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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] 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.)
6399 Shelby View Drive 38134
Memphis, Tennessee (Zip Code)
(Address of principal executive offices)
(901)379-2200
(Registrant's telephone number, including area code)
349 Oyster Point Blvd., South San Francisco, California 94080
(Registrant's former address, if changed since the last report)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 31, 2001.......................................$794,436
Number of shares of common stock outstanding as of March 31, 2001......6,124,808
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive proxy statement filed
in connection with its annual meeting of stockholders to be held on June 12,
2001 are incorporated by reference into Part III of this Form 10-K where
indicated.
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PART I
ITEM 1. BUSINESS
EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF
PLANETRX.COM'S BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. THESE
INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS REGARDING THE PLANNED EVOLUTION OF
PLANETRX.COM'S BUSINESS MODEL AND THE OPPORTUNITY SUCH EVOLUTION PRESENTS FOR
THE COMPANY AND STATEMENTS CONCERNING PLANETRX.COM'S EXPECTATIONS, BELIEFS,
INTENTIONS, PLANS, GOALS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED UPON INFORMATION AVAILABLE TO
PLANETRX.COM AS OF THE DATE HEREOF, AND PLANETRX.COM ASSUMES NO OBLIGATION TO
UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. THESE INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS NORMALLY
ASSOCIATED WITH A MAJOR CHANGE IN FOCUS OF A BUSINESS, CHANGES IN ECONOMIC AND
MARKET CONDITIONS AFFECTING PLANETRX.COM, CHANGES IN AVAILABILITY OF CAPITAL TO
PLANETRX.COM, THIRD-PARTY RELATIONSHIPS AND APPROVALS, DECISIONS OF COURTS,
REGULATORS AND GOVERNMENTAL BODIES, PRODUCT DEMAND, COMPETITIVE CONDITIONS, AND
OTHER FACTORS OR RISKS RELATING TO PLANETRX.COM'S BUSINESS AS SET FORTH IN THIS
DOCUMENT, INCLUDING (WITHOUT LIMITATION) UNDER THE CAPTIONS, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"COMPETITION," "GOVERNMENT REGULATION" AND RISK FACTORS. NOTHING CAN OR SHOULD
BE INFERRED ABOUT PLANETRX.COM'S FUTURE REVENUES OR FINANCIAL RESULTS FROM THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS DOCUMENT.
Overview
PlanetRx.com, Inc. (sometimes referred to as "PlanetRx.com," "the
Company," or "we") has been a leading online healthcare destination for
commerce, content and community. In October 1999, we completed our initial
public offering. Our e-commerce website, www.PlanetRx.com, launched on March 18,
1999, provided a convenient, private and informative shopping experience. We
offered 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, incorporated
content that addressed a variety of health-related
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topics. In addition, we owned and operated a network of satellite websites
targeting specific healthcare conditions by providing relevant content and a
destination for online communities. These condition-specific websites, which
included diabetes.com, depression.com, obesity.com and alzheimers.com, were
linked to the PlanetRx.com website.
In February 2001, we announced that we intended to evolve our business
model to focus primarily on fulfilling specialty prescriptions, and that we
would discontinue the sale of retail health and beauty products as of March 12,
2001. At that time we anticipated the imminent execution a definitive agreement
to acquire an existing specialty pharmacy business. However, those negotiations
could not be consummated on terms acceptable to the Company.
On February 12, 2001, we stopped accepting new prescriptions, and on
March 12, 2001, we closed our on-line store.
Decision to Liquidate
On April 5, 2001, the Board of Directors approved the preparation of a
formal plan of liquidation and dissolution for the Company (the "Plan"). We
anticipate that our Board of Directors will consider and approve the Plan later
this month, and that the Plan will be submitted to our stockholders for approval
at a stockholders meeting tentatively scheduled for June 12, 2001. PlanetRx.com
currently is not engaging in any business activities except for the purpose of
preserving the value of our assets and prosecuting or defending lawsuits by or
against us. If our Board of Directors and stockholders approve the Plan, we
anticipate that we will file a certificate of dissolution with the Secretary of
State of Delaware, wind up our business affairs, sell and liquidate our
properties and assets, including our intellectual property and other intangible
assets, and to the extent possible, pay our creditors and make distributions to
stockholders, all in accordance with the Plan.
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Industry Background
The Internet is a significant medium for communication and commerce,
enabling millions of people to share information and conduct business
electronically. The unique characteristics of the Internet provide a number of
advantages for online retailers. Without the physical constraints faced by
traditional retailers, online retailers are able to carry a larger number of
products at a lower cost and with greater merchandising flexibility.
Additionally, they can assist the consumer's purchase decision by providing
relevant information and enabling consumers to shop at their convenience by
remaining open 24 hours a day, seven days a week. Online retailers can also
provide personalized services and use direct marketing efforts based on
information provided by customers.
The PlanetRx.com Market
Our market has consisted of prescription drugs, non-prescription drugs,
personal care products, beauty and spa, vitamins, herbs and nutrition and
medical supplies. In the past, these products have been sold primarily through
chain drugstores such as CVS, Eckerd, RiteAid and Walgreen's, mass market
retailers such as Kmart, Target and Wal-Mart, supermarkets, warehouse clubs,
mail-order companies and independent drugstores and pharmacies. However, a
significant number of consumers are beginning to use the Internet to shop for
healthcare products. In addition to online shopping for healthcare
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products, people are increasingly using the Internet as a source for health and
medical information.
Prescription Drugs. This segment includes prescription medication for
chronic illnesses, such as diabetes, depression and arthritis.
Non-Prescription Drugs. This segment includes over-the-counter remedies
(such as cough, cold, allergy and pain relief medications), first aid and other
products related to the body's health needs.
Personal Care. This segment includes products related to hair, body and
eye care, shaving, oral hygiene and feminine needs.
Beauty and Spa. This segment includes cosmetics, fragrances and a
variety of skin care products.
Vitamins, Herbs and Nutrition. This segment includes vitamins, herbs,
nutritional supplements, homeopathy and other natural products.
Medical Supplies. This segment includes medical diagnostic kits, such
as home pregnancy and AIDS tests, and medical supplies, such as glucose strips
for diabetics, that are complementary to prescriptions.
The PlanetRx.com Approach
On April 5, 2001, the Board of Directors approved the preparation of a
formal plan of liquidation and dissolution for the Company (the "Plan"). We
anticipate that our Board of Directors will consider and approve the Plan later
this month, and that the Plan will be submitted to our stockholders for approval
at a stockholders meeting tentatively scheduled for June 12, 2001. PlanetRx.com
currently is not engaging in any business activities except for the purpose of
preserving the value of our assets and prosecuting or defending lawsuits by or
against us. If our Board of Directors and stockholders approve the Plan, we
anticipate that we will file a certificate of dissolution with the Secretary of
State of Delaware, wind up our business affairs, sell and liquidate our
properties and assets, including our intellectual property and other intangible
assets, and to the extent possible, pay our creditors and make distributions to
stockholders, all in accordance with the Plan.
Prior to the decision to liquidate, the PlanetRx.com approach was based
on the belief that the use of the Internet to research and purchase
healthcare-related products has growth potential as a result of the limitations
of traditional channels for prescription drugs, non-prescription drugs, personal
care products and medical supplies. These limitations include the inconvenience
of shopping at traditional drugstores and pharmacies, the limited selection and
product inventory at traditional stores, lack of readily available and detailed
information useful to consumers in making their purchase decisions, and lack of
opportunity for consumers of healthcare products to share their experiences
with, and to learn from the experiences of, others.
PlanetRx.com sought to address the limitations of traditional
drugstores and pharmacies through a combination of an extensive product
selection, excellent customer
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service, professionally-created content and the development of online
communities focused on health-related topics. The key components of our solution
included an intuitive, easy-to-use shopping interface available 24 hours a day,
seven days a week, an extensive selection of healthcare-related products, a
broad array of reliable healthcare resources that helped consumers find answers
to their critical healthcare questions and make informed purchasing decisions,
and interactive forums hosted on our satellite websites organized around
specific chronic health conditions. These satellite websites allowed consumers
to quickly link to the relevant product and purchase it on PlanetRx.com.
Through our advertising and promotional activities, we sought to
develop PlanetRx.com as a pervasive brand that targeted purchasers of health and
personal care products and identified us as a premier healthcare destination on
the Internet. As part of our commitment to consumers, we endeavored to provide a
secure and private forum in which to communicate and share ideas, we maintained
our own distribution center, only minutes away from our primary supplier,
McKesson Corporation, and our primary shipping agents, FedEx and the USPS
Priority Mail Air Center, and we operated our own pharmacy with licensed
pharmacists and were licensed to ship prescription products in all U.S. states
and territories. By operating our own distribution center and pharmacy, we were
able to maintain strict control over logistics, provide excellent customer
service and offer reliable and prompt delivery.
We also endeavored to develop strategic relationships in order to
increase our revenue opportunities and build our reputation as a leading online
healthcare destination. For example, we worked to develop relationships or
partner with the following types of organizations: pharmacy benefit managers and
managed care organizations to increase payment alternatives for our prescription
drug customers (such as our relationship with Express Scripts); pharmaceutical
manufacturers to sponsor our various satellite sites focused on chronic
conditions; hospital organizations in order to market directly to their patient
and doctor populations; companies that are working on providing direct links
between doctors' offices and pharmacies to facilitate the delivery of electronic
prescriptions; and content and commerce portals and online service providers who
could drive traffic to our website.
