which we issued 342,000 shares of common stock to a
company affiliated with an employee. At the end of the second quarter of 1999,
we recorded the estimated fair value of the stock of $3.8 million as an
intangible asset. The fair value of the intangible assets is amortized over
their estimated useful lives, which is deemed to be two years.
Stock-Based Compensation. We recorded total deferred stock-based
compensation of approximately $10.8 million for the three months ended September
30, 1999, primarily in connection with stock options granted during the period.
Our resulting amortization of deferred stock-based compensation totaled
approximately $3.3 million, as compared to $3.1 million in the prior quarter.
Our deferred compensation of approximately $24.8 million will be amortized
through 2004.
Interest Income and Expense. Interest income consists of earnings on our
cash, cash equivalents, and marketable securities and interest expense consists
of interest associated with our notes payable, borrowings, and capital lease
obligations. As of September 30, 1999 the balance outstanding under our notes
payable was approximately $7.0 million. We had no substantial interest bearing
assets or liabilities during the three months ended September 30, 1998.
Interest expense also includes the non-cash amortization of prepaid debt
issuance costs associated with a warrant and purchase option issued during 1999
in connection with one of our financing arrangements. The warrant and purchase
option provided for the purchase of up to 716,000 shares of our series B
preferred stock for approximately $5.00 per share. During 1999, we recorded
approximately $1.8 million as the fair value of the warrant and purchase option
and recognized non-cash interest expense of approximately $0.5 million for the
three months ended September 30, 1999. The remaining debt issuance costs will be
amortized over the term of the arrangement.
Liquidity and Capital Resources
Prior to our initial public offering, which closed in October 1999, we
financed our operations primarily through private sales of convertible preferred
stock and common stock. During the three months ended September 30, 1999 we
issued $7.5 million in Series D Preferred Stock, received additional cash under
our note payable arrangement totaling approximately $5.4 million, and received
$3.5 million in connection with the exercise of the Series B purchase option.
12
<PAGE>
Net cash used in operating activities was approximately $44.2 million during
the nine months ended September 30, 1999, primarily a result of quarterly net
losses as well as increases in prepaid expenses and inventories, partially
offset by increases in accounts payable, accrued expenses, and non-cash charges
for depreciation and amortization.
Net cash used in investing activities was approximately $9.2 million during
the nine months ended September 30, 1999, primarily consisting of the
acquisition of equipment and systems, including computer equipment and fixtures
and furniture. Cash used in investing activities during the nine months ended
September 30, 1999 also included the purchases of short-term investments.
Net cash provided by financing activities was approximately $96.7 million
during the nine months ended September 30, 1999, primarily consisting of net
proceeds of approximately $85.3 million from the issuance of preferred and
common stock.
As of September 30, 1999, we had approximately $48.0 million of cash, cash
equivalents, and short-term investments. As of that date, our principal
commitments consisted of obligations outstanding under operating leases, a note
payable, and marketing and advertising agreements. Although we have no material
commitments for capital expenditures, we anticipate a substantial increase in
our capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel.
As of September 30, 1999, our principal commitments consisted of obligations
outstanding under operating leases and marketing agreements with certain Web
portals aggregating approximately $35.6 million through 2005.
We currently anticipate that the net proceeds of our initial public offering
of approximately $101.0 million, received in October 1999, together with our
previously available funds at September 30, 1999, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next twelve months. We may need to raise additional funds prior to the
expiration of such period. If we raise additional funds through the issuance of
equity, equity-related or debt securities, such securities may have rights,
preferences or privileges senior to those of the rights of our common stock and
our stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
YEAR 2000
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. For example, we are dependent on the financial institutions involved
in processing our customers' credit card payments and a third party that hosts
our servers. We are also dependent on telecommunications vendors to maintain our
network and the United States Postal Service and other third-party carriers to
deliver orders to customers.
We are in the process of reviewing the year 2000 compliance of our internally
developed proprietary software. This review has included testing to determine
how our systems will function at and beyond the year 2000. We expect to continue
these tests through the end of 1999. Since inception, we have internally
developed substantially all of the systems for the operation of our websites.
These systems include the software used to provide our websites' search,
customer interaction, and transaction-processing and distribution functions, as
well as monitoring and back-up capabilities. Based upon our assessment to date,
we believe that our internally developed proprietary software is year 2000
compliant.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services, which include
software for use in our accounting, database, and security systems. The failure
of such software or systems to be year 2000 compliant could have a material
negative impact on our corporate accounting functions and the operation of our
websites. As part of the assessment of the year 2000 compliance of these
systems, we have sought assurances from these vendors that their software,
computer technology and other services are year 2000 compliant. We are
continuing to solicit responses to our requests, and we expect that we will
complete this assessment prior to December 31, 1999. Each of these vendors
supplies us with software that is significant to our overall operations. Despite
the
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responses we have received from these vendors, we cannot assure you that the
software they provide us will not experience year 2000 problems and cause
significant disruptions to our operations. Based upon the results of this
assessment, we will develop and implement, if necessary, a remediation plan with
respect to third-party software, third-party vendors and computer technology and
services that may fail to be year 2000 compliant, including replacing any third-
party software and vendors that we believe to not be year 2000 compliant. We
expect to complete any required remediation prior to December 31, 1999. Costs
incurred to date in connection with year 2000 compliance issues have been
immaterial, and, at this time, the expenses associated with this assessment and
potential remediation plan that may be incurred in the future cannot be
determined. Therefore, we have not developed a budget for these expenses. The
failure of our software and computer systems and of our third-party suppliers,
carriers and other service providers to be year 2000 complaint would have a
material adverse effect on us.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations consists
of a network of computers and telecommunications systems located throughout the
world and operated by numerous unrelated entities and individuals, none of which
has the ability to control or manage the potential year 2000 issues that may
impact the entire infrastructure. Our ability to assess the reliability of this
infrastructure is limited and relies solely on generally available news reports,
surveys and comparable industry data. Based on these sources, we believe most
entities and individuals that rely significantly on the Internet are carefully
reviewing and attempting to remediate issues relating to year 2000 compliance,
but it is not possible to predict whether these efforts will be successful in
reducing or eliminating the potential negative impact of year 2000 issues. A
significant disruption in the ability of consumers to reliably access the
Internet or portions of it or to use their credit cards would have an adverse
effect on demand for our services and would have a material adverse effect on
us.
