<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                   FORM 10-Q


[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended June 30, 2000

                                       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 _________

                              PLANETRX.COM, INC.
            (Exact name of registrant as specified in its charter)


           Delaware                                      94-3227733
  (State or other jurisdiction                        (I.R.S. Employer
of incorporation or organization)                    Identification No.)

                       349 Oyster Point Blvd., Suite 201
                     South San Francisco, California 94080
                   (Address of principal executive offices)


      Registrant's telephone number, including area code: (650) 616-1500
                                                           ---------------

Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days: Yes [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 July 31, 2000

     Common Stock, $0.0001 par value...........   51,555,601
<PAGE>

                              PLANETRX.COM, INC.

                               Table of Contents

PART I.      FINANCIAL INFORMATION

Item 1.      Condensed Financial Statements

             Condensed Balance Sheets at June 30, 2000 (unaudited)
             and December 31, 1999

             Condensed Statements of Operations for the Three and
             Six Months Ended June 30, 2000 and 1999 (unaudited)

             Condensed Statements of Cash Flows for the Six Months
             Ended June 30, 2000 and 1999 (unaudited)

             Notes to Condensed Financial Statements

Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations

Item 3.      Quantitative and Qualitative Disclosures About Market
             Risk

PART II.     OTHER INFORMATION

Item 1.      Legal Proceedings

Item 2.      Changes in Securities and Use of Proceeds

Item 3.      Defaults Upon Senior Securities

Item 4.      Submission of Matters to a Vote of Security Holders

Item 5.      Other Information

Item 6.      Exhibits, Financial Statement Schedules, and Reports on
             Form 8-K

Signatures

                                       2
<PAGE>

PART I

ITEM 1. FINANCIAL STATEMENTS

                              PLANETRX.COM, INC.
                           Condensed Balance Sheets
                   (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                 June 30,                         December 31,
                                                                  2000                               1999
                                                          ---------------------             ------------------------
                                                               (unaudited)                         (audited)
<S>                                                       <C>                               <C>
ASSETS
Current assets:
     Cash and cash equivalents                                        $  50,608                            $  51,629
     Short-term investments                                                   -                               65,119
     Inventories                                                          2,967                                2,276
     Prepaid expenses and other current assets                           16,610                               19,594
                                                          ---------------------             ------------------------
         Total current assets                                            70,185                              138,618
     Property and equipment, net                                         19,425                               10,884
     Intangible assets, net                                             167,685                              188,115
     Other assets                                                           718                                  898
                                                          ---------------------             ------------------------
                                                                      $ 258,013                            $ 338,515
                                                          =====================             ========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                 $   7,973                            $   7,099
     Accrued expenses                                                     7,145                                8,444
     Accrued contract termination fees                                    4,250                                    -
     Deferred revenue                                                        16                                    8
     Borrowings, current                                                  2,071                                  418
     Capital lease obligations, current                                     463                                   54
                                                          ---------------------             ------------------------
          Total current liabilities                                      21,918                               16,023
     Borrowings, long-term                                                4,929                                6,582
     Capital lease obligations, long-term                                 1,808                                  265
                                                          ---------------------             ------------------------
                                                                         28,655                               22,870
                                                          ---------------------             ------------------------

Commitments and contingencies

Stockholders' equity:
     Preferred Stock: issuable in series, $0.0001 par value;
         5,000 shares authorized; none issued and                             -                                    -
         outstanding
     Common Stock: $0.0001 par value; 100,000 shares
         authorized; 51,752 and 52,286 shares issued and
         outstanding, respectively                                            5                                    5
     Additional paid-in capital                                         441,502                              444,405
     Notes receivable from stockholders                                     (34)                                 (35)
     Deferred stock-based compensation                                  (15,290)                             (25,454)
     Accumulated deficit                                               (196,825)                            (103,276)
                                                          ---------------------             ------------------------
          Total stockholders' equity                                    229,358                              315,645
                                                          ---------------------             ------------------------
                                                                      $ 258,013                            $ 338,515
                                                          =====================             ========================
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       3
<PAGE>

                              PLANETRX.COM, INC.
                      Condensed Statements of Operations
              (unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
                                                   Three Months Ended           Six Months Ended
                                                       June 30,                     June 30,
                                               --------------------------  ---------------------------
                                                  2000           1999         2000            1999
                                               ------------   -----------  ------------    -----------
<S>                                            <C>            <C>          <C>             <C>
Net revenue:
      e-commerce                                $   8,132      $     595     $  15,945      $     622
      Sponsorship                                   1,303            160         2,263            195
                                               ------------   -----------  ------------    -----------
                                                    9,435            755        18,208            817
                                               -----------    -----------  ------------    -----------
Cost of net revenue:
      e-commerce                                    7,825            654        15,070            694
      Sponsorship                                     209             18           365             35
                                               -----------    -----------  ------------    -----------
                                                    8,034            672        15,435            729
                                               -----------    -----------  ------------    -----------
Gross profit                                        1,401             83         2,773             88
                                               -----------    -----------  ------------    -----------
Operating expenses:
      Marketing and sales                          20,638          7,098        49,342          9,614
      Product development                           5,217          1,843        11,812          3,254
      General and administrative                    2,532          1,443         4,859          2,366
      Amortization of intangible assets            10,215              -        20,430              -
      Stock-based compensation                      2,861          3,100         7,129          4,308
      Contract termination and severance
             charges                                4,466              -         4,466              -
                                               -----------    -----------  ------------    -----------
             Total operating expenses              45,929         13,484        98,038         19,542
                                               -----------    -----------  ------------    -----------
Operating loss                                   (44,528)       (13,401)      (95,265)       (19,454)
Interest income                                      865            221         2,181            399
Interest expense                                    (250)          (493)         (465)        (1,046)
                                               -----------    -----------  ------------    -----------
Net loss                                        $(43,913)      $(13,673)     $(93,549)      $(20,101)
                                               ===========    ===========  ============    ===========
Effect of anti-dilution provisions of
      Series B Preferred Stock                         -         (1,009)             -        (1,009)
                                               -----------    -----------  ------------    -----------
Net loss available to common stockholders       $(43,913)      $(14,682)     $(93,549)      $(21,110)
                                               ===========    ===========  ============    ===========
Basic and diluted net loss per share            $  (0.92)      $  (5.37)     $  (1.97)      $  (8.35)
                                               ===========    ===========  ============    ===========
Weighted average shares used to compute
      basic and diluted net loss per share        47,925          2,733        47,551          2,528
                                               ===========    ===========  ============    ===========
</TABLE>
  The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>

                              PLANETRX.COM, INC.
                      Condensed Statements of Cash Flows
                           (unaudited, in thousands)
<TABLE>
<CAPTION>
                                                                 Six Months Ended
                                                                     June 30,
                                                         --------------------------------
                                                             2000                1999
                                                         -------------       ------------
<S>                                                        <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                $ (93,549)        $  (20,101)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                           2,676                697
        Non-cash interest charges related to purchase
             option and warrant                                     -                906
        Stock-based compensation                                7,129              4,308
        Amortization of intangible assets                      20,430                  -
        Changes in assets and liabilities:
             Inventories                                        (691)            (1,594)
             Prepaid expenses and other current assets          2,984            (2,366)
             Other assets                                         180               (87)
             Accounts payable                                     874              2,136
             Accrued expenses                                   2,951                495
             Deferred revenue                                       8                375
                                                         -------------       ------------
                Net cash used in operating activities        (57,008)           (15,231)
                                                         -------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases  of property and equipment                      (11,216)            (2,381)
   Sales of short-term investments                             65,119                  -
                                                         -------------       ------------
                Net cash provided by (used in)
                    investing activities                       53,903            (2,381)
                                                         -------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of stock for cash, net                    -             77,773
   Proceeds from exercises of Common Stock
            options, net                                          132                595
   Proceeds from notes payable and equipment financing          2,000              1,000
   Principal payments on capital lease obligations               (48)                (3)
                                                         -------------       ------------
                Net cash provided by financing
                    activities                                  2,084             79,365
                                                         -------------       ------------

(Decrease) increase in cash and cash equivalents              (1,021)             61,753
Cash and cash equivalents at beginning of period               51,629                935
                                                         -------------       ------------
Cash and cash equivalents at end of period                 $   50,608        $    62,688
                                                         =============       ============
</TABLE>
   The accompanying notes are an integral part of these financial statements

                                       5
<PAGE>

                              PLANETRX.COM, INC.
                    Notes to Condensed Financial Statements
                                  (unaudited)

Note 1--The Company and Basis of Presentation

     PlanetRx.com, Inc. ("PlanetRx" or the "Company") is an online healthcare
destination for commerce, content and community.  The Company was incorporated
in Delaware on March 31, 1995 and was in the development stage through December
31, 1998.

