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, 2001
[ ] 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.)
6419 Shelby View Drive 38134
Memphis, Tennessee (Zip Code)
(Address of principal executive offices)
(901)379-2200
(Registrant's telephone number, including area code)
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. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 31, 2002.......................................$250,930
Number of shares of common stock outstanding as of March 31, 2002......6,119,115
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive proxy statement to be filed in
connection with its 2002 annual meeting of stockholders or Form 10-K/A to be
filed by April 30, 2002, are incorporated by reference into Part III of this
Form 10-K where indicated.
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 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, RISKS ASSOCIATED
WITH THE CESSATION OF ACTIVE BUSINESS, CHANGES IN ECONOMIC CONDITIONS AFFECTING
PLANETRX.COM, DECISIONS OF COURTS, REGULATORS AND GOVERNMENTAL BODIES, AND OTHER
FACTORS OR RISKS RELATING TO PLANETRX.COM AS SET FORTH IN THIS DOCUMENT,
INCLUDING (WITHOUT LIMITATION) UNDER THE CAPTIONS, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" 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") was 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 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.
Disposition of the Company
In April 2001, our Board of Directors authorized management to prepare a plan of
liquidation and dissolution of the Company for review by the Board.
Subsequently, in an effort to realize as much value as possible for our
stockholders, the Board of Directors also directed management to explore and
evaluate various strategic options for the Company, including a possible merger
or sale, while taking steps to monetize assets and settle obligations in a
manner consistent with the consummation of either a merger or sale or the
liquidation and dissolution of the Company. These steps have included the sale
of assets, the assignment or negotiated cancellation of leases and other
contracts, the payment or settlement of liabilities and obligations, and the
reduction of personnel to three key managers. We intend to continue these steps
to monetize assets and, to the extent possible, use the proceeds, together with
available cash, to pay our obligations and liabilities. No assurance can be
given that available cash and amounts received from the sale of assets will be
adequate to provide for our obligations, liabilities, expenses and claims.
Description of Business
Prior to February 2001, our market 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 had 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 were beginning to use the Internet to
shop for healthcare products and as a source for health and medical information.
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 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.
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 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.
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.
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.
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 formed 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 licensed 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 were all proprietary to PlanetRx.com. Our software platform and
architecture were integrated with relational database servers such as IBM UDB as
well as Microsoft SQL server. Our system was designed to include an open
application-programming interface that provided real-time connectivity to our
distribution center systems for both pharmacy and non-pharmacy products. These
systems included 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, allowed our
systems to be resilient and redundant. Our Internet servers used SSL to help
conduct secure communications and transactions.
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, and there was no clear dominant leader in any of
our market segments. Our competitors could 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 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.
Our business was 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 were 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.
We were 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, record keeping, 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
were required to comply with the Dietary Supplement Health and Education Act
when selling dietary supplements and vitamins.
Intellectual Property
We 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.
The domain names owned by PlanetRx.com as of December 31, 2002 included, but
were not limited to: anorexia.com; osteopathy.com; podiatry.com;
pollenwatch.com; rxnet.com; and weightloss2000.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, we began to reduce our workforce further. As of March 31, 2002,
PlanetRx.com had 3 employees.
RISK FACTORS
Risks Relating to Liquidation and Dissolution
Potential Stockholder Liability to Creditors of the Company
If a Plan of Liquidation and Dissolution should be approved by our Board of
Directors and stockholders, the Company would 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 would continue to exist for three years after the dissolution
becomes effective (or for such longer period as the Delaware Court of Chancery
would direct), during which time the Company would 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 would establish a contingency reserve 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 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 any contingency reserve established by the
Company would be adequate to cover any expenses and liabilities. See
"Contingency Reserves" for more information.
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, if any, that ultimately will be distributed to
stockholders. Claims, liabilities and expenses from operations (including
operating costs, salaries, income taxes, payroll and local taxes, legal and
accounting fees and miscellaneous office expenses) would 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 would be adequate to provide for the Company's obligations,
liabilities, expenses and claims and to make cash distributions to stockholders.
Risks Relating to Sales or Merger
We have been evaluating possible sale or merger transactions involving the
Company. There can be no assurance that we will be able to enter into such a
transaction, or if we do enter into such a transaction, that we will be able to
successfully integrate any acquired business without substantial expenses,
delays or other problems. In addition, there can be no assurance that if the
Company does enter into such a transaction, that it will produce anticipated
revenues and earnings.
Any agreement for a sale or merger of the Company would likely contain a number
of conditions precedent to closing the transaction. There could be no assurance
that the Company would be able to meet all of the conditions precedent which are
its responsibility. Furthermore, any such transaction might fail to close for
any number of reasons, such as a failure by the other party to meet its
obligations, a material adverse change in the condition of either party, or
other unforeseen reasons.
If a sale or merger involving the Company were to be successfully concluded,
there could be no assurance that the Company would be able to profitably manage
or successfully integrate the new business without substantial expenses, delays
or other operational or financial problems. Furthermore, such a transaction
might involve additional risks or effects, including dilution of our
stockholders' interest in the Company, various one-time or ongoing acquisition
related expenses, and unanticipated events or circumstances, some or all of
which could have a material adverse effect on the Company's business, operating
results and financial condition. There could be no assurance that, even if
successful, such a transaction would result in the generation of anticipated
revenues and earnings.
ITEM 2. PROPERTIES
PlanetRx.com's principal executive offices are located in Memphis, Tennessee and
are occupied under a tenancy at will.
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 were
current directors of the Company at the time the complaint was filed, but are
now former directors of the Company. Between April 19, 2001 and May 4, 2001,
five virtually identical additional complaints were filed. One of the additional
complaints also names as defendants Hambrecht & Quist LLC, William Blair & Co.
LLC, Bear Stearns & Co., Inc., additional underwriters of the IPO, Morgan
Stanley Dean Witter & Co. Incorporated and Credit Suisse First Boston Corp.,
which were not underwriters of the IPO, and Steve Valenzuela, a former officer
of the Company. The suits generally allege that the defendants violated federal
securities laws by not disclosing certain actions allegedly taken by the
underwriter defendants in connection with the IPO. The suits allege 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 suits seek 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 24, 2001. The
complaints have been consolidated into a single action, which is being
coordinated with over three hundred other nearly identical actions filed against
other companies before one judge in the U.S. District Court for the Southern
District of New York. No date has been set for any response to the complaint. 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.
On June 19, 2001, vTraction, Inc. filed a complaint for breach of contract in
the Chancery Court of Tennessee for the Thirtieth Judicial District at Memphis
alleging that PlanetRx.com entered into an oral agreement with vTraction to sell
certain equipment and later reneged, and claiming damages in an amount
including, but not limited to, the difference between the price agreed to in the
alleged oral contract and the market price of the equipment. PlanetRx.com has
filed an answer asserting the affirmative defenses of failure of consideration
and statute of frauds and denying the existence of an oral contract.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
Fiscal 2001 - Quarter Ended
January 1 - March 31 $ 0.56 $ 0.27
April 1- June 30 $ 0.31 $ 0.27
July 1 - September 30 $ 0.28 $ 0.09
October 1 - December 31 $ 0.11 $ 0.04
As of March 31, 2002 there were 378 stockholders of record of our common stock.
Dividends
The Company has never declared or paid cash dividends on its common stock. We do
not anticipate paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------------
2001 2000 1999 1998 1997
--------- -------- ------- ----- ----
STATEMENT OF OPERATIONS DATA:
Net revenue:
e-commerce........................................... $ 3,957 $ 31,463 $ 7,856 $ -- $ --
Sponsorship.......................................... 1,817 4,702 1,143 -- --
--------- -------- ------- ----- ----
5,774 36,165 8,999 -- --
--------- -------- ------- ----- ----
Cost of net revenue:
e-commerce........................................... 4,039 27,223 6,200 -- --
Sponsorship.......................................... -- 373 100 -- --
--------- -------- ------- ----- ----
4,039 27,596 6,300 -- --
--------- -------- ------- ----- ----
Gross profit........................................... 1,735 8,569 2,699 -- --
Operating expenses:
Marketing and sales.................................. 513 49,287 44,568 907 --
Shipping, handling and related costs................. 3,594 24,476 11,905 -- --
Product development.................................. 1,335 18,261 12,946 1,025 113
General and administrative........................... 5,364 11,399 6,448 541 23
Amortization of intangible assets.................... -- 40,860 9,627 -- --
Stock-based compensation............................. 1,799 6,330 15,647 1,650 --
Contract termination and severance charges........... -- 4,466 -- -- --
Restructuring charges................................ -- 3,737 -- -- --
Impairment loss...................................... 2,388 163,712 -- -- --
--------- -------- ------- ----- ----
Total operating expenses...................... 14,993 322,528 101,141 4,123 136
--------- -------- ------- ----- ----
Operating loss......................................... (13,258) (313,959) (98,442) (4,123) (136)
Other income........................................... 2,203 -- -- -- --
Interest income........................................ 125 3,183 2,691 38 --
Interest expense....................................... (571) (894) (2,263) (2) (1)
--------- -------- ------- ----- ----
Net loss............................................... $ (11,501) $(311,670) $(98,014)$(4,087) $(137)
========= ======== ======= ===== ====
Extraordinary gain on the early extinguishment of debt,
net of taxes of $0..................................... 177 -- -- -- --
Effect of anti-dilution provisions of Series B
Preferred Stock...................................... -- -- (1,009) -- --
--------- -------- ------- ----- ----
Net loss available to Common stockholders.............. $ (11,324) $(311,670) $(99,023)$(4,087)$(137)
========= ======== ======= ===== ====
Basic and diluted net loss per share................... $ (1.85) $ (51.84) $ (61.93)$(72.98)$ --
========= ======== ======= ===== ====
Weighted average shares used to compute basic and
diluted net loss per share........................... 6,121 6,012 1,599 56 --
========= ======== ======= ===== ====
DECEMBER 31,
---------------------------------------------
2001 2000 1999 1998 1997
--------- -------- ------- ----- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 147 $ 8,700 $116,748 $ 935 $ 15
Working capital (deficit).............................. 153 2,077 122,595 581 (19)
Total assets........................................... 477 21,142 338,515 5,707 36
Borrowings and capital lease obligations, long-term.... -- -- 6,847 2 10
Total stockholders' equity (deficit)................... 253 9,856 315,645 3,469 (8)
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 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, risks associated
with the cessation of active business, changes in economic conditions affecting
PlanetRx.com, decisions of courts, regulators and governmental bodies, and other
factors or risks relating to PlanetRx.com as set forth in this document,
including (without limitation) under the caption "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.
Disposition of the Company
In April 2001, our Board of Directors authorized management to prepare a plan of
liquidation and dissolution of the Company for review by the Board.
Subsequently, in an effort to realize as much value as possible for our
stockholders, the Board of Directors also directed management to explore and
evaluate various strategic options for the Company, including a possible merger
or sale, while taking steps to monetize assets and settle obligations in a
manner consistent with the consummation of either a merger or sale or the
liquidation and dissolution of the Company. These steps have included the sale
of assets, the assignment or negotiated cancellation of leases and other
contracts, the payment or settlement of liabilities and obligations, and the
reduction of personnel to three key managers. We intend to continue these steps
to monetize assets and, to the extent possible, use the proceeds, together with
available cash, to pay our obligations and liabilities. No assurance can be
given that available cash and amounts received from the sale of assets will be
adequate to provide for our obligations, liabilities, expenses and claims.
Overview
PlanetRx.com was 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; 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.
On October 15, 2001, we sold certain automated pharmacy equipment assets to a
third party for approximately $200,000. The net proceeds approximated the book
value of the assets at the time of sale.
In August 2001, we entered into a one-year licensing agreement with Revelation
America Incorporated (Revelation). Under the terms of the agreement, the two
companies have co-branded and marketed certain products and services using media
advertising credits (Advertising) we owned. During the fourth quarter of 2000
and the first quarter of 2001, we used $4 million of the Advertising to promote
a debit Mastercard issued pursuant to an agreement between Revelation and
Merrick Bank Corporation (the Cash Card) and Revelation products, including
PlanetRx products associated with the Cash Card. Revelation has established a
toll-free PlanetRx number to be used in the Advertising. For each Cash Card
issued and activated by using the toll-free number or a click-through from the
PlanetRx.com website, Revelation will pay us a royalty. Royalty revenue of
$31,640 was recorded in sponsorship revenue for the year ended December 31,
2001.
Based upon the rapid changes in business conditions and its expected future cash
flows, the Company determined an impairment of its fixed assets had occurred.