At this time, we have not yet developed a contingency plan to address
situations that may result if we or our suppliers, carriers and other service
providers are unable to achieve year 2000 compliance because we currently do not
believe that such a plan is necessary. The cost of developing and implementing
such a plan, if necessary, could be material. Any failure of our systems, our
vendors' systems or the Internet to be year 2000 compliant could have material
adverse consequences for us. These consequences could include difficulties in
operating our websites effectively, taking product orders, making product
deliveries or conducting other fundamental parts of our business, such as our
internal accounting, database and security systems.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities-Deferral of the Effective Date of SFAS No.
133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes accounting
and reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will adopt SFAS 133 in its quarter ending June 30, 2000 and does not expect such
adoption to have an impact on the Company's results of operations, financial
position or cash flows.
ADDITIONAL FACTORS THAT MAY EFFECT FUTURE RESULTS
In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in our Final Prospectus dated
October 6, 1999, as filed with SEC, the following additional factors may affect
our future results.
Our limited operating history makes forecasting future results difficult
We were incorporated on March 31, 1995 and only began substantial operations
in September 1998. Our PlanetRx.com website was launched on March 18, 1999. As a
result of our limited operating history, it is difficult to accurately forecast
our revenues and we have limited meaningful historical financial data upon which
to base planned operating expenses. We base our current and future expense
levels on our operating plans and estimates of future revenues and our expenses
are to a large extent fixed. Our revenues and operating results are difficult
for us to forecast because we operate with substantially no backlog. As a
result, we may be unable to adjust our spending in a timely manner to compensate
for any unexpected revenue shortfall. This inability could cause our net losses
in a given quarter to be greater than expected.
We have a history of losses and we anticipate future losses and negative cash
flow
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Since our inception, we have incurred significant losses and negative cash
flow, and we expect operating losses and negative cash flow to continue for the
foreseeable future. We incurred net losses of $7,000 for the year ended 1996,
$137,000 for the year ended 1997, $4.1 million for the year ended 1998 and $47.8
million for the nine-month period ended September 30, 1999. As of September 30,
1999, we had an accumulated deficit of $52.1 million. We anticipate that our
losses will increase significantly from current levels because we expect to
incur additional costs and expenses related to:
. the development of the PlanetRx.com brand, marketing, and other
promotional activities;
. the expansion of our inventory management and distribution operations at
our facilities in Memphis, Tennessee or in new facilities established
elsewhere;
. the continued development of the PlanetRx.com website, our computer
network, and the systems that we use to process customers' orders and
payments;
. the expansion of our product offerings and the categories of the products
that we offer;
. the continued development of relevant, healthcare-related content on the
PlanetRx.com website;
. the development of marketing and distribution relationships with strategic
business partners;
. increases in our general and administrative functions to support our
growing operations; and
. the establishment and development of relationships in the healthcare
industry, particularly in the areas of reimbursement and managed care with
insurance companies and pharmacy benefit management companies.
Our ability to become profitable depends on our ability to generate and
sustain substantially higher revenues while maintaining reasonable expense
levels. If we do achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability on a quarterly or annual basis in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Online sales of prescription drugs, non-prescription drugs, personal care
products and medical supplies may not achieve market acceptance, which could
result in slower revenue growth, loss of revenues, and increased operating
losses
If we do not attract and retain a high volume of online customers to our
website at a reasonable cost, our business and operating results will be
adversely affected. The online market for our products is in its infancy. We may
not be able to convert a large number of consumers from traditional shopping
methods to online shopping for prescription drugs, non-prescription drugs,
personal care products, and medical supplies. Specific factors that could
prevent widespread consumer acceptance of the online sales of our products,
include:
. shipping charges and delivery times associated with online purchases;
. delays and other inefficiencies associated with processing orders for
prescription products covered by insurance;
. lack of reimbursement of customer prescriptions by some healthcare payors;
. inability to serve the acute care needs of customers, including emergency
prescription drugs and other urgently needed products;
. pricing that does not meet customer expectations;
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. customer concerns about the security of online transactions and the
privacy of their personal health information;
. product damage from shipping or shipments of wrong or expired products
from our suppliers, resulting in a failure to establish customers' trust
in buying our products online;
. delays in responses to customer inquiries; and
. difficulties in returning or exchanging products.
If we fail to establish the PlanetRx.com brand or attract repeat customers, we
may not be able to increase our revenues
We believe that we must continue to strengthen the PlanetRx.com brand,
particularly because of the early stage and competitive nature of the online
market for our products. If we fail to establish our brand quickly, we will be
at a competitive disadvantage and may lose the opportunity to build a critical
mass of customers. The development of our brand will depend largely on the
success of our marketing efforts and our ability to provide consistent, high
quality customer experiences. We cannot be certain that our brand promotion
activities will be successful, or will result in increased revenues. If we
achieve increased revenues, there can be no assurance that these revenues will
be sufficient to offset the expenditures incurred in building our brand.
In addition, due to our limited operating history, we have not established a
material amount of repeat business from regular customers. While our websites
are designed to encourage repeat business, we do not yet have sufficient
historical data on how successful this strategy will be. Therefore, it is
difficult to forecast what our revenues from repeat customers will be or our
overall revenue trends.