     The accompanying unaudited condensed financial statements reflect all
adjustments, which, in the opinion of management, are necessary for the fair
statement of the results of operation for the periods shown.  The results of
operations for such periods are not necessarily indicative of the results to be
expected for the full fiscal year or any future period. These financial
statements should be read in conjunction with the Company's annual report on
Form 10-K for its fiscal year ended December 31, 1999 and other periodic reports
filed from time to time with the Securiites and Exchange Commission.

Recent accounting pronouncements

     In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements ("SAB 101").  SAB 101 is effective
for the fourth quarter of years ending after December 31, 1999.  The Company
will adopt SAB 101 in the quarter ending December 31, 2000 and does not expect
such adoption to have an impact on the Company's results of operations,
financial position or cash flows.

     In March 2000, the Emerging Issues Task Force released Issue No. 00-02
("EITF 00-02"), "Accounting for Web Site Development Costs".  EITF 00-02 is
effective for all fiscal quarters beginning after June 30, 2000.  EITF 00-02
discusses the capitalization criteria regarding web site development costs.  The
Company will adopt EITF 00-02 in the quarter ending September 30, 2000 and does
not expect such adoption to have a significant impact on the Company's results
of operations, financial position or cash flows.

     In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25" (the "Interpretation").
The Interpretation is intended to clarify certain issues that have arisen in
practice since the issuance of APB 25. The Company will adopt the Interpretation
on July 1, 2000 and does not expect such adoption to have a significant impact
on the Company's results of operations, financial position or cash flows.


Note 2--Property and Equipment (in thousands)

<TABLE>
<CAPTION>
                                                                  June 30,           December 31,
                                                                    2000                1999
                                                            ------------------    ----------------
<S>                                                         <C>                   <C>
      Computer equipment and software                                  $13,439             $10,585
      Warehouse equipment                                                4,557                 179
      Equipment under capital leases                                     2,318                 339
      Furniture and fixtures                                             1,454                 990
      Leasehold improvements                                             2,057                 485
      Construction in progress                                             638                 668
                                                            ------------------    ----------------
                                                                        24,463              13,246
      Less:  Accumulated depreciation and amortization                  (5,038)             (2,362)
                                                            ------------------    ----------------
                                                                       $19,425             $10,884
                                                            ==================    ================
</TABLE>

                                       6
<PAGE>

                              PLANETRX.COM, INC.
                    Notes to Condensed Financial Statements
                                  (unaudited)

Note 3--Net loss per share

     Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of shares of
common stock outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and common equivalents, if
dilutive. Common equivalent shares consist of the incremental common shares
subject to issuance upon conversion of the convertible preferred stock (using
the if-converted method) and shares issuable upon the exercise of stock options
and warrants (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 of a weighted average basis is anti-
dilutive.

     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):

<TABLE>
<CAPTION>
                                                          Three Months Ended           Six Months Ended
                                                               June 30,                    June 30,
                                                        ----------------------      ------------------------
                                                          2000         1999           2000         1999
<S>                                                     <C>          <C>             <C>          <C>
Numerator:
    Net loss                                            $(43,913)    $(13,673)       $(93,549)    $(20,101)
    Plus effect of antidilution provisions of
     Series B Preferred Stock                                  -       (1,009)              -       (1,009)
                                                        ----------   ----------      ----------   ----------
    Net loss available to common shareholders           $(43,913)    $(14,682)       $(93,549)    $(21,110)
                                                        ==========   ==========      ==========   ==========
Denominator:
    Weighted average common shares                        51,884        9,395          52,005        8,766
    Weighted average unvested common shares
     subject to repurchase                                (3,959)      (6,662)         (4,454)      (6,238)
                                                        ----------   ----------      ----------   ----------
    Denominator for basic and diluted
     calculation                                          47,925        2,733          47,551        2,528
                                                        ==========   ==========      ==========   ==========
Net loss per share:
    Basic and diluted                                   $  (0.92)    $  (5.37)       $  (1.97)    $  (8.35)
                                                        ==========   ==========      ==========   ==========
</TABLE>

Note 4--Sponsorship Agreement

     In March 2000, the exclusive therapeutic disease state management sponsor
on the PlanetRx diabetes.com website voluntarily withdrew one of their diabetes
drugs from the market following a request from the US Food and Drug
Administration.  In addition, in June 2000, the sponsor merged with another
pharmaceutical company.  The Company is currently working with this sponsor to
determine the impact these events will have on future sponsorship revenues.


Note 5--Contract Termination and Severance Charges

     In June 2000, the Company restructured its agreement with pharmacy benefits
manager Express Scripts, Inc.  Under the new agreement, which eliminates
PlanetRx.com's annual $14.6 million payments to Express Scripts, PlanetRx.com
paid only the second quarter marketing expenses of $3.7 million, as well as a
one-time contract termination fee of $4.3 million. PlanetRx.com remains the
preferred Internet pharmacy for Express Scripts for a term 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 retains
ownership of its 10.3 million shares of PlanetRx.com common stock.

     The one-time charges in the second quarter also include $200,000 in
severance charges related to a workforce reduction of approximately 15% that
occurred in June 2000.

Note 6--Subsequent Events

     In July 2000, the Company signed a definitive agreement for up to
$50.0 million in equity financing from Alpha Venture Capital Inc., a member of
the Alpha Group of Funds.  The financing is in the form of an equity line that
can be utilized based on a formula relating to the trading volume and price of
the Company's Common Stock subject to certain terms and conditions.  Upon each
financing drawdown, the proceeds will be allocated to Common Stock and Common
Stock warrants based on the respective fair value of the instruments. The Common
Stock warrants will be valued using the Black-Scholes pricing model.

                                       7
<PAGE>

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations


This Report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including, without limitation, statements regarding the Company's
expectations, beliefs, intentions or future strategies that are signified by the
words "expects", "anticipates", "intends", "believes", or similar language. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements. In
evaluating the Company's business, prospective investors should carefully
consider the information set forth below under the caption "Risk Factors" in
addition to the other information set forth herein. The Company cautions
investors that its business and financial performance are subject to substantial
risks and uncertainties.

Overview

     PlanetRx.com is a leading online healthcare destination for commerce,
content and community. Our e-commerce website, www.PlanetRx.com, which we
launched on March 18, 1999, provides a convenient, private and informative
shopping experience for health and personal care products. We offer products in
six categories: prescription drugs; non-prescription drugs; personal care;
beauty and spa; vitamins, herbs and nutrition; and medical supplies. Our
eCenters, located within the PlanetRx.com website, incorporate content that
addresses a variety of health-related topics. In addition, we own and operate a
network of websites targeting specific healthcare conditions by providing
relevant content and a destination for online communities. These condition-
specific websites, which include diabetes.com, depression.com, obesity.com, and
alzheimers.com, are linked to the PlanetRx.com website.

     In March 2000, the exclusive therapeutic disease state management sponsor
on the PlanetRx diabetes.com website voluntarily withdrew one of their diabetes
drugs from the market following a request from the US Food and Drug
Administration.  In addition, in June 2000, the sponsor merged with another
pharmaceutical company.  The Company is currently working with this sponsor to
determine the impact these events will have on future sponsorship revenues, if
any.