Consumers visiting our website could purchase a wide variety of
healthcare-related products; receive relevant, personalized information
addressing their healthcare concerns; and interact with other consumers on a
broad range of health issues. Additionally, we provided personalized information
to our customers on a confidential basis through such means as e-mail reminders
when their supply of a product is about to run out; useful newsletters and
notices of special offers and new products; timely and high-quality customer
service through our customer service department; a high level of privacy when
purchasing products that reveal personally-sensitive aspects of their health;
features such as Ask the Pharmacist where consumers could ask questions that
they would otherwise be uncomfortable asking in a traditional drugstore or
pharmacy; and a secure environment for the storage of a customer's medical,
purchasing and payment information.
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Our websites also provided in-depth information on over 100 disease
categories, helping consumers find answers to critical healthcare questions. We
provided information on symptoms, diagnosis, treatments and alternative care for
many conditions. Our content included material developed internally as well as
material licensed from outside sources, such as iVillage, Reuters News and
drkoop.com. The information was maintained and updated by our in-house editorial
team and periodically reviewed by our Healthcare Advisory Board comprised of
medical and pharmacy experts.
We provided information to help consumers understand generic drug
alternatives and dangerous drug interactions. Consumers could access our
extensive drug information library at the PlanetRx.com website. Our Ask the
Pharmacist service provided personalized responses by e-mail to help ensure that
each customer understood the correct usage, possible side effects and expected
beneficial outcomes of a prescription or non-prescription medication. Through
our Health Answers feature, users could search for information on common
healthcare conditions and could link to products for their well being, including
drug therapies, alternative treatments and self care and prevention.
As usage of the Internet continues to grow, users seek from the
Internet the same opportunity for expression, interaction, sharing, support and
recognition they seek in the everyday world. This is especially true in the
health care context. We provided forums, such as bulletin boards, chat rooms and
moderated discussion groups, where users could discuss a variety of
health-related topics. We had eCenters on the PlanetRx.com website organized
around specific chronic health conditions and targeted demographic groups, such
as women, seniors and children. In addition to our eCenters, we had a network of
satellite websites designed to provide an extended community for people
interested in chronic healthcare conditions. These sites were built around
intuitive domain names for chronic healthcare conditions, such as diabetes.com,
depression.com, obesity.com, alzheimers.com, cholesterol.com, arthritis.com,
breast.cancer.com and weightloss2000.com, and had a similar look and feel to the
PlanetRx.com website.
The PlanetRx.com Pharmacy
The PlanetRx.com pharmacy was staffed 24 hours a day, seven days a week
with experienced pharmacists. In addition to being licensed, each of our
pharmacists was trained to provide excellent personal service for our customers,
and all were members of the American Pharmaceutical Association. Our pharmacy
was licensed to ship prescription products in all U.S. states and territories.
In addition, we were certified by the National Association of Boards of
Pharmacy's Verified Internet Pharmacy Practice Sites program. This program aims
to set the standards for Internet pharmacies as well as to inform the public of
those websites that have agreed to comply with such standards. Our pharmacy was
located within our distribution facility in Memphis, Tennessee, enabling each
customer's prescription to be shipped the same day it was filled.
We only accepted prescriptions that we could verify as being written by
licensed healthcare providers. We did not prescribe medications or give medical
advice. Our focus was on dispensing medications and providing information to our
customers.
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Our customers could initiate the prescription process by ordering
online from our pharmacy. The customer could direct their physicians to call or
fax their prescriptions to us or we could contact their physician directly to
obtain prescription information. Additionally, our customers could easily
transfer an existing prescription from their current pharmacy to PlanetRx.com.
Our pharmacists were required to verify the validity and completeness
of prescription drug orders utilizing the same methodology as traditional
drugstore pharmacists. This might include contacting the physician or another
retail pharmacist. Once the prescription was verified, the order generally was
filled and shipped the same day.
To use our prescription drug services, all customers were asked to
provide our pharmacists with information regarding drug allergies, current
medical conditions and other medications they were taking. Our pharmacists used
an extensive database to crosscheck every prescription received against the
information we received from the customer for any drug allergies, therapeutic
overlap, overuse/underuse, and drug/food or drug/drug interactions.
Our pharmacists were available to answer questions by phone 24 hours a
day, seven days a week. As required by law, we made follow-up phone calls to
customers to offer them consultation on new prescriptions. In addition, our
pharmacy provided a package insert with a toll-free number that gave the
customer information as to dosage instructions, potential drug interactions and
storage.
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Payment
Customers could pay for their prescriptions either by credit card or
electronic check or by entering insurance information that showed that they were
covered by a managed care organization, insurance plan or pharmacy benefit
manager with whom we had a contract. Most of the prescriptions we filled were
for customers who paid for the entire amount of the prescription.
Marketing and Promotion
Our marketing and promotion strategy was designed to build brand
recognition, drive customer traffic to our online store, add new customers,
build strong customer loyalty, encourage repeat purchases and develop additional
revenue opportunities. Our advertising and promotion campaigns targeted both
online and offline audiences. Our online advertising efforts were concentrated
on leading Internet portals, health-related websites, and other high traffic
websites. We used traditional off-line marketing and promotion efforts,
including network and cable television advertising, national radio advertising,
special product promotions and promotional press releases.
To create value for our customers, and to encourage initial and repeat
purchases, we utilized aggressive online promotions. Using our technology, we
had the ability to create and change web pages frequently to highlight product
specials and special promotions. We notified our customer base via e-mail of
upcoming promotions and encouraged them to Tell A Friend, which was a promotion
that rewarded customers for referrals. We also targeted other mail lists with
our promotions.
Merchandising
Key elements of our merchandising strategy included convenient and fast
access to a wide variety of products, extensive product information, multiple
product promotions, and free non-prescription product samples.
Distribution and Order Fulfillment
We believed that operating our own distribution center and pharmacy was
critical to our strategy of providing quality customer service. Our distribution
center and pharmacy were located in Memphis, Tennessee. Our primary supplier,
McKesson Corporation, was also located in Memphis, which allowed us to maintain
reasonable inventory levels based on just-in-time deliveries. The location of
our distribution center also allowed us to take advantage of FedEx's major hub
operations and the USPS Priority Mail Air Center, which are also located near
our distribution center.
We offered a variety of shipping options, including next-day delivery
for orders received during the business week. We shipped to anywhere in the
United States served by FedEx or the USPS. Priority orders were flagged and
expedited through our fulfillment processes. For prescription products, our goal
was to ship the product as soon as the prescription was verified and our
pharmacists completed a drug utilization review.
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Customer Service
We strove to provide excellent customer service and support for our
customers. Our Customer Care Associates were trained on-site in our call-center
training facility and were available 24 hours a day, seven days a week, to
answer customer phone calls or respond to customer e-mails. We had an
easy-to-use Help Desk area on the PlanetRx.com website, providing detailed pages
on frequently asked questions, how to find information, how to order, how to
pay, and our policies on privacy and security.
Operations and Technology
We implemented a wide range of secure, scalable services and systems
for the PlanetRx.com website and our satellite websites, as well as for our
distribution center. These services and systems included website management,
advanced searching tools, customer account management, transaction processing,
order management, pharmacy services and operations, store and catalog, inventory
control, purchasing, community message boards, OnLine Analytical Processing,
payment services and a variety of marketing applications. A subset of these
systems form the core set of software applications that we used for accepting
and validating our customer orders, organizing, placing and managing orders with
our vendors, receiving product and assigning it to customer orders, and managing
shipment of products to customers.
We developed proprietary technologies to augment those that we license
from vendors, such as Microsoft, IBM and Sun Microsystems. We focused our
internal development efforts on creating and enhancing our proprietary software.
Our core merchandise catalog, customer interaction, order collection,
fulfillment and back-end systems are all proprietary to PlanetRx.com. Our
software platform and architecture are integrated with relational database
servers such as IBM UDB as well as Microsoft SQL server. Our system is designed
to include an open application-programming interface that provides real-time
connectivity to our distribution center systems for both pharmacy and
non-pharmacy products. These systems include a perpetual inventory system,
real-time order tracking system, executive information system and inventory
replenishment system. The employment of multiple web servers, application
servers, and database servers, allows our systems to be resilient and redundant.
Our Internet servers use SSL to help conduct secure communications and
transactions.
Competition
The online commerce market is new, rapidly evolving and intensely
competitive. In particular, the health and personal care categories are
intensely competitive and are also highly fragmented, with no clear dominant
leader in any of our market segments. Our competitors can be divided into
several groups: chain drugstores, such as Walgreen's, RiteAid, CVS and Eckerd;
mass market retailers such as Wal-Mart, Kmart and Target; supermarkets, such as
Safeway, Albertson's and Kroger; warehouse clubs; online retailers of health,
beauty, wellness, personal care and/or pharmaceutical products, such as
drugstore.com and CVS.com; mail order pharmacies, such as Express Scripts and
Merck-Medco; Internet portals and online service providers that feature shopping
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services such as AOL, Yahoo!, Excite@Home and Lycos; and cosmetics departments
at major department stores, such as Nordstrom, Macy's and Bloomingdale's and
hair salons. Most of these competitors operate within one or more of our market
segments.
We believe that the following are principal competitive factors in our
market: recognition of the PlanetRx.com brand; product selection; personalized
services; convenience and ease of use; price; accessibility; customer service;
quality of search tools; quality of content; and reliability and speed of
fulfillment for products ordered.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to their website and systems development
than we could. In addition, larger, well-established and well-financed entities
may acquire, invest in or form joint ventures with online competitors or
drugstore retailers as the use of the Internet and other online services
increases. Some of our competitors may have been able to secure products from
vendors on more favorable terms, fulfill customer orders more efficiently and
adopt more aggressive pricing or inventory availability policies than we could.
These retailers also enabled customers to see and feel products in a manner that
is not possible over the Internet. Traditional store-based retailers can also
sell products to address immediate, acute care needs, which we and other online
sites cannot address.