Therefore, the Company wrote down fixed assets of approximately $2.3 million
during the first six months of 2001 and $8.0 million during the fourth quarter
ending December 31, 2000. After the impairment loss and subsequent sales, the
Company's net book value of fixed assets approximated $12,000 at December 31,
2001. The remaining fixed assets have been written down to their net realizable
value and are currently classified as held for sale.
Based upon the rapid changes in business conditions and its expected future cash
flows, the Company determined an impairment of certain of its domain name assets
had occurred. Therefore, the Company wrote down intangible assets associated
with these domain names of $425,000 during the fourth quarter ending December
31, 2000, approximately $92,000 during the second quarter ending June 30, 2001,
and approximately $56,000 during the fourth quarter ending December 31, 2001..
Additionally, as part of management's plan to liquidate the company,
PlanetRx.com began to sell domain name assets during the first quarter of 2001.
Associated with the sale of these assets, the Company recorded other income of
approximately $2.2 million for the year ended December 31, 2001. See "Item
I-Description of Business" for information about the current status of our
domain names.
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, 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, pursuant to which we lease
equipment from Comdisco. In July 2001, we reached a settlement agreement with
Comdisco which cured these events of default. See "Liquidity and Capital
Resources - Events of Default Under Loan Agreement and Lease Agreement with
Comdisco" in this Item 2.
On July 1, 2001, we sold certain computer and telecommunication assets to a
third party for approximately $358,000. The net proceeds approximated the book
value of the assets at the time of sale.
On April 27, 2001, we sold certain warehouse equipment assets to a third party
for approximately $1.4 million. The net proceeds approximated the book value of
the assets at the time of sale. The proceeds were used to make additional
principal payments to Comdisco under the Subordinated Loan and Security
Agreement dated as of January 15, 1999.
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 were
current directors of the Company at the time the complaint was filed, but are
now former directors of the company. Between April 19, 2001 and May 4, 2001,
five virtually identical additional complaints were filed. One of the additional
complaints also names as defendants Hambrecht & Quist LLC, William Blair & Co.
LLC, Bear Stearns & Co., Inc., additional underwriters of the IPO, Morgan
Stanley Dean Witter & Co. Incorporated and Credit Suisse First Boston Corp.,
which were not underwriters of the IPO, and Steve Valenzuela, a former officer
of the Company. The suits generally allege that the defendants violated federal
securities laws by not disclosing certain actions allegedly taken by the
underwriter defendants in connection with the IPO. The suits allege 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 suits seek 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 24, 2001. The
complaints have been consolidated into a single action, which is being
coordinated with over three hundred other nearly identical actions filed against
other companies before one judge in the U.S. District Court for the Southern
District of New York. No date has been set for any response to the complaint. 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.
On June 19, 2001, vTraction, Inc. filed a complaint for breach of contract in
the Chancery Court of Tennessee for the Thirtieth Judicial District at Memphis
alleging that PlanetRx.com entered into an oral agreement with vTraction to sell
certain equipment and later reneged, and claiming damages in an amount
including, but not limited to, the difference between the price agreed to in the
alleged oral contract and the market price of the equipment. PlanetRx.com has
filed an answer asserting the affirmative defenses of failure of consideration
and statute of frauds and denying the existence of an oral contract.
In February 2001, we signed a marketing agreement with drugstore.com. Under the
terms of the agreement, we launched a new site and marketed to our customers the
drugstore.com website for a flat marketing fee of $1.5 million. In addition, we
will also receive a customer acquisition fee for every customer who purchases
something on the drugstore.com site from the Company's site based upon a sliding
scale. We also did not accept any new prescription orders after February 12th,
did not perform any prescription refills after February 26th, and closed the
remainder of our store on March 12th, 2001. The term of the agreement with
drugstore.com was for 3 months.
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. 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 had terminated the agreements due to Express Scripts'
non-payment of certain sums due the Company under the agreements. The Company
subsequently sued Express Scripts over the unpaid sums due to the company (Case
No.01CC-696, In the Circuit Court of St. Louis County, Missouri, Express Scripts
vs. PlanetRx.com, Inc.). On January 22, 2002, the Case settled prior to trial
with the Company recovering substantially the amount of the unpaid sums from
Express Scripts. As part of the Settlement Agreement, the Company and Express
Scripts settled all other business claims between the two parties and severed
all remaining business relationships, with the exception of Express Scripts'
status as shareholder of the Company.
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 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.
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.
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, 2001 AND DECEMBER 31, 2000
Net Revenue
Net revenues were $5.8 million and $36.2 million for the year ended December 31,
2001 and 2000, respectively. e-commerce revenues were $4.0 million and $31.5
million and sponsorship revenues were $1.8 million and $4.7 million for the year
ended December 31, 2001 and 2000, respectively. On February 12, 2001, we stopped
accepting new prescriptions, and on March 12, 2001, we closed our on-line store.
Cost of Net Revenue
Cost of net revenues were $4.0 million and $27.6 million for the year ended
December 31, 2001 and 2000, respectively. We had negative gross margins on
e-commerce of 2% and positive gross margins on e-commerce of 13% for the year
ended December 31, 2001 and 2000, respectively. Our sponsorship margin was 100%
and 92% for the year ended December 31, 2001 and 2000, respectively. On February
12, 2001, we stopped accepting new prescriptions, and on March 12, 2001, we
closed our on-line store.
Operating Expenses
Marketing and Sales. For the year ended December 31, 2001, marketing and sales
expense was approximately $513,000 as compared to $49.3 million for the year
ended December 31, 2000. The decrease is due primarily to the absence of
marketing and promotional campaigns and decreased headcount associated with the
closure of retail operations in 2001.
Shipping, Handling and Related Costs. For the year ended December 31, 2001,
shipping, handling and related costs were $3.6 million as compared to $24.5
million for the year ended December 31, 2000. This decrease is due to the
closure of retail operations in 2001.
Product Development. For the year ended December 31, 2001, product development
expense was $1.3 million as compared to $18.3 million for the year ended
December 31, 2000. This decrease is related to the closure of our retail stores
and the related decline in the maintenance of our websites and internal systems.
General and Administrative. For the year ended December 31, 2001, general and
administrative expenses were $5.4 million as compared to $11.4 million for the
year ended December 31, 2000. This decrease is due to the closure of retail
operations in 2001.
Amortization of Intangible Assets. Amortization of intangible assets was zero
for the year ended December 31, 2001 as compared to $40.9 million for the year
ended December 31, 2000. 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. These assets were impaired during 2000 and
2001 and are classified as held for sale.
Stock-Based Compensation. We recorded the recapture of deferred stock-based
compensation of approximately $2.9 million for the year ended December 31, 2001,
and $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 $1.8 million for the year ended December 31, 2001 as compared to $6.3
million for the year ended December 31, 2000. The remaining deferred stock
compensation balance of approximately $1.1 million will be amortized through
2004.
Impairment Loss. 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 approximately $2.3
million for the year ending December 31, 2001 for the impairment in the asset
value of property and equipment.
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, 2001, decreased over the corresponding period of 2000 due to lower
interest-bearing asset balances in 2001.
Income Taxes. At December 31, 2001, we had a fully reserved deferred tax asset
of $73.0 million. We have incurred losses from inception through December 31,
2001 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 realize our deferred tax assets and thus a full valuation
reserve has been recorded through December 31, 2001. See Note 9 of Notes to
Financial Statements.
Other Income
As part of management's plan to liquidate the Company, PlanetRx.com began to
sell domain name assets during the first quarter of 2001. Associated with the
sale of these assets, the Company recorded other income of approximately $2.2
million for the year ended December 31, 2001.
Extraordinary Gain on the Early Extinguishment of Debt
In July 2001, we reached a settlement with Comdisco, Inc. related to a
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, and the Master Lease Agreement dated as of January 15, 1999 (the
"Lease Agreement"), pursuant to which we leased equipment from Comdisco. Upon
such settlement we recorded an extraordinary gain on the early extinguishment of
debt, net of taxes, in the amount of $177,000. See Liquidity and Capital
Resources.
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. We launched our website in March
of 1999 and during 1999 we increased the breadth of our product offerings,
expanded our on-line information resources and identified and executed strategic
partnerships. The increase in net revenue was the result of the culmination of
certain of these activities in 2000.
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.
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, for which we amortized approximately $8.4
milion and $38.7 million for the year ended December 31, 1999 and 2000
respectively. See also "Contract termination and severance charges" and
"Impairment Loss."
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.
Contract termination and severance charges. In June 2000 we restructured our
agreement with Express Scripts, Inc. and recorded a one-time contract
termination fee of $4.3 million.
Impairment Loss
In October 1999, we completed a series of agreements with Express Scripts, Inc.
and its wholly owned subsidiary, YourPharmacy.com. 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. 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.
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 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 approximately $8.0 million for
the year ending December 31, 2000 for the impairment in the asset value of
property and equipment.
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 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.
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, 2001, we had cash
and cash equivalents and investments in marketable debt securities totaling
approximately $147,000 compared to $8.7 million at December 31, 2000 and $116.7
at December 31, 1999.
In April 2001, our Board of Directors authorized management to prepare a plan of
liquidation and dissolution of the Company for review by the Board.
Subsequently, in an effort to realize as much value as possible for our
stockholders, the Board of Directors also directed management to explore and
evaluate various strategic options for the Company, including a possible merger
or sale, while taking steps to monetize assets and settle obligations in a
manner consistent with the consummation of either a merger or sale or the
liquidation and dissolution of the Company. These steps have included the sale
of assets, the assignment or negotiated cancellation of leases and other
contracts, the payment or settlement of liabilities and obligations, and the
reduction of personnel to three key managers. We intend to continue these steps
to monetize assets and, to the extent possible, use the proceeds, together with
available cash, to pay our obligations and liabilities. No assurance can be
given that available cash and amounts received from the sale of assets will be
adequate to provide for our obligations, liabilities, expenses and claims.
Net cash used in operating activities was $5.0 million during the year ended
December 31, 2001, primarily a result of quarterly net losses as well as
decreases in accounts payables, accrued expenses, and accrued restructuring
charges, partially offset by decreases in accounts receivables, inventories,
prepaid expenses and other assets and non-cash charges for depreciation,
amortization, and impairment losses. 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.
Net cash provided by investing activities was approximately $4.9 million during
the year ended December 31, 2001, primarily consisting of proceeds from the sale
of intangible assets and property and equipment. 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 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 financing activities was approximately $8.5 million during the
year ended December 31, 2001 and primarily consisted of principal payments on
borrowings and capital lease obligations and the repurchase of unvested Common
Stock options. 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.
As of December 31, 2001, we had no principal commitments or obligations
outstanding under operating leases or long-term debt.
Events of Default under Loan Agreement and Lease Agreement with Comdisco
In July 2001, we reached a settlement with Comdisco, Inc., which had notified us
in March 2001 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 ultimately agreed to
waive the events of default if (a) we paid Comdisco $6,100,000 (which we paid on
April 9, 2001), which was applied first, to pay all outstanding obligations
under the Lease Agreement, and then toward repayment of the Loan Agreement, and
(b) we agreed to terms amending the Loan Agreement, which involved, among other
things, an additional payment of principal under the Loan Agreement in the
approximate amount of $1.4 million, which was made during the second quarter of
2001, and a discounted payoff amount of $442,000.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Goodwill and certain intangible
assets will remain on the balance sheet and not be amortized. On an annual
basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. The company implemented SFAS No. 141 on July 1,
2001 and does not expect this statement to have a material effect on the
company's consolidated financial position or results of operations.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 changes the accounting for goodwill and other
indefinite-lived intangible assets from an amortization method to an
impairment-only approach. Amortization of goodwill and other indefinite-lived
intangible assets will cease upon adoption of this statement. The company is
required to implement SFAS No. 142 on January 1, 2002 and does not expect this
statement to have a material effect on the company's consolidated financial
position or results of operations.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets effective for years beginning after December 15,
2001. This Statement supersedes SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, but retains the
fundamental provision of SFAS 121 for recognition and measurement of the
impairment of long-lived assets to be held and used and measurement of
long-lived assets to be held for sale. The statement requires that whenever
events or changes in circumstances indicate that a long-lived asset's carrying
value may not be recoverable, the asset should be tested for recoverability. The
statement also requires that a long-lived asset classified as held for sale
should be carried at the lower of its carrying value or fair value, less cost to
sell. Management does not expect this statement to have a material effect on the
company's consolidated financial position or results of operations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities.
