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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission File Number 000-27437
PLANETRX.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3227733
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2207 Sawgrass Village Drive
Ponte Vedra Beach, Fl 32082
(Address of principal executive offices)
Registrant's telephone number, including area code: (904) 285-0000
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 13, 2002
----- --------------------------------
Common Stock, $0.0001 par value 62,192,739
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 1
Balance Sheets at September 30, 2002 1
(unaudited) and December 31, 2001
Statements of Operations (unaudited) for the Period From Inception (August 3, 2
2001) Through September 30, 2001, the Three and Nine Months Ended September
30, 2002, and the Period From Inception (August 3, 2001) Through September
30, 2002
Statements of Cash Flows (unaudited) for the Period From Inception (August 3, 3
2001) Through September 30, 2001, the Nine Months Ended September 30, 2002, and
the Period From Inception (August 3, 2001) Through September 30, 2002
Notes to Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 10
SIGNATURE 11
PART I
ITEM 1. FINANCIAL STATEMENTS
PLANETRX.COM, INC.
(A Development Stage Company)
Balance Sheets
(in thousands, except per share amounts)
September 30, December 31,
2002 2001
(Unaudited)
---------------------- ------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 96 $ --
Deposits and refunds receivable 30
Prepaid assets 10
-- ---------
Total current assets 136 --
Property and equipment, net 1
- ---------
Total assets $ 137 $ --
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 158 $ 42
Accrued salaries and related benefits 464 154
Accrued expenses 56
-- -------
Total liabilities 678 196
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred Stock: issuable in series, $0.0001 par value;
5,000 shares authorized; no shares issued and outstanding -- --
Common Stock: $0.0001 par value; 200,000 shares authorized;
62,193 and 33,822 shares issued and outstanding at September 30,
2002 and December 31, 2001, respectively 5 3
Additional paid-in capital 602 --
Subscriptions receivable (2) (3)
Deficit accumulated during the development stage (1,146) (196)
------ ----
Total stockholders' equity (541) (196)
---- ----
Total liabilities and stockholders' equity $ 137 $ --
======== =====
The accompanying notes are an integral part of these financial statements.
1
PLANETRX.COM, INC.
(A Development Stage Company)
Statements of Operations
(unaudited)
(in thousands, except per share amounts)
Cumulative
Period From
From Inception Inception
(August 3, 2001) (August 3, 2001)
through September Three Months Ended Nine Months Ended through
30, September 30, September 30, September 30,
------------------- --------------------- --------------------- ---------------
2001 2002 2002 2002
------------------- --------------------- --------------------- ---------------
Net revenue $ -- $ -- $ -- $ --
Operating expenses:
Salaries and related benefits 61 39 310 464
Professional fees -- 44 315 340
Non cash stock compensation
expense (income) -- (15) 246 246
General and administrative 16 53 79 96
---------------- ------------------ ------------------ ----------
Total operating expenses 77 121 950 1,146
---------------- ------------------ ------------------ ----------
Net loss available to common $ (77) $ (121) $ (950) $(1,146)
shareholders
Basic and diluted net loss per share $ (--) $ (--) $ (0.02)
================= ================== ================
Weighted average shares used to compute
basic and diluted net loss per share 38,206 62,143 53,087
================ ================= ================
The accompanying notes are an integral part of these financial statements.
2
PLANETRX.COM, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
(in thousands)
Period
From Period
Inception From
(August 3, Inception
2001) (August 3,
through September Nine Months Ended 2001)
30, September 30, through September 30,
------------------- --------------------- ----------------------
2001 2002 2002
------------------- --------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ( 77 ) $ ( 950) $ (1,146)
Adjustments to reconcile net loss to change in cash
Depreciation 1 1
Non cash stock compensation 246 246
Changes in assets and liabilities:
Deposits ( 5 ) ( 5 )
Prepaid assets ( 10 ) ( 10 )
Accounts payable & accrued expenses 16 112 154
Accrued salaries and related benefits 61 310 464
---------------- ------------------ --------------------
Net cash used in operating
activities -- ( 296 ) ( 296 )
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment -- ( 2 ) ( 2 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 394 394
---------------- -------------- ------------
Increase in cash and cash equivalents -- 96 96
Cash and cash equivalents at beginning of period -- -- --
---------------- ---------------- --------------------
Cash and cash equivalents at end of period $ -- $ 96 $ 96
================ ================ ==================
Non cash effect of merger, assumption of certain
net liabilities (Note 1) 36 36
The accompanying notes are an integral part of these financial statements.