We expect our quarterly financial results to fluctuate
We expect our revenues and operating results to vary significantly from
quarter to quarter due to a number of factors, including:
. our ability to attract visitors to the PlanetRx.com website and to convert
those visitors into customers;
. our ability to satisfy customer demand, retain existing customers, and
attract new customers at a reasonable cost;
. the frequency and size of any repeat customer orders;
. the nature and amount of publicity for us or our competitors;
. changes in the growth rate of Internet usage and online purchasing;
. the mix of products sold by us;
. our ability to maintain adequate inventory levels;
. changes in our pricing policies or the pricing policies of our online and
traditional competitors;
. purchasing patterns, including holiday purchasing patterns, and the
purchasing of seasonal products such as sunscreen and allergy medications;
and
. costs related to potential acquisitions of technologies or businesses.
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We currently expect that a majority of our revenues for the foreseeable
future will come from orders of prescription drugs, non-prescription drugs,
personal care products, and medical supplies on our PlanetRx.com website as well
as from sponsors on our satellite websites. The volume and timing of orders are
difficult to predict because the online market for these products is in its
infancy. Our operating expenses are largely based on anticipated revenue trends
and a high percentage of our expenses are fixed in the short term. As a result,
a delay in generating or recognizing revenue for any reason could cause
significant variations in our operating results from quarter to quarter and
could result in greater than expected operating losses.
Because our operating results fluctuate and are difficult to predict, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. In some future quarter, our operating
results may fall below the expectations of public market analysts and investors.
In this event, the price of our common stock may fall.
We may be unable to significantly expand our customer base because of limited
insurance reimbursement coverage for prescription drugs that we sell
We currently have limited access to insurance reimbursement coverage for our
prescription products. The majority of purchases in the prescription drug market
are paid for by third-party payors. Additionally, the inclusion of prescription
drugs in Medicare coverage, as is being considered in legislation before the
U.S. Congress, could harm our business. If Medicare is expanded to provide
government reimbursement for any prescription drugs that we sell, and we are not
allowed to participate as a provider under Medicare, we could lose these sales.
A disproportionate dependence on purchases of prescriptions without
reimbursement may limit our penetration of the prescription drug market, and may
thus have an adverse impact on our business.
Our relationship with Express Scripts, Inc. is complex and requires significant
cash payments for which we may receive no benefit
In August 1999, we entered into a series of agreements with Express Scripts,
Inc. and its wholly owned subsidiary, YourPharmacy.com. These agreements involve
many aspects of our business, including the sale of equity securities, the
operation of our respective websites, significant cash payments to Express
Scripts, and the inclusion of us as an authorized pharmacy in the Express
Scripts network. These arrangements are complex and will require significant
efforts to operate successfully. As a result, there are many risks related to
these arrangements, including some that we may not have foreseen.
In particular, we have committed to pay Express Scripts a minimum of
$14,650,000 annually for five years, with a potential five-year extension, plus
an incremental fee based on Express Scripts members' activity on our website.
Express Scripts has committed to actively promote us as Express Scripts' online
pharmacy; however, we do not control the choice of ads and the advertising may
not result in additional customers. If we are not successful in converting a
significant number of Express Scripts members into customers, we may not receive
any benefit from our cash payments to Express Scripts and our revenues will be
harmed.
Additionally, while our relationship with Express Scripts significantly
broadens our ability to provide prescription medication to consumers with
insurance reimbursement plans, it may not allow all of our potential customers
to purchase these medications from us and receive insurance reimbursement.
Due to Express Scripts' 19.9% ownership of our common stock post-offering, it
will be able to influence all matters requiring approval by our stockholders,
including the approval of mergers or other business combinations.
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If we are not able to maintain existing contracts or obtain additional contracts
with insurance companies and pharmacy benefit managers, our customers may not be
able to obtain reimbursement for purchases of prescription products, which would
impair our ability to expand our customer base
To obtain reimbursement on behalf of our customers for the prescription
products that they purchase on our website, we need to obtain contracts with
numerous insurance companies and pharmacy benefit managers. Although we
currently have contracts with a limited number of insurance companies and
pharmacy benefit managers, most of these contracts are short-term and may be
terminated with less than 30 days' prior notice. Additionally, we do not
currently have contracts with the two largest pharmacy benefit managers, which
represent a significant portion of the reimbursed payments for prescription
drugs.
Our ability to obtain additional contracts with other insurance companies and
pharmacy benefit managers, or retain our existing contracts for an extended
period of time, is uncertain. Many of these companies are in the early stages of
evaluating the impact of the Internet and online pharmacies on their businesses.
Many of these companies may delay their decisions to contract with online
pharmacies or may decide to develop their own Internet capabilities that may
compete with us. In addition, many insurance companies have existing contracts
with chain drugstores and pharmacy benefit managers that have announced their
intentions to establish online pharmacies.
In addition, it is likely that some insurance companies and pharmacy benefit
managers will contract with only one or a limited number of online pharmacies.
If our online competitors obtain these contracts and we do not, we would be at a
competitive disadvantage.
Even if we are successful in gaining widespread access to insurance
reimbursement, each insurance application must be processed individually, which
will raise the costs of processing prescription orders and may delay our order
processing time, which may be harmful to our business. In addition, if customers
do not initially embrace our online insurance coverage procedure, we may remain
dependent on that portion of the market that is willing to pay cash for their
prescriptions.