Government Regulation
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. For example, under the Omnibus Budget Reconciliation Act
of 1990 and related state and local regulations, our pharmacists were required
to offer counseling to our customers about medication, dosage, delivery systems,
common side effects, adverse effects or interactions and therapeutic
contraindications, proper storage, prescription refill, and other information
deemed significant by the pharmacists. We are also subject to federal, state and
local licensing and registration regulations with respect to, among other
things, our pharmacy operations and the pharmacists we employed.
The practice of medicine requires licensing under applicable state law.
It was not our intent to practice medicine and we tried to structure our website
and our business to avoid violation of state licensing requirements. For
example, we included notices, where we deemed appropriate, advising our users
that the data we provide on our website is not a substitute for consultation
with their personal physician. However, the application of this area of the law
to Internet services such as ours is novel and, accordingly, a state regulatory
authority could at some time allege that some portion of our business violated
these statutes. Further, any liability based on a determination that we engaged
in the unlawful practice of medicine might be excluded from coverage under the
terms of our general liability insurance policy.
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We are subject to requirements under the Controlled Substances Act and
federal Drug Enforcement Agency regulations, as well as related state and local
laws and regulations, relating to our pharmacy operations, including
registration, security, recordkeeping, and reporting requirements related to the
purchase, storage and dispensing of controlled substances, prescription drugs,
and some over-the-counter drugs. "Compendial standards" which can also be called
"official compendium" means the standards for drugs related to strength, purity,
weight, quality, labeling and packing contained in the official Pharmacopeia of
the United States, official National Formulary, or any supplement to any of
them. Under the Food, Drug and Cosmetic Act of 1938, a drug recognized by the
Homeopathic Pharmacopeia of the United States must meet all compendial standards
and labeling requirements contained therein, or it will be considered
adulterated (e.g., lacking appropriate strength, quality, or purity; or
containing poisonous or unsanitary ingredients) or misbranded (e.g., having a
false or misleading label; or label containing inaccurate description of
contents). While homeopathic remedies accounted for less than one percent (1%)
of our revenues, we were still required to comply with the Food, Drug and
Cosmetic Act. The distribution of adulterated or misbranded homeopathic remedies
or other drugs is prohibited under the Food, Drug and Cosmetic Act, and
violations could result in substantial fines and other monetary penalties,
seizure of the misbranded or adulterated items, and/or criminal sanctions. We
also are required to comply with the Dietary Supplement Health and Education Act
when selling dietary supplements and vitamins.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, especially focused on those who prescribe drugs online and on
pharmacies that fill invalid prescriptions, including those that are written
online. The committee requested that the General Accounting Office undertake a
formal review of a number of issues pertaining to online pharmacies, including
an assessment of mechanisms to ensure that online pharmacies are obeying the
various state and federal regulations for the industry.
The National Association of Boards of Pharmacy, a coalition of state
pharmacy boards, has developed a program, the Verified Internet Pharmacy
Practice Sites, as a model for self-regulation for online pharmacies. We
assisted the National Association of Boards of Pharmacy with the development of
the Verified Internet Pharmacy Practice Sites program and were one of the first
online pharmacies to be certified.
Although the Food and Drug Administration does not regulate the
practice of pharmacy, other than pharmacy compounding, which we did not engage
in, Food and Drug Administration regulations impacted some of our product and
service offerings because the Food and Drug Administration regulates drug
advertising and promotion, including direct-to-consumer advertising, done by or
on behalf of drug manufacturers and marketers.
The federal antikickback law prohibits the knowing and willful
solicitation, offer, payment, or receipt of "any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind" in return for referring an individual for healthcare services or
supplies for which payment may be made in whole
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or in part under any federally-funded health care program. The statute extends
both to physicians and non-physicians alike. At the state level, laws and
regulations that prohibit the offer, payment, solicitation, or receipt of
kickbacks in exchange for patient referral may use terms such as "bribes",
"rebates", "commissions" or "fee-splitting" to describe the same prohibited
conduct. Similarly, federal and state self-referral laws exist, which are aimed
at curtailing over-utilization of health care services and supplies by generally
prohibiting a physician who (or whose family) has a financial relationship with
a facility or entity for health care services or supplies from referring
patients to such a facility or entity for healthcare services or supplies.
Until recently, Health Care Financing Administration guidelines
prohibited transmission of Medicare eligibility information over the Internet.
We are also subject to extensive regulation relating to the confidentiality and
release of patient records. Additional legislation governing the distribution of
medical records exists or has been proposed at both the state and federal level.
Intellectual Property
We have relied on a combination of copyright, trademark, and trade
secret laws and our contractual obligations with employees and third parties to
protect our proprietary rights. We do not own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, it may be possible for a third party to copy or
obtain and use our intellectual property without our authorization. In addition,
other parties may breach confidentiality agreements or other protective
contracts we have entered into, and we may not be able to enforce our rights in
the event of these breaches.
We entered into confidentiality and invention assignment agreements
with our employees and consultants, and nondisclosure agreements with our
vendors and strategic partners to limit access to and disclosure of our
proprietary information. We cannot be certain that these contractual
arrangements or the other steps taken by us to protect our intellectual property
will prevent misappropriation of our technology. We have licensed some of our
proprietary rights, such as trademarks or copyrighted material, to third
parties. While we have attempted to ensure that the quality of the PlanetRx.com
products brand is maintained by these licensees, we cannot assure that these
licensees will not take actions that might hurt the value of our proprietary
rights or reputation.
We also rely on technologies that we license from third parties, such
as IBM and Microsoft, the suppliers of key database technology, the operating
system and specific hardware components for our service. We cannot be certain
that these third-party technology licenses will continue to be available to us
on commercially reasonable terms. The loss of such technology could require us
to obtain substitute technology of lower quality or performance standards or at
greater cost.
We have filed applications for the registration of some of our
trademarks and service marks in the U.S., including PlanetRx, PlanetRx.com,
eCenter, HealthyReward and QuickClick Shopping. In addition, we are seeking
patents for: Tell-A-Friend,
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PlanetWhisper, DynamicStore and FloatingShoppingCart. We may be unable to secure
these registered marks or patents. It is also possible that our competitors or
others will use marks similar to ours, which could impede our ability to build
brand identity and lead 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 or of the other terms above.
Our efforts to protect our intellectual property rights may not prevent
misappropriation of our content. Our failure or inability to protect our
proprietary rights could substantially harm our business.
The domain names owned by PlanetRx.com as of December 31, 2000
included, but were not limited to: acne.com; infertility.com; aids.com;
nursing.com; alzheimers.com; obesity.com; anorexia.com; osteopathy.com;
arthritis.com; parkinsons.com; birth.com; pharmacist.com; cancer.com;
physicians.com; cholesterol.com; podiatry.com; depression.com; pollenwatch.com;
diabetes.com; prenatal.com; epilepsy.com; rxnet.com; fertility.com;
sportsdoc.com; hepatitis.com; stroke.com; hypertension.com; weightloss2000.com;
impotence.com. During the first quarter of 2001, in connection with the
restructuring of the PlanetRx.com business which resulted in the Board decision
to liquidate the company, we began to monetize these domain names. As of April
11, 2001, PlanetRx.com had completed the sale of the following domain names to
third-parties: acne.com, alzheimers.com, arthritis.com, cancer.com,
depression.com, diabetes.com, epilepsy.com, fertility.com, infertility.com, and
nursing.com.
Employees
As of December 31, 2000, PlanetRx.com had 193 employees. During the
first quarter of 2001, in connection with the rapid change in business strategy
at PlanetRx.com which resulted in the Board decision to liquidate the company,
we began to reduce our workforce further. As of April 13, 2001, PlanetRx.com had
17 employees.
RISK FACTORS
Comdisco Events of Default
On March 30, 2001, Comdisco, Inc. notified us that events of default
had occurred under a Loan Agreement and a Master Lease Agreement between
PlanetRx.com and Comdisco as a result of our inadvertent failure to make our
monthly payments under the agreements for February 2001. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" for more information about these
agreements and the notice of default. We made the February payments on April 3,
2001, and requested that Comdisco waive the events of default and reinstate both
agreements. Comdisco has tentatively agreed to our request subject to certain
conditions, one of which is that we agree to an amendment of the Loan Agreement.
We are currently negotiating with Comdisco concerning the terms of the
amendment; however, there can be no assurance that we will be able to reach a
satisfactory agreement with Comdisco. If we fail to reach agreement on an
amendment to the Loan Agreement and thereby obtain Comdisco's waiver of the
events of default under the Loan Agreement and the Lease Agreement, we might be
required to file for protection under the federal bankruptcy laws in order to
preserve and control our assets as we complete our liquidation.
Risks Relating to Proposed Liquidation and Dissolution
Plan May Not Be Approved by our Stockholders
On April 5, 2001, the Board of Directors approved the preparation of a
formal plan of liquidation and dissolution (the "Plan"). We anticipate that our
Board of Directors will consider and approve the Plan later this month, and that
the Plan will be submitted to our stockholders for approval at a stockholders
meeting tentatively scheduled for June 12, 2001. This followed our announcement
in February 2001 that we intended to evolve our business model to focus
primarily on fulfilling specialty prescriptions, and that we would discontinue
the sale of retail health and beauty products. However, our negotiations to
acquire a specialty pharmacy business failed to produce an agreement acceptable
to PlanetRx.com., and on March 12, 2001 our on-line store closed.
PlanetRx.com currently is not engaged in any business activities except
for the purpose of preserving the value of our assets and prosecuting or
defending lawsuits by or against us. If our Board of Directors and stockholders
approve the Plan, we will wind up our business affairs, sell and liquidate our
properties and assets, including our intellectual property and other intangible
assets, and to the extent possible, pay our creditors and make distributions to
stockholders in accordance with the Plan. If our stockholders do not approve the
Plan, our Board of Directors will re-evaluate the Company's business
opportunities. However, there is no assurance that we would be able to
successfully resume our business.