3
PLANETRX.COM, INC.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
(in thousands, except per share amounts)
1. The Company and Basis of Presentation
The Company
On May 31, 2002 PlanetRx.com ("PlanetRx" or the "Company"), a public shell
company, merged with Paragon Homefunding, Inc., ("Paragon") a privately held,
development stage company based in Ponte Vedra Beach, Florida, that intends to
enter the financial services market through acquisitions. For accounting
purposes, the transaction has been treated as a recapitalization of Paragon with
Paragon viewed as the acquirer in a reverse acquisition. As a result, the
financial statements presented before the merger are those of Paragon. The
historical stockholders' equity of Paragon prior to the merger has been
retroactively restated for the equivalent number of shares received in the
merger by Paragon after giving effect to the difference in par value of the
PlanetRx's and Paragon's stock with the difference recorded as paid-in capital.
Also, as a result of the merger, Paragon also assumed approximately $36 of
PlanetRx's net liabilities. Paragon was incorporated in Delaware on August 3,
2001. We are a development stage company that has recorded no revenue since
inception. Accordingly, we have no operating history and prior periods do not
allow for comparison to the periods presented. These financial statements have
been prepared in accordance with Statement of Financial Accounting Standards No.
7, "Accounting and Reporting by Development Stage Enterprises," to recognize the
fact that the Company is devoting substantially all of its efforts to
establishing a new business and planned principal operations have not commenced.
PlanetRx was incorporated in Delaware on March 31, 1995 and operated as an
online healthcare destination for commerce, content and community. The Company
closed its online health store in March 2001 and shortly thereafter began the
process of liquidating and dissolving the Company. The merger with Paragon
completed this process.
Pursuant to the merger, a wholly-owned subsidiary of the Company merged with and
into Paragon, and the Company issued approximately 55,561 shares of common stock
to the Paragon stockholders equaling 90% of the total outstanding shares of the
Company's common stock immediately after the merger. There could be further
dilution of this interest following the merger in the event that the Company
issues additional shares of common stock. As a result, the then existing
stockholders of the Company saw their ownership stake reduced from 100% to 10%
of the outstanding common stock. As a result of the merger, Paragon also assumed
approximately $36 of PlanetRx's net liabilities. Paragon's management has
assumed control of the Company. Paragon has no operating history and we give no
assurance when or if we will ever commence operations. Thus, our ability to
continue to exist will depend on a number of factors, including the ability to
secure adequate sources of capital as well as locating and funding acquisitions
of suitable companies.
The accompanying unaudited condensed financial statements reflect all
adjustments, which include only normal recurring adjustments, which, in the
opinion of management, are necessary for the fair statement of the results of
operations for the periods shown. The results of operations for such periods are
not necessarily indicative of the results to be expected for the full fiscal
year or any future period. The information included in this Form 10-Q should be
read in conjunction with the 2001 audited financial statements and notes thereto
as filed with the Securities and Exchange Commission. The independent auditors
report accompanying the Company's 2001 audited financial statement contains
a qualification regarding the Company's ability to continue as a going concern.
2. 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
equivalent shares if dilutive. Common equivalent shares consist of the
incremental common 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 common equivalent
shares, as the effect of such shares on a weighted average basis is
anti-dilutive. As of September 30, 2002, unexercised options to purchase up to
10,000 common shares were outstanding which, if exercised, could potentially be
dilutive.
4
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated (in thousands, except per share amounts):
Period
From Inception
(August 3,2001) Three Months Nine Months
through Ended Ended
September 30, September 30, September 30,
------------------- ------------------- ------------------
2001 2002 2002
------------------- ------------------- ------------------
Numerator: Net loss available to common $ ( 77 ) $ ( 121 ) $ ( 950 )
shareholders
Denominator: Weighted average
common shares 38,206 62,143 53,087
---------------- ---------------- ---------------
Basic and diluted net loss per share $ ( -- ) $ ( -- ) $ ( 0.02 )
================ ================ ===============
3. Accrued Salaries and related Benefits
The Company has entered into employment agreements with its executive officers.
All executive officers have elected to defer receipt of the salaries, benefits
and other items due them pursuant to such contracts until the Company acquires
sufficient operating capital through the acquisition of operating companies,
fundraising or both. During the three months ended September 30, 2002 the
Company recorded approximately $107 of income in connection the resignation of
an executive officer who elected not to receive amounts previously accrued
during 2002. At September 30, 2002 and December 31, 2001 the Company had accrued
$464 and $154 pursuant to these contracts, respectively.