We may not be able to compete successfully against current and future
competitors
We do business in a market that is highly competitive, and we expect
competition to intensify in the future. Increased competition is likely to
result in price reductions, reduced gross margins, and loss of market share, any
of which could harm our net revenue and results of operations. We currently or
potentially compete with a variety of companies, many of which have
significantly greater financial, technical, marketing and other resources. Our
competitors include:
. various online stores that sell prescription drugs as well as over-the-
counter drug and health, wellness, beauty and personal care items;
. chain drugstores;
. independent drugstores and pharmacies;
. mass-market retailers;
. warehouse clubs; and
. pharmacy benefit managers that sell prescription drugs directly.
Most traditional drugstores have operated for a longer period of time, have
greater financial resources, have established marketing relationships with
leading manufacturers and advertisers and have secured greater presence in
distribution channels. Some of these companies may also commence or expand their
presence on the Internet. We also compete with hospitals, HMOs and mail order
prescription drug providers, all of whom are or may begin offering products and
services, as well as healthcare-related
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information similar to our content, over the Internet. Finally, we are aware of
numerous other smaller entrepreneurial companies that are focusing significant
resources on developing and marketing products and services that will compete
directly with those offered at PlanetRx.com.
We may face a significant competitive challenge from alliances entered into
by our competitors. For instance, one of our direct online competitors,
drugstore.com, has recently entered into a relationship that gives them access
to a major pharmacy benefit manager. Our competitors may continue to gain access
to major pharmacy benefit managers, major HMOs or chain drugstores. The combined
resources of these partnerships could pose a significant competitive challenge
to PlanetRx.com and could prevent these pharmacy benefit managers, HMOs or chain
drugstores from also entering into relationships with us and could limit our
ability to penetrate the prescription drug market.
We believe the principal factors on which we will compete include:
. recognition of the PlanetRx.com brand;
. product selection;
. personalized services;
. convenience and ease of use;
. price;
. accessibility;
. customer service;
. quality of interactive tools;
. quality of content; and
. reliability and speed of fulfillment for products ordered.
We will have no control over how successful our competitors are in addressing
these factors. In addition, our online competitors can duplicate many of the
products or services and much of the content that we offer, with little
difficulty.
Our gross margins may be affected by downward price pressure on pharmaceutical
drugs
Third-party payors are increasingly challenging the price and cost-
effectiveness of medical products and services. While we may be successful in
gaining widespread access to insurance reimbursement, the efforts of third-party
payors to contain costs will place downward pressures on gross margins from
sales of prescription drugs. We cannot be certain that our products or services
will be considered cost effective or that adequate third-party reimbursement
will be available to enable us to maintain price levels sufficient to realize
adequate profit margins on prescription drugs. Our failure to realize adequate
profit margins on prescription drugs would harm our business.
We depend on a limited number of suppliers and third-party carriers; if they do
not perform, we will not be able to effectively ship orders
To generate the significant customer traffic, volume of purchases, and repeat
purchases that we believe are crucial to obtaining sufficient revenues, we must
develop and maintain customer trust in the timing and accuracy of our product
deliveries. We purchase a substantial majority of our prescription and
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over-the-counter products from one vendor, McKesson. We have a multi-year
agreement with McKesson that requires us to purchase 80% of our prescription
drugs, non-prescription drugs, home healthcare products, sundries, and health
and beauty aids from McKesson. However, if McKesson were unwilling or unable to
supply products to us in sufficient quantities and in a timely manner, we may
not be able to secure alternative suppliers on acceptable terms in a timely
manner, or at all. Although our agreement with McKesson has a multi-year term,
it can be terminated by us or by McKesson upon 60 days notice.
In addition to McKesson, we use other suppliers, particularly with respect to
our other product categories. These suppliers may not continue to sell products
to us on existing terms and we may not be able to establish new or extend
current fulfillment terms on a timely or acceptable basis or at all. Negotiating
and implementing relationships with additional vendors or distributors may take
substantial time and resources. If we cannot develop and maintain relationships
with vendors that allow us to obtain sufficient quantities of products on
acceptable commercial terms, our business may be harmed.
We also rely on third-party carriers for product shipments, including
shipments to and from our distribution facilities. We are therefore subject to
the risks, including employee strikes and inclement weather, associated with our
carriers' ability to provide delivery services to meet our fulfillment and
shipping needs. Failure to deliver products to our customers in a timely and
accurate manner would harm our reputation and our business and results of
operations.
If we fail to provide updated healthcare content and other features that
consumers demand, we will not be able to attract or retain customers, which
would result in slower revenue growth
If we fail to update and improve our healthcare content and interactive tools
in a timely and efficient manner, we may not be able to attract or retain
customers. We must continue to provide professionally created healthcare
content, interactive tools and other features that consumers demand. This will
require the expenditure of significant funds and demand a material amount of
time of senior management. In addition, we must also anticipate and respond
quickly to consumer preferences and demands regarding healthcare information.
Pharmacy or prescription processing errors could produce liability and
significant negative publicity
Mistakes relating to the dispensation of prescription drugs could produce
liability and negative publicity that would be adverse to our business.
Pharmacies occasionally make mistakes relating to prescriptions, dosage and
other aspects of the medication dispensing process. We expect that sales of
pharmaceutical products will account for a significant percentage of our
revenues. Because we distribute these products directly to the customer, we are
the most visible participant in the medication distribution chain. While we do
carry product liability insurance, it may be insufficient to cover potential
claims.
If a regulatory body alleges that we have engaged in the practice of medicine,
we may be subject to significant liabilities
The practice of medicine requires licensing under applicable state law. It is
not our intent to practice medicine and we have structured our websites and our
business to avoid violation of state licensing requirements. However, a state
regulatory authority could at some time allege that some portion of our business
violates these statutes. An allegation that we practice medicine could result in
significant liabilities. Further, any liability based on a determination that we
engaged in the unlawful practice of medicine may be excluded from coverage under
the terms of our general liability insurance policy.