Potential Stockholder Liability to Creditors of the Company
If the Plan is approved by our Board of Directors and stockholders, the
Company will file a certificate of dissolution with the Secretary of State of
the State of Delaware to dissolve the Company. Under the Delaware General Board
of Directors and Corporation Law (the "DGCL"), the Company will continue to
exist for three years after the dissolution becomes effective (or for such
longer period as the Delaware Court of Chancery shall direct), during which time
the Company will prosecute and defend lawsuits, gradually dispose of its
property, and to the extent possible, discharge its liabilities and distribute
to its stockholders any remaining assets.
The Company will establish a contingency reserve (as described
below) to pay its expenses and liabilities during this three-year period. If the
contingency reserve should be inadequate to pay the Company's expenses and
liabilities, under the DGCL each stockholder could
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be held liable to the Company's creditors for payment of the stockholder's pro
rata share of amounts owed to creditors in excess of the contingency reserve. A
stockholder's liability would be limited to the amounts previously received as
distributions from the Company (and from any liquidating trust) pursuant to the
dissolution. If the contingency reserve is inadequate, a stockholder could be
required to return all distributions previously received from the Company
pursuant to the dissolution, in which case a stockholder might receive nothing
from the Company under the Plan. Furthermore, if a stockholder has paid taxes on
distributions previously received pursuant to the dissolution, the requirement
to repay all or part of those distributions could result in a net tax cost to
the stockholder if the repayment does not cause a commensurate reduction in
taxes payable.
There can be no assurance that the contingency reserve established by
the Company will be adequate to cover any expenses and liabilities. See
"Contingency Reserves" for more information.
Personnel Risks
The success of the Plan will depend in large part upon the Company's
ability to retain the services of certain of its current personnel or to attract
qualified replacements for them. The retention and attraction of qualified
personnel is particularly difficult under the Company's current circumstances.
Restrictions on Transfer of Shares; Closing of Stock Transfer Books
The Company intends to close its stock transfer books and discontinue
recording transfers of its common stock at the close of business on the record
date set by our Board for filing the certificate of dissolution (the "Final
Record Date"). After the Final Record Date, certificates representing our common
stock will not be assignable or transferable on the books of the Company except
by will, intestate succession or operation of law. The proportionate interests
of each stockholder will be determined on the basis of their stock holdings at
the close of business on the Final Record Date. After the Final Record Date, any
distributions made by the Company will be made solely to the stockholders of
record at the close of business on the Final Record Date, except as necessary to
reflect transfers recorded on the books of the Company as a result of any
assignments by will, intestate succession or operation of law.
Timing of Distributions
Although our Board of Directors has not established a firm timetable
for distributions to stockholders if the Plan is approved and assets are
available for such distributions, we plan, subject to contingencies inherent in
winding up the Company's business, to make distributions, if any, as promptly as
practicable. We expect the liquidation to be concluded within three years of
filing the certificate of dissolution by a final liquidating distribution,
either directly to the stockholders or to a liquidating trust. We are, however,
currently unable to predict the nature, amount or timing of this distribution or
any other distributions made under the Plan, if any. If the Plan is approved by
our Board of Directors and stockholders, our Board of Directors will determine
the actual nature,
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amount and timing of all distributions, in the Board's sole discretion, which
will depend on, among other factors, the Company's ability to convert its
remaining assets into cash and the amount of cash and other assets available for
distribution, if any.
Amount of Distributions
Uncertainties as to the net value of the Company's non-cash assets and
the ultimate amount of its liabilities make it impracticable to predict the
aggregate net value that ultimately will be distributed to stockholders, if any.
Claims, liabilities and expenses from operations (including operating costs,
salaries, income taxes, payroll and local taxes, legal and accounting fees and
miscellaneous office expenses), although currently declining, will continue to
be incurred following approval of the Plan. These expenses will reduce the
amount of or possibly eliminate assets available for ultimate distribution to
stockholders. No assurances can be given that available cash and amounts
received on the sale of assets will be adequate to provide for the Company's
obligations, liabilities, expenses and claims and to make cash distributions to
stockholders. If they are not, distributions of cash and other assets to the
Company's stockholders will be reduced or eliminated.
Sales of the Company's Assets
The Plan, if approved, will give our Board of Directors the authority
to sell all of the Company's assets. However, the Company may enter into
agreements to sell assets prior to the stockholders meeting tentatively
scheduled for June 12, 2001, contingent upon the approval of the Plan by our
stockholders at the meeting, in which case approval of the Plan will constitute
approval of such agreements and sales.
The Company's assets will be sold on terms approved by our Board of
Directors. Sales may be conducted by competitive bidding, public sales or
privately negotiated transactions. We do not anticipate amending or
supplementing the proxy statement to be distributed to our stockholders
concerning the Plan to reflect any such agreement or sale, unless required by
applicable law.
The prices at which the Company will be able to sell its assets will
depend largely on factors beyond our control, including, without limitation, the
condition of financial markets, the availability of financing to prospective
purchasers of the assets, regulatory approvals, public market perceptions, and
limitations on transferability of certain assets. In addition, the Company may
not be able to obtain as high a price for a particular asset as it might if the
Company were not in liquidation.
The Company's sale of an appreciated asset will result in the
recognition of taxable gain by the Company to the extent the fair market value
of such asset exceeds the Company's tax basis in such asset.
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Activities of the Company After Adoption of the Plan
Our Board of Directors and management have taken steps to reduce the
Company's operations. Our management and any other continuing employees will
receive compensation for performing their duties, as determined by the Board.
The Board has not yet established guidelines for determining such compensation,
but we expect that the determinations will be made by evaluating all relevant
factors, including, without limitation, the efforts of such individuals in
successfully implementing the Plan and a review of compensation payable to
individuals exercising similar authority and bearing similar responsibilities.
Reporting Requirements
Whether or not the Plan is approved, we have an obligation to continue
to comply with the applicable reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), even though compliance with such
reporting requirements is economically burdensome. If the Plan is approved, in
order to curtail expenses, we will seek relief from the Securities and Exchange
Commission ("SEC") from the reporting requirements under the Exchange Act after
our certificate of dissolution is filed. We anticipate that, if such relief is
granted, we would continue to file current reports on Form 8-K to disclose
material events relating to our liquidation and dissolution along with any other
reports that the SEC might require.
Contingency Reserve
The DGCL requires the Company to provide for payment of all of its
liabilities and obligations in connection with the dissolution. After our Board
of Directors and stockholders approve the Plan, we will pay all expenses and
other known liabilities. We will make (i) provision to pay all liabilities,
including all contingent, conditional or unmatured contractual claims known to
the Company, (ii) provisions that will be reasonably likely to be sufficient to
provide compensation for any claim against the Company which is the subject of a
pending action, suit or proceeding to which the Company is a party, and (iii)
provisions that will be reasonably likely to be sufficient to provide
compensation for claims that have not been made known to the Company or that
have not arisen but that, based on facts known to the Company, are likely to
arise or become known to the Company within ten years. We will do this by
establishing a contingency reserve containing cash and other assets in an amount
we believe to be adequate to make such payments. We are currently unable to
estimate the amount of any contingency reserve that may be required. Any cash
and assets that are set aside for a contingency reserve, and any cash
contributed to a liquidating trust, if one is
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used, will be deducted before we determine the amounts available for
distribution to stockholders, if any.
The actual amount of any contingency reserve will be based upon
estimates and opinions of management and the Board of Directors, which will be
derived from consultations with outside experts and review of the Company's
estimated operating expenses and future estimated liabilities, including,
without limitation, anticipated compensation payments, estimated legal and
accounting fees, operating lease expenses, payroll and other taxes payable,
miscellaneous office expenses, expenses accrued in the Company's financial
statements, and reserves for litigation expenses. There can be no assurance that
any contingency reserve in fact will be sufficient to pay all of the
liabilities, expenses and obligations for which it is established.
If the Company fails to create an adequate contingency reserve to pay
its expenses and liabilities, or if the contingency reserve and the assets held
by any liquidating trust are insufficient to pay the amount of our expenses and
liabilities as ultimately determined, the DGCL provides that each stockholder
could be held liable for the payment to creditors of his pro rata share of such
remaining liability, limited to the amounts such stockholder has received from
the Company or from the liquidating trust pursuant to the dissolution. If the
Company were held by a court to have failed to make adequate provision for its
expenses and liabilities, or if the contingency reserve and the assets held by
any liquidating trust are insufficient to pay the amount of our expenses and
liabilities as ultimately determined, a creditor of the Company could seek an
injunction against the Company making distributions under the Plan on the ground
that the amounts to be distributed were needed to provide for the payment of the
Company's expenses and liabilities. Any such action could delay or substantially
diminish the cash distributions to be made to stockholders under the Plan.
The Company intends to distribute to stockholders any remaining portion
of the contingency reserve after all the liabilities, expenses and obligations
for which it was established have been satisfied in full. However, there can be
no assurances that any such assets will be available for distribution to
stockholders.
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ITEM 2. PROPERTIES
PlanetRx.com's principal executive offices and distribution facilities
are located in Memphis, Tennessee, where we lease approximately 165,000 square
feet under three leases that expire in September and December 2003 and July
2004. As previously announced, we have begun implementing steps to monetize our
fixed assets and to sublease or negotiate cancellations of our operating leases.