On an ongoing basis, we evaluate our estimates, including those related to bad
debts, carrying value of property and equipment and intangible assets, income
taxes, contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. If the financial
conditions of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
We record an impairment charge when we believe an investment in property and
equipment and intangible assets has been impaired such that future undiscounted
cash flows would not recover the book basis of the investment in the property
and equipment or intangible asset. Future adverse changes in market conditions
or poor operating results of the company could result in losses or an inability
to recover the carrying value of the investments that may not be reflected in an
investment's carrying value, thereby possibly requiring an impairment charge in
the future.
We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. We have considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
need for a valuation allowance. Should we determine that we will be able to
realize all or part of our net deferred tax asset in the future, an adjustment
to the deferred tax asset would be recognized in income in the periods such
determination was made.
At December 31, 2001, certain suits have been filed against the Company, which
exceed insurance coverage. Although it is impossible at this time to predict
with certainty the ultimate outcome of this litigation, the Company believes it
has meritorious defenses and intends to vigorously defend these suits. It is
reasonably possible that recorded reserves may not be adequate to cover the
future payment to conclude these suits. Adjustments, if any, to estimates
recorded resulting from the ultimate conclusion of these suits will be reflected
in operations in the period in which such adjustments are known.
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
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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, 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 of America, 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 Note 2 to the financial
statements, the Company has made a decision to cease operations and proposes to
liquidate the Company's assets, which raises substantial doubt about its ability
to continue as a going concern. Management's plans in regards to the proposed
liquidation are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 27, 2002
PLANETRX.COM, INC.
BALANCE SHEETS
(in thousands, except per share amounts)
December 31,
2000 2001
------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,700 $ 147
Accounts receivable, net 1,887 76
Inventories 1,557 --
Prepaid expenses and other current assets 1,219 154
------------------------
Total current assets 13,363 377
Property and equipment, net 6,633 12
Intangible assets, net 515 88
Other assets 631 --
------------------------
$ 21,142 $ 477
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,752 $ 127
Accrued expenses 787 28
Accrued restructuring charge 179 69
Borrowings, current 6,496 --
Capital lease obligations, current 2,072 --
------------------------
Total current liabilities 11,286 224
------------------------
11,286 224
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;
6,157 and 6,119 shares issued and outstanding, respectively -- --
Additional paid-in capital 430,690 427,672
Deferred stock-based compensation (5,888) (1,149)
Accumulated deficit (414,946) (426,270)
------------------------
Total stockholder's equity 9,856 253
------------------------
$ 21,142 $ 477
========================
The accompanying notes are an integral part of these financial statements.
PLANETRX.COM, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
-----------------------------------
1999 2000 2001
-----------------------------------
Net revenue:
e-commerce $ 7,856 $ 31,463 $ 3,957
Sponsorship 1,143 4,702 1,817
-----------------------------------
8,999 36,165 5,774
-----------------------------------
Cost of net revenue:
e-commerce 6,200 27,223 4,039
Sponsorship 100 373 --
-----------------------------------
6,300 27,596 4,039
-----------------------------------
Gross profit 2,699 8,569 1,735
-----------------------------------
Operating expenses:
Marketing and sales 44,568 49,287 513
Shipping, handling and related costs 11,905 24,476 3,594
Product development 12,946 18,261 1,335
General and administrative 6,448 11,399 5,364
Amortization of intangible assets 9,627 40,860 --
Stock-based compensation 15,647 6,330 1,799
Contract termination and severance charges -- 4,466 --
Restructuring charges -- 3,737 --
Impairment loss -- 163,712 2,388
-----------------------------------
Total operating expenses 101,141 322,528 14,993
-----------------------------------
Operating loss (98,442) (313,959) (13,258)
Other income -- -- 2,203
Interest income 2,691 3,183 125
Interest expense (2,263) (894) (571)
-----------------------------------
Net loss $ (98,014) $(311,670) $ (11,501)
Extraordinary gain on the early extinguishment of debt,
net of taxes of $0 -- -- 177
Effect of anti-dilution provisions of Series B Preferred Stock (1,009) -- --
-----------------------------------
Net loss available to common stockholders $ (99,023) $(311,670) $ (11,324)
===================================
Basic and diluted net loss per share $ (61.93) $ (51.84) $ (1.85)
===================================
Weighted average shares used to compute basic and diluted
net loss per share 1,599 6,012 6,121
===================================
The accompanying notes are an integral part of these financial statements.
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 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 31, 2000 -- $ -- 6,157 $ -- $430,690
Repurchase of unvested Common Stock from prior
exercises of stock options and from Founder -- -- (38) -- (78)
Issuance of Common Stock pursuant to Employee Stock
Purchase Plan -- -- -- -- --
Recapture of deferred stock-based compensation, net -- -- -- -- (2,940)
Deferred stock-based compensation -- -- -- -- --
Amortization of stock-based compensation -- -- -- -- --
Recapture of amortization -- -- -- -- --
Net Loss -- -- -- -- --
Repayment of note receivable from stockholder -- -- -- -- --
-------------------------------------------------
Balance at December 31, 2001 -- $ -- 6,119 $ -- $427,672
=================================================
Notes
Receivable Deferred Total Stock
from stock-based Accumulated holders' Equity
Stock-holders Compensation Deficit (Deficit)
Balance at December 31, 1998 (35) (3,682) (4,253) 3,469
Issuance of Series A Preferred Stock for services -- -- -- 77
Issuance of Series A Preferred Stock in connection with a
warrant exercise -- -- -- 100
Issuance of Series B Preferred Stock at $40.00 net
of issuance costs of $43 -- -- -- 25,957
Issuance of Series B Preferred Stock in connection with a
purchase option exercise -- -- -- 3,500
Issuance of Series C Preferred Stock at $70.04, net of
issuance costs of $61 -- -- -- 51,766
Issuance of Series C Preferred Stock for advertising -- -- -- 7,500
Issuance of Series D Preferred Stock at $161.68 -- -- -- 7,500
Issuance of Common Stock in initial public offering at
$128.00, net of issuance costs of $1,612 -- -- -- 101,011
Conversion of Preferred Stock into Common Stock -- -- -- --
Issuance of Common Stock for charitable contribution -- -- -- 3,200
Issuance of Common Stock for selected assets and
liabilities of yourPharmacy.com, Inc. -- -- -- 190,020
Issuance of Common Stock for intellectual property -- -- -- 3,762
Issuance of Common Stock and options for services -- -- -- 1,045
Issuance of Common Stock for cash in connection with
stock option exercises, net -- -- -- 1,567
Issuance of Common Stock for services I connection with
stock option exercises -- -- -- 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 -- 11,322 -- 11,322
Effect of anti-dilution provisions of Series B Preferred Stock -- -- (1,009) --
Net loss -- -- (98,014) (98,014)
------------------------------------------------------------
Balance at December 31, 1999 (35) (25,454) (103,276) 315,645
Repurchases of unvested Common Stock from prior
exercises of stock options and from Founder -- -- -- (966)
Issuance of Common Stock pursuant to Employee Stock
Purchase Plan -- -- -- 481
Recapture of deferred stock-based compensation, net -- 17,016 -- --
Deferred stock-based compensation -- (3,781) -- --
Amortization of stock-based compensation 13,401 -- 13,401
Recapture of amortization -- (7,070) -- (7,070)
Net Loss -- -- (311,670) (311,670)
Repayment of note receivable from stockholder 35 -- -- 35
------------------------------------------------------------
Balance at December 31, 2000 $ -- $ (5,888) $(414,946) $ 9,856
Repurchases of unvested Common Stock from prior
exercises of stock options and from Founder -- -- -- (78)
Issuance of Common Stock pursuant to Employee Stock
Purchase Plan -- -- -- --
Recapture of deferred stock-based compensation, net -- 2,940 -- --
Amortization of stock-based compensation 1,799 -- 1,799
Net Loss -- -- (11,324) (11,324)
------------------------------------------------------------
Balance at December 31, 2001 $ -- $ (1,149) $(426,270) $ 253
============================================================
The accompanying notes are an integral part of these financial statements.
PlanetRx.com, Inc.
Statements of Cash Flows
(in thousands)
Year Ended December 31,
-----------------------------------------
1999 2000 2001
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(98,014) $(311,670) $(11,324)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,214 5,235 1,860
Allowance for doubtful accounts 218 512 --
Non-cash interest charges related to purchase option and warrant 1,812 -- --
Stock-based compensation 15,665 6,330 1,799
Amortization of intangible assets 9,627 40,861 --
Non-cash restructuring charges -- 1,110 --
Impairment loss -- 163,712 2,388
Gain on early extinguishment of debt -- -- (177)
Gain on sale of intangible assets -- --
(2,114)
Changes in operating assets and liabilities:
Inventories (2,258) (48) 1,557
Accounts receivable (218) (2,399) 1,811
Prepaid expenses and other current assets (10,814) 10,169 1,065
Other assets (817) 267 631
Accounts payable 5,499 (5,347) (1,625)
Accrued expenses 4,985 (7,657) (759)
Accrued restructuring charges -- 179 (110)
Deferred revenue 8 (8) --
-----------------------------------------
Net cash used in operating activities (72,093) (98,754) (4,998)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,885) (8,094) --
Sale of property and equipment -- -- 2,521
Purchases of short-term investments (65,119) -- --
Sales of short-term investments -- 65,119 --
Proceeds from sale of intangible assets -- -- 2,393
-----------------------------------------
Net cash provided by (used in) investing activities (75,004) 57,025 4,914
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock for cash, net 189,834 482 --
Proceeds from exercises of Common Stock options 1,567 -- --
Repurchase of unvested Common Stock options -- (966) (78)
Proceeds from borrowings 6,400 -- --
Repayment of notes receivable from stockholders -- 35 --
Principal payments on borrowings -- (504) (6,319)
Principal payments on capital lease obligations (10) (247) (2,072)
-----------------------------------------
Net cash provided by (used in) financing activities 197,791 (1,200) (8,469)
-----------------------------------------
Increase (decrease) in cash and cash equivalents 50,694 (42,929) (8,553)
Cash and cash equivalents at beginning of period 935 51,629 8,700
-----------------------------------------
Cash and cash equivalents at end of period $51,629 $ 8,700 $ 147
=========================================
Supplemental cash flow information:
Cash paid for interest $ 451 $ 888 $ 553
=========================================
Supplemental non-cash investing and financing activity:
Property and equipment acquired under capital leases $ 318 $ 2,000 $ --
=========================================
Issuance of common stock in exchange for services,
reclassification of a prepaid asset to an intangible asset in 1999 $ 614 $ -- $ --
=========================================
Issuance of purchase option and warrant for Series B Preferred Stock for financing $ 1,842 $ -- $ --
=========================================
Year Ended December 31,
-----------------------------------------
1999 2000 2001
-----------------------------------------
Effect of anti-dilution provision of Series B Preferred Stock $ 1,009 $ -- $ --
=========================================
Issuance of Series C Preferred Stock for advertising $ 7,500 $ -- $ --
=========================================
Issuance of Common Stock in exchange for intangible assets $ 3,762 $ -- $ --
=========================================
Issuance of Common Stock for selected assets and liabilities of YourPharmacy.com, Inc. $ 190,020 $ -- $ --
=========================================
The accompanying notes are an integral part of these financial statements.
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
PlanetRx.com, Inc. ("PlanetRx" or the "Company"), was incorporated in Delaware
on March 31, 1995 and was in the development stage through December 31, 1998.
Until March 12, 2001, the Company was an online healthcare destination for
commerce, content and community. In April 2001 the Company's Board of Directors
authorized management to prepare a plan of liquidation and dissolution of the
Company for review by the Board.
Stock-Split
Share information for the years ended December 31, 1999 and 2000 has been
retroactively adjusted to reflect 1-for-8 reverse stock split.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents and short-term investments
The Company invests its excess cash in debt instruments of the U.S. Government
and its agencies, and in high-quality corporate issuers. All highly liquid
instruments with an original maturity of three months or less are considered
cash equivalents, those with original maturities greater than three months and
current maturities less than twelve months from the balance sheet date are
considered short-term investments and those with maturities greater than twelve
months from the balance sheet date are considered long-term investments.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consists primarily of prepaid
advertising and operational costs.
Inventories
Inventories, of which all are finished goods, are carried at the lower of cost
or market determined using weighted average cost.
Property and equipment
Property and equipment, including leasehold improvements, are stated at cost
less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets, generally three
years. Leasehold improvements and assets held under capital leases are amortized
over the term of the lease or estimated useful lives, whichever is shorter.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets 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"
("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the future non-discounted
cash flows attributable to such assets. The Company assesses the impairment of
its long-lived assets when events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. See discussion of
impairment of long-lived assets in Note 3 to the financial statements.