Information provided by our pharmacists or on our PlanetRx.com website or
satellite websites may result in liability or negative publicity
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In the event that our websites or our pharmacists provide erroneous or
misleading information to our customers, we may be subject to liability or
negative publicity that could have an adverse impact on our business. Our
pharmacists are required by law to offer counseling to our customers about
medication, dosage, delivery systems, common side effects and other information
deemed to be significant by the pharmacists. Our pharmacists may have a duty to
warn customers regarding any potential adverse effects of a prescription drug if
the warning could reduce or negate these effects. This counseling is in part
accomplished through e-mail, our toll-free telephone service and inserts
included with the prescription, which may increase the risk of miscommunication
because the customer is not personally present or may not have provided all
relevant information to the pharmacist. In addition, information we provide
through our Ask the Pharmacist service on our websites may subject us to
liability to the extent that it contains any inaccuracies.
We also post product and health-related information on our PlanetRx.com
website and related satellite websites. Moreover, because visitors to our
satellite sites post content unedited by us, this content could give rise to
liability for us. This creates the potential for claims to be made against us
for negligence, personal injury, wrongful death, product liability, malpractice,
invasion of privacy or other legal theories based on our product or service
offerings. To the extent that our content is perceived as promoting one product
over another, our reputation could be harmed. Because online pharmacies are in
an early stage of development, the amount of negative publicity that we or the
online pharmacy industry receive could be disproportionate in relation to the
negative publicity received by traditional pharmacies.
Although we carry general liability, product liability and professional
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to protect us from all liability that may be imposed. In
addition, we could face severe negative publicity if we are sued on these or
other grounds, which could hurt the PlanetRx.com brand and prevent us from
attracting and retaining customers. We cannot be certain that we will be able to
maintain general liability, product liability and professional liability
insurance in the future on acceptable terms or with adequate coverage against
potential liabilities.
We may be unable to accommodate increased consumer traffic on our website, which
would limit our ability to increase sales
If we fail to accommodate increased traffic on our website, our business may
be seriously harmed. Our commerce revenues depend on the number of customers who
use our website to purchase products. We depend on the satisfactory performance,
reliability and availability of our websites, transaction processing systems,
network infrastructure, customer support center, distribution and shipping
systems.
We will be required to add additional software and hardware and further
develop and upgrade our existing technology, transaction-processing systems,
network infrastructure and distribution facilities to accommodate increased
traffic on our websites and increased sales volume. Our inability to scale our
systems may cause unanticipated system disruptions, slower response times,
degradation in levels of customer service or impaired quality and speed of order
fulfillment. We may be unable to effectively upgrade and expand our transaction-
processing systems to accommodate increases in the use of our websites.
We may suffer systems failures on our websites which could result in negative
publicity and reduce the volume of products sold
From time to time, we have experienced temporary system interruptions in
connection with dramatically increased traffic on our website in response to
promotional activities. Although these interruptions have not significantly
harmed our operations, any system failure that results in the unavailability of
our websites or reduced order fulfillment performance could result in negative
publicity and reduce the volume of products sold, which would negatively affect
our business. The satisfactory performance, reliability and availability of our
websites, transaction processing systems and network
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infrastructure are critical to our reputation and our ability to attract and
retain customers and to maintain adequate customer service levels.
In addition, because we outsource some aspects of our system, the cause of
system interruptions may be outside of our control, and therefore we may not be
able to correct any problem in a timely manner or at all. For example, we rely
substantially on Exodus Communications to maintain our servers, and Cybercash to
handle many of the elements of our transaction processing.
Our growth and changing operations have placed a significant burden on our
management system and resources, and any inability to manage this growth could
result in higher operating costs and lower gross margins
We have expanded our operations rapidly since our inception and the launch of
our PlanetRx.com website in March 1999. The number of our employees increased to
357 as of September 30, 1999. Additionally, many of our senior management have
joined us within the last twelve months. We intend to hire additional personnel
in order to pursue existing and potential market opportunities. Our growth has
placed, and our anticipated future operations will continue to place, a
significant strain on our management systems and resources, which could result
in slower revenue growth, increased operating costs and lower gross margins. Our
ability to successfully offer products and services and implement our business
strategy in a rapidly evolving market requires an effective planning and
management process. We also expect that we will need to continue to improve our
transaction-processing, operational, financial and managerial controls and
reporting systems and procedures as we grow.
Many of our senior management have no prior management experience at public
companies, and many of our executive officers have no prior management
experience in the healthcare industry. We cannot be certain that our current and
planned personnel, systems, procedures and controls will be adequate to support
our future operations, that management will be able to hire, train, retain,
motivate and manage required personnel or that our management will be able to
successfully identify, manage and exploit existing and potential market
opportunities.
If we are unable to attract and train adequate numbers of customer service
personnel, we may not be able to provide sufficient customer service
Our business depends in part on our ability to maintain a superior level
customer service. If we are unable to attract and train adequate numbers of
customer service personnel, our efforts to establish our brand may be harmed and
our business results may be impaired. We will need to commit significant
additional financial resources to attract and train customer service personnel
in order to provide our customers with high quality customer service.
We may be unable to expand the breadth and depth of our product offerings in a
cost-effective and timely manner
It is important to our future success to expand the breadth and depth of our
product offerings. For example, we recently introduced the sale of branded
cosmetics and salon hair care products on our PlanetRx.com website. Expansion of
our product categories and product offerings in this manner will require
significant additional expenditures and could strain our management, financial
and operational resources. For example, we may need to incur significant
marketing expenses, develop relationships with new suppliers or manufacturers,
or comply with new regulations. We cannot be certain that we will be able to
expand our product categories or offerings in a cost-effective or timely manner,
or that we will be able to offer every product in demand by our customers.