     In the second quarter of 2000, we reduced our operating expenses, excluding
amortization, stock-based compensation and one-time charges, approximately 25%
from the prior quarter. This reduction was due primarily to reduced levels of
advertising, the reduction of our workforce by approximately 15%, and the
reassignment of personnel deemed less critical to the Company's growth.

     In July 2000, we signed a definitive agreement with Alpha Venture Capital,
Inc., a member of the Alpha Group of Funds, to provide the company with up to
$50 million in additional financing in the form of an equity line subject to
certain terms and conditions. Additional information concerning the equity line
is discussed below under the heading "Liquidity and Capital Resources," and a
copy of the agreement is attached as an exhibit to this Report on Form 10-Q.
There can be no assurances that we will be able to draw on the equity line. Even
if we are able to draw on the equity line, we expect that it will be necessary
to take additional financing and cost saving steps in order to continue to
develop our business.

Results of Operations

     The following table sets forth unaudited quarterly statement of operations
data for the five quarters ended June 30, 2000. This unaudited quarterly
information has been derived from our unaudited financial statements and
reflects all adjustments, which, in the opinion of management, are necessary for
the fair presentation of the results of operations for the periods shown.  The
results of operations for such periods are not necessarily indicative of the
results to be expected for the full fiscal year or any future period.

                                       8
<PAGE>
                              PlanetRx.com, Inc.
                   Condensed Quarterly Results of Operations
                           (unaudited, in thousands)
<TABLE>
<CAPTION>
                                                                               Quarter Ended
                                ------------------------------------------------------------------------------------------------
                                     June 30,         March 31,         December 31,          September 30,          June 30,
                                      2000              2000               1999                   1999                 1999
                                ------------------------------------------------------------------------------------------------
<S>                             <C>                 <C>               <C>                  <C>                    <C>
Net revenue:
     e-commerce                       $  8,132            $  7,813           $  4,564              $  2,670             $    595
     Sponsorship                         1,303                 960                537                   411                  160
                                --------------     ---------------    ---------------      ----------------       --------------
                                         9,435               8,773              5,101                 3,081                  755
Cost of net revenue:
     e-commerce                          7,825               7,245              4,260                 2,535                  654
     Sponsorship                           209                 156                  -                    65                   18
                                --------------     ---------------    ---------------      ----------------       --------------
                                         8,034               7,401              4,260                 2,600                  672
                                --------------     ---------------    ---------------      ----------------       --------------

Gross profit                             1,401               1,372                841                   481                   83
Operating expenses:
     Marketing and sales                20,638              28,704             28,330                17,240                7,021
     Product development                 5,217               6,595              5,686                 4,006                1,843
     General and administrative          2,532               2,327              1,874                 2,208                1,443
     Amortization of intangible
       assets                           10,215              10,215              8,926                   547                   77
     Stock-based compensation            2,861               4,268              8,192                 3,301                3,100
     Contract termination
       and severance charge              4,466                   -                  -                     -                    -
                                --------------     ---------------    ---------------      ----------------       --------------
          Total operating
            expenses                    45,929              52,109             53,008                27,302               13,484
                                --------------     ---------------    ---------------      ----------------       --------------
Operating loss                         (44,528)            (50,737)           (52,167)              (26,821)             (13,401)
Interest income (expense),
  net                                      615               1,101                963                   112                 (272)
                                --------------     ---------------    ---------------      ----------------       --------------
Net loss                              $(43,913)           $(49,636)          $(51,204)             $(26,709)            $(13,673)
                                ==============     ===============    ===============      ================       ==============
</TABLE>

Net Revenue

     Net revenues were $9.4 million and $18.2 million for the three and six
months ended June 30, 2000, respectively, which represents increases of $8.7
million and $17.4 million when compared with the corresponding periods in 1999.
E-commerce revenues increased to $8.1 million and $15.9 million for the three
and six months ended June 30, 2000, respectively, which represents increases of
$7.5 million and $15.3 million from the corresponding periods in 1999.
Sponsorship revenues increased to $1.3 million and $2.3 million for the three
and six months ended June 30, 2000, respectively, which represents increases of
$1.1 million and $2.1 million from the corresponding periods in 1999.

Cost of Net Revenue

     Cost of revenues were $8.0 million and $15.4 million for the three and six
months ended June 30, 2000, respectively, as compared to $700,000 in both of the
corresponding periods in 1999. Gross margins on e-commerce were approximately 4%
and 5% for the three and six months ended June 30 2000, respectively, as
compared to negative gross margins of 10% and 12% in the corresponding periods
of 1999.   We expect that our e-commerce margins will fluctuate in the future as
we continue with our customer acquisition programs.  Our sponsorship margin was
84% for both the three and six months ended June 30, 2000, as compared to
sponsorship margins of 89% and 82% for the three and six months ended June 30,
1999, respectively.

                                       9
<PAGE>
Operating Expenses

     Marketing and Sales. Marketing and sales expenses were $20.6 million for
the quarter ended June 30, 2000 as compared to $7.1 million for the quarter
ended June 30, 1999.  For the six months ended June 30, 2000, marketing and
sales expense were $49.3 million as compared to $9.6 million for the six months
ended June 30, 1999. This increase is due primarily to costs relating to
marketing and promotional campaigns and increased headcount.

     Product Development.  Product development expenses were $5.2 million for
the quarter ended June 30, 2000 as compared to $1.8 million for the quarter
ended June 30, 1999.  For the six months ended June 30, 2000, product
development expense were $11.8 million as compared to $3.3 million for the six
months ended June 30, 1999. This increase is related to the maintenance of our
websites and internal systems and related increased headcount.

     General and Administrative. General and administrative expenses were $2.5
million for the quarter ended June 30, 2000 as compared to $1.4 million for the
quarter ended June 30, 1999.  For the six months ended June 30, 2000, general
and administrative expenses were $4.9 million as compared to $2.4 million for
the six months ended June 30, 1999. This increase is primarily related to
increases in headcount and increases in professional service fees.

     Amortization of Intangible Assets.  Amortization of intangible assets was
$10.2 million and $20.4 million in the second quarter and first half of 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.
The fair value of the intangible assets associated with the domain names is
amortized over their estimated useful lives, which is two years, while the
intangible assets associated with YourPharmacy.com are being amortized over five
years.

     Stock-Based Compensation. We recorded additional deferred stock-based
compensation of approximately $1.3 million for the three months ended June 30,
2000, in connection with stock options granted during the period. Our stock-
based compensation expense totaled approximately $2.9 million and $7.1 million
for the second quarter and first half of 2000, respectively, as compared to $3.1
million and $4.3 million for the corresponding periods of 1999. The remaining
deferred stock compensation balance of approximately $15.3 million will be
amortized through 2004.

     Interest Income and Expense. Interest income consists of earnings on our
cash, cash equivalents, and marketable securities and interest expense consists
of interest associated with our notes payable, borrowings, and capital lease
obligations.  Interest income, net of interest expense, for the three and six
months ended June 30, 2000 increased over the corresponding periods of 1999 due
to higher interest-bearing asset balances in 2000.


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 June 30, 2000, we had cash and
cash equivalents and investments in marketable debt securities totaling $50.6
million compared to $116.7 million at December 31, 1999.

                                      10
<PAGE>
     Net cash used in operating activities was $57.0 million during the six
months ended June 30, 2000, primarily a result of quarterly net losses as well
as an increase in inventories, partially offset by decreases in prepaid expenses
and other assets, increases in accounts payable and accrued expenses, and non-
cash charges for depreciation and amortization. Net cash used in operating
activities was $15.2 million during the six months ended June 30, 1999 primarily
as a result of net losses as well as increases in prepaid expenses, 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 $53.9 million
during the six months ended June 30, 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 $2.4 million during the six months ended June 30, 1999, primarily
consisting of purchases of property and equipment, including computer equipment,
software, and furniture and fixtures.