Intangible assets
Intangible assets are amortized using the straight-line method over their
respective estimated useful lives from two to five years.
Revenue recognition
The Company recognizes revenue from product sales, net of allowances for
coupons, discounts and estimated returns, 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. The
Company recognizes sponsorship revenue ratably over the related service period.
The Company complies with the provisions of Emerging Issues Task Force No.
99-17, "Accounting for Barter Transactions." The fair value of the advertising
barter transactions cannot be reasonably determined and therefore the revenue
and corresponding advertising expenses have not been recorded.
The Company complies with Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements ("SAB 101"). SAB 101 was adopted in the
fourth quarter ending December 31, 2000 and such adoption did not have a
material impact on the Company's results of operations, financial position or
cash flows.
The Company complies with the Emerging Issues Task Force released Issue No.
00-10 ("EITF 00-10"), "Accounting for Shipping and Handling Revenues and Costs".
In accordance with EITF 00-10, amounts billed for shipping and handling are
included in revenue and shipping and handling and related costs are included in
a separate line item included in operating expenses.
Product development
Product development costs are expensed as incurred, except for certain software
development costs. The Company complies with the Statement of Position 98-1
("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", which requires development costs associated with
internal use software to be charged to operations until certain capitalization
criteria are met.
The Company complies with the Emerging Issues Task Force released Issue No.
00-02 ("EITF 00-02"), "Accounting for Web Site Development Costs", which
requires certain web site development costs to be capitalized. EITF 00-02 was
adopted during the third quarter ending September 30, 2000 and such adoption did
not have a significant impact on the Company's results of operations, financial
position or cash flows.
Advertising expense
The Company recognizes advertising expenses in accordance with Statement of
Position 93-7 "Reporting on Advertising Costs." As such, the Company expenses
the cost of communicating advertising in the period in which the advertising
space or airtime is used. Internet advertising expenses are recognized based on
the terms of the individual agreements, but generally over the greater of the
ratio of the number of impressions received over the total number of contracted
impressions, or on a straight-line basis over the term of the contract.
Advertising expenses were $29.2 million, $28.5 million, and $0 for the three
years ended December 31, 1999, 2000 and 2001, respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, as of the date of the grant,
between the fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services".
The Company amortizes stock-based compensation recorded in connection with
certain stock option grants over the vesting periods of the related options.
During the third quarter ending September 30, 2000, the Company adopted
Financial Accounting Standards Board issued FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25" (the "Interpretation"). The Interpretation
clarified certain issues that have arisen in practice since the issuance of APB
25. Such adoption did not have a significant impact on the Company's results of
operations, financial position or cash flows.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and cash equivalents, short-term investments and
accounts receivable. The Company manages credit risk related to cash and cash
equivalents and short-term investments by only maintaining these accounts with
high quality financial institutions. As of December 31, 1999, one customer
accounted for 11% of revenue. As of December 31, 2000, no customers accounted
for more then 10% of revenue and two customers accounted for 29% and 14% of
trade accounts receivable. As of December 31, 2001, no customers accounted for
more than 10% of revenue and four customers accounted for 55%, 17%, 14%, and 11%
of trade accounts receivable.
Fair value of financial instruments
The Company's financial instruments include cash and cash equivalents, short-
term investments, accounts receivable, accounts payable, borrowings and capital
lease obligations. These financial instruments are carried at cost, which
approximates their fair value due to their short-term maturities.
Income taxes
Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.
Net loss per common share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Segment information
The Company complies with the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company identifies its
operating segments based on business activities and management responsibility.
Through March 12, 2001 the Company operated as a single business segment;
providing online services in the United States.
Recent accounting pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Goodwill and certain intangible
assets will remain on the balance sheet and not be amortized. On an annual
basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. The company implemented SFAS No. 141 on July 1,
2001 and does not expect this statement to have a material effect on the
company's consolidated financial position or results of operations.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 changes the accounting for goodwill and other
indefinite-lived intangible assets from an amortization method to an
impairment-only approach. Amortization of goodwill and other indefinite-lived
intangible assets will cease upon adoption of this statement. The company is
required to implement SFAS No. 142 on January 1, 2002 and does not expect this
statement to have a material effect on the company's consolidated financial
position or results of operations.
In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets effective for years beginning after December 15,
2001. This Statement supersedes SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, but retains the
fundamental provision of SFAS 121 for recognition and measurement of the
impairment of long-lived assets to be held and used and measurement of
long-lived assets to be held for sale. The statement requires that whenever
events or changes in circumstances indicate that a long-lived asset's carrying
value may not be recoverable, the asset should be tested for recoverability. The
statement also requires that a long-lived asset classified as held for sale
should be carried at the lower of its carrying value or fair value, less cost to
sell. Management does not expect this statement to have a material effect on the
company's consolidated financial position or results of operations.
NOTE 2 - LIQUIDITY
The Company has sustained losses since inception of $426.3 million.
Additionally, the Company expects to continue to incur losses for the
foreseeable future.
The Company ceased retail operations effective March 12, 2001. Given that the
Company will not have any future business operations, this raises substantial
doubt about the Company's ability to continue as a going concern.
In April 2001, the Company's Board of Directors authorized management to prepare
a plan of liquidation and dissolution of the Company for review by the Board.
Subsequently, in an effort to realize as much value as possible for our
stockholders, the Board of Directors also directed management to explore and
evaluate various strategic options for the Company, including a possible merger
or sale, while taking steps to monetize assets and settle obligations in a
manner consistent with the consummation of either a merger or sale or the
liquidation and dissolution of the Company. These steps have included the sale
of assets, the assignment or negotiated cancellation of leases and other
contracts, the payment or settlement of liabilities and obligations, and the
reduction of personnel to three key managers. The Company intends to continue
these steps to monetize assets and, to the extent possible, use the proceeds,
together with available cash, to pay the Company's obligations and liabilities.
No assurance can be given that available cash and amounts received from the sale
of assets will be adequate to provide for the obligations, liabilities, expenses
and claims of the Company.
NOTE 3 - IMPAIRMENT OF LONG-LIVED ASSETS
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 for the year ending December 31, 2000, and a charge of $2.4 million
for the year ending December 31, 2001.
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 during the fourth quarter ending
December 31, 2000.
Based upon the rapid changes in business conditions, its expected future cash
flows, the Company determined an impairment of its fixed assets had occurred.
Therefore, the Company wrote down fixed assets of approximately $2.3 million
during the first six months of 2001 and $8.0 million during the fourth quarter
ending December 31, 2000. After the impairment loss and subsequent sales, the
Company's net book value of fixed assets approximated $12,000 at December 31,
2001. The remaining fixed assets have been written down to their net realizable
value and are currently classified as held for sale.
Based upon the rapid changes in business conditions and its expected future cash
flows, the Company determined an impairment of certain of its domain name assets
had occurred. Therefore, the Company wrote down intangible assets associated
with these domain names of $425,000 during the fourth quarter ending December
31, 2000, approximately $92,000 during the second quarter ending June 30, 2001,
and approximately $56,000 during the fourth quarter ending December 31, 2001.
Additionally, as part of management's plan to liquidate the company,
PlanetRx.com began to sell domain name assets during the first quarter of 2001.
Associated with the sale of these assets, the Company recorded other income of
approximately $2.2 million for the year ended December 31, 2001.
The Company decided not to pursue the utilization of all 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 August 2001, we entered into a one-year licensing agreement with Revelation
America Incorporated (Revelation). Under the terms of the agreement, the two
companies have co-branded and marketed certain products and services using media
advertising credits (Advertising) we owned. During the fourth quarter of 2000
and the first quarter of 2001, we used $4 million of the Advertising to promote
a debit Mastercard issued pursuant to an agreement between Revelation and
Merrick Bank Corporation (the Cash Card) and Revelation products, including
PlanetRx products associated with the Cash Card. Revelation has established a
toll-free PlanetRx number to be used in the Advertising. For each Cash Card
issued and activated by using the toll-free number or a click-through from the
PlanetRx.com website, Revelation will pay us a royalty. Royalty revenue of
$31,640 was recorded in sponsorship revenue for the year ended December 31,
2001.
Based upon the rapid changes in business conditions and its expected future cash
flows, the Company determined an impairment of its inventory had occurred.
Therefore, the Company wrote down inventory of $767,000 during the fourth
quarter ending December 31, 2000.
NOTE 4 - RESTRUCTURING AND RELATED CHARGES
In the third quarter ending September 30, 2000, in connection with management's
plan to reduce costs and improve operating efficiencies, the Company recorded
restructuring charges of approximately $3.0 million, consisting of $1.7 million
for headcount reductions and $1.3 million for consolidation of facilities and
related fixed assets. In the fourth quarter of fiscal 2000 the Company recorded
an additional restructuring charge of $762,000 for headcount reductions related
to this same plan. Headcount reductions consisted of a reduction in force of
approximately 90 employees, or approximately 30 percent of PlanetRx.com's
workforce. These positions were eliminated in South San Francisco, CA.
During the third and fourth quarter of 2000, $175,000 and $2.3 million of cash
was used for restructuring costs, respectively. Total cash outlays associated
with the restructuring were $2.4 million. The remaining $1.3 million of
restructuring costs consists of non-cash charges primarily for asset write-offs,
of which $1.1 million was used during the fourth quarter of 2000. During 2001,
$28,000 of cash was used for restructuring costs and approximately $82,000 of
the reserve was written off due to more favorable than expected lease obligation
settlements. The remaining restructuring accrual of $69,000 is expected to be
utilized during the first fiscal quarter of 2002.
Restructuring reserve consists of the following (in thousands):
Severance and
Benefits Facilities Total
----------------------------------------------------
Provision for 2000 $ 2,448 $ 1,289 $ 3,737
Amount utilized in 2000 (2,448) (1,110) (3,558)
----------------------------------------------------
Balance at December 30, 2000 $ -- $ 179 $ 179
Amount utilized in 2001 -- (28) (28)
Amount credited to earnings in 2001 -- (82) (82)
----------------------------------------------------
Balance at December 30, 2001 $ -- $ 69 $ 69
====================================================
NOTE 5 - EXPRESS SCRIPTS
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.
The following table illustrates the components of net revenues and net loss
attributable to PlanetRx.com and YourPharmacy.com for the periods presented, as
if the purchase had occurred at the beginning of the period (in thousands):
December 31,
-----------------------
1999
-----------------------
Net Revenue:
PlanetRx.com $ 8,999
YourPharmacy.com 280
-----------------------
$ 9,279
-----------------------
Net loss available to common stockholders:
PlanetRx.com $ (99,023)
YourPharmacy.com (5,609)
-----------------------
$(104,632)
-----------------------
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 had terminated the agreements due to
Express Scripts' non-payment of certain sums due the Company under the
agreements. The Company subsequently sued Express Scripts over the unpaid sums
due to the company (Case No.01CC-696, In the Circuit Court of St. Louis County,
Missouri, Express Scripts vs. PlanetRx.com, Inc.). On January 22, 2002, the Case
settled prior to trial with the Company recovering substantially the amount of
the unpaid sums from Express Scripts. As part of the Settlement Agreement, the
Company and Express Scripts settled all other business claims between the two
parties and severed all remaining business relationships, with the exception of
Express Scripts' status as shareholder of the Company.
NOTE 6 - BALANCE SHEET COMPONENTS (IN THOUSANDS):
December 31,
---------------------------
2000 2001
---------------------------
Accounts receivable:
Trade accounts receivable $ 2,095 $ 76
Other receivables 522 --
---------------------------
Gross accounts receivable 2,617 76
Less: Allowance for doubtful accounts (730) --
---------------------------
$ 1,887 $ 76
===========================
Allowances for doubtful accounts are provided based on specific identification
where less than full recovery of accounts receivable is expected.
December 31,
-------------------------
2000 2001
-------------------------
Prepaid expenses and other current assets:
Prepaid business liability insurance $ 582 $ 144
Other 637 10
-------------------------
$ 1,219 $ 154
=========================
December 31,
-----------------------------
2000 2001
-----------------------------
Property and equipment:
Computer equipment and software $ 6,941 $ 63
Warehouse equipment 3,472 --
Equipment under capital leases 2,318 --
Furniture and fixtures 539 --
Leasehold improvements 959 --
-----------------------------
14,229 63
Less: Accumulated depreciation and
amortization (7,596) (51)
-----------------------------
$ 6,633 $ 12
=============================
Depreciation expense for the three years ended December 31, 1999, 2000 and 2001
was $2.2 million, $5.2 million and $1.8 million, respectively. See discussion of
impairment of long-lived assets in Note 3 to the financial statements.