Furthermore, any new product offering that is not favorably received by
consumers could damage our reputation. The lack of market acceptance of new
products or our inability to generate satisfactory revenues from expanded
product offerings to offset their costs could harm our business.
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<PAGE>
If we do not successfully expand our distribution operations, we may not be able
to meet customer demand, which would result in loss of customers and revenues
If we do not successfully expand our distribution operations on an ongoing
basis to accommodate increases in demand, we will not be able to fulfill our
customers' orders in a timely manner, which would harm our business. All of our
distribution operations are handled at our facilities in Memphis, Tennessee. Any
future expansion may cause disruptions in our business and may be insufficient
to meet our ongoing distribution requirements.
We may be unable to meet our future capital requirements, which would impair our
ability to fund our operations
We require substantial working capital to fund our operations. We expect that
funds from operations and the net proceeds of our recently completed initial
public offering will be sufficient to fund our operations for the next twelve
months, but we cannot assure you that we will be able generate sufficient funds
from our operations after that time, in which case, we may need to raise
additional funds. However, we cannot be sure that additional financing would be
available to us on favorable terms or at all.
If we raise funds by issuing equity, equity-related or debt securities, these
securities may have rights, preferences and privileges that are senior to our
existing common stock. In addition, the issuance of these securities may cause
immediate and substantial dilution to our existing stockholders.
We face the risk of inventory theft and diversion, which could result in
increased operating costs
Many of our products are valuable, and their small size and packaging render
them particularly susceptible to theft and diversion in the course of
fulfillment and distribution. If the security measures we use at our
distribution center and during the distribution process do not prevent
significant inventory theft and diversion, our gross profit margins and results
of operations may be harmed.
If our online security measures fail, we could incur significant liabilities
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information, such as prescription or health
condition information, we could be subject to liability, including lawsuits.
This would be costly, divert the attention of our management and cause
significant harm to our reputation.
We are exposed to risks associated with credit card fraud, which may reduce
collections and discourage online transactions
If we fail to adequately control fraudulent credit card transactions, our
revenues and results of operations would be harmed because we do not carry
insurance against this risk. Under current credit card practices, we are liable
for fraudulent credit card transactions because we do not obtain a cardholder's
signature.
If one or more of our pharmacy licenses is not renewed, we may not be able to
ship our products into markets into which we currently deliver our products
23
<PAGE>
We currently hold pharmacy licenses that allow us to ship into all U.S.
states and territories, and these licenses generally must be renewed on an
annual basis. If one or more of these licenses is not renewed, for whatever
reason, our business and reputation would be significantly harmed.
Government regulation of the health care and pharmacy industries may expose us
to risks that we may be fined or exposed to civil or criminal liability, receive
negative publicity or be prevented from shipping products into one or more
states
Our business is subject to extensive federal, state, and local regulations,
many of which are specific to pharmacies and the sale of over-the-counter drugs.
Many of these regulations are new and subject to varying interpretations, which
makes the task of assuring compliance difficult. Noncompliance with one or more
of these regulations could result in substantial fines and other monetary
penalties, exclusion from participation in some networks, and/or criminal
sanctions which could adversely affect our business.
Our facilities, systems and operations are vulnerable to natural disasters and
other unexpected problems
Fire, flood, power loss, telecommunications failure, break-ins, earthquakes,
tornadoes and similar events could damage our communications hardware and other
computer hardware operations, which are located in South San Francisco,
California and our distribution center and pharmacy, which are located in
Memphis, Tennessee. This could cause interruptions or delays in our business,
loss of data or render us unable to accept and fulfill customer orders. In
addition, computer viruses, electronic break-ins or other similar disruptions
could harm our websites. We have no formal disaster recovery plan and our
insurance may not adequately compensate us for losses that may occur due to
failures or interruptions in our systems.
The loss of any of our key personnel, or our failure to attract and retain other
highly qualified personnel in the future, could result in an inability to manage
our growing operations
The loss of the services of one or more of our key personnel could seriously
disrupt our business. We depend on the continued services and performance of our
senior management and other key personnel, particularly William J. Razzouk,
Chief Executive Officer and Chairman of the Board. Our future success also
depends upon the continued service of our executive officers and on our ability
to attract and retain key sales, marketing and support personnel, as well as
pharmacists and software developers. Competition for these individuals is
intense, and we may not be able to attract, assimilate or retain additional
highly qualified personnel in the future. Many of our senior management joined
us within the last twelve months, including Mr. Razzouk and Steve Valenzuela,
our Chief Financial Officer. Our future success depends on the ability of these
officers to effectively work together with our original management team. Except
for Mr. Razzouk, none of our officers or key employees is bound by an employment
agreement. Our relationships with these officers and key employees are at will.
We do not have "key person" life insurance policies covering any of our
employees.
We may be unable to protect the intellectual property rights upon which our
business relies, which could harm our competitiveness and cause customer
confusion
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to protect
our proprietary rights. These legal protections afford only limited protection
for our intellectual property and trade secrets. We have filed applications for
United States trademark registrations for, among others, "PlanetRx.com." We
may be unable to secure this registration. It is also possible that our
24
<PAGE>
competitors or others will adopt service names similar to ours, thereby impeding
our ability to build brand identity and possibly leading to customer confusion.
In addition, there could be potential trade name or trademark infringement
claims brought by owners of other registered trademarks or trademarks that
incorporate variations of the term PlanetRx.com. Any claims or customer
confusion related to our trademark, or our failure to obtain trademark
registration, would negatively affect our business.