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ITEM 3. LEGAL PROCEEDINGS
On March 27, 2001, SDR Investors, LP filed a lawsuit against
PlanetRx.com, certain underwriters of the Company's initial public offering in
October 1999 (the "IPO"), and certain former and current directors of the
Company. Named as additional defendants in the suit, which was filed in the
United States District Court for the Southern District of New York, are The
Goldman Sachs Group, Inc., BancBoston Robertson Stephens, Inc., Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, and Salomon Smith Barney, Inc., each of
which was an underwriter of the IPO; William J. Razzouk and Christos M.
Cotsakos, who are former directors of the Company; and David M. Beirne and
Michael Moritz, who are current directors of the Company. The suit generally
alleges that the defendants violated federal securities laws by not disclosing
certain actions allegedly taken by the underwriter defendants in connection with
the IPO. The suit alleges specifically that the underwriter defendants, in
exchange for the allocation to their customers of shares of the Company's common
stock sold in the IPO, solicited and received from their customers undisclosed
commissions on transactions in other securities and required their customers to
purchase additional shares of the Company's common stock in the aftermarket at
pre-determined prices that were above the IPO price. The suit seeks unspecified
monetary damages and certification of a plaintiff class consisting of all
persons who acquired shares of the Company's common stock between October 6,
1999, and March 23, 2001. The Company is in the process of reviewing the suit
and intends to respond in a timely manner. As of the date hereof, we are unable
to predict the outcome of the suit and its ultimate effect, if any, on the
Company's financial condition.
The Company also is party to routine legal proceedings incidental to
its business. We do not expect the outcome of such routine pending litigation to
have a material adverse effect on the Company's consolidated financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of security holders
during the fourth quarter of fiscal year 2000:
On November 30, 2000, the Company held a special meeting of
stockholders at which the following matters were voted upon:
Against or Broker
For Withheld Abstentions Non Votes
--- -------- ----------- ---------
1. Approve an amendment of the Company's 40,894,897 590,010 89,610 0
certificate of incorporation
increasing the number of authorized
shares of common stock from 100
million
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to 200 million shares
2. Approve the issuance of common stock 25,137,551 386,018 90,892 15,960,096
under a stock purchase agreement with
Alpha Venture Capital, Inc. for the
sale of up to $50 million of common
stock
3. Approve an amendment of the Company's 40,615,415 851,790 107,312 0
certificate of incorporation effecting
a 1-for-8 stock split.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market Information
On October 7, 1999, the Company's common stock began trading on the
Nasdaq National Market under the symbol "PLRX." Prior to that date, there was no
public market for our common stock. On January 16, 2001, the Company's common
stock was delisted by the Nasdaq National Market as a result of the failure to
maintain a $1.00 bid price for the common stock. Since that date, the Company's
common stock has been traded in the over-the-counter market and has been quoted
on the OTC Bulletin Board.
The following table sets forth the high and low closing sale prices for
the common stock for the period indicated as reported by the Nasdaq National
Market. These prices have been adjusted to reflect the impact of a 1-for-8
reverse stock split which was effective December 4, 2000.
Fiscal 1999 - Quarter Ended High Low
- --------------------------- ---- ---
October 1 - December 31 $208.00 $116.00
Fiscal 2000 - Quarter Ended
January 1 - March 31 $146.00 $ 57.00
April 1- June 30 $ 50.00 $ 11.75
July 1 - September 30 $ 14.00 $ 3.50
October 1 - December 31 $ 3.75 $ 0.25
As of March 31, 2001 there were 354 stockholders of record of our
common stock.
Dividends
The Company has never declared or paid cash dividends on its common
stock. Except as may be provided in the Plan, we do not anticipate paying any
cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None.
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ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------------
2000 1999 1998 1997 1996
--------- -------- ------- ----- ----
STATEMENT OF OPERATIONS DATA:
Net revenue:
e-commerce........................................... $ 31,463 $ 7,856 $ -- $ -- $ --
Sponsorship.......................................... 4,702 1,143 -- -- --
--------- -------- ------- ----- ----
36,165 8,999 -- -- --
--------- -------- ------- ----- ----
Cost of net revenue:
e-commerce........................................... 27,223 6,200
Sponsorship.......................................... 373 100 -- -- --
--------- -------- ------- ----- ----
27,596 6,300 -- -- --
--------- -------- ------- ----- ----
Gross profit........................................... 8,569 2,699 -- -- --
Operating expenses:
Marketing and sales.................................. 49,287 44,568 907 -- --
Shipping, handling and related costs................. 24,476 11,905 -- -- --
Product development.................................. 18,261 12,946 1,025 113 7
General and administrative........................... 11,399 6,448 541 23 --
Amortization of intangible assets.................... 40,860 9,627 -- -- --
Stock-based compensation............................. 6,330 15,647 1,650 -- --
Contract termination and severance charges........... 4,466 -- -- -- --
Restructuring charges................................ 3,737 -- -- -- --
Impairment loss...................................... 163,712 -- -- -- --
--------- -------- ------- ----- ----
Total operating expenses...................... 322,528 101,141 4,123 136 7
--------- -------- ------- ----- ----
Operating loss......................................... (313,959) (98,442) (4,123) (136) (7)
Interest income........................................ 3,183 2,691 38 -- --
Interest expense....................................... (894) (2,263) (2) (1) --
--------- -------- ------- ----- ----
Net loss............................................... $(311,670) $(98,014) $(4,087) $(137) $ (7)
========= ======== ======= ===== ====
Effect of anti-dilution provisions of Series B
Preferred Stock...................................... -- (1,009) -- -- --
--------- -------- ------- ----- ----
Net loss available to Common stockholders.............. $(311,670) $(99,023) $(4,087) $(137) $ (7)
========= ======== ======= ===== ====
Basic and diluted net loss per share................... $ (51.84) $ (61.93) $(72.98) $ -- $ --
========= ======== ======= ===== ====
Weighted average shares used to compute basic and
diluted net loss per share........................... 6,012 1,599 56 -- --
========= ======== ======= ===== ====
DECEMBER 31,
---------------------------------------------
2000 1999 1998 1997 1996
--------- -------- ------- ----- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 8,700 $116,748 $ 935 $ 15 $ 5
Working capital (deficit).............................. 2,077 122,595 581 (19) 1
Total assets........................................... 21,142 338,515 5,707 36 7
Borrowings and capital lease obligations, long-term.... -- 6,847 2 10 --
Total stockholders' equity (deficit)................... 9,856 315,645 3,469 (8) 3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as amended. These
include, but are not limited to, statements regarding the planned evolution of
PlanetRx.com's business model and the opportunity such evolution presents for
the Company and statements concerning PlanetRx.com's expectations, beliefs,
intentions, plans, goals or strategies regarding the future. All forward-looking
statements included in this document are based upon information available to
PlanetRx.com as of the date hereof, and PlanetRx.com assumes no obligation to
update any such forward-looking statements. Forward-looking statements involve
risks and uncertainties which could cause actual results to differ materially
from those projected. These include, but are not limited to, the risks normally
associated with a major change in focus of a business, changes in economic and
market conditions affecting PlanetRx.com, changes in availability of capital to
PlanetRx.com, third-party relationships and approvals, decisions of courts,
regulators and governmental bodies, product demand, competitive conditions, and
other factors or risks relating to PlanetRx.com's business as set forth in this
document, including (without limitation) under the captions "Competition,"
"Government Regulations" and "Risk Factors". Nothing can or should be inferred
about PlanetRx.com's future revenues or financial results from the
forward-looking statements contained in this document.
Decision to Liquidate
On April 5, 2001, the Board of Directors approved the preparation of a
formal plan of liquidation and dissolution for the Company ("the Plan"). We
anticipate that our Board of Directors will consider and approve the Plan later
this month, and that the Plan will be submitted to our stockholders for approval
at a stockholder meeting tentatively scheduled for June 12, 2001. It is
anticipated that if the requisite stockholder approval is received, our officers
and directors will initiate the complete liquidation and dissolution of the
Company. We are not engaged in any business activities except for the purpose of
preserving the value of our assets and prosecuting and defending lawsuits by or
against us. If our Board of Directors and stockholders approve the Plan, we
anticipate that we will file a certificate of dissolution with the Secretary of
State of Delaware, wind up our business affairs, sell and liquidate our
properties and assets, including our intellectual property and other intangible
assets, and to the extent possible, pay our creditors and make distributions to
stockholders, all in accordance with the Plan.
We currently expect that a proxy statement for the stockholder meeting
called to approve the Plan (the "Proxy Statement") will be mailed on or about
May 11, 2001 to all
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stockholders of record of the Company as of May 4, 2001. As will be further
described in the Proxy Statement, the Company cannot predict the per share
amount, if any, of money that the Company will distribute in aggregate pursuant
to the Plan.
Overview
PlanetRx.com has been a leading online healthcare destination for
commerce, content and community. Our e-commerce website, www.PlanetRx.com, which
we launched on March 18, 1999, provided a convenient, private and informative
shopping experience for health and personal care products. Until March 12, 2001,
we offered products in six categories: prescription drugs; non-prescription
drugs; personal care;
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beauty and spa; vitamins, herbs and nutrition; and medical supplies. Our health
channels, located within the PlanetRx.com website, incorporated content that
addressed a variety of health-related topics. In addition, we own and were
operating 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, were linked to the PlanetRx.com website.
We were incorporated in Delaware on March 31, 1995 and were in the
development stage through December 31, 1998. In March 1999, upon the launch of
our website, we began to recognize our initial revenues. In October 1999, we
completed our initial public offering. From our inception through the launch of
our PlanetRx.com website, we did not generate any sales and our operating
activities consisted mainly of developing our business model, constructing our
websites and transaction processing system, researching and developing
health-related content, recruiting and training employees, gaining necessary
funding, negotiating advertising contracts with several of the major Internet
portals, building our pharmacy and distribution center and establishing the
PlanetRx.com brand name.