NOTE 7 - CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
All cash and cash equivalents and short-term investments as of December 31, 2000
and 2001, contractually mature within three months.
December 31,
--------------------------
2000 2001
--------------------------
Demand deposits $ 434 $ 147
Money market funds 1,226 --
Commercial paper -- --
US Government and agencies 6,922 --
Certificate of deposit 118 --
--------------------------
$ 8,700 $ 147
==========================
NOTE 8 - NOTE RECEIVABLE:
During 1999, in connection with an employment agreement, the Company entered
into a full-recourse note receivable with an employee for $700,000 bearing
interest at 8.25% per annum payable over three years. During the second quarter
of 2000, the Company forgave $250,000 of this note. During the third quarter of
2000, the Company forgave the remaining balance of $450,000 plus accrued
interest. The Company treated the amounts forgiven as compensation expense.
NOTE 9 - INCOME TAXES:
At December 31, 2001, the Company had approximately $190.0 million and $150.0
million, of federal and state net operating loss carry-forwards, respectively,
available to offset future taxable income which expire in varying amounts
beginning in 2018 and 2006, respectively. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss carry-forwards may be impaired
or limited in certain circumstances. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period.
The Company has incurred losses from inception through the year ended December
31, 2001. Due to the uncertainty surrounding the realization of the favorable
tax attributes and future tax returns, the Company has placed a valuation
allowance against its otherwise recognizable net deferred tax assets.
Deferred tax assets and liabilities consist of the following (in thousands):
December 31,
-----------------------------
2000 2001
-----------------------------
Deferred tax assets:
Net operating loss carryforwards $ 72,669 $ 76,288
Accruals and reserves (2,918) (275)
-----------------------------
69,751 76,013
-----------------------------
Less valuation allowance (69,751) (76,013)
-----------------------------
$ -- $ --
=============================
NOTE 10 - BORROWINGS:
Line of credit
During 1999, the Company entered into a $7.0 million line of credit under a Loan
and Security Agreement with a financing institution. Each draw down must be in
increments of at least $1.0 million. This line of credit was cancelled in July
2001, and at December 31, 2000 and 2001 the Company had $7.0 million and $0
outstanding under the line of credit, respectively.
Equipment financing arrangement
During 1999, the Company entered into a $2.0 million capital lease credit
facility with a financing institution. In July 2001, this equipment financing
arrangement was cancelled, and at December 31, 2001, the Company had $0
outstanding under the equipment financing arrangement.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
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 were
current directors of the Company at the time the complaint was filed, but are
now former directors of the company. Between April 19, 2001 and May 4, 2001,
five virtually identical additional complaints were filed. One of the additional
complaints also names as defendants Hambrecht & Quist LLC, William Blair & Co.
LLC, Bear Stearns & Co., Inc., additional underwriters of the IPO, Morgan
Stanley Dean Witter & Co. Incorporated and Credit Suisse First Boston Corp.,
which were not underwriters of the IPO, and Steve Valenzuela, a former officer
of the Company. The suits generally allege that the defendants violated federal
securities laws by not disclosing certain actions allegedly taken by the
underwriter defendants in connection with the IPO. The suits allege 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 suits seek 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 24, 2001. The
complaints have been consolidated into a single action, which is being
coordinated with over three hundred other nearly identical actions filed against
other companies before one judge in the U.S. District Court for the Southern
District of New York. No date has been set for any response to the complaint. 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.
On June 19, 2001, vTraction, Inc. filed a complaint for breach of contract in
the Chancery Court of Tennessee for the Thirtieth Judicial District at Memphis
alleging that PlanetRx.com entered into an oral agreement with vTraction to sell
certain equipment and later reneged, and claiming damages in an amount
including, but not limited to, the difference between the price agreed to in the
allaeged oral contract and the market price of the equipment. PlanetRx.com has
filed an answer asserting the affirmative defenses of failure of consideration
and statute of frauds and denying the existence of an oral contract.
NOTE 12 - STOCKHOLDERS EQUITY (DEFICIT):
During 1999, PlanetRx.com completed its initial public offering of 862,000
shares (including the exercise of the underwriters' over-allotment option) at a
price of $128.00 per share. The Company received net cash proceeds of
approximately $101.0 million, after underwriting discounts and offering costs.
The Company's Certificate of Incorporation, as amended, authorizes the Company
to issue 200,000,000 and 5,000,000 shares of $0.0001 par value Common Stock and
Preferred Stock, respectively. A portion of the shares sold is subject to the
right of repurchase by the Company subject to vesting, generally over a
four-year period. The Board of Directors has declared no dividends on common
stock from inception through the year ending December 31, 2001.
Common Stock
Founder Stock Agreements
Certain Common Stock was issued to founders of the Company and is subject to
repurchase in the event of voluntary termination or involuntary termination with
cause. On September 15, 1998, generally twenty-five percent of the shares vested
immediately with the remaining seventy-five percent vesting monthly over a
three-year period. As of December 31, 1999 approximately 246,000 shares of
outstanding Common Stock were subject to repurchase by the Company at $0.20. As
of December 31, 2001 and 2000, there were no founders' shares subject to
repurchase.
Notes receivable from stockholders
At December 31, 1999, the Company held full-recourse notes receivable from
stockholders of the Company totaling $35,000 for purchases of the Company's
Common Stock. The notes bear interest at 5.54% per annum. During 2000 the notes
and accrued interest were paid in full.
Common Stock and options for services
During 1998 and 1999, the Company granted approximately 5,000 and 14,000
options, respectively, to purchase Common Stock to members of the Health
Advisory Board in exchange for services rendered. The options originally vested
over four years. In 1999, the Company amended the options to become fully
vested. Until their acceleration, these options were subject to variable plan
accounting, with fair value re-measurements at the end of each quarterly
reporting period. During the year ended December 31, 1998, the Company recorded
deferred stock-based compensation expense related to these grants of $116,000
and amortized $5,000 as stock-based compensation expense. During the year ended
December 31, 1999, but before the acceleration of the vesting of these options,
the Company recorded additional deferred stock-based compensation expense of
$356,000. During the year ended December 31, 1999, the Company recognized a
total of $1.2 million, including the effect of the acceleration, as stock-based
compensation expense, of which $471,000 was recorded as amortization of the
deferred amount and $709,000 was charged as period expense.
During 1999, the Company granted approximately 5,000 options to purchase Common
Stock to non-employees for services previously rendered. The options were fully
vested upon grant date. The Company recorded stock-based compensation expense of
$193,000, using the Black-Scholes pricing model. Of the 5,000 options that were
granted, 3,000 were exercised with additional services previously rendered. The
Company recorded stock-based compensation expense of $8,000 in connection with
these exercises.
During 1999, the Company granted options to purchase approximately 2,000 shares
of Common Stock to non-employees in exchange for services rendered. The options
originally vested over two years. In June 1999, the Company amended the options
to become fully vested. These options were subject to variable plan accounting
until June 1999 when the options became fully vested, and accordingly, the
Company periodically re-measured the fair value of such options and recognized
stock-based compensation expense as the options vested. In 1999, the Company
recorded the estimated fair value of the options and recognized stock-based
compensation expense of $125,000, using the Black-Scholes pricing model. The
options granted were exercised with additional services previously rendered. The
Company recorded stock-based compensation expense of $13,000 in connection with
these exercises.
During the third quarter ending September 30, 2000, the Company issued a warrant
to a company to purchase 19,000 shares of Common Stock at $6.72 in exchange for
services in conjunction with the allergy health channel sponsorship agreement.
The shares are equally exercisable in March 2001 and 2002. The warrant expires
in September 2002. These options are subject to variable accounting, with fair
value re-measurements at the end of each quarterly reporting period. During the
year ended December 31, 2000, the Company recorded cost of net revenue expense
related to these grants of $8,000. At December 31, 2001, this warrant was
outstanding.
Common Stock for intellectual property
During 1998, the Company issued 25,000 shares of Common Stock to an employee of
the Company for services rendered in connection with the acquisition and
transfer of certain domain names. The Company recorded the estimated fair value
of the stock of $614,000 as a prepaid asset, and reclassified such amount to
intangible assets upon the transfer of such rights in January 1999. The fair
value of the stock will be amortized as amortization of intangible asset expense
over the estimated useful life, which is deemed to be two years. During the year
ended December 31, 1999 and 2000, the Company recognized $308,000 and $360,000
as amortization of intangible asset expense, respectively.
During 1999, the Company issued 43,000 shares of Common Stock to a company
affiliated with an employee of the Company for additional domain names. The
Company recorded the estimated fair value of the stock of approximately $3.8
million as an intangible asset. The fair value of the stock will be amortized
over the estimated useful life, which is deemed to be two years. During the
years ended December 31, 1999 and 2000, the Company recognized $941,000 and $1.8
million of amortization of intangible asset expense, respectively.
See discussion of impairment of long-lived assets in Note 3 to the financial
statements.
Reserved shares
The Company has reserved shares of Common Stock for future issuance as follows
(in thousands):
December 31,
2001
-------
Options available and outstanding
under the option plans 19,279
Exercise of outstanding warrants 19
Common Stock outstanding 6,119
Undesignated 174,583
-------
200,000
=======
Common stock and option grants
During 1999, the Company granted incentive stock options to an employee to
purchase 94,000 shares of Common Stock at an exercise price of $72.00 and 31,000
shares of Common Stock at an exercise price of $128.00. In connection with the
stock option grants with an exercise price of $72.00, the Company recorded
unearned compensation of approximately $5.3 million, which is being amortized
over the four-year vesting period of the related options.
During 1999, the Company issued 3,000 shares of Common Stock to an employee and
recorded $400,000 as unearned compensation. The Company amortized $200,000 for
each of the years ended December 31, 1999 and 2000 as stock-based compensation
expense.
Preferred Stock
Upon the consummation of the initial public offering, all outstanding shares of
preferred stock were converted into 3,080,000 shares of common stock. Prior to
such conversion, Series A, B, C and D Preferred Stock held certain voting,
dividend, liquidation and conversion rights. No dividends on preferred stock
were declared by the Board of Directors from inception through the date of
conversion. Per share conversion ratios, not effected for the 1-for-8 reverse
stock split, for Series A, B, C and D Preferred Stock were 1.0000, 1.0463,
1.0084 and 1.0000, respectively.
Series A Preferred Stock for services
During 1999, the Company issued 3,000 shares of Series A Preferred Stock to a
non-employee for services previously rendered. The Company recorded the
estimated fair value of the stock of $77,000 as stock-based compensation
expense.
Warrants for Series A Preferred Stock
During 1998, the Company issued warrants to purchase 38,000 shares of Series A
Preferred Stock for $4.00 per share to Directors of the Company in exchange for
services previously rendered. The warrants were exercisable on the date of grant
and expire in October 2000. The Company recorded the fair value of the warrants
of approximately $339,000, using the Black-Scholes pricing model, at the date of
issuance as stock-based compensation expense. All of these warrants were
exercised during 1998 and 1999.
Series B Preferred Stock purchase option and warrant for financing
During 1999, the Company issued a purchase option for up to 88,000 shares of
Series B Preferred Stock at $40.00 per share in conjunction with the $7.0
million line of credit. The Company recorded prepaid debt issuance costs of $1.8
million using the Black-Scholes pricing model and recognized non-cash interest
expense of $1.8 million during the year ended December 31, 1999. In August 1999,
the purchase option was exercised and approximately 92,000 shares of Series B
Preferred Stock were issued.
During 1999, the Company issued a warrant to purchase 2,000 shares of Series B
Preferred Stock at $40.00 per share in conjunction with the equipment financing
arrangement. The Company recorded prepaid debt issuance costs of $42,000 using
the Black-Scholes pricing model and recognized non-cash interest expense of
$12,000 during the years ended December 31, 1999 and 2000, respectively. The
warrant expired in October 2000.
Effect of anti-dilution provision of Series B Preferred Stock
During 1999, upon the change of the conversion ratio of Series B, the Company
recorded $1.0 million associated with the then outstanding Series B stock,
warrants and purchase option. The change of the conversion ratio was valued
using the difference of the fair value of the Preferred Stock in January and
June of 1999, and a calculation of potential incremental Common Shares of
approximately 34,000.
Series C Preferred Stock for advertising
During 1999, in conjunction with the sale of Series C Preferred Stock, the
Company issued approximately 214,000 shares of Series C Preferred Stock to News
Corp 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 will recognize advertising expense during the period in
which the services are provided based upon the rate card value of such services.