Effective trademark, service mark, copyright and trade secret protection may
not be available in every country in which we will sell our products and
services online. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names and to determine
the validity and scope of the proprietary rights of others. If third parties
prepare and file applications in the United States that claim trademarks used or
registered by us, we may oppose those applications and be required to
participate in proceedings before the United States Patent and Trademark Office
to determine priority of rights to the trademark, which could result in
substantial costs to us. Any litigation or adverse priority proceeding could
result in substantial costs and diversion of resources and could seriously harm
our business and operating results. Our means of protecting our proprietary
rights may not be adequate, and our competitors could independently develop
similar technology.
We may not be able to acquire new domain names or maintain our existing ones
Our strategy is dependent, in part, on our ability to use our satellite
websites and domain names to increase revenues. We believe that operating
satellite websites with names like ''diabetes.com'' that consumers can easily
locate and that provide useful information will attract consumers to these
websites and, by having links to the PlanetRx.com website, will increase traffic
and revenue opportunities. We currently hold the Internet domain name
''PlanetRx.com,'' as well as various other related names, including
arthritis.com, diabetes.com and cancer.com. Domain names generally are regulated
by Internet regulatory bodies. The regulation of domain names in the U.S. and in
foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names, which could result in the
creation of domain names similar to ours. As a result, we may be unable to
acquire or maintain the ''PlanetRx.com'' domain name or our other domain names
in all of the countries in which we conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our trademarks and other proprietary
rights.
We may face costly product liability claims by consumers
The products we carry, including prescription drugs, non-prescription drugs
and dietary supplements, are particularly susceptible to product liability
claims. Any claim of product liability by a consumer against us, regardless of
merit, could be costly financially and could divert the attention of our
management. It could also create negative publicity, which would harm our
business. Although we maintain product liability insurance, it may not be
sufficient to cover a claim if one is made.
We may be found to infringe proprietary rights of others, which could result in
significant liabilities
Third parties may claim infringement by us with respect to past, current or
future proprietary rights. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any infringement claim, whether
25
<PAGE>
meritorious or not, could be time-consuming, result in costly litigation or
require us to enter into royalty or licensing agreements. These royalty or
licensing agreements might not be available on terms acceptable to us or at all.
If we engage in any acquisitions, we will incur a variety of costs, and the
anticipated benefits of the acquisition may never be realized
If appropriate opportunities present themselves, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions and no material acquisition is currently
being pursued. If we do undertake any transaction of this sort, the process of
integrating an acquired business, technology, service or product may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, the anticipated benefits of any acquisition may fail
to be realized. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and/or amortization expenses related to goodwill and other intangible assets,
which could adversely affect our business, results of operations and financial
condition.
In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect our ability to make acquisitions or
be acquired. For example, elimination of the "pooling" method of accounting
for mergers could increase the amount of goodwill that we would be required to
account for if we merge with another company, which would have an adverse
financial impact on our future operating results. Further, accounting rule
changes that reduce the availability of write-offs for in-process research and
development costs in connection with an acquisition could result in the
capitalization and amortization of these costs and negatively impact results of
operations in future periods.
Year 2000 issues could affect our business
Many currently installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century dates. As a
result, many companies' software and computer systems may need to be upgraded or
replaced to comply with these year 2000 requirements. Our business is dependent
on the operation of numerous systems that could potentially be impacted by year
2000 related problems. If our suppliers' systems, or third-party software that
we rely on, are not year 2000 compliant, or if our efforts to make our systems
year 2000 compliant are not successful, then our critical systems will fail and
our business will be harmed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000".
We are controlled by officers, directors and entities affiliated with them
Based upon shares outstanding as of October 31, 1999, executive officers,
directors and entities affiliated with them will, in the aggregate, beneficially
own approximately 35.2% of our outstanding common stock following the completion
of the initial public offering. These stockholders, if acting together, would be
able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions.
Antitakeover provisions applicable to us could preclude an acquisition, even if
an acquisition would be beneficial to our stockholders
Provisions of our certificate of incorporation, bylaws and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders.
Risks Related to Regulation of Internet Commerce
If we are required to charge taxes on purchases, we may have to increase prices,
which could lead to a loss of sales, or could result in increased net losses
We do not collect sales or other similar taxes in respect of goods sold by
PlanetRx.com, except from purchasers located in California and Tennessee.
However, one or more additional states may seek to impose sales tax collection
obligations on out-of-state companies which engage in or facilitate online
commerce, and a number of proposals have been made at the state and local level
that would impose additional taxes on the sale of goods and services through the
Internet. These proposals, if adopted, could
26
<PAGE>
substantially impair the growth of e-commerce, and could adversely affect our
ability to derive financial benefit from our commercial activities.
Additionally, the imposition of these taxes would force online retailers to
manage a more complex transaction processing system.
Government regulation of the Internet and data transmission over the Internet
could affect our operations
Our customers regularly provide us with confidential information, such as
personal health information and credit card numbers. Laws and regulations
directly applicable to communications or commerce over the Internet are becoming
more prevalent. A recent session of the United States Congress resulted in
legislation governing children's privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. Laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We had marketable securities of $30.1 million as of September 30, 1999.
These marketable securities consist of highly liquid investments with original
maturities at the date of purchase of between 1 day and 4 months. These
investments are subject to interest rate risk and will fall in value if market
interest rates increase. A hypothetical increase in market interest rates by 10
percent from levels as of September 30, 1999 would cause the fair value of these
investments to decline by an immaterial amount. Because we are not required to
sell these investments before maturity, we have the ability to avoid realizing
losses on these investments due to a sudden change in market interest rates.
However, we could choose to sell these investments before maturity at a loss.
Declines in interest rates over time will, however, reduce our interest income.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks, copyrights and other intellectual property rights. The Company is
not currently aware of any legal proceedings or claims that the Company believes
will have, individually or in the aggregate, a material adverse effect on the
Company's financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the Registration Statement for the Company's initial
public offering, filed on Form S-1 under the Securities Act of 1933 (File No.