4. Stockholders' Equity
The Company has been seeking capital through the sale of its common stock via
private placement transactions. During February, March and May of 2002 the
Company sold 10,783 shares of common stock for approximately $394 to private
investors.
In March 2002 the Company and the founding shareholders issued 16,432 shares of
restricted and unrestricted common stock to its Chief Executive Officer, John W.
Brink in connection with his employment agreement. As a result of the issuance
of 5,477 shares of unrestricted stock the Company recorded $200 of non-cash
stock compensation in March 2002. Of the restricted shares, 8,216 were to vest
over time with the value of the stock award amortized over the appropriate
vesting period. The remaining 2,739 restricted shares were to vest upon the
Company's initial acquisition, with a compensation charge recorded based on the
market value of the stock at the time of the acquisition. On July 16, 2002 Mr.
Brink resigned as Chief Executive Officer of the Company. In connection with his
resignation he rescinded and cancelled the above mentioned stock grant as well
as all options that he had been granted. In accordance with Statement of
Financial Accounting Standards Board No. 25, "Accounting for Stock Issued to
Employees", the Company recorded $61 of income in order to reverse the effects
of amounts previously recorded as expense for the amortization of unvested
restricted stock forfeited by Mr. Brink. Also, pursuant to the terms of the
merger agreement, the shares given to Mr. Brink by the founding shareholders
were returned to them and the remaining shares were reallocated to the
shareholders that existed at the time of the merger described above.
In July 2002 the Company issued 459 shares of common stock to certain
consultants as consideration for their services. As a result, the Company
recorded approximately $46 of non cash compensation expense during the three
months ended September 30, 2002.
5
5. Commitments and Contingencies
On March 27, 2001, SDR Investors, LP filed a lawsuit against PlanetRx, 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 December 6, 2000. The
Action, which is being coordinated with several 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. A motion to dismiss addressing
issues common to the companies and individuals sued in this action was filed on
July 15, 2002. As of the date hereof, the Company is unable to predict the
outcome of the suit and its ultimate effect, if any, on the Company's financial
condition, results of operations or cash flows.
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 the Company 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. The Company has
filed an answer asserting the affirmative defenses of failure of consideration
and statute of frauds and denying the existence of an oral contract. As of the
date hereof, the Company is unable to predict the outcome of the suit and its
ultimate effect, if any, on the Company's financial condition, results of
operations or cash flows.
6. Subsequent Events
On October 14, 2002 the Company entered into an Agreement and Plan of Merger
pursuant to which a wholly owned subsidiary will merge into Mortgage Express,
Inc., ("Mortgage Express"), which will result, if the Merger is consummated in
Mortgage Express becoming our wholly owned subsidiary. Mortgage Express
originated over $400 million in loans for 2001, conducts business in 25 states
and has over 180 employees. This agreement provides that all of Mortgage
Express's shares of common stock will automatically convert into 53,330 shares
of common stock of PlanetRx, or approximately 46.2% of PlanetRx's common stock
after the merger.
In connection with the merger, we will also issue two promissory notes to the
principal of Mortgage Express. One is a collateralized non-recourse promissory
note in the amount of $1,800 subject to adjustment based on the anticipated sale
of real estate, which is owned by Mortgage express. This note will be payable on
the earlier of the third anniversary of the date of the note or the date the
real estate is sold. Payment of the note is collateralized by the real estate
and the sole recourse of the holder in the event of non-payment is to the real
estate. The second promissory note will be approximately $1,200 and is subject
to adjustment based on the amount of certain marketable securities and other
current assets of Mortgage Express at the time of closing. This note will be
payable in four equal quarterly installments beginning on March 31, 2003.
The closing of the merger is subject to various customary conditions, including
among other things, the receipt of permits and approvals required from
appropriate state banking and lending regulatory authorities. The Company cannot
predict when this transaction will close, if the conditions to closing will be
fulfilled, or if the transaction will close at all.