See discussion of impairment of long-lived assets in Note 3 to the financial
statements.
Series D Preferred Stock for advertising
In September 1999, the Company issued 46,000 shares of Series D Preferred Stock
to iVillage, Inc. in exchange for approximately $7.5 million in cash. The
Company also entered into a three-year sponsorship agreement and a three-year
content license agreement. These agreements originally required the Company 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, the Company restructured its sponsorship agreement with
iVillage, Inc. Under the terms of the new agreement, the Company was provided
with a specific number of advertising impressions through December 31, 2000. For
the year ending December 31, 2000, the Company has paid and recognized $3.7
million of advertising expense related to this marketing agreement.
See discussion of impairment of long-lived assets in Note 3 to the financial
statements.
NOTE 13 - NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of shares of
common stock outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common shares and common share
equivalents, if dilutive. Common share equivalents consist of the incremental
common shares subject to issuance upon conversion of the convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method), and the common
shares outstanding subject to repurchase. The periods presented below exclude
potential common shares as the effect of such shares on a weighted average basis
is anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per
share and pro forma basic and diluted net loss per share for the periods
indicated (in thousands, except per share amounts)
Year Ended December 31,
----------------------------------------------------
1999 2000 2001
----------------------------------------------------
Numerator:
Net Loss $(98,014) $(311,670) $(11,501)
Extraordinary gain on early extinguishment
of debt, net of taxes of $0 -- -- 177
Effect of anti-dilution
provisions of Series B Preferred Stock (1,009) -- --
----------------------------------------------------
Net loss available to Common
Stockholders $(99,023) $(311,670) $(11,324)
----------------------------------------------------
Denominator:
Weighted average common shares 2,381 6,393 6,128
Weighted average unvested common
shares subject to repurchase (782) (381) (7)
----------------------------------------------------
Denominator for basic and diluted
calculation 1,599 6,012 6,121
----------------------------------------------------
Net loss per share:
Basic and diluted $ (61.93) $ (51.84) $ (1.85)
====================================================
NOTE 14 - EMPLOYEE BENEFIT PLANS:
401(k) Savings Plan
The Company had a savings plan (the "Savings Plan") which qualified as a defined
contribution arrangement under Section 401(a), 401(k) and 501(a) of the Internal
Revenue Code. Under the Savings Plan, participating employees could defer a
percentage (not to exceed 25%) of their eligible pretax earnings up to the
Internal Revenue Service's annual contribution limit. All employees on the
United States payroll of the Company were eligible to participate in the Plan.
The Company determined its contributions, if any, based on its current profits
and/or retained earnings; however, no contributions were ever made since the
inception of the Savings Plan. The plan was terminated on May 4, 2001.
Stock Plans
To date, options granted generally vest ratably monthly over four years; 25% one
year after date of grant and remaining options thereafter vest in equal monthly
installments over the following 36 months. At December 31, 1999, 2000, and 2001
there were approximately 486,000, 40,000. and 1,389 shares subject to
repurchase, respectively. As of December 31, 2001, the Company had four
stock-based compensation plans, which are described below.
1998 Stock Plan
In October 1998, the Company adopted the 1998 Stock Plan, which was amended in
February 1999 (the "1998 Plan"). The Plan provides for the granting of direct
stock grants and stock options to employees, outside directors, and consultants
of the Company. Upon the consummation of the initial public offering, all
options were assumed by the 1999 Equity Incentive Plan. Options granted under
the 1998 Plan may be either incentive stock options or nonqualified stock
options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Company employees and
consultants. The 1998 Plan provides that the options shall be exercisable over a
period not to exceed ten years from the date of the grant; however, in the case
of an ISO granted to a person owning more than 10% of the combined voting power
of all classes of the stock of the Company, the term of the option will be five
years from the date of the grant. Options are exercisable immediately and are
subject to a repurchase right by the Company at the original issuance price,
which lapses over a maximum period of five years.
In accordance with the 1998 Plan, the stated exercise price shall not be less
than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of an ISO and NSO granted to a 10% shareholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant,
respectively.
1998 YourPharmacy.com Stock Plan
In October 1999, the Company assumed the YourPharmacy.com 1998 Stock Plan (the
"YourPharmacy.com Plan"). The Plan provides for the granting of direct stock
grants and stock options to employees, outside directors, and consultants of the
Company. At December 31, 2001, the Company has reserved 1,810,000 shares of
common stock for issuance under the YourPharmacy.com Plan. Options granted under
the YourPharmacy.com Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Company employees and
consultants. The YourPharmacy.com Plan provides that the options shall be
exercisable over a period not to exceed ten years from the date of the grant;
however, in the case of an ISO granted to a person owning more than 10% of the
combined voting power of all classes of the stock of the Company, the term of
the option will be five years from the date of the grant.
In accordance with the YourPharmacy.com Plan, the stated exercise price shall
not be less than 85% of the estimated fair value of the shares on the date of
grant as determined by the Board of Directors, provided, however, that (i) the
exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively.
1999 Equity Incentive Plan
In July 1999, effective immediately prior to the effective date of the initial
public offering, the Board of Directors adopted and the stockholders approved,
the 1999 Equity Incentive Plan (the "1999 Plan") and reserved 6,000,000 shares
of the Company's Common Stock, plus the aggregate number of shares available
under the 1998 Plan, for issuance thereunder. At December 31, 2001, the Company
has reserved 17,161,000 shares of common stock for issuance under the 1999
Equity Incentive Plan. In January 2000, and every year thereafter until the year
2005, shares reserved for issuance will automatically increase by a number equal
to the lesser of 5% of the total number of Common Stock outstanding or 2,000,000
shares. The 1999 Plan authorized the award of options, restricted stock awards
and stock bonuses (the "Awards"). No person will be eligible to receive more
than 2,000,000 shares in any calendar year pursuant to Awards under the 1999
Plan other than a new employee of the Company who will be eligible to receive no
more than 2,500,000 shares in the calendar year in which such employee commences
employment. Options granted under the 1999 Plan may be either incentive stock
options ("ISO") or nonqualified stock options ("NSO"). ISOs may be granted only
to Company employees (including officers and directors who are also employees).
NSOs may be granted to Company employees, outside directors, and consultants of
the Company.
Options under the 1999 Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date of
grant as determined by the Board of Directors, provided, however, that (i) the
exercise price of an ISO may not be less than 100% of the estimated fair value
of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% shareholder may not be less than 110% of the estimated fair
value of the shares on the date of grant.
1999 Director Stock Option Plan
In July 1999, the Board of Directors adopted and stockholders approved the 1999
Director Stock Option Plan ("Director Plan") which will become effective
immediately prior to the effective date of the initial public offering. The
Director Plan reserves a total of 400,000 shares of the Company's Common Stock
for issuance thereunder. Members of the board who are not employees of the
Company, are eligible to participate in the Director Plan. The option grants
under the Director Plan are automatic and non-discretionary, and the exercise
price of the options must be 100% of the fair market value of the common stock
on the date of grant. Each eligible director who first becomes a member of the
board will initially be granted an option to purchase 25,000 shares on the date
such director first becomes a director.
Immediately following each annual meeting of the Company each eligible director
will automatically be granted an additional option to purchase 10,000 shares if
such director has served continuously as a member of the board for at least the
preceding six months. The term of such options is ten years, provided that they
will terminate twelve months following the date the director ceases to be a
director or a consultant of the Company (twelve months if the termination is due
to death or disability). Options will vest, if applicable, as determined by
individual grant terms. As of December 31, 2000, 25,000 shares have been granted
under the Director Plan.
Stock plan activity
The following summarizes stock option activity under the stock plans (in
thousands, except per share amounts):
Options Outstanding
-----------------------------------------------
Options Weighted
Available Average Exercise
for Grant Number of Price
Options
-----------------------------------------------
Balance at December 31, 1998 4,430 134 $ 0.40
Shares authorized 12,510 -- $ --
Options granted (1,088) 1,088 $ 39.68
Options exercised -- (424) $ 4.00
Options canceled 20 (20) $(13.36)
Unvested shares repurchased 18 -- $ --
-----------------------------------------------
Balance at December 31, 1999 15,890 778 $ 53.04
Shares authorized 2,000 -- $ --
Options granted (766) 766 $ 32.70
Options exercised -- (9) $ 1.60
Options canceled 958 (958) $(44.20)
Unvested shares repurchased 276 -- $ --
-----------------------------------------------
Balance at December 31, 2000 18,358 577 $ 41.55
Shares authorized 306 -- $ --
Options granted -- -- $ --
Options exercised -- -- $ --
Options canceled 316 (316) $(31.68)
Unvested shares repurchased 38 -- $ --
-----------------------------------------------
Balance at December 31, 2001 19,018 261 $ 53.54
===============================================
The weighted-average grant-date fair value of options granted during the year
ended December 31, 1999 and 2000 was $43.20 and $41.55, respectively.
The following table summarizes the information about stock options outstanding
and exercisable as of December 31, 2001:
Options Outstanding Options Exercisable
Weighted Average Weighted Average
Remaining Number Contractual Exercise Weighted Average Exercise
Range of Exercise Price Outstanding Life Price Number Outstanding Price
$ 2.12 - $ 2.12 18,750 8.84 $ 2.12 5,443 $ 2.12
$ 20.40 - $ 20.40 96,250 8.30 $ 20.40 41,040 $ 20.40
$ 57.84 - $ 57.84 20,000 8.20 $ 57.84 9,000 $ 57.84
$ 72.00 - $ 72.00 94,360 7.74 $ 72.00 53,073 $ 72.00
$128.00 - $128.00 31,250 7.80 $128.00 17,470 $128.00
-------------------------------------------------------------------------------------------------------
260,610 8.06 $ 53.54 126,026 $ 58.93
=======================================================================================================
At December 31, 2001 the Company had 126,000 options vested and exercisable.
Employee Stock Purchase Plan
In July 1999, the Board of Directors and stockholders adopted the Employee Stock
Purchase Plan (the "ESPP"), which became effective immediately prior to the
effective date of the initial public offering. As of December 31, 2001 the
Company has reserved 1,750,000 shares of common stock for issuance under the
ESPP. On each September 1 beginning in 2000, the aggregate number of shares
reserved for issuance under the ESPP will be increased automatically to the
lesser of 2% of the total number of common shares outstanding or 750,000 shares.
Employees generally will be eligible to participate in the ESPP if they are
customarily employed by the Company for more than 20 hours per week and more
than five months in a calendar year and are not (and would not become as a
result of being granted an option under the ESPP) 5% stockholders of the
Company. Under the ESPP, eligible employees may select a rate of payroll
deduction up to 15% of their W-2 cash compensation subject to certain maximum
purchase limitations. The first offering period began on the first business day
on which price quotations for the Company's common stock were available on The
NASDAQ National Market. Based on the effective date, the first Purchase Period
will be more than six months long. Offering periods thereafter will begin on May
1 and November 1. Purchases will occur on April 30 and October 31, or the last
day of trading prior to these dates. The price at which the Common Stock is
purchased under the ESPP is 85% of the lesser of the fair market value of the
Company's Common Stock on the date before the first day of the applicable
offering period or on the last day of that purchase period.
Fair value disclosures
The Company applies the measurement principles of APB No. 25 in accounting for
its 1998 Plan. Had compensation expense for options granted for the year ended
December 31, 1999, 2000 and 2001 been determined based on the fair value at the
grant dates as prescribed by SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below (in thousands, except
per share amounts).
Year Ended December 31,
1999 2000 2001
Net loss available to common stockholders:
As reported $ (99,023) $ (311,670) $ (11,324)
------------------------------------------------------------
Pro forma $ (113,327) $ (313,928) $ (11,337)
------------------------------------------------------------
Net loss per share:
As reported $ (61.93) $ (51.84) $ (1.85)
------------------------------------------------------------
Pro forma $ (70.87) $ (52.22) $ (1.85)
============================================================
The Company calculated the fair value of each option grant on the date of grant
using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using
the following assumptions:
Year Ended December 31,
---------------------------------------
1999 2000 2001
---------------------------------------
Risk-free interest rates 6.30% 5.80% 4.20%
Expected lives (in years) 4 years 4 years 4 years
Dividend yield 0% 0% 0%
Expected volatility 90% 130% 130%
Because additional stock options are expected to be granted each year, the above
pro forma disclosures are not representative of pro forma effects on reported
financial results for future years.