     Net cash provided by financing activities was approximately $2.1 million
during the six months ended June 30, 2000, and primarily consisted of net
proceeds from equipment financing.  Net cash provided by financing activities
was $79.4 million during the six months ended June 30, 1999, and primarily
consisted of net proceeds of $77.8 million from the issuance of convertible
preferred stock.

     As of June 30, 2000, our principal commitments consisted of obligations
outstanding under operating leases and marketing agreements with certain web
portals aggregating approximately $33.0 million through 2005.

     In July 2000, the Company signed a definitive agreement for up to $50.0
million in equity financing from Alpha Venture Capital Inc., a member of the
Alpha Group of Funds.  The financing is in the form of an equity line that can
be utilized based on a formula relating to the trading volume and price of the
Company's Common Stock subject to certain terms and conditions. We will need to
file a Registration Statement on Form S-1 and have it declared effective by the
SEC before we can draw on the equity line.

     We cannot assure you that we will be able to meet the conditions required
for drawing funds from the recently acquired equity line and currently expect
that we may need to raise additional funds. If we raise additional funds through
the issuance of equity, equity-related or debt securities, such securities may
have rights, preferences or privileges senior to those of the rights of our
common stock and our stockholders may experience additional dilution. We cannot
be certain that additional financing will be available to us on favorable terms
when required, or at all.

Recent Accounting Pronouncements

     In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 is effective
for the fourth quarter of years ending after December 31, 1999. We will adopt
SAB 101 in the quarter ending December 31, 2000 and do not expect such adoption
to have an impact on our results of operations, financial position or cash
flows.

     In March 2000, the Emerging Issues Task Force released Issue No. 00-02
("EITF 00-02"), "Accounting for Web Site Development Costs". EITF 00-02 is
effective for all fiscal quarters beginning after June 30, 2000. EITF 00-02
discusses the capitalization criteria regarding web site development costs. We
will adopt EITF 00-02 in the quarter ending September 30, 2000 and do not expect
such adoption to have a significant impact on our results of operations,
financial position or cash flows.

     In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation is intended to
clarify certain issues that have arisen in practice since the issuance of APB
25. We will adopt the Interpretation on July 1, 2000 and do not expect such
adoption to have a significant impact on our results of operations, financial
position or cash flows.

                                      11
<PAGE>

ADDITIONAL FACTORS THAT MAY EFFECT FUTURE RESULTS

     In addition to the factors discussed in the "Overview" and "Liquidity and
Capital Resources" sections of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in our annual report on Form
10-K for our fiscal year ended December 31, 1999, as filed with SEC, the
following factors may affect our future results.

Risks Related to Our Business

We may be unable to meet our future capital requirements, which would impair our
ability to fund our operations

     We require substantial working capital to fund our operations. We cannot
assure you that we will be able to meet the conditions required for drawing
funds from the recently acquired equity line and currently expect that we may
need to raise additional funds beyond the equity line.

     If we raise funds by issuing equity, equity-related or debt securities,
these securities may have rights, preferences and privileges that are senior to
our existing common stock. In addition, the issuance of these securities may
cause immediate and substantial dilution to our existing stockholders. However,
we cannot be sure that the equity line or additional financing would be
available to us on favorable terms or at all.


Our limited operating history makes forecasting future results difficult

     We were incorporated on March 31, 1995 and began substantial operations in
September 1998. Our PlanetRx.com website was launched on March 18, 1999. As a
result of our limited operating history, it is difficult to accurately forecast
our revenues and we have limited meaningful historical financial data upon which
to base planned operating expenses. We base our current and future expense
levels on our operating plans and estimates of future revenues and our expenses
are to a large extent fixed. Our revenues and operating results are difficult
for us to forecast because we operate with substantially no backlog. As a
result, we may be unable to adjust our spending in a timely manner to compensate
for any unexpected revenue shortfall. This inability could cause our net losses
in a given quarter to be greater than expected.


We have a history of losses and we anticipate future losses and negative cash
flow

     Since our inception, we have incurred significant losses and negative cash
flow, and we expect operating losses and negative cash flow to continue for the
foreseeable future. We incurred net losses of $7,000 for the year ended 1996,
$137,000 for the year ended 1997, $4.1 million for the year ended 1998, $98.0
million for the year ended December 31, 1999 and $93.5 million for the six
months ended June 30, 2000. As of June 30, 2000, we had an accumulated deficit
of $196.8 million. We expect to incur additional costs and expenses related to:

     .  the development of the PlanetRx.com brand, marketing and other
        promotional activities;

     .  customer acquisition activities

     .  the continued development of the PlanetRx.com website, our computer
        network and the systems that we use to process customers' orders and
        payments;

     .  the expansion of our product offerings and the categories of the
        products that we offer;

     .  the continued development of relevant, healthcare-related content on the
        PlanetRx.com website;

                                      12
<PAGE>

     .  the development of marketing and distribution relationships with
        strategic business partners; and

     .  the establishment and development of relationships in the healthcare
        industry, particularly in the areas of reimbursement and managed care
        with insurance companies and pharmacy benefit management companies.

     Our ability to become profitable depends on our ability to generate and
sustain substantially higher revenues while maintaining reasonable expense
levels. If we do achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability on a quarterly or annual basis in the
future.

Online sales of prescription drugs, non-prescription drugs, personal care
products and medical supplies may not achieve market acceptance, which could
result in slower revenue growth, loss of revenues and increased operating losses

     If we do not attract and retain a high volume of online customers to our
website at a reasonable cost, our business and operating results will be
adversely affected. The online market for our products is in its infancy. We may
not be able to convert a large number of consumers from traditional shopping
methods to online shopping for prescription drugs, non-prescription drugs,
personal care products and medical supplies. Specific factors that could prevent
widespread consumer acceptance of the online sales of our products, include:

     .  shipping charges and delivery times associated with online purchases;

     .  delays and other inefficiencies associated with processing orders for
        prescription products covered by insurance;

     .  lack of reimbursement of customer prescriptions by some healthcare
        payors;

     .  inability to serve the acute care needs of customers, including
        emergency prescription drugs and other urgently needed products;

     .  pricing that does not meet customer expectations;

     .  customer concerns about the security of online transactions and the
        privacy of their personal health information;

     .  product damage from shipping or shipments of wrong or expired products
        from our suppliers, resulting in a failure to establish customers' trust
        in buying our products online;

     .  delays in responses to customer inquiries; and

     .  difficulties in returning or exchanging products.


If we fail to attract repeat customers, we may not be able to increase our
revenues

     We believe, due to our limited operating history, we have not established a
material amount of repeat business from regular customers. While our websites
are designed to encourage repeat business, we do not yet have sufficient
historical data on how successful this strategy will be. Therefore, it is
difficult to forecast what our revenues from repeat customers will be or our
overall revenue trends.

                                      13
<PAGE>

We expect our quarterly financial results to fluctuate

     We expect our revenues and operating results to vary significantly from
quarter to quarter due to a number of factors, including:

     .  our ability to attract visitors to the PlanetRx.com website and to
        convert those visitors into customers;

     .  our ability to satisfy customer demand, retain existing customers and
        attract new customers at a reasonable cost;

     .  the frequency and size of any repeat customer orders;

     .  the nature and amount of publicity for us or our competitors;

     .  changes in the growth rate of Internet usage and online purchasing;

     .  the mix of products sold by us;

     .  our ability to maintain adequate inventory levels;

     .  changes in our pricing policies or the pricing policies of our online
        and traditional competitors;

     .  purchasing patterns, including holiday purchasing patterns and the
        purchasing of seasonal products such as sunscreen and allergy
        medications; and

     .  costs related to potential acquisitions of technologies or businesses.

     We currently expect that a majority of our revenues for the foreseeable
future will come from orders of prescription drugs, non-prescription drugs,
personal care products and medical supplies on our PlanetRx.com website as well
as from sponsors on our satellite websites. The volume and timing of orders are
difficult to predict because the online market for these products is in its
infancy. Our operating expenses are largely based on anticipated revenue trends
and a high percentage of our expenses are fixed in the short term. As a result,
a delay in generating or recognizing revenue for any reason could cause
significant variations in our operating results from quarter to quarter and
could result in greater than expected operating losses.