On October 31, 2002 the Company entered into a non-binding letter of intent to
acquire a company in the financial services field. The proposed transaction
contemplates, among other things, that the Company will issue approximately
600,000 unregistered shares of common stock to the seller. The Company is
currently negotiating the terms of definitive agreements and determining the
ultimate structure of, and consideration in, the transaction. There are no
assurances that this transaction will be entered into or closed.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
Certain information contained in the matters set forth in this Quarterly Report
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor created by that
act. PlanetRx cautions readers that certain important factors may affect the
PlanetRx's actual results and could cause such results to differ materially from
any forward-looking statements which may be deemed to have been made in this
item and elsewhere in this Quarterly Report, or which are otherwise made by or
on behalf of PlanetRx. For this purpose, any statements contained in this
Current Report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as may, will, expect, believe, explore, consider, anticipate, intend,
could, estimate, plan, or continue or the negative variations of those words or
comparable terminology are intended to identify forward-looking statements.
Factors that may affect PlanetRx's results include, but are not limited to the
risks and uncertainties associated with the following:
o our ability to raise capital necessary to sustain our operations and
implement our business plan,
o our ability to implement our business plan,
o our ability to obtain regulatory permits and approvals to operate in
the financial services area,
o our ability to close the Agreement and Plan of Merger which we recently
signed,
o our ability to identify and complete acquisitions and successfully
integrate the businesses we acquire, if any,
o changes in the real estate market, interest rates or the general
economy of the markets in which we operate,
o our ability to employ and retain qualified management and employees,
o changes in government regulations that are applicable to our regulated
brokerage, lending and property management businesses,
o general volatility of the capital markets and the establishment of a
market for our shares,
o changes in the demand for our services,
o the degree and nature of our competition,
o our ability to generate sufficient cash to pay our creditors, and
o disruption in the economic and financial conditions primarily from the
impact of past terrorist attacks in the United States, threats of
future attacks, police and military activities overseas and other
disruptive worldwide political events.
PlanetRx is also subject to other risks detailed herein or detailed from time to
time in PlanetRx's Securities and Exchange Commission filings.
History and Recent Events
Paragon was incorporated in Delaware in August 2001 and our headquarters are
located in Ponte Vedra Beach, Florida. We intend to enter the financial services
industry through a series of acquisitions and initially plan to pursue the
acquisition of companies who originate or broker residential mortgages. We
believe our acquisition candidates would be willing to be acquired in exchange
for securities of a publicly traded company and, as a result, subsequent to
incorporation Paragon began to pursue the acquisition of a public company. On
April 26, 2002, we announced that we had entered into a definitive agreement to
merge with Paragon. Prior to commencing liquidation, PlanetRx was a leading
online healthcare destination for commerce, content and community. The merger
was completed on May 31, 2002. Pursuant to the merger, a wholly-owned subsidiary
of PlanetRx merged with and into Paragon, and
7
we issued shares of common stock to the Paragon stockholders equaling 90% of the
total outstanding shares of PlanetRx's common stock immediately after the
merger. As a result, PlanetRx's then existing stockholders saw their ownership
stake reduced from 100% to 10% of the outstanding common stock. There could be
further dilution of this interest following the merger in the event that we
issue additional shares of common stock. Paragon's management has assumed
control of PlanetRx. For accounting purposes, the transaction has been treated
as a recapitalization of Paragon with Paragon viewed as the acquirer in a
reverse acquisition. As a result, the financial statements presented before the
merger are those of Paragon.
On October 14, 2002 we entered into an Agreement and Plan of Merger pursuant to
which our wholly owned subsidiary will merge into Mortgage Express, Inc.,
resulting in Mortgage Express becoming our wholly owned subsidiary. Mortgage
Express originated over $400 million in loans for 2001, is conducts business in
25 states and has over 180 employees. This agreement provides that all of
Mortgage Express's shares of common stock will automatically convert into
53,329,735 shares of common stock of PlanetRx, or approximately 46.2% of
PlanetRx's common stock after the merger.
In connection with the merger, we will also issue two promissory notes to the
principal of Mortgage Express. One is a secured, non-recourse promissory note in
the amount of $1,800,000, subject to adjustment based on the anticipated sale of
real estate, which is owned by Mortgage Express. This note will be payable on
the earlier of the third anniversary of the date of the note or the date the
real estate is sold. Payment of the note is secured by the real estate and the
sole recourse of the holder in the event of non-payment is to the real estate.
The second promissory note will be approximately $1,200,000 and is subject to
adjustment based on the amount of certain marketable securities and other
current assets of Mortgage Express at the time of closing. This note will be
payable in four equal quarterly installments beginning on March 31, 2003.