Deferred stock-based compensation
In connection with certain stock option grants to employees and Health Advisory
Board members from October 1998 through December 31, 1998 and for the year ended
December 31, 1999, and 2000, the Company recognized deferred stock-based
compensation totaling $4.6 million, $33.1 million, and $3.8 million,
respectively, which is being amortized over the vesting periods of the related
options. Stock-based compensation expense recognized from amortization of the
deferred amounts during the year ended December 31, 1999, 2000, and 2001,
totaled approximately $11.3 million, $6.3 million, and $1.8 million,
respectively.
NOTE 15 - SPONSORSHIP REVENUE:
In February 2001, we signed a marketing agreement with drugstore.com. Under the
terms of the agreement, we launched a new site and marketed to our customers the
drugstore.com website for a flat marketing fee of $1.5 million. In addition, we
will also receive a customer acquisition fee for every customer who purchases
something on the drugstore.com site from the Company's site based upon a sliding
scale. We also did not accept any new prescription orders after February 12th,
did not perform any prescription refills after February 26th, and closed the
remainder of our store on March 12th, 2001. The term of the agreement with
drugstore.com was for 3 months.
In May 1999, the Company entered into a five-year strategic alliance with a
pharmaceutical company. Under the terms of the agreement, the company is the
exclusive therapeutic disease state management sponsor within the Company's
diabetes.com community. During the third quarter ended September 30, 2000, the
Company did not receive guaranteed payments of $500,000 in connection with this
agreement and therefore considered the contract terminated. During the fourth
quarter ended December 31, 2000, the Company received a $750,000 settlement
representing the third quarter and half of the fourth quarter guaranteed
payments which was recognized as sponsorship revenue during the fourth quarter.
NOTE 16 - QUARTERLY RESULTS (UNAUDITED):
The following tables contain selected unaudited Statement of Operations
information for each quarter of 2001 and 2000. The Company believes that the
following information reflects all normal recurring adjustments necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
Quarter Ended
----------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
----------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $ 5,700 $ 40 $ -- $ 34
Gross profit 1,662 39 -- 34
Net loss (6,669) (3,365) (807) (483)
Basic and diluted loss
per share(1) (1.09) (0.55) (0.13) (0.08)
Shares used in
computation of basic
and diluted loss per
share 6,119 6,121 6,119 6,118
Quarter Ended
----------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
----------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $ 8,773 $ 9,435 $ 9,942 $ 8,015
Gross profit 2,214 2,246 2,031 2,078
Net loss (49,636) (43,913) (34,040) (184,081)
Basic and diluted loss
per share(1) (8.42) (7.33) (5.62) (30.17)
Shares used in
computation of basic
and diluted loss per
share 5,895 5,991 6,061 6,102
(1) The sum of quarterly per share amounts may not equal per share amounts
reported for year-to-date periods. This is due to changes in the number of
weighted average shares outstanding and the effects of rounding for each period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to our directors and
executive officers:
Michael Beindorff (age 49) has served as the Chairman of our Board since August
2001, as our Chief Executive Officer since April 2000. He has been a director of
Planet Rx.com since April. From March 2000 to August 2000, Mr. Beindorff served
as our President, and from October 1999 to March 2000, he was our Executive Vice
President and Chief Operating Officer. From 1995 to October, 1999, Mr. Beindorff
was with Visa International, where he served as president and chief "e" officer
of eVisa, Visa's Internet and electronic commerce division as well as Visa USA's
executive vice president of marketing and product management. Mr. Beindorff
holds a BS degree from the University of Alabama and an MBA from Emory
University.
Paul Risner (age 44), was appointed Vice President and General Counsel in
November 2000. From March 1999 to November 2000, he was Of Counsel to the law
firm of Baker, Donelson, Bearman & Caldwell, where his practice concentrated on
health law, healthcare information and technology law and eBusiness. Prior
thereto, he was Vice President of Legal Affairs at Sarasota Memorial Health
System. Mr. Risner received his B.A. degree from Jacksonville University and his
J.D. degree from the University of Florida College of Law.
Todd Steele (age 28), has served as our Chief Financial Officer since April
2001, and as our Vice President of Finance since August 2000. From October 1999
to August 2001, he was our Director of Finance. From June 1998 to October 1999,
Mr. Steele was Manager of Strategic Enablement Services at American Express, and
from May 1997 to June 1998, served as a Financial Analyst for the New York Times
Company. From October 1994 to May 1997, Mr. Steele was an auditor for Ernst and
Young LLP. Mr. Steele holds a BA in Business Economics from the University of
California, Los Angeles.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information to be contained in the Company's
Proxy Statement for its 2002 Annual Meeting of Stockholders or Form 10-K/A to be
filed by April 30, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information to be contained in the
Registrant's Proxy Statement for its 2002 Annual Meeting of Stockholders or Form
10-K/A to be filed by April 30, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information contained in the Registrant's
Proxy Statement for its 2002 Annual Meeting of Stockholders or Form 10-K/A to be
filed by April 30, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements filed as part of this report are noted below:
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
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or Notes thereto.
(2) Exhibits are incorporated herein by reference or are filed with this report
as indicated below (numbered in accordance with Item 601 of Regulation S-K):
Exhibit
Number Description
2.1* Asset Contribution and Reorganization Agreement between
PlanetRx.com, Inc., PRX Holdings, Inc., PRX Acquisition Corp.,
YourPharmacy.com, Inc. and Express Scripts, Inc., dated August
31, 1999.
3.1* Certificate of Incorporation of the registrant, as amended.
3.2* Bylaws of the registrant
4.1* Reference is made to Exhibits 3.1 and 3.2
4.2* Amended and Restated Investors' Rights Agreement
4.3* Specimen Common Stock Certificate
4.4** Registration Rights Agreement between registrant and Alpha
Venture Capital, Inc. dated July 25, 2000.
10.1* Form of Indemnification Agreement.
10.2* 1999 Equity Incentive Plan.
10.3* Employee Stock Purchase Plan.
10.4* 1999 Director Stock Option Plan.
10.5* Form of Warrant for the purchase of Preferred Stock.
10.6* Real Property Lease between registrant and Belz Devco, LP, dated
October 16, 1998.
10.7* Real Property Sublease between registrant and Radar Companies,
dated May 5, 1999.
10.8* Real Property Sublease between registrant and Cellegy
Pharmaceuticals, Inc., dated November 6, 1998.
10.9* Asset Acquisition Agreement between registrant and NetHealth.com,
Inc., dated June 30, 1999.
10.10* Series C Preferred Stock Purchase Agreement between registrant
and the Investors named on Schedule thereto, dated June 3, 1999.
10.11* Series D Preferred Stock Purchase Agreement between registrant
and the Investors named on Schedule thereto, dated September 3,
1999.
10.12+* Agreement between registrant and Express Scripts, Inc., dated
August 31, 1999.
10.13+** Agreement between registrant and Express Scripts, Inc. dated June
19, 2000.
10.14** Common Stock Purchase Agreement between registrant and Alpha
Venture Capital, Inc. dated July 25, 2000.
10.15*** Master Lease Agreement between registrant and Comdisco, Inc.
dated January 15, 1999, Equipment Schedules VL-1 and VL-2 dated
January 20, 1999, and Addendum dated January 20, 1999.
10.16*** Subordinated Loan and Security Agreement between registrant and
Comdisco, Inc. dated as of January 15, 2001. The exhibits to this
document have been omitted from this filing. The Company will
furnish, as supplementary information, copies of the omitted
materials to the Securities and Exchange Commission upon request.
10.17***** Discounted Payoff Agreement, between registrant and Comdisco,
Inc. dated July 27, 2001.
10.18****** Bill of Sale between registrant and Lightning Logistics, LLC
selling and assigning leases of real and personal property
located at 6399 Shelby View Drive, Suite 122, Memphis, Tennessee.
10.19****** Form of Assignment of Lease among registrant, Lightning
Logistics, LLC and Belz Devco GP.
10.20****** Form of Guaranty of Lease by Flextronics International, Ltd.
10.21****** Bill of Sale between registrant and Unicorp, Inc. dated as of
July 1, 2001, selling and assigning leases of real and personal
property located at 6399 Shelby View Drive, Suites 113-115,
Memphis, Tennessee.
10.22****** Form of Assignment of Lease among registrant, UITSG, LLC d/b/a
Unicorp and Belz Devco GP.
10.23****** PlanetRx.com Licensing Agreement between registrant and
Revelation America Incorporated dated as of August 14, 2001.
10.24****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Guthy-Renker Corporation dated as of March 15,
2001.
10.25****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Pharmacia Corp. dated as of March 21, 2001.
10.26****** Domain Name Purchase Agreement and Bill of Sale between
registrant and Ortho Biotech Products, L.P. dated as of April 2,
2001.
10.27****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Johnson & Johnson dated as of March 16, 2001.
10.28****** Internet Domain Name Transfer & Escrow Agreement between
registrant and SmithKline Beecham dated as of March 12, 2001.
10.29****** Internet Domain Name Transfer & Escrow Agreement between
registrant and F.A.C.E.S. dated as of March 5, 2001.
10.30****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Simstar Internet Solutions dated as of May 2,
2001.
10.31****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Serono, Inc. dated as of March 15, 2001.
10.32****** Domain Name Purchase Agreement and Bill of Sale between
registrant and U.S. Nursing Corporation dated as of March 14,
2001.
10.33****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Johnson & Johnson dated as of March 14, 2001.
10.34****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Richard Gabriel dated as of March 30, 2001.
10.35++ Amendment to PlanetRx Licensing Agreement between registrant and
Revelation America Incorporated effective November 28, 2001.
10.36++ Settlement Agreement, Judgment for Permanent Injunction and
Dismissal with Prejudice of Remaining Claims between registrant
and Express Scripts, Inc. dated January 22, 2002.
23.1++ Consent of PriceWaterhouse Coopers with respect to the audited
financial statements of the registrant.
- ---------------
* Incorporated herein by reference to Form S-1 as declared
effective on October 7, 1999 (File No. 333-82485).
** Incorporated herein by reference to report on Form 10-Q, for the
quarterly period ended June 30, 2000 filed on August 14, 2000.
*** Incorporated herein by reference to annual report on Form 10-K,
for the fiscal year ended December 31, 2000, filed on April 17,
2001.
**** Incorporated herein by reference to Form 10-K/A, for the fiscal
year ended December 31, 2000, filed on April 30, 2001.
***** Incorporated herein by reference to report on Form 10-Q, for the
quarterly period ended June 30, 2001, filed on August 15, 2001.
****** Incorporated herein by reference to report on Form 10-Q, for the
quarterly period ended October 31, 2001, filed on November 14,
2001.
+ Confidential treatment has been requested for certain portions
which have been blacked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information
has been filed separately with the Securities and Exchange
Commission pursuant to the application for confidential
treatment.
++ Filed herewith
+ Confidential treatment has been requested for certain portions
which have been blacked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information
has been filed separately with the Securities and Exchange
Commission pursuant to the application for confidential
treatment.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the fourth quarter of
2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLANETRX.COM, INC.
By: /s/ Michael Beindorff
---------------------------
Michael Beindorff
Chairman of the Board of Director
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Michael Beindorff Chief Executive Officer and April 15, 2002
- --------------------- Chairman of the Board of
Michael Beindorff Directors
/s/ Paul E. Risner Senior Vice President and April 15, 2002
- --------------------- General Counsel, Director
/s/ Todd Steele Chief Financial Officer April 15, 2002
- ---------------------
Todd Steele
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
2.1* Asset Contribution and Reorganization Agreement between
PlanetRx.com, Inc., PRX Holdings, Inc., PRX Acquisition Corp.,
YourPharmacy.com, Inc. and Express Scripts, Inc., dated August
31, 1999.
3.1* Certificate of Incorporation of the registrant, as amended.
3.2* Bylaws of the registrant
4.1* Reference is made to Exhibits 3.1 and 3.2
4.2* Amended and Restated Investors' Rights Agreement
4.3* Specimen Common Stock Certificate
4.4** Registration Rights Agreement between registrant and Alpha
Venture Capital, Inc. dated July 25, 2000.
10.1* Form of Indemnification Agreement.
10.2* 1999 Equity Incentive Plan.
10.3* Employee Stock Purchase Plan.
10.4* 1999 Director Stock Option Plan.
10.5* Form of Warrant for the purchase of Preferred Stock.
10.6* Real Property Lease between registrant and Belz Devco, LP, dated
October 16, 1998.
10.7* Real Property Sublease between registrant and Radar Companies,
dated May 5, 1999.
10.8* Real Property Sublease between registrant and Cellegy
Pharmaceuticals, Inc., dated November 6, 1998.
10.9* Asset Acquisition Agreement between registrant and NetHealth.com,
Inc., dated June 30, 1999.