After launching our Planetrx.com website, we continued these activities
and, in addition, increased the breadth of our product offerings, expanded our
online information resources, and identified and executed strategic
partnerships.
During the fourth quarter ending December 31, 2000, the Company
determined that the carrying value of certain assets exceeded its net realizable
value as a result of rapid changes in business conditions which eventually
resulted in the announcement of a plan of liquidation and dissolution of the
Company. In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of," the Company recorded a charge of $163.7 million for this
impairment in the asset value during the fourth quarter of 2000.
In October 1999, we completed a series of agreements with Express
Scripts, Inc. and its wholly owned subsidiary, YourPharmacy.com. We issued
1,296,000 shares of our common stock, valued at approximately $168.0 million, to
Express Scripts, in exchange for selected assets totaling $86,000 and
liabilities totaling $3.4 million of YourPharmacy.com. The total purchase price
of approximately $190.0 million also consisted of the estimated fair value of
226,000 options to purchase our common stock in exchange for outstanding
YourPharmacy.com options, as well as direct acquisition costs. The allocation of
the purchase price resulted in an excess purchase consideration over tangible
net liabilities of approximately $193.4 million, which has been allocated to
intangible assets being amortized over 5 years. We amortized approximately $8.4
million and $38.7 million for the year ended December 31, 1999 and 2000,
respectively. Based upon the rapid changes in business conditions and its
expected future cash flows, the Company determined an impairment of the goodwill
associated with the YourPharmacy.com acquisition had occurred and no future
benefit is expected. Therefore, the Company wrote down intangible assets
associated with the YourPharmacy.com goodwill of $146.3 million.
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In June 2000, we restructured our agreement with Express Scripts, Inc.
Under the new agreement, which eliminates our annual $14.6 million payments to
Express Scripts, we paid only the second quarter marketing expenses of $3.7
million, as well as a one-time contract termination fee of $4.3 million. We were
to remain the preferred Internet pharmacy in the Express Scripts network for a
period of five years, subject to certain exceptions, with the right to
participate in the Express Scripts network for a period of five years, and
Express Scripts retained ownership of its shares of PlanetRx.com common stock.
In April, 2001, we gave notice to Express Scripts that the Company has
terminated the agreements due to Express Scripts' non-payment of certain sums
due the Company under the agreements.
Based upon the rapid changes in business conditions, its expected
future cash flows, and the disposal plan for its assets, the Company determined
an impairment of its fixed assets and inventory had occurred. Therefore, the
Company wrote down fixed assets of $8.0 million and inventory of $767,000 during
the fourth quarter ending December 31, 2000.
In September 1999, we issued 46,000 shares of Series D Preferred Stock
to iVillage, Inc. in exchange for approximately $7.5 million in cash. We also
entered into a three-year sponsorship agreement and a three-year content license
agreement. These agreements originally required us to pay approximately $22.5
million over the three-year period in exchange for certain advertising services
and rights to certain online content.
In September 2000, we restructured our sponsorship agreement with
iVillage, Inc. Under the terms of the new agreement, we were provided with a
specific number of advertising impressions through December 31, 2000. For the
year ending December 31, 2000, we have paid and recognized $3.7 million of
advertising expense related to this marketing agreement.
During 1999, the Company issued approximately 214,000 shares of Series
C Preferred Stock to News Corporation for $7.5 million in cash and $7.5 million
for future advertising services. The Company originally recorded the value of
the future services as prepaid advertising.
The Company decided not to pursue the utilization of its content and
advertising arrangements. Therefore, the Company wrote down prepaid assets
associated with iVillage of $4.2 million and prepaid assets associated with
Newscorp of $4.0 million during the fourth quarter ending December 31, 2000.
In December 1998, we issued approximately 25,000 shares of common stock
to an employee for services rendered in connection with the acquisition and
transfer of domain names. We 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 names in January 1999. The fair value of the stock was
being amortized as stock-based compensation expense over the estimated useful
life, which is deemed to be two years. In June 1999, we issued approximately
43,000 shares of common stock to a company affiliated with an employee for
additional domain names. We recorded the estimated fair
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value of the stock of $3.8 million as an intangible asset. The fair value of the
stock was being amortized as stock-based compensation expense over the estimated
useful life, which is deemed to be two years.
Based upon the rapid changes in business conditions and its expected
future cash flows, the Company determined an impairment of its domain name
assets had occurred. Therefore, the Company wrote down intangible assets
associated with these domain names of $425,000 in the fourth quarter of 2000.
See "Item I-Description of Business-Intellectual Property" for information about
the current status of our domain names.
During the quarter ended September 30, 2000, we did not receive
guaranteed payments of $500,000 in connection with our five-year, exclusive
sponsorship contract with the therapeutic disease state management sponsor on
our diabetes website. A settlement between the Company and Pfizer was reached in
December 2000, and the agreement is now considered terminated.
In the third quarter of 2000, in connection with management's plan to
reduce costs and improve operating efficiencies, we recorded restructuring
charges of $3.0 million, consisting of $1.7 million for headcount reductions and
$1.3 million for consolidation of facilities and related fixed assets.
Additionally, we recorded a charge in the fourth quarter of fiscal 2000 of
$762,000 related to this same plan. Headcount reductions consisted of a
reduction in force of approximately 90 employees, or approximately 30 percent of
our workforce. These positions were eliminated in South San Francisco, CA.
In July 2000, we signed a definitive agreement with Alpha Venture
Capital, Inc. to provide us with up to $50.0 million in additional financing in
the form of an equity line subject to certain terms and conditions. As of
December 31, 2000, the Company allowed the agreement with Alpha Venture Capital
to expire without drawing down any of the funds available under that agreement.
Net Revenue
e-commerce. e-commerce net revenue consists of product sales, net of
allowances for coupons, discounts and estimated returns, and is recognized when
the product is shipped from the Company's warehouse to the customer. Amounts
billed for shipping and handling are included in revenue and shipping, handling
and related costs are included in a separate line item in operating expenses.
The Company provides an allowance for sales returns, based on historical
experience, in the period revenues are recognized. Payment for product sales is
generally made by credit card.
Sponsorship. Sponsorship net revenue includes payments from third
parties in exchange for our identification of those parties within the sponsored
website areas. Sponsorship revenue is recognized ratably over the related
period.
Cost of Net Revenue
e-commerce. Cost of e-commerce net revenue consists primarily of the
costs of products sold to customers and costs of inbound shipping.
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Sponsorship. Cost of sponsorship net revenue consists primarily of
amounts paid to the former owners of Internet domain names that have been
incorporated into certain PlanetRx.com communities. These amounts are typically
a percentage of sponsorship revenue generated in connection with the
corresponding community and are generally capped at a specific dollar amount.
Operating Expenses
Marketing and Sales. Marketing and sales expenses consist primarily of
advertising and promotional expenditures and payroll related expenses.
Shipping, Handling and Related Costs. Shipping, handling and related
costs consist primarily of the costs of product distribution, including order
processing, outbound shipping, credit card commission fees, equipment and
supplies, as well as payroll related expenses.
Product Development. Product development expenses consist primarily of
payroll-related expenses for website development and information technology
personnel, certain Internet access fees, certain online hosting charges and
costs associated with creating and purchasing editorial and licensed content.
General and Administrative. General and administrative expenses consist
primarily of payroll-related expenses for executive and administrative
personnel, corporate facility expenses, professional services expenses, travel
and other general corporate expenses.
RESULTS OF OPERATIONS - FISCAL YEARS ENDED
DECEMBER 31, 2000 AND DECEMBER 31, 1999
Net Revenue
Net revenues were $36.2 million and $9.0 million for the year ended
December 31, 2000 and 1999, respectively. e-commerce revenues were $31.5 million
and $7.9 million and sponsorship revenues were $4.7 million and $1.1 million for
the year ended December 31, 2000 and 1999, respectively.
Cost of Net Revenue
Cost of net revenues were $27.6 million and $6.3 million for the year
ended December 31, 2000 and 1999, respectively. We had gross margins on
e-commerce of 13% and 21% for the year ended December 31, 2000 and 1999,
respectively. Our sponsorship margin was 92% and 91% for the year ended December
31, 2000 and 1999, respectively.
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Operating Expenses
Marketing and Sales. For the year ended December 31, 2000, marketing
and sales expense was $49.3 million as compared to $44.6 million for the year
ended December 31, 1999. The increase is due primarily to costs relating to
marketing and promotional campaigns and increased headcount.
Shipping, Handling and Related Costs. For the year ended December 31,
2000, shipping, handling and related costs were $24.5 million as compared to
$11.9 million for the year ended December 31, 1999. This increase is due
primarily to increased order volume during 2000.
Product Development. For the year ended December 31, 2000, product
development expense was $18.3 million as compared to $12.9 million for the year
ended December 31, 1999. This increase is related to the maintenance of our
websites and internal systems and related increased headcount.
General and Administrative. For the year ended December 31, 2000,
general and administrative expenses were $11.4 million as compared to $6.5
million for the year ended December 31, 1999. This increase is primarily related
to increases in headcount and increases in professional services fees.
Amortization of Intangible Assets. Amortization of intangible assets
was $40.9 million for the year ended December 31, 2000 as compared to $9.6
million for the year ended December 31, 1999. The amortization recorded is
attributable to the amortization of intellectual property related to domain
names and intangible assets resulting from the purchase of selected assets and
liabilities of YourPharmacy.com in October 1999.