The closing of the merger is subject to various customary conditions, including
among other things, the receipt of permits and approvals required from
appropriate state banking and lending regulatory authorities. We cannot predict
when we will close this transaction, if the conditions to closing will be
fulfilled, and if we will close the transaction at all.
On October 31, 2002 we entered into a non-binding letter of intent to acquire a
company in the financial services field. The proposed transaction contemplates,
among other things, that we will issue approximately 600,000 unregistered shares
of common stock to the seller. We are currently negotiating the terms of
definitive agreements and determining the ultimate structure of, and
consideration in, the transaction. We cannot assure that this transaction will
be entered into or closed.
As discussed above, we plan to acquire companies in the financial services
market and have initially targeted companies that specialize in originating or
brokering residential home mortgages. To date we have raised approximately
$394,000 through the sale of common stock to individual investors. We are a
development stage company that has recorded no revenue since inception.
Accordingly, we have no operating history and prior periods do not exist for
comparison to the periods presented.
Results of Operations
Comparison of the three months ended September 30, 2002 and the period from
inception (August 3, 2001) to September 30, 2001
Net Revenue
Net revenues were zero the three months ended September 30, 2002 and the period
from inception (August 3, 2001) to September 30, 2001.
Operating Expenses
Salaries, wages and related expenses. For the three months ended September 30,
2002 and the period from inception (August 3, 2001) to September 30, 2001
salaries, wages and related expenses were $39,000 and $61,000, respectively.
These are primarily related to salaries accrued for the executive officers
pursuant to employment agreements. Such officers have elected to defer receipt
of the accrued amounts until we acquire businesses with cash flow sufficient to
pay the amounts or when sufficient additional capital is secured. The three
months ended September 30, 2002 was favorably impacted when we recorded
approximately $107 of income in connection the resignation of an executive
officer who elected not to receive amounts previously accrued during 2002.
8
Professional fees. For the three months ended September 30, 2002 professional
fees were $44,000 and primarily relate to legal and accounting fees incurred in
connection with the audit of the year-end financial statements. There were no
expenses for professional fees for the period from inception (August 3, 2001) to
September 30, 2001.
Non cash stock compensation. For the three months ended September 30, 2002
income from non cash stock compensation was $15,000 and related primarily to
income recorded in connection with the resignation of an executive officer. In
July 2002 we recorded $61,000 of income in order to reverse amounts previously
expensed for the year-to-date amortization of restricted stock granted in March
2002. This amount was offset by $46,000 recorded as expense related to the
issuance of shares to certain consultants. For the period from inception (August
3, 2001) to September 30, 2001 there were no amounts recorded for non cash
compensation costs.
General and Administrative expenses. For the three months ended September 30,
2002 and the period from inception (August 3, 2001) to September 30, 2001,
general and administrative expenses were $53,000 and $16,000, respectively.
These amounts relate to the operation and maintenance of the corporate offices
as well as travel in support of the acquisition program.
Comparison of the nine months ended September 30, 2002 and the period from
inception (August 3, 2001) to 2001
Net Revenue
Net revenues were zero for the nine months ended September 30, 2002 and the
period from inception (August 3, 2001) to September 30, 2001.
Operating Expenses
Salaries, wages and related expenses. For the nine months ended September 30,
2002 and the period from inception (August 3, 2001) to September 30, 2001
salaries, wages and related expenses were $310,000 and $61,000, respectively.
These are primarily related to salaries accrued for the executive officers
pursuant to employment agreements. As discussed above, such amounts will be
deferred until we acquire businesses with cash flow sufficient to pay the
amounts or when sufficient additional capital is secured.
Professional fees. For the nine months ended September 30, 2002 professional
fees were $315,000 and primarily relate to legal and accounting fees incurred in
connection with the merger with Paragon. There were no expenses for professional
fees for the period from inception (August 3, 2001) to September 30, 2001.
Non cash stock compensation. For the nine months ended September 30, 2002 non
cash stock compensation costs were $246,000 and relate to the granting of stock
to the Chief Executive officer and certain consultants, as well as the
amortization of a restricted stock. For the period from inception (August 3,
2001) to September 30, 2001 there were no amounts recorded for non cash
compensation costs.
General and Administrative expenses. For the nine months ended September 30,
2002 and the period from inception (August 3, 2001) to September 30, 2001,
general and administrative expenses were $79,000 and $16,000, respectively and
relate to the operation and maintenance of the corporate offices and travel in
support of the acquisition program.
Liquidity and Capital Resources
We invest excess cash predominantly in 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. At September 30, 2002, we had cash and cash equivalents totaling
approximately $96,000.