     Because our operating results fluctuate and are difficult to predict, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. In some future quarter, our operating
results may fall below the expectations of public market analysts and investors.
In this event, the price of our common stock may fall.

                                      14
<PAGE>

We may be unable to significantly expand our customer base because of limited
insurance reimbursement coverage for prescription drugs that we sell

     We currently have limited access to insurance reimbursement coverage for
our prescription products. The majority of purchases in the prescription drug
market are paid for by third-party payors. A disproportionate dependence on
purchases of prescriptions without reimbursement may limit our penetration of
the prescription drug market, and may thus have an adverse impact on our
business.


Our relationship with Express Scripts, Inc. has been restructured and Express
Scripts is a significant stockholder

     In July 2000, we completed an agreement with Express Scripts, Inc. to
restructure our relationship under the agreements executed in August 1999. While
we are, subject to certain exceptions, the preferred internet pharmacy for
Express Scripts for a term of five years with the right to participate in its
pharmacy network for five years, Express Scripts has no obligation to market or
promote PlanetRx. Therefore, we may not be able to convert Express Scripts
members into PlanetRx customers as quickly as anticipated under the original
agreement or at all.

     Additionally, while our relationship with Express Scripts broadens our
ability to provide prescription medication to consumers with insurance
reimbursement plans, it does not allow all of our potential customers to
purchase these medications from us and receive insurance reimbursement.

     Due to Express Scripts' percentage of ownership of our common stock, it
will be able to influence all matters requiring approval by our stockholders,
including the approval of mergers or other business combinations.


If we are not able to maintain existing contracts or obtain additional contracts
with insurance companies and pharmacy benefit managers, our customers may not be
able to obtain reimbursement for purchases of prescription products, which would
impair our ability to expand our customer base

     To obtain reimbursement on behalf of our customers for the prescription
products that they purchase on our website, we need to obtain contracts with
numerous insurance companies and pharmacy benefit managers.

     Our ability to obtain additional contracts with other insurance companies
and pharmacy benefit managers, or retain our existing contracts for an extended
period of time, is uncertain. Many of these companies are in the early stages of
evaluating the impact of the Internet and online pharmacies on their businesses.
Many of these companies may delay their decisions to contract with online
pharmacies or may decide to or have decided to develop their own Internet
capabilities or enter into relationships with online pharmacies that may compete
with us. In addition, many insurance companies have existing contracts with
chain drugstores and pharmacy benefit managers that have established or have
announced their intentions to establish online pharmacies.

     In addition, some insurance companies and pharmacy benefit managers have
contracted, and more such parties may decide to contract, with only one or a
limited number of online pharmacies. If our online competitors obtain these
contracts and we do not, we would be at a competitive disadvantage.

     Even if we are successful in gaining widespread access to insurance
reimbursement, each insurance application must be processed individually, which
will raise the costs of processing prescription orders and may delay our order
processing time, which may be harmful to our business. In addition, if customers
do not initially embrace our online insurance coverage procedure, we may remain
dependent on that portion of the market that is willing to pay cash for their
prescriptions.

                                      15
<PAGE>

We may not be able to compete successfully against current and future
competitors

     We do business in a market that is highly competitive, and we expect
competition to intensify in the future. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, any
of which could harm our net revenue and results of operations. We currently or
potentially compete with a variety of companies, many of which have
significantly greater financial, technical, marketing and other resources. Our
competitors include:

     .  various online stores that sell prescription drugs as well as over-the-
        counter drug and health, wellness, beauty and personal care items;

     .  chain drugstores;

     .  independent drugstores and pharmacies;

     .  mass-market retailers;

     .  warehouse clubs; and

     .  pharmacy benefit managers that sell prescription drugs directly.

     Most traditional drugstores have operated for a longer period of time, have
greater financial resources, have established marketing relationships with
leading manufacturers and advertisers and have secured greater presence in
distribution channels. Some of these companies may also commence or expand their
presence on the Internet. We also compete with hospitals, HMOs and mail order
prescription drug providers, all of whom are or may begin offering products and
services, as well as healthcare related information similar to our content, over
the Internet. Finally, we are aware of numerous other smaller entrepreneurial
companies that are focusing significant resources on developing and marketing
products and services that will compete directly with those offered at
PlanetRx.com.

     We may face a significant competitive challenge from alliances entered into
by our competitors. For instance, one of our direct online competitors,
drugstore.com, has relationships that give them access to major pharmacy benefit
managers and a chain drugstore. Our competitors may continue to gain access to
major pharmacy benefit managers, major HMOs or chain drugstores. The combined
resources of these partnerships could pose a significant competitive challenge
to PlanetRx.com and could prevent these pharmacy benefit managers, HMOs or chain
drugstores from also entering into relationships with us and could limit our
ability to penetrate the prescription drug market.

     We believe the principal factors on which we will compete include:

     .  recognition of the PlanetRx.com brand;

     .  product selection;

     .  personalized services;

     .  convenience and ease of use;

     .  price;

     .  accessibility;

     .  customer service;

     .  quality of interactive tools;

     .  quality of content; and

     .  reliability and speed of fulfillment for products ordered.

                                      16
<PAGE>
     We will have no control over how successful our competitors are in
addressing these factors. In addition, our online competitors can duplicate many
of the products or services and much of the content that we offer, with little
difficulty.


Our gross margins may be affected by downward price pressure on pharmaceutical
drugs

     Third-party payors are increasingly challenging the price and cost-
effectiveness of medical products and services. While we may be successful in
gaining widespread access to insurance reimbursement, the efforts of third-party
payors to contain costs will place downward pressures on gross margins from
sales of prescription drugs. We cannot be certain that our products or services
will be considered cost effective or that adequate third-party reimbursement
will be available to enable us to maintain price levels sufficient to realize
adequate profit margins on prescription drugs. Our failure to realize adequate
profit margins on prescription drugs would harm our business.


We are dependent on strategic relationships with pharmaceutical companies to
provide sponsorship revenue. If litigation or governmental interference affects
the pharmaceutical companies' operations, our relationships may be adversely
affected

    In May 1999, we entered into a strategic alliance with a major
pharmaceutical company. Under the terms of the agreement, this pharmaceutical
company is the exclusive therapeutic disease state management sponsor within our
diabetes.com community. In March 2000, the sponsor voluntarily withdrew one of
their diabetes drugs from the market following a request from the US Food and
Drug Administration. In addition, in June 2000, the sponsor merged with another
pharmaceutical company. The Company is currently working with this sponsor to
determine the impact these events will have on future sponsorship revenues, and
the sponsor may attempt to cancel the agreement at any time. In December 1999,
we entered into an agreement with another major pharmaceutical manufacturer to
develop a unique Web site for allergy sufferers. In March 2000, we entered into
an agreement with another major pharmaceutical manufacturer to develop a unique
Web site for arthritis sufferers. We plan to enter into similar agreements with
other third parties in connection with the expansion of other PlanetRx.com
communities. Payments by these companies to us for services that we provide to
them may be at risk in future periods if these companies become subject to
subsequent events.


We depend on a limited number of suppliers and third-party carriers; if they do
not perform, we will not be able to effectively ship orders

     To generate the significant customer traffic, volume of purchases and
repeat purchases that we believe are crucial to obtaining sufficient revenues,
we must develop and maintain customer trust in the timing and accuracy of our
product deliveries. We purchase a substantial majority of our prescription and
over-the-counter products from one vendor, McKesson. We have a multi-year
agreement with McKesson that requires us to purchase 80% of our prescription
drugs, non-prescription drugs, home healthcare products, sundries and health and
beauty aids from McKesson. However, if McKesson were unwilling or unable to
supply products to us in sufficient quantities and in a timely manner, we may
not be able to secure alternative suppliers on acceptable terms in a timely
manner, or at all. Although our agreement with McKesson has a multi-year term,
it can be terminated by us or by McKesson upon 60 days' notice.