Stock-Based Compensation. We recorded additional deferred stock-based
compensation of approximately $3.8 million during the year ended December 31,
2000, in connection with stock options granted during the period. Additionally,
we recorded the recapture of deferred stock-based compensation of approximately
$17.0 million for year ended December 31, 2000, in connection with stock options
forfeited during the period. Our stock-based compensation expense, net totaled
$6.3 million for the year ended December 31, 2000 as compared to $15.6 million
for the year ended December 31, 1999. The remaining deferred stock compensation
balance of approximately $5.9 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. Interest income, net of interest expense, for the year ended
December 31, 2000, increased over the corresponding period of 1999 due to higher
interest-bearing asset balances in 2000.
Income Taxes. At December 31, 2000, we had a fully reserved deferred
tax asset of $69.8 million. We have incurred losses from inception through
December 31, 2000 and believe, based upon the history of such losses and other
factors, that the weight of available evidence indicates that it is more likely
than not that we will not be able to
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realize our deferred tax assets and thus a full valuation reserve has been
recorded through December 31, 2000. See Note 9 of Notes to Financial Statements.
RESULTS OF OPERATIONS -- FISCAL YEARS ENDED
DECEMBER 31, 1998 AND DECEMBER 31, 1999
Net Revenue
We commercially launched the PlanetRx.com website on March 18, 1999.
Prior to our launch, we generated no net revenue. Net revenues for the year
ended December 31, 1999 were $9.0 million. Of this amount, $7.9 million, or 87%,
was e-commerce revenue and $1.1 million, or 13%, was sponsorship revenue.
Cost of Net Revenue
Our cost of net revenue for the year ended December 31, 1999 was $6.3
million. Our gross margin for that period was 30%. Prior to our commercial
launch of our PlanetRx.com website on March 18, 1999, we generated no costs of
net revenue.
e-commerce. Our cost of net revenue resulting from e-commerce for the
year ended December 31, 1999 was $6.2 million resulting in a gross margin on
e-commerce of 21% for the period.
Sponsorship. Our cost of net revenue resulting from sponsorship for the
year ended December 31, 1999 was $100,000 resulting in a gross margin on
sponsorship of 91%.
Operating Expenses
Marketing and Sales. Marketing and sales expenses increased from
approximately $900,000 for the year ended December 31, 1998 to approximately
$44.6 million during the year ended December 31, 1999. The year-to-year
increases are due primarily to costs relating to marketing and promotional
campaigns as well as costs related to growth in headcount.
Shipping, Handling and Related Costs. Shipping, handling and related
costs were $11.9 million for the year ended December 31, 1999. Prior to our
commercial launch in March 18, 1999, we incurred no shipping, handling and
related costs.
Product Development. Product development expenses were $1.0 million for
the year ended December 31, 1998 compared to $12.9 million for the year ended
December 31, 1999. The year-to-year increases are related to the expansion of
our websites and system development and related increased headcount
General and Administrative. General and administrative expenses were
$500,000 for the year ended December 31, 1998 compared to $6.4 million for the
year ended December 31, 1999. The year-to-year increases are primarily related
to increases in headcount, professional service fees, and facilities costs.
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Amortization of Intangible Assets. Amortization of intangible assets
was $9.6 million for the year ended December 31, 1999. Prior to 1999, we had
recorded no amortization of intangible assets. The amortization recorded in 1999
is attributable to the amortization of intellectual property related to domain
names acquired in 1998 and 1999 and intangible assets resulting from the
purchase of selected assets and liabilities of YourPharmacy.com.
Stock-Based Compensation. We recorded total deferred stock-based
compensation of approximately $4.6 million for the year ended December 31, 1998
and approximately $33.1 million for the twelve months ended December 31, 1999.
Our resulting amortization of deferred stock-based compensation totaled
approximately $1.7 million and $15.6 million for the years ended December 31,
1998 and 1999, respectively. Our deferred compensation of approximately $25.5
million will be amortized through 2004.
Interest Income and Expense. Interest income was $38,000 for the year
ended December 31, 1998 compared to $2.7 million for the year ended December
31,1999. Interest income consists of earnings on our cash and cash equivalents
and short-term investments, and the year-to-year increase relates to higher
average balances in these asset accounts. Interest expense was $2,000 for the
year ended December 31, 1998 compared to $2.3 million for the year ended
December 31, 1999. As of December 31, 1998 and December 31, 1999 the balance
outstanding under our interest-bearing liabilities was approximately $600,000
and $7.3 million, respectively.
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 90,000 shares of our series B
preferred stock for approximately $40.00 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 $1.8 million.
Liquidity and Capital Resources
PlanetRx.com invests excess cash predominantly in debt instruments that
are highly liquid, of high-quality investment grade, and predominantly have
maturities of less than one year with the intent to make such funds readily
available for operating purposes. Prior to our initial public offering, which
closed in October 1999 and provided net proceeds of approximately $101.0
million, we financed our operations primarily through private sales of
convertible preferred stock and common stock. At December 31, 2000, we had cash
and cash equivalents and investments in marketable debt securities totaling $8.7
million compared to $116.7 million at December 31, 1999 and $900,000 at December
31, 1998.
On April 5, 2001, our Board of Directors approved the preparation of a
plan of liquidation and dissolution for the Company (the "Plan"). We anticipate
that our Board of Directors will consider and approve the Plan later this month,
and that the Plan will be submitted to our stockholders for approval at a
stockholders meeting tentatively scheduled
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for June 12, 2001. PlanetRx.com currently is not engaging in any business
activities except for the purpose of preserving the value of our assets and
prosecuting or defending lawsuits by or against us. If our Board of Directors
and stockholders approve the Plan, we anticipate that we will file a certificate
of dissolution with the Secretary of State of Delaware, wind up our business
affairs, sell and liquidate our properties and assets, including our
intellectual property and other intangible assets, pay our creditors and make
distributions to stockholders in accordance with the Plan. No assurance can be
given that available cash and amounts received on the sale of assets will be
adequate to provide for the Company's obligations, liabilities, expenses, and
claims.
Net cash used in operating activities was $98.8 million during the year
ended December 31, 2000, primarily a result of quarterly net losses as well as
an increase in accounts receivable and a decrease in accounts payable and
accrued expenses, partially offset by decreases in prepaid expenses and other
assets and non-cash charges for depreciation, amortization, restructuring, and
impairment losses. Net cash used in operating activities was $72.1 million
during the year ended December 31, 1999 primarily as a result of 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. For the year ended December 31, 1998, net cash
used in operating activities was approximately $2.0 million primarily consisting
of net losses as well as increases in prepaid expenses, partially offset by
increases in accounts payable, accrued expenses, and non-cash charges for
interest, depreciation , amortization, and charitable contributions.
Net cash provided by investing activities was approximately $57.0
million during the year ended December 31, 2000, primarily consisting of the
sale of short-term investments partially offset by the acquisition of equipment
and systems, including computer and warehouse equipment. Net cash used in
investing activities was $75.0 million during the year ended December 31, 1999
and $2.9 million during the year ended December 31, 1998. Net cash used in
investing activities for the year ended December 31, 1999, consisted of net
purchases of short-term investments of approximately $65.1 million and purchases
of property and equipment of $9.9 million. Net cash used in investing activities
for the year ended December 31, 1998, consisted of the acquisition of equipment
and systems, including computer equipment and fixtures and furniture.
Net cash used in financing activities was approximately $1.2 million
during the year ended December 31, 2000 and primarily consisted of the
repurchase of unvested common stock options. Net cash provided by financing
activities of $197.8 million year ended December 31, 1999, was primarily
attributable to the October 1999 initial public offering of approximately
862,000 shares of common stock for net proceeds of approximately $101.0 million
and other issuances of preferred and common stock. For the year ended December
31, 1998, net cash provided by financing activities was $5.9 million, consisting
primarily of proceeds of $5.2 million from the issuance of preferred stock.
As of December 31, 2000, our principal commitments consisted of
obligations outstanding under operating leases aggregating approximately $7.1
million through 2005.
Events of Default under Loan Agreement and Lease Agreement with Comdisco
On March 30, 2001, Comdisco, Inc. notified us that events of default
had occurred under the Subordinated Loan and Security Agreement dated as of
January 15, 2001 (the "Loan Agreement"), pursuant to which we borrowed the
original principal amount of $7,000,000 secured by a lien on all of our personal
property, and the Master Lease Agreement dated as of January 15, 1999 (the
"Lease Agreement"), pursuant to which we lease equipment from Comdisco. We
inadvertently failed to make our monthly payments of principal and interest
under the Loan Agreement and rent under the Lease Agreement for February 2001,
and as a result, Comdisco declared that an event of default had occurred under
the Loan Agreement and, by way of such default, under the Lease Agreement
pursuant to its cross-default provision. The notice from Comdisco also advised
that the secured obligations under the Loan Agreement and obligation to pay rent
under the Lease Agreement were accelerated, that Comdisco's obligation to lease
additional equipment to us under the Lease Agreement was cancelled, that our use
of cash collateral (as defined in the Loan Agreement) was restricted, and that
our ability to sell collateral (as defined in the Loan Agreement) was
restricted. Comdisco demanded immediate payment of the obligations due and owing
under the Loan and Lease Agreements and return of the leased equipment. Comdisco
also gave notice of its intent to foreclose under its security interest.
We made the February payments totaling $102,902.50 on April 3, 2001,
and requested that Comdisco waive the events of default under the Loan Agreement
and the Lease Agreement and reinstate both agreements. Comdisco has tentatively
agreed to our request on the conditions (a) that we pay Comdisco $6,100,000
(which we paid on April 9, 2001) which will be applied first, to pay all
outstanding obligations under the Lease Agreement, and then toward repayment of
the Loan Agreement, and (b) that we agree to terms amending the Loan Agreement
(the "Amendment").