Net cash used in operating activities was approximately $296,000 since we were
formed in August 2001 and primarily represent the payment of legal and
accounting fees. As discussed above, we have raised approximately $394,000 from
the issuance of common stock to individual investors. As of September 30, 2002
all of our executive officers have elected to defer receipt of any salaries and
bonuses until sufficient additional capital is secured or we acquire a business
with sufficient cash flow to allow us to continue our existence.
We have entered into an Agreement and Plan of Merger to acquire a company in the
financial services field and a non-binding letter of intent to acquire another
company in the financial services field. The proposed transactions are described
above under the heading "History and Recent Events". We cannot assure that
either of these transactions will close.
9
There can be no guarantees that we will be successful in either securing
additional capital or acquiring businesses with sufficient cash flow to allow us
to continue our existence and execute our business plan.
We presently have no revenues, and we do not anticipate generating revenues from
operations unless we close an acquisition of a company operating in the
financial services industry. We will need to raise more capital to allow us to
continue our existence and implement our business plan.
ITEM 3. 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 and cash
equivalents. Due to the short-term nature of these instruments and our
investment policies and 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 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of
our management, including the Chief Executive Officer ("CEO") who is also the
Chief Financial Officer ("CFO"), of the effectiveness of the design and
operation of our disclosure controls and procedures within 90 days before the
filing date of this quarterly report. Based on that evaluation, management,
including the CEO and CFO, concluded that our disclosure controls and procedures
were effective to ensure that information required to be disclosed by PlanetRx
in reports that it files under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms. There have been no significant changes in
our internal controls or in other factors that could significantly affect
internal controls subsequent to their evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 27, 2001, SDR Investors, LP filed a lawsuit against PlanetRx, 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 complaints have been consolidated into a single action and a
consolidated amended complaint has been filed. The consolidated amended
complaint names PlanetRx, Mr. Razzouk, Mr. Cotsakos, Mr. Beirne, Mr. Moritz, Mr.
Valenzuela, Goldman Sachs, Robertson Stephens (as successor to BancBoston),
BancBoston, J.P. Morgan (as successor to Hambrecht & Quist LLC), Hambrecht &
Quist LLC, William Blair & Co. LLC, Bear Stearns & Co., Inc., Merrill Lynch,
Pierce, Fenner & Smith, Incorporated and Salomon Smith Barney, Inc. as
defendants. The action generally alleges that the defendants violated federal
securities laws by not disclosing certain actions allegedly taken by the
underwriter defendants in connection with the IPO. The action alleges
specifically that the underwriter defendants, in exchange for the allocation to
their customers of shares of the Company's common stock sold in the IPO,
solicited and received from their customers undisclosed commissions on
transactions in other securities and required their customers to purchase
additional shares of the Company's common stock in the aftermarket at
pre-determined prices that were above the IPO price. The action seeks
unspecified monetary damages and certification of a plaintiff class consisting
of all persons who acquired shares of the Company's common stock between October
6, 1999, and December 6, 2000. The action 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. A motion
to
10
dismiss addressing issues common to the companies and individuals sued in these
actions was filed on July 15, 2002. 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, results of operations, or cash flows.
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 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. We have filed an
answer asserting the affirmative defenses of failure of consideration and statue
of frauds and denying the existence of an oral contract. 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, results of operations, or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
The document listed in the Exhibit Index following the signature page of this
report is filed as part of this report.
(b) Reports on Form 8-K
None
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLANETRX.COM, INC.
By: /s/ Steven A. Burleson
------------------------------
Steven A. Burleson
Chief Executive Officer and
Principal Accounting Officer
Date: November 13, 2002
12
CERTIFICATION UNDER
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Steven A. Burleson, being the Chief Executive Officer and principal
accounting officer of PlanetRx.com, Inc., a Delaware corporation (PlanetRx),
certify that:
1. I have reviewed this quarterly report on Form 10-Q of PlanetRx.com, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ Steven A. Burleson
---------------------------------------
Steven A. Burleson
Chief Executive Officer and Principal
Accounting Officer
13
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ---------- ---------------------------------------------------------
2 Agreement and Plan of Merger dated as of October 14, 2002, among
PlanetRx.com, Inc., Paragon Homefunding, Inc., and Mortgage
Express,Inc. The schedules and exhibits to thisdocument, which are
listed in the table of contents of the document have been omitted
from the filing
14