10.10* Series C Preferred Stock Purchase Agreement between registrant
and the Investors named on Schedule thereto, dated June 3, 1999.
10.11* Series D Preferred Stock Purchase Agreement between registrant
and the Investors named on Schedule thereto, dated September 3,
1999.
10.12+* Agreement between registrant and Express Scripts, Inc., dated
August 31, 1999.
10.13+** Agreement between registrant and Express Scripts, Inc. dated June
19, 2000.
10.14** Common Stock Purchase Agreement between registrant and Alpha
Venture Capital, Inc. dated July 25, 2000.
10.15*** Master Lease Agreement between registrant and Comdisco, Inc.
dated January 15, 1999.
10.16*** Subordinated Loan and Security Agreement between registrant and
Comdisco, Inc. dated as of January 15, 2001. The exhibits to this
document have been omitted from this filing. The Company will
furnish, as supplementary information, copies of the omitted
materials to the Securities and Exchange Commission upon request.
10.17***** Discounted Payoff Agreement, between registrant and Comdisco,
Inc. dated July 27, 2001.
10.18****** Bill of Sale between registrant and Lightning Logistics, LLC
selling and assigning leases of real and personal property
located at 6399 Shelby View Drive, Suite 122, Memphis, Tennessee.
10.19****** Form of Assignment of Lease among registrant, Lightning
Logistics, LLC and Belz Devco GP.
10.20****** Form of Guaranty of Lease by Flextronics International, Ltd.
10.21****** Bill of Sale between registrant and Unicorp, Inc. dated as of
July 1, 2001, selling and assigning leases of real and personal
property located at 6399 Shelby View Drive, Suites 113-115,
Memphis, Tennessee.
10.22****** Form of Assignment of Lease among registrant, UITSG, LLC d/b/a
Unicorp and Belz Devco GP.
10.23****** PlanetRx.com Licensing Agreement between registrant and
Revelation America Incorporated dated as of August 14, 2001.
10.24****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Guthy-Renker Corporation dated as of March 15,
2001.
10.25****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Pharmacia Corp. dated as of March 21, 2001.
10.26****** Domain Name Purchase Agreement and Bill of Sale between
registrant and Ortho Biotech Products, L.P. dated as of April 2,
2001.
10.27****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Johnson & Johnson dated as of March 16, 2001.
10.28****** Internet Domain Name Transfer & Escrow Agreement between
registrant and SmithKline Beecham dated as of March 12, 2001.
10.29****** Internet Domain Name Transfer & Escrow Agreement between
registrant and F.A.C.E.S. dated as of March 5, 2001.
10.30****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Simstar Internet Solutions dated as of May 2,
2001.
10.31****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Serono, Inc. dated as of March 15, 2001.
10.32****** Domain Name Purchase Agreement and Bill of Sale between
registrant and U.S. Nursing Corporation dated as of March 14,
2001.
10.33****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Johnson & Johnson dated as of March 14, 2001.
10.34****** Internet Domain Name Transfer & Escrow Agreement between
registrant and Richard Gabriel dated as of March 30, 2001.
10.35++ Amendment to PlanetRx Licensing Agreement between registrant and
Revelation America Incorporated effective November 28, 2001.
10.36++ Settlement Agreement, Judgment for Permanent Injunction and
Dismissal with Prejudice of Remaining Claims between registrant
and Express Scripts, Inc. dated January 22, 2002.
23.1++ Consent of PriceWaterhouse Coopers with respect to the audited
financial statements of the registrant.
- ---------------
* Incorporated herein by reference to Form S-1 as declared
effective on October 7, 1999 (File No. 333-82485).
** Incorporated herein by reference to report on Form 10-Q, for the
quarterly period ended June 30, 2000 filed on August 14, 2000.
*** Incorporated herein by reference to annual report on Form 10-K,
for the fiscal year ended December 31, 2000, filed on April 17,
2001.
**** Incorporated herein by reference to Form 10-K/A, for the fiscal
year ended December 31, 2000, filed on April 30, 2001.
***** Incorporated herein by reference to report on Form 10-Q, for the
quarterly period ended June 30, 2001, filed on August 15, 2001.
****** Incorporated herein by reference to report on Form 10-Q, for the
quarterly period ended October 31, 2001, filed on November 14,
2001.
+ Confidential treatment has been requested for certain portions
which have been blacked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information
has been filed separately with the Securities and Exchange
Commission pursuant to the application for confidential
treatment.
++ Filed herewith
+ Confidential treatment has been requested for certain portions
which have been blacked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information
has been filed separately with the Securities and Exchange
Commission pursuant to the application for confidential
treatment.
Exhibit 10.35
FIRST AMENDMENT TO PLANETRX LICENSING AGREEMENT
THIS DOCUMENT AMENDS THAT CERTAIN PLANETRX LICENSING AGREEMENT (the
"Agreement") which is dated as of the 14th day of August, 2001 by and between
REVELATION AMERICA INCORPORATED, a Delaware corporation ("Revelation") with its
principal place of business at 4466 Elvis Presley Boulevard, Suite 222, Memphis,
Tennessee 38116 and PLANETRX.COM, INC., a Delaware corporation with its
principal place of business at 6399 Shelby View Drive, Suite 122, Memphis,
Tennessee 38134 ("PlanetRx") and this AMENDMENT is effective on the 28th day of
November, 2001.
WHEREAS, PlanetRx and Revelation have previously entered into a joint
effort under a licensing arrangement to co-brand and market certain Revelation
and PlanetRx products and services and pay PlanetRx a royalty from the sale of
the Cash Cards (defined in the AGREEMENT); and
WHEREAS, PlanetRx and Revelation desire to amend certain terms of the
AGREEMENT to meet the current needs of the Parties;
NOW, THEREFORE, in consideration of the mutual agreements and undertakings
set forth herein, the receipt and sufficiently of which are hereby acknowledged,
Revelation and PlanetRx agree as follows:
1. To the extent not modified, canceled or amended by the terms of this FIRST
AMENDMENT, the terms of the AGREEMENT are regarded as valid and enforceable
by the Parties. The AGREEMENT is incorporated herein by reference.
2. In exchange for the $250,000.00 sum stated herein, to be paid to PlanetRx
by Revelation, PlanetRx agrees to commit all of its media credits to the
cause of the joint-marketing arrangement described in the AGREEMENT. In
order to induce PlanetRx to commit all of the media credits, Revelation
agrees to pay the $250,000.00 to PlanetRx, as stated below.
3. Revelation shall pay to PlanetRx a sum of Two Hundred Fifty Thousand
Dollars ($250,000.00) in cash out of the proceeds received from the sale of
Preferred Stock as outlined in the Private Placement Memorandum. The
$250,000.00 stated hereunder is to be in addition to the sums due to
PlanetRx under the AGREEMENT.
4. Although the $250,000.00 additional fee is to be paid only out of the
proceeds of the Private Placement, the total amount is deemed to be due to
PlanetRx.com at the completion of the ad campaign.
5. The Parties shall conduct a joint e-mail messaging campaign designed to
deliver messages about the Parties services to the substantially all of the
members of PlanetRx.com. The Parties shall jointly design the message to be
sent. The campaign shall commence at any point after the execution of this
AMENDMENT that the Parties agree and continue until terminated by one or
both Parties. Revelation shall pay to PlanetRx.com the sum of $5,000, in
advance of each e-mail drop. Revelation shall not have access to the
confidential customer lists of PlanetRx.com and shall have no ownership
interest in the customer lists independent of PlanetRx.com.
IN WITNESS WHEREOF, the Parties have hereunto set their hands in execution
of this Agreement as of the date first written above.
REVELATION AMERICA INCORPORATED
BY: s/John C. Miller
---------------------
NAME: John C. Miller
TITLE: President & CEO
PLANETRX.COM, INC.
BY: s/W. Todd Steele
---------------------
NAME: Todd Steele
TITLE: CFO
Exhibit 10.36
In The Circuit Court Of St. Louis County, Missouri
Express Scripts, Inc. Plaintiff(s) vs.
PlanetRx.com, Inc., Defendant(s)
Date 1-22-02 Filed January 22, 2002
Case Number 01CC-696 Joan M. Gilmer
Division 36 Circuit Clerk, St. Louis County
SETTLEMENT AGREEMENT,
JUDGMENT FOR PERMANENT INJUNCTION AND
DISMISSAL WITH PREJUDICE OF REMAINING CLAIMS
1. ESI shall pay $205,000 to PlanetRx.com on or before February 1, 2002.
2. Both Parties dismiss the present action, with prejudice, and each party
shall bear its own costs.
3. Each Party hereby releases the other party from all claims, defenses and
matters raised in the present action or reasonably related to the matters
stated therein, and including any matters reasonably related to the
commercial relationship of the Parties, from the beginning of time to the
date of this document, and including any issue of setoff. This release
shall not apply to any claim that ESI or any shareholder of PlanetRx.com
may have arising from its status as a shareholder of PlanetRx.com,
including without limitation the right of ESI or any shareholder of
PlanetRx.com to receive distribution(s) upon the liquidation of
PlanetRx.com.
4. The Court hereby permanently enjoins PlanetRx.com and anyone acting on its
behalf from sending any e-mail messages to any individuals in
PlanetRx.com's install-base who purchased prescriptions from PlanetRx.com
and identified themselves as an ESI member in the process (at a minimum,
the approximately 6,500 individuals previously identified by PlanetRx.com).
In addition, PlanetRx.com will not provide any third-party with the e-mail
addresses for these individuals
5. PlanetRx.com will not pursue any claim against HIP of NY, or any other
third parties, for any claims related to the issues contained in the
present action.
6. After execution of this settlement agreement, and within ten (10) days
after payment from ESI is received by PlanetRx.com, PlanetRx.com will
provide ESI with a notarized summary that states the assets and liabilities
of PlanetRx.com as of this date. In addition, PlanetRx.com will provide a
similar summary of the 10-Qs for fiscal year 2001, previously released to
the public. To the extent such information is not included in the 10-Qs,
PlanetRx.com shall provide a notarized summary identifying the sale or
other disposition of any assets greater than $10,000 of PlanetRx.com to any
third parties since February 2001.
7. PlanetRx.com agrees to provide, approximately every 30 days, effective as
of the date of payment by ESI, a notarized updated summary of the total
assets and liabilities of PlanetRx.com and a report of the sale or other
disposition of any assets of PlanetRx.com to any third party (not including
assets with a value of less than $10,000.) This paragraph shall remain in
force only so long as ESI remains a shareholder of PlanetRx.com.
PlanetRx.com will make available its officers, and related personnel, at
reasonable times and places to discuss the wind-up of the affairs at
PlanetRx.com. If ESI desires to have meetings in any location other than
Memphis, Tennessee, ESI shall bear the out-of-pocket expense of the
necessary personnel then employed by PlanetRx.com to attend the meetings on
behalf of PlanetRx.com. ESI shall always bear its own expenses for
attending such a meeting, no matter where it is held.
8. This Agreement, and the terms stated herein, shall be confidential, except
for any disclosure required by law, regulation or court order.
9. ESI states that in receiving confidential information from PlanetRx.com,
ESI is familiar with all securities regulations surrounding the disclosure,
receipt and use of confidential information. ESI shall not use the
information in violation of any securities regulations. In the event ESI
violates any securities regulation related to the disclosure, receipt or
use of this information, ESI agrees to defend and indemnify PlanetRx.com,
its officers and directors, for any actions brought against them as a
result.
10. When referred to in this Agreement, ESI shall mean Express Scripts, Inc.,
all affiliates, subsidiaries, and any company owned or controlled by ESI,
including their respective officers and directors. When referred to in this
Agreement, PlanetRx.com shall mean PlanetRx.com, Inc., all affiliates,
subsidiaries or related companies, and any company in which PlanetRx.com
owns a 5% or greater stake, including their respective officers and
directors.
AGREED AND ACCEPTED:
Express Scripts, Inc.
By: /s/ Gretchen Gates Kelly
---------------------------
Gretchen Gates Kelly, Senior Counsel (per
authority of T. Bacteau)
PlanetRx.com, Inc.
By: /s/ Paul E. Risner
---------------------
Secretary and General Counsel with authority
to bind PlanetRx.com
SO ORDERED:
/s/Carolyn C. Whittington
-------------------------
Entered: 1-22-02
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (Nos. 333-89047 and 333-33272) of our report dated March
27, 2002, relating to the financial statements of PlanetRx.com, Inc., which
appears in PlanetRx.com, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2001.
/s/PricewaterhouseCoopers LLP
Atlanta, Georgia
April 15, 2002