333-82485), was October 6, 1999. The class of securities registered was Common
Stock. The offering commenced on October 7, 1999. The managing underwriters
for the offering were Goldman, Sachs & Co., BancBoston Robertson Stephens Inc.,
Hambrecht & Quist and William Blair & Company, L.L.C.
Pursuant to the Registration Statement, the Company sold 6,900,000 shares
of its Common Stock for an aggregate offering price of $110.4 million.
27
<PAGE>
The Company incurred expenses of approximately $9.3 million, of which $7.7
million represented underwriting discounts and commissions and approximately
$1.6 million represented other expenses related to the offering. The net
offering proceeds to the Company after total expenses was approximately $101.0
million.
We plan to use the net proceeds for general corporate purposes, including
working capital. The net proceeds have been invested in cash, cash equivalents
and short-term investments. The use of the proceeds from the offering does not
represent a material change in the use of the proceeds described in the
prospectus.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the quarter ended September 30, 1999, the following matters were submitted to
the security holders of the Company:
The Company solicited the approval of its stockholders through a Written
Consent of Stockholders to Amend and Restate its Certificate of Incorporation to
authorize the issuance of shares of Series D Preferred Stock.
Prior to October 6, 1999, the Company solicited the approval of its
stockholders through a Written Consent of Stockholders to Amend and Restate its
Certificate of Incorporation and approve the 1999 Omnibus Equity Incentive Plan,
Employee Stock Purchase Plan, and the 1999 Non-employee Directors Option Plan.
Holders of a majority of the outstanding shares of the Company voted to approve
the action.
Additionally, prior to October 6, 1999, the Company solicited the approval of
its stockholders through a Written Consent of Stockholders to approve an Asset
Contribution and Reorganization Agreement between Express Scripts, Inc.,
YourPharmacy.com, Inc. and the Company and pursuant to which, among other
things, the Company issued (i) Common Stock equal to 19.9% of the Company's
outstanding Common Stock as calculated immediately after the Company's initial
public offering and (ii) options to purchase the Company's Common Stock granted
to certain employees of YourPharmacy.com, Inc.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this Form
10-Q.
28
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLANETRX.COM, INC.
(Registrant)
By: /s/ Steve Valenzuela
---------------------
Steve Valenzuela
Chief Financial Officer,
Vice President, Finance
and Secretary
Date: November 17, 1999
29
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
2.1** Asset Contribution and Reorganization Agreement between
PlanetRx.com, Inc., PRX Holdings, Inc., PRX Acquisition Corp.,
YourPharmacy.com, Inc. and Express Scripts, Inc., dated August
31, 1999.
3.1** Certificate of Incorporation of the Registrant, as amended to
date incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File No. 333-
82485).
3.2** Bylaws of the Registrant, incorporated herein by reference to
Exhibit 3.4 to the Company's Registration Statement on Form S-1
(File No. 333-82485).
4.1** Reference is made to Exhibits 3.1 and 3.2.
4.2** Amended and Restated Investors' Rights Agreement.
4.3** Specimen Common Stock Certificate.
10.1** Form of Indemnification Agreement.
10.2** 1999 Equity Incentive Plan.
10.3** Employee Stock Purchase Plan.
10.4** 1999 Director Stock Option Plan.
10.5** Employment Agreement between Registrant and William J. Razzouk,
dated November 11, 1998.
10.6** Form of Warrant for the purchase of Preferred Stock.
10.7** Real Property Lease between Registrant and Beiz Devco LP, dated
October 16, 1998.
10.8** Real Property Sublease between Registrant and Radar Companies,
dated May 5, 1999.
10.9** Real Property Sublease between Registrant and Cellegy
Pharmaceuticals, Inc., dated November 6, 1998.
10.10+** Supply Agreement between Registrant and McKesson U.S. Health
Care, dated January 14, 1999.
10.11** Asset Acquisition Agreement between Registrant and
NetHealth.com, Inc.
10.12** Internet Domain and Trademark Assignment Agreement between
Registrant and Epicenter Communications, Inc.
10.13** Series A Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated September 15, 1998.
10.14** Series B Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated January 15, 1999.
10.15** Series C Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated June 3, 1999.
10.16** Series D Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated September 3, 1999.
10.17+*** Agreement between Registrant and Express Scripts, Inc. dated
August 31, 1999.
23.1** Consent of Independent Accountants.
23.2** Consent of Counsel. Reference is made to Exhibit 5.1 to the
Company's Registration Statement on Form S-1 (File No. 333-
82485).
23.3** Consent of Independent Accountants.
24.1** Power of Attorney.
27.1 Financial Data Schedule for EDGAR filing.
99.1** Consent of Barrett A. Toan to be named herein as about to become
a director.
- -----------
** Previously filed as an exhibit to the Registration Statement on Form S-1
(File No. 333-82485) of PlanetRx.com, Inc.
*** Corrected version of previously filed document.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PLANETRX.COM, INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,164
<SECURITIES> 3,928
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,324
<CURRENT-ASSETS> 73,892
<PP&E> 8,270
<DEPRECIATION> 1,470
<TOTAL-ASSETS> 84,555
<CURRENT-LIABILITIES> 10,172
<BONDS> 6,835
0
2
<COMMON> 1
<OTHER-SE> 67,545
<TOTAL-LIABILITY-AND-EQUITY> 84,555
<SALES> 3,292
<TOTAL-REVENUES> 3,898
<CGS> 3,229
<TOTAL-COSTS> 3,329
<OTHER-EXPENSES> 46,844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535
<INCOME-PRETAX> (46,810)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,810)
<EPS-BASIC> (16.68)<F1>
<EPS-DILUTED> (16.68)
<FN>
<F1>Reflects Basic EPS according to SFAS 128
</FN>
</TABLE>