     In addition to McKesson, we use other suppliers, particularly with respect
to our other product categories. These suppliers may not continue to sell
products to us on existing terms and we may not be able to establish new or
extend current fulfillment terms on a timely or acceptable basis or at all.
Negotiating and implementing relationships with additional vendors or
distributors may take substantial time and resources. If we cannot develop and
maintain relationships with vendors that allow us to obtain sufficient
quantities of products on acceptable commercial terms, our business may be
harmed.

                                      17
<PAGE>

     We also rely on third-party carriers for product shipments, including
shipments to and from our distribution facilities. We are therefore subject to
the risks, including employee strikes and inclement weather, associated with our
carriers' ability to provide delivery services to meet our fulfillment and
shipping needs. Failure to deliver products to our customers in a timely and
accurate manner would harm our reputation and our business and results of
operations.


If we fail to provide updated healthcare content and other features that
consumers demand, we will not be able to attract or retain customers, which
would result in slower revenue growth

     If we fail to update and improve our healthcare content and interactive
tools in a timely and efficient manner, we may not be able to attract or retain
customers. We must continue to provide professionally created healthcare
content, interactive tools and other features that consumers demand. This will
require the expenditure of significant funds and demand a material amount of
time of senior management. In addition, we must also anticipate and respond
quickly to consumer preferences and demands regarding healthcare information.


Pharmacy or prescription processing errors could produce liability and
significant negative publicity

     Mistakes relating to the dispensing of prescription drugs could produce
liability and negative publicity that would be adverse to our business.
Pharmacies occasionally make mistakes relating to prescriptions, dosage and
other aspects of the medication dispensing process. We expect that sales of
pharmaceutical products will account for a significant percentage of our
revenues. Because we distribute these products directly to the customer, we are
the most visible participant in the medication distribution chain. While we do
carry product liability insurance, it may be insufficient to cover potential
claims.


If a regulatory body alleges that we have engaged in the practice of medicine,
we may be subject to significant liabilities

     The practice of medicine requires licensing under applicable state law. It
is not our intent to practice medicine and we have structured our websites and
our business to avoid violation of state licensing requirements. However, a
state regulatory authority could at some time allege that some portion of our
business violates these statutes. An allegation that we practice medicine could
result in significant liabilities. Further, any liability based on a
determination that we engaged in the unlawful practice of medicine may be
excluded from coverage under the terms of our general liability insurance
policy.


Information provided by our pharmacists or on our PlanetRx.com website or
satellite websites may result in liability or negative publicity

     In the event that our websites or our pharmacists provide erroneous or
misleading information to our customers, we may be subject to liability or
negative publicity that could have an adverse impact on our business. Our
pharmacists are required by law to offer counseling to our customers about
medication, dosage, delivery systems, common side effects and other information
deemed to be significant by the pharmacists. Our pharmacists may have a duty to
warn customers regarding any potential adverse effects of a prescription drug if
the warning could reduce or negate these effects. This counseling is in part
accomplished through e-mail, our toll-free telephone service and inserts
included with the prescription, which may increase the risk of miscommunication
because the customer is not personally present or may not have provided all
relevant information to the pharmacist. In addition, information we provide
through our Ask the Pharmacist service on our websites may subject us to
liability to the extent that it contains any inaccuracies.

     We also post product and health-related information on our PlanetRx.com
website and related satellite websites. Moreover, because visitors to our
satellite sites post content unedited by us, this content

                                      18
<PAGE>

could give rise to liability for us. This creates the potential for claims to be
made against us for negligence, personal injury, wrongful death, product
liability, malpractice, invasion of privacy or other legal theories based on our
product or service offerings. To the extent that our content is perceived as
promoting one product over another, our reputation could be harmed. Because
online pharmacies are in an early stage of development, the amount of negative
publicity that we or the online pharmacy industry receive could be
disproportionate in relation to the negative publicity received by traditional
pharmacies.

     Although we carry general liability, product liability and professional
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to protect us from all liability that may be imposed. In
addition, we could face severe negative publicity if we are sued on these or
other grounds, which could hurt the PlanetRx.com brand and prevent us from
attracting and retaining customers. We cannot be certain that we will be able to
maintain general liability, product liability and professional liability
insurance in the future on acceptable terms or with adequate coverage against
potential liabilities.


We may be unable to accommodate increased consumer traffic on our website, which
would limit our ability to increase sales

     If we fail to accommodate increased traffic on our website, our business
may be seriously harmed. Our commerce revenues depend on the number of customers
who use our website to purchase products. We depend on the satisfactory
performance, reliability and availability of our websites, transaction
processing systems, network infrastructure, customer support center,
distribution and shipping systems.

     We will be required to add additional software and hardware and further
develop and upgrade our existing technology, transaction-processing systems,
network infrastructure and distribution facilities to accommodate increased
traffic on our websites and increased sales volume. Our inability to scale our
systems may cause unanticipated system disruptions, slower response times,
degradation in levels of customer service or impaired quality and speed of order
fulfillment. We may be unable to effectively upgrade and expand our transaction-
processing systems to accommodate increases in the use of our websites.


We may suffer systems failures on our websites which could result in negative
publicity and reduce the volume of products sold

     From time to time, we have experienced temporary system interruptions in
connection with dramatically increased traffic on our website in response to
promotional activities. Although these interruptions have not significantly
harmed our operations, any system failure that results in the unavailability of
our websites or reduced order fulfillment performance could result in negative
publicity and reduce the volume of products sold, which would negatively affect
our business. The satisfactory performance, reliability and availability of our
websites, transaction processing systems and network infrastructure are critical
to our reputation and our ability to attract and retain customers and to
maintain adequate customer service levels.

     In addition, because we outsource some aspects of our system, the cause of
system interruptions may be outside of our control, and therefore we may not be
able to correct any problem in a timely manner or at all. For example, we rely
substantially on Cybercash to handle many of the elements of our transaction
processing.
                                      19
<PAGE>

If we are unable to attract and train adequate numbers of customer service
personnel, we may not be able to provide sufficient customer service

     Our business depends in part on our ability to maintain superior customer
service. If we are unable to attract and train adequate numbers of customer
service personnel, our efforts to establish our brand may be harmed and our
business results may be impaired. We will need to commit significant additional
financial resources to attract and train customer service personnel in order to
provide our customers with high quality customer service.


We may be unable to expand the breadth and depth of our product offerings in a
cost-effective and timely manner

     It is important to our future success to expand the breadth and depth of
our product offerings. Expansion of our product categories and product offerings
in this manner will require significant additional expenditures and could strain
our management, financial and operational resources. For example, we may need to
incur significant marketing expenses, develop relationships with new suppliers
or manufacturers, or comply with new regulations. We cannot be certain that we
will be able to expand our product categories or offerings in a cost-effective
or timely manner, or that we will be able to offer every product in demand by
our customers. Furthermore, any new product offering that is not favorably
received by consumers could damage our reputation. The lack of market acceptance
of new products or our inability to generate satisfactory revenues from expanded
product offerings to offset their costs could harm our business.

                                      20
<PAGE>

We face the risk of inventory theft and diversion, which could result in
increased operating costs

     Many of our products are valuable, and their small size and packaging
render them particularly susceptible to theft and diversion in the course of
fulfillment and distribution. If the security measures we use at our
distribution center and during the distribution process do not prevent
significant inventory theft and diversion, our gross profit margins and results
of operations may be harmed.


If our online security measures fail, we could incur significant liabilities

     If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information, such as prescription or health
condition information, we could be subject to liability, including lawsuits.
This would be costly, divert the attention of our management and cause
significant harm to our reputation.


We are exposed to risks associated with credit card fraud, which may reduce
collections and discourage online transactions

     If we fail to adequately control fraudulent credit card transactions, our
revenues and results of operations would be harmed because we do not carry
insurance against this risk. Under current credit card practices, we are liable
for fraudulent credit card transactions because we do not obtain a cardholder's
signature.


