UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 30, 2003
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 000-26137
drugstore.com, inc.
(Exact name of registrant as specified in its charter)
| Delaware |
04-3416255 | |
| (State or other jurisdiction |
(IRS Employer | |
| of incorporation or organization) |
Identification No.) |
13920 Southeast Eastgate Way, Suite 300, Bellevue, Washington 98005
(Address of principal executive offices including zip code)
(425) 372-3200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed 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 x No ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨.
As of April 30, 2003, the number of shares of the registrant’s common stock, par value $0.0001, outstanding was 68,824,757.
DRUGSTORE.COM, INC.
For the three months ended March 30, 2003
INDEX
| Page | ||||
| PART I—FINANCIAL INFORMATION |
||||
| Item 1. |
Financial Statements (unaudited): |
|||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||
| Item 3. |
24 | |||
| Item 4. |
24 | |||
| PART II—OTHER INFORMATION |
||||
| Item 1. |
25 | |||
| Item 2. |
25 | |||
| Item 6. |
25 | |||
| 26 | ||||
| 27 | ||||
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
DRUGSTORE.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| March 30, 2003 |
December 29, 2002 |
|||||||
| (unaudited) |
||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
40,399 |
|
$ |
47,784 |
| ||
| Marketable securities |
|
15,825 |
|
|
14,083 |
| ||
| Accounts receivable, net |
|
17,497 |
|
|
15,972 |
| ||
| Inventories |
|
7,696 |
|
|
4,988 |
| ||
| Prepaid marketing expenses |
|
2,411 |
|
|
2,609 |
| ||
| Other current assets |
|
3,123 |
|
|
2,857 |
| ||
| Total current assets |
|
86,951 |
|
|
88,293 |
| ||
| Fixed assets, net |
|
15,545 |
|
|
16,373 |
| ||
| Intangible assets, net |
|
5,171 |
|
|
5,036 |
| ||
| Goodwill, net |
|
5,694 |
|
|
5,694 |
| ||
| Prepaid marketing expenses |
|
12,022 |
|
|
12,595 |
| ||
| Deposits and other assets |
|
260 |
|
|
261 |
| ||
| Total assets |
$ |
125,643 |
|
$ |
128,252 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
28,913 |
|
$ |
25,647 |
| ||
| Accrued compensation |
|
3,084 |
|
|
2,923 |
| ||
| Accrued marketing expenses |
|
1,906 |
|
|
3,070 |
| ||
| Other current liabilities |
|
1,461 |
|
|
1,499 |
| ||
| Current portion of capital lease obligations |
|
876 |
|
|
721 |
| ||
| Total current liabilities |
|
36,240 |
|
|
33,860 |
| ||
| Capital lease obligations, less current portion |
|
627 |
|
|
452 |
| ||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.0001 par value, 10,000,000 shares authorized, no shares outstanding |
|
— |
|
|
— |
| ||
| Common stock, $.0001 par value, stated at amounts paid in: |
|
744,915 |
|
|
744,620 |
| ||
| Deferred stock-based compensation |
|
(472 |
) |
|
(648 |
) | ||
| Accumulated deficit |
|
(655,667 |
) |
|
(650,032 |
) | ||
| Total stockholders’ equity |
|
88,776 |
|
|
93,940 |
| ||
| Total liabilities and stockholders’ equity |
$ |
125,643 |
|
$ |
128,252 |
| ||
See accompanying notes to condensed consolidated financial statements.
3
DRUGSTORE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended |
||||||||
| March 30, 2003 |
March 31, 2002 |
|||||||
| Net sales |
$ |
57,083 |
|
$ |
43,936 |
| ||
| Costs and expenses: |
||||||||
| Cost of sales |
|
46,607 |
|
|
35,432 |
| ||
| Fulfillment and order processing |
|
7,163 |
|
|
6,670 |
| ||
| Marketing and sales |
|
3,845 |
|
|
8,716 |
| ||
| Technology and content |
|
2,064 |
|
|
3,530 |
| ||
| General and administrative |
|
2,721 |
|
|
3,035 |
| ||
| Amortization of intangible assets |
|
366 |
|
|
714 |
| ||
| Amortization of stock-based compensation(1) |
|
156 |
|
|
767 |
| ||
| Total costs and expenses |
|
62,922 |
|
|
58,864 |
| ||
| Operating loss |
|
(5,839 |
) |
|
(14,928 |
) | ||
| Interest income, net |
|
204 |
|
|
351 |
| ||
| Loss before cumulative effect of change in accounting principle |
|
(5,635 |
) |
|
(14,577 |
) | ||
| Cumulative effect of change in accounting principle |
|
— |
|
|
(8,905 |
) | ||
| Net loss |
$ |
(5,635 |
) |
$ |
(23,482 |
) | ||
| Basic and diluted net loss per share: |
||||||||
| Loss before cumulative effect of change in accounting principle |
$ |
(0.08 |
) |
$ |
(0.22 |
) | ||
| Cumulative effect of change in accounting principle |
|
— |
|
|
(0.13 |
) | ||
| $ |
(0.08 |
) |
$ |
(0.35 |
) | |||
| Weighted average shares outstanding used to compute basic and diluted net loss per share |
|
68,557,485 |
|
|
67,043,395 |
| ||
| (1) | Set forth below are the amounts of amortization of stock-based compensation, that if recorded by operating function, would be classified in the Statements of Operations as follows: |
| Fulfillment and order processing |
$ |
44 |
$ |
177 | ||
| Marketing and sales |
|
11 |
|
91 | ||
| Technology and content |
|
57 |
|
272 | ||
| General and administrative |
|
44 |
|
227 | ||
| Total |
$ |
156 |
$ |
767 | ||
See accompanying notes to condensed consolidated financial statements.
4
DRUGSTORE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| For the Three Months Ended |
||||||||
| March 30, 2003 |
March 31, 2002 |
|||||||
| Operating Activities: |
||||||||
| Net loss |
$ |
(5,635 |
) |
$ |
(23,482 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Non-cash expenses: |
||||||||
| Depreciation |
|
1,578 |
|
|
2,596 |
| ||
| Amortization of marketing and sales agreements |
|
573 |
|
|
3,612 |
| ||
| Loss on disposal of fixed assets |
|
12 |
|
|
— |
| ||
| Amortization of intangible assets |
|
366 |
|
|
714 |
| ||
| Amortization of stock-based compensation |
|
156 |
|
|
767 |
| ||
| Cumulative effect of change in accounting principle |
|
— |
|
|
8,905 |
| ||
| Changes in: |
||||||||
| Accounts receivable |
|
(1,610 |
) |
|
(1,780 |
) | ||
| Inventories |
|
(2,708 |
) |
|
(117 |
) | ||
| Prepaid marketing expenses |
|
198 |
|
|
87 |
| ||
| Other current assets |
|
(181 |
) |
|
(586 |
) | ||
| Accounts payable and accrued expenses |
|
1,725 |
|
|
1,660 |
| ||
| Other |
|
— |
|
|
(54 |
) | ||
| Net cash used in operating activities |
|
(5,526 |
) |
|||||