We are currently negotiating with Comdisco concerning the terms of the
Amendment; however, there can be no assurance that we will be able to reach a
satisfactory agreement. If we fail to reach agreement on the Amendment, which is
a condition to Comdisco's agreement to waive the events of default under the
Loan Agreement and the Lease Agreement, we may be required to file for
protection under the federal bankruptcy laws in order to preserve and control
our assets as we complete our liquidation.
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Recent Accounting Pronouncements
In May 2000, the Emerging Issues Task Force released Issue No. 00-14
("EITF 00-14"), "Accounting for Certain Sales Incentives", which addressed the
recognition, measurement, and income statement classification for sales
incentives offered voluntarily without charge to customers that can be used in,
or that are exercisable by a customer as a result of, a single exchange
transaction. The Company will adopt the pronouncement in the second quarter
ending June 30, 2001.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have assessed our vulnerability to certain market risks, including
interest rate risk associated with financial instruments included in cash, cash
equivalents and short-term investments. Due to the short-term nature of these
investments and our investment policies and our procedures, we have determined
that the risk associated with interest rate fluctuations related to these
financial instruments does not pose a material risk to us.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PLANETRX.COM, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants........................................ 33
Balance Sheets........................................................... 34
Statements of Operations................................................. 35
Statements of Stockholders' Equity (Deficit)............................. 36
Statements of Cash Flows................................................. 38
Notes to Financial Statements............................................ 40
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of PlanetRx.com, Inc.
In our opinion, the accompanying financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of PlanetRx.com, Inc. at December 31, 1999 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Notes 2 and 16 to the
financial statements, the Company has made a decision to cease operations and
proposes to liquidate the Company's assets. Management's plans in regards to
the proposed liquidation are described in Note 16. Based upon management's
proposed plan to liquidate the Company's assets, management has reevaluated
certain significant estimates used in the preparation of its financial
statements, and has adjusted the financial statements to reflect any changes in
these estimates.
/s/ PricewaterhouseCoopers LLP
Nashville, Tennessee
February 21, 2001, except for
Note 16, which is as of
April 9, 2001
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PLANETRX.COM, INC.
BALANCE SHEETS
(in thousands, except per share amounts)
December 31,
1999 2000
------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 51,629 $ 8,700
Short-term investments 65,119 --
Accounts receivable, net -- 1,887
Inventories 2,276 1,557
Prepaid expenses and other current assets 19,594 1,219
------------------------
Total current assets 138,618 13,363
Property and equipment, net 10,884 6,633
Intangible assets, net 188,115 515
Other assets 898 631
------------------------
$ 338,515 $ 21,142
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,099 $ 1,752
Accrued expenses 8,444 787
Accrued restructuring charge -- 179
Deferred revenue 8 --
Borrowings, current 418 6,496
Capital lease obligations, current 54 2,072
------------------------
Total current liabilities 16,023 11,286
Borrowings, long-term 6,582 --
Capital lease obligations, long-term 265 --
------------------------
22,870 11,286
========================
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred Stock: issuable in series, $0.0001 per value;
5,000 shares authorized; no shares issued and outstanding -- --
Common Stock: $0.0001 par value; 200,000 shares authorized;
6,536 and 6,157 shares issued and outstanding, respectively -- --
Additional paid-in capital 444,410 430,690
Notes receivable from stockholders (35) --
Deferred stock-based compensation (25,454) (5,888)
Accumulated deficit (103,276) (414,946)
------------------------
Total stockholder's equity 315,645 9,856
------------------------
$ 338,515 $ 21,142
========================
The accompanying notes are an integral part of these financial statements.
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PLANETRX.COM, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
-----------------------------------
1998 1999 2000
-----------------------------------
Net revenue:
e-commerce $ -- $ 7,856 $ 31,463
Sponsorship -- 1,143 4,702
-----------------------------------
-- 8,999 36,165
-----------------------------------
Cost of net revenue:
e-commerce -- 6,200 27,223
Sponsorship -- 100 373
-----------------------------------
-- 6,300 27,596
-----------------------------------
Gross profit -- 2,699 8,569
-----------------------------------
Operating expenses:
Marketing and sales 907 44,568 49,287
Shipping, handling and related costs -- 11,905 24,476
Product development 1,025 12,946 18,261
General and administrative 541 6,448 11,399
Amortization of intangible assets -- 9,627 40,860
Stock-based compensation 1,650 15,647 6,330
Contract termination and severance charges -- -- 4,466
Restructuring charges -- -- 3,737
Impairment loss -- -- 163,712
-----------------------------------
Total operating expenses 4,123 101,141 322,528
-----------------------------------
Operating loss (4,123) (98,442) (313,959)
Interest income 38 2,691 3,183
Interest expense (2) (2,263) (894)
-----------------------------------
Net loss $ (4,087) $ (98,014) $(311,670)
===================================
Effect of anti-dilution provisions of Series B Preferred Stock -- (1,009) --
-----------------------------------
Net loss available to common stockholders $ (4,087) $ (99,023) $(311,670)
===================================
Basic and diluted net loss per share $ (72.98) $ (61.93) $ (51.84)
===================================
Weighted average shares used to compute basic diluted
net loss per share 56 1,599 6,012
===================================
The accompanying notes are an integral part of these financial statements.
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PLANETRX.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share amounts)
Preferred Stock Common Stock Additional
------------------------------------ Paid-in
Shares Amount Shares Amount Capital
-------------------------------------------------
Balance at December 31, 1997 40 $ -- 350 $ -- $ 158
Issuance of Series A Preferred Stock at $4.00, net
of issuance costs of $37 1,309 -- -- -- 5,199
Issuance of Series A Preferred Stock for services 19 -- -- -- 188
Issuance of Series A Preferred Stock warrants for services -- -- -- -- 339
Issuance of Series A Preferred Stock in connection
with warrants exercised 13 -- -- -- 50
Issuance of Common Stock and options for services -- -- 33 -- 847
Issuance of Common Stock for cash in connection
with stock option exercises -- -- 264 -- 53
Issuance of Common Stock for notes receivable from
stockholders -- -- 178 -- 35
Deferred stock-based compensation -- -- -- -- 4,570
Amortization of stock-based compensation -- -- -- -- --
Net loss -- -- -- -- --
-------------------------------------------------
Balance as of December 31, 1998 1,381 -- 825 -- 11,439
Issuance of Series A Preferred Stock for services 3 -- -- -- 77
Issuance of Series A Preferred Stock in connection
with a warrant exercise 25 -- -- -- 100
Issuance of Series B Preferred Stock at $40.00, net
of issuance costs of $43 650 -- -- -- 25,957
Issuance of Series B Preferred Stock in connection
with a purchase option exercise 88 -- -- -- 3,500
Issuance of Series C Preferred Stock at $70.04, net
of issuance costs of $61 740 -- -- -- 51,766
Issuance of Series C Preferred Stock for advertising 107 -- -- -- 7,500
Issuance of Series D Preferred Stock at $161.68 46 -- -- -- 7,500
Issuance of Common Stock in initial public offering
at $128.00, net of issuance costs of $1,612 -- -- 862 -- 101,011
Conversion of Preferred Stock into Common Stock (3,040) -- 3,080 -- --
Issuance of Common Stock for charitable contribution -- -- 25 -- 3,200
Issuance of Common Stock for selected assets and
liabilities of yourPharmacy.com, Inc. -- -- 1,296 -- 190,020
Issuance of Common Stock for intellectual property -- -- 43 -- 3,762
Issuance of Common Stock and options for services -- -- -- -- 1,045
Issuance of Common Stock for cash in connection with
stock option exercise, net -- -- 400 -- 1,567
Issuance of Common Stock for services in connection
with stock option exercises -- -- 5 -- 21
Issuance of Series B Preferred Stock purchase
option and warrant for financing -- -- -- -- 1,842
Deferred stock-based compensation -- -- -- -- 33,094
Amortization of stock-based compensation -- -- -- -- --
Effect of antidilution provisions of Series B
Preferred Stock -- -- -- -- 1,009
Net loss -- -- -- -- --
-------------------------------------------------
Balance at December 31, 1999 -- -- 6,536 -- 444,410
Repurchase of unvested Common Stock form prior
exercises of stock options and from Founder -- -- (406) -- (966)
Issuance of Common Stock pursuant to Employee Stock
Purchase Plan -- -- 27 -- 481
Recapture of deferred stock-based compensation, net -- -- -- -- (17,016)
Deferred stock-based compensation -- -- -- -- 3,781
Amortization of stock-based compensation -- -- -- -- --
Recapture of amortization -- -- -- -- --
Net Loss -- -- -- -- --
Repayment of note receivable from stockholder -- -- -- -- --
-------------------------------------------------
Balance at December 30, 2000 -- $ -- 6,157 $ -- $430,690
=================================================
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Notes
Receivable Deferred Total Stock
from stock-based Accumulated holders' Equity
Stock-holders Compensation Deficit (Deficit)
Balance at December 31, 1997 $ -- $ -- $ (166) $ (8)
Issuance of Series A Preferred Stock at $4.00, net of issuance
costs of $37 -- -- -- 5,199
Issuance of Series A Preferred Stock for services -- -- -- 188
Issuance of Series A Preferred Stock warrants for services -- -- -- 339
Issuance of Series A Preferred Stock in connection with
warrants exercised -- -- -- 50
Issuance of Common Stock and options for services -- -- -- 847
Issuance of Common Stock for cash in connection with stock
option exercises -- -- -- 53
Issuance of Common Stock for notes receivable from
stockholders (35) -- -- --
Deferred stock-based compensation -- (4,570) -- --
Amortization of stock-based compensation -- 888 -- 888
Net loss -- -- (4,087) (4,087)
------------------------------------------------------------
Balance at December 31, 1998 (35) (3,682) (4,253) 3,469
Issuance of Series A Preferred Stock for services -- --