If one or more of our pharmacy licenses is not renewed, we may not be able to
ship our products into markets into which we currently deliver our products

     We currently hold pharmacy licenses that allow us to ship into all U.S.
states and territories, and these licenses generally must be renewed on an
annual basis. If one or more of these licenses is not renewed, for whatever
reason, our business and reputation would be significantly harmed.


Government regulation of the health care and pharmacy industries may expose us
to risks that we may be fined or exposed to civil or criminal liability, receive
negative publicity or be prevented from shipping products into one or more
states

     Our business is subject to extensive federal, state, and local regulations,
many of which are specific to pharmacies and the sale of over-the-counter drugs.
Many of these regulations are new and subject to varying interpretations, which
makes the task of assuring compliance difficult. Noncompliance with one or more
of these regulations could result in substantial fines and other monetary
penalties, exclusion from participation in some networks, and/or criminal
sanctions which could adversely affect our business.

     We are also subject to laws and regulations regarding homeopathic drugs,
and we may face enforcement actions, lawsuits or claims asserting that we have
not complied with these laws and regulations. As we expand our product and
service offerings, more of our products and services will likely be subject to
regulation by the FDA, which regulates drug advertising and promotion. Complying
with

                                      21
<PAGE>

FDA regulations is time consuming, burdensome and expensive, and could delay our
introduction of new products and services.

     The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are conducting a review of online pharmacies, including the
current laws that govern pharmacy operations, and the potential for abuses by
some online sites, focusing on those that do not require the submission of a
valid prescription issued by the customer's physician.  In addition, in December
1999 the Clinton administration announced a proposal to eliminate illegal sales
of prescription drugs over the Internet by unlicensed Web site operators.  If
approved by Congress, the proposal would, among other things, establish new
federal requirements for Internet pharmacies to ensure that they comply with
state and federal laws, create new civil penalties for the illegal sale
pharmaceuticals, and authorize additional federal enforcement powers.  We
believe that any regulations resulting from these investigations or the Clinton
administration's proposal will likely result in increased reporting and
monitoring requirements, which could be burdensome and increase our expenses.
Other legislation and regulations currently being considered at the federal and
state level could affect our business, including legislation or regulations
relating to confidentiality of patients records, including electronic access and
storage of such records, as well as the inclusion of prescription drugs as a
Medicare benefit.  In addition, various state legislatures are considering new
legislation related to the regulation of nonresident pharmacies.  Compliance
with new laws or regulations could increase our expenses.

     The Health Insurance Portability and Accountability Act of 1996 mandates
the use of standard transactions, standard identifiers, security and other
provisions by the year 2000. Regulations have been proposed to implement these
requirements, and we are designing our applications to comply with the proposed
regulations. However, until these regulations become final, possible changes in
these regulations could cause us to sue additional resources and lead to delays
as we revise our Web site and operations.

     Until recently, Health Care Financing Administration guidelines prohibited
transmission of Medicare eligibility information over the Internet.  We are also
subject to extensive regulation relating to the confidentiality and release of
patient records.  Additional legislation governing the distribution of medical
records exists or has been proposed at both the state and federal level.  It may
be expensive to implement security or other measures designed to comply with any
new legislation.  Moreover, we may be restricted or prevented form delivering
patient records electronically.  This could have an adverse impact on our
ability to gain and retain customers.


Our facilities, systems and operations are vulnerable to natural disasters and
other unexpected problems

     Fire, flood, power loss, telecommunications failure, break-ins,
earthquakes, tornadoes and similar events could damage our communications
hardware and other computer hardware operations, which are located in South San
Francisco, California and our distribution center and pharmacy, which are
located in Memphis, Tennessee. This could cause interruptions or delays in our
business, loss of data or render us unable to accept and fulfill customer
orders. In addition, computer viruses, electronic break-ins or other similar
disruptions could harm our websites. We have no formal disaster recovery plan
and our insurance may not adequately compensate us for losses that may occur due
to failures or interruptions in our systems.


The loss of any of our key personnel, or our failure to attract and retain other
highly qualified personnel in the future, could result in an inability to manage
our growing operations

     The loss of the services of one or more of our key personnel could
seriously disrupt our business. We depend on the continued services and
performance of our senior management and other key personnel, particularly
Michael Beindorff, Chief Executive Officer. Our future success also depends upon
the continued service of our executive officers and on our ability to attract
and retain key sales, marketing and support personnel, as well as pharmacists
and software developers. Competition for these individuals is intense, and we
may not be able to attract, assimilate or retain additional highly qualified
personnel in the future. Except for Mr. Beindorff, none of our officers or key
employees is bound by an employment agreement. Our relationships with these
officers and key employees are at will. We do not have "key person" life
insurance policies covering any of our employees.

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<PAGE>

We may be unable to protect the intellectual property rights upon which our
business relies, which could harm our competitiveness and cause customer
confusion

     We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to protect
our proprietary rights. These legal protections afford only limited protection
for our intellectual property and trade secrets. We have filed applications for
United States trademark registrations for, among others, "PlanetRx.com." We
may be unable to secure this registration. It is also possible that our
competitors or others will adopt service names similar to ours, thereby impeding
our ability to build brand identity and possibly leading to customer confusion.
In addition, there could be potential trade name or trademark infringement
claims brought by owners of other registered trademarks or trademarks that
incorporate variations of the term PlanetRx.com. Any claims or customer
confusion related to our trademark, or our failure to obtain trademark
registration, would negatively affect our business.

     Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which we will sell our products and
services online. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights.

     Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names and to determine
the validity and scope of the proprietary rights of others. If third parties
prepare and file applications in the United States that claim trademarks used or
registered by us, we may oppose those applications and be required to
participate in proceedings before the United States Patent and Trademark Office
to determine priority of rights to the trademark, which could result in
substantial costs to us. Any litigation or adverse priority proceeding could
result in substantial costs and diversion of resources and could seriously harm
our business and operating results. Our means of protecting our proprietary
rights may not be adequate, and our competitors could independently develop
similar technology.


We may not be able to acquire new domain names or maintain our existing ones

     Our strategy is dependent, in part, on our ability to use our satellite
websites and domain names to increase revenues. We believe that operating
satellite websites with names like "diabetes.com" that consumers can easily
locate and that provide useful information will attract consumers to these
websites and, by having links to the PlanetRx.com website, will increase traffic
and revenue opportunities. We currently hold the Internet domain name
"PlanetRx.com," as well as various other related names, including
arthritis.com, diabetes.com and cancer.com. Domain names generally are regulated
by Internet regulatory bodies. The regulation of domain names in the U.S. and in
foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names, which could result in the
creation of domain names similar to ours. As a result, we may be unable to
acquire or maintain the "PlanetRx.com" domain name or our other domain names
in all of the countries in which we conduct business.

     The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our trademarks and other proprietary
rights.

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<PAGE>

We may face costly product liability claims by consumers

     The products we carry, including prescription drugs, non-prescription drugs
and dietary supplements, are particularly susceptible to product liability
claims. Any claim of product liability by a consumer against us, regardless of
merit, could be costly financially and could divert the attention of our
management. It could also create negative publicity, which would harm our
business. Although we maintain product liability insurance, it may not be
sufficient to cover a claim if one is made.


We may be found to infringe proprietary rights of others, which could result in
significant liabilities

     Third parties may claim infringement by us with respect to past, current or
future proprietary rights. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any infringement claim, whether
meritorious or not, could be time-consuming, result in costly litigation or
require us to enter into royalty or licensing agreements. These royalty or
licensing agreements might not be available on terms acceptable to us or at all.


If we engage in any acquisitions, we will incur a variety of costs, and the
anticipated benefits of the acquisition may never be realized

     If appropriate opportunities present themselves, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions and no material acquisition is currently
being pursued. If we do undertake any transaction of this sort, the process of
integrating an acquired business, technology, service or product may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, the anticipated benefits of any acquisition may fail
to be realized. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and/or amortization expenses related to goodwill and other intangible assets,
which could adversely affect our business, results of operations and financial
condition.

     In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect our ability to make acquisitions or
be acquired. For example, elimination of the ''pooling'' method of accounting
for mergers could increase the amount of goodwill that we would be required to
account for if we merge with another company, which would have an adverse
financial impact on our future operating results. Further, accounting rule
changes that reduce the availability of write-offs for in-process research and
development costs in connection with an acquisition could result in the
capitalization and amortization of these costs and negatively impact results of
operations in future periods.


Year 2000 issues could affect our business

     Even though the date is now past January 1, 2000 and we have not
experienced any immediate adverse impact from the transition to the Year 2000,
we cannot provide assurance that our suppliers and customers have not been
affected in a manner that is not yet apparent.

We are controlled by officers, directors and entities affiliated with them

     Based upon shares outstanding as of July 31, 2000, executive officers,
directors and entities affiliated with them will, in the aggregate, beneficially
own approximately 53.1% of our outstanding common stock. These stockholders, if
acting together, would be able to significantly influence all matters requiring

                                      24
<PAGE>

approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions.


Antitakeover provisions applicable to us could preclude an acquisition, even if
an acquisition would be beneficial to our stockholders

     Provisions of our certificate of incorporation, bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders.

We depend on continued use of the Internet and growth of the online drugstore
market

     Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of business
and communication by our target customers. Rapid growth in the use of and
interest in the Internet has occurred only recently. As a result, acceptance and
use may not continue to develop at historical rates, and a sufficiently broad
base of consumers may not adopt, and continue to use, the Internet and other
online services as a medium of commerce.

     In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. Our success will depend, in
large part, upon third parties maintaining the Internet infrastructure to
provide a reliable network backbone with the speed, data capacity, security and
hardware necessary for reliable Internet access and services.

     Further, the online market for drugstore products is in its infancy. The
market is significantly less developed than the online market for books,
auctions, music, software and numerous other consumer products. Even if use of
the Internet and electronic commerce continues to increase, the rate of growth,
if any, of the online drugstore market could be significantly less than the
online market for other products. Our rate of revenue growth could therefore be
significantly less than other online merchants.


If we do not respond to rapid technological changes, our services could become
obsolete and our business would be seriously harmed

     As the Internet and online commerce industry evolve, we must license
leading technologies useful in our business, enhance our existing services,
develop new services and technology that address the increasingly sophisticated
and varied needs of our prospective customers and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis. We may not be able to successfully implement new technologies or
adapt our Web store, proprietary technology and transaction-processing systems
to customer requirements or emerging industry standards. If we are unable to do
so, it could adversely impact our ability to build the PlanetRx.com brand and
attract and retain customers.



               Risks Related to Regulation of Internet Commerce

If we are required to charge taxes on purchases, we may have to increase prices,
which could lead to a loss of sales, or could result in increased net losses

     We do not collect sales or other similar taxes in respect of goods sold by
PlanetRx.com, except from purchasers located in California, Missouri, Minnesota
and Tennessee. However, one or more additional states may seek to impose sales
tax collection obligations on out-of-state companies which engage in or
facilitate online commerce, and a number of proposals have been made at the
state and local level that would impose additional taxes on the sale of goods
and services through the Internet. These proposals, if adopted, could
substantially impair the growth of e-commerce, and could adversely affect our
ability to derive financial benefit from our commercial activities.
Additionally, the imposition of these taxes would force online retailers to
manage a more complex transaction processing system.

                                      25
<PAGE>

Government regulation of the Internet and data transmission over the Internet
could affect our operations

     Our customers regularly provide us with confidential information, such as
personal health information and credit card numbers. Laws and regulations
directly applicable to communications or commerce over the Internet are becoming
more prevalent. A recent session of the United States Congress resulted in
legislation governing children's privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. Laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. In addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.


We may face potential liability for invasion of privacy

     We have a policy against using personally identifiable information obtained
from users of our online personal service infrastructure without the user's
permission. In the past, the Federal Trade Commission has investigated companies
that have used personally identifiable information without permission or in
violation of a stated privacy policy. If we use this information without
permission or in violation of our policy, we may face potential liability for
invasion of privacy for compiling and providing information to our corporate
customers and strategic partners.



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, 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.


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     From time to time the Company is subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks, copyrights and other intellectual property rights.  The Company is
not currently aware of any legal proceedings or claims that the Company believes
will have, individually or in the aggregate, a material adverse effect on the
Company's financial position or results of operations.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

On July 31, 2000, the Company's Chairman of the Board of Directors, William
Razzouk, resigned to pursue other interests.

On August 9, 2000, the Board of Directors appointed Terry Arndt, Senior Vice
President of Marketing for Express Scripts, Inc., to replace Barret Toan as the
Express Scripts, Inc. representative on the Company's Board of Directors.

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Exhibits

     See Exhibit Index.

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter covered by this Form
     10-Q.

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<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              PLANETRX.COM, INC.
                                (Registrant)

                              By:  /s/  Steve Valenzuela
                                  --------------------------------
                                  Steve Valenzuela
                                  Senior Vice President,
                                  Chief Financial Officer
                                  and Secretary


Date: August 14, 2000

                                      28
<PAGE>

                                 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 to
                 date incorporated herein by reference to Exhibit 3.2 to the
                 Company's Registration Statement on Form S-1 (File No. 333-
                 82485).

 3.2*            Bylaws of the Registrant incorporated herein by reference to
                 Exhibit 3.4 to the Company's Registration Statement on Form S-1
                 (File No. 333-82485).

 4.1*            Reference is made to Exhibits 3.1 and 3.2.

 4.2*            Amended and Restated Investors' Rights Agreement.

 4.3*            Specimen Common Stock Certificate.

 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*            Employment Agreement between Registrant and William J. Razzouk,
                 dated November 11, 1998.

10.6*            Form of Warrant for the purchase of Preferred Stock.

10.7*            Real Property Lease between Registrant and Belz Devco LP, dated
                 October 16, 1998.

10.8*            Real Property Sublease between Registrant and Rader Companies,
                 dated May 5, 1999.

10.9*            Real Property Sublease between Registrant and Cellegy
                 Pharmaceuticals, Inc., dated November 6, 1998.

10.10+*          Supply Agreement between Registrant and McKesson U.S. Health
                 Care, dated January 14, 1999.

10.11*           Asset Acquisition Agreement between Registrant and
                 NetHealth.com, Inc.

10.12*           Internet Domain and Trademark Assignment Agreement between
                 Registrant and Epicenter Communications, Inc.

10.13*           Series A Stock Purchase Agreement between Registrant and the
                 Investors named on Schedule thereto, dated September 15, 1998.

10.14*           Series B Stock Purchase Agreement between Registrant and the
                 Investors named on Schedule thereto, dated January 15, 1999.

10.15*           Series C Stock Purchase Agreement between Registrant and the
                 Investors named on Schedule thereto, dated June 3, 1999.

                                      29
<PAGE>

10.16*           Series D Stock Purchase Agreement between Registrant and the
                 Investors named on Schedule thereto, dated September 3, 1999.

10.17+*          Agreement between Registrant and Express Scripts, Inc. dated
                 August 31, 1999.

10.18+           Agreement between Registrant and Express Scripts, Inc. dated
                 June 19, 2000.

10.19            Common Stock Purchase Agreement between Registrant and Alpha
                 Venture Capital, Inc. dated July 25, 2000.

23.2*            Consent of Counsel. Reference is made to Exhibit 5.1 to the
                 Company's Registration Statement on Form S-1 (File No. 333-
                 82485).

24.1*            Power of Attorney.

27.1             Financial Data Schedule for EDGAR filing.

--------
*  Previously filed as an exhibit to the Registration Statement on Form S-1
   (File No. 333-82485) of PlanetRx.com, Inc.

+  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.

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