<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 March 31, 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 April 30, 2000

      Common Stock, $0.001 par value                 51,790,135
<PAGE>

                              PLANETRX.COM, INC.

                               Table of Contents

<TABLE>
<S>       <C>
PART I.   FINANCIAL INFORMATION

Item 1.   Condensed Financial Statements

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

          Condensed Statements of Operations for the Three Months
          Ended March 31, 2000 and 1999 (unaudited)

          Condensed Statements of Cash Flows for the Three Months
          Ended March 31, 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
</TABLE>
<PAGE>

PART I
ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


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


                                              March 31,           December 31,
                                                2000                 1999
                                             -----------          ------------
                                             (unaudited)           (audited)
<S>                                          <C>                  <C>
ASSETS
Current assets:
  Cash and cash equivalents                   $  64,116           $  51,629
  Short-term investments                         12,257              65,119
  Inventories                                     3,561               2,276
  Prepaid expenses and other current assets      25,894              19,594
                                              ---------           ---------
    Total current assets                        105,828             138,618
Property and equipment, net                      17,191              10,884
Intangible assets, net                          177,900             188,115
Other assets                                        915                 898
                                              ---------           ---------
                                              $ 301,834           $ 338,515
                                              =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                            $  13,884           $   7,099
  Accrued expenses                                8,499               8,444
  Deferred revenue                                    8                   8
Borrowings, current                                 956                 418
Capital lease obligations, current                  323                  54
                                              ---------           ---------
   Total current liabilities                     23,670              16,023
Borrowings, long-term                             6,044               6,582
Capital lease obligations, long-term              1,982                 265
                                              ---------           ---------
                                                 31,696              22,870

Commitments and contingencies

Stockholders' equity:
  Preferred Stock: issuable in series,
    $0.0001 par value; 28,000 shares
    authorized; none issued and outstanding           -                   -
  Common Stock: $0.0001 par value; 100,000
    shares authorized; 52,060 and 52,286
    shares issued and outstanding,
    respectively                                      5                   5
  Additional paid-in capital                    446,164             444,405
  Notes receivable from stockholders                (34)                (35)
  Deferred stock-based compensation             (23,085)            (25,454)
  Accumulated deficit                          (152,912)           (103,276)
                                              ---------           ---------
   Total stockholders' equity                   270,138             315,645
                                              ---------           ---------
                                              $ 301,834           $ 338,515
                                              =========           =========
</TABLE>

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

                              PLANETRX.COM, INC.
                      Condensed Statements of Operations
              (unaudited, in thousands except per share amounts)

                                                   Three Months Ended
                                                        March 31,
                                               -------------------------
                                                  2000          1999
                                               -----------    ----------

Net revenue:
    e-commerce                                 $    7,813     $      27
    Sponsorship                                       960            35
                                               ----------     ---------
                                                    8,773            62
Cost of net revenue:
    e-commerce                                      7,245            40
    Sponsorship                                       156            17
                                               ----------     ---------
                                                    7,401            57
                                               ----------     ---------
Gross profit                                        1,372             5
Operating expenses:
    Marketing and sales                            28,704         2,516
    Product development                             6,595         1,411
    General and administrative                      2,327           923
    Amortization of intangible assets              10,215             -
    Stock-based compensation                        4,268         1,208
                                               ----------     ---------
           Total operating expenses                52,109         6,058
                                               ----------     ---------
Operating loss                                    (50,737)       (6,053)
Interest income                                     1,316           178
Interest expense                                     (215)         (553)
                                               ----------     ---------
Net loss                                       $  (49,636)    $  (6,428)
                                               ==========     =========

Basic and diluted net loss per share           $    (1.05)    $   (2.76)
                                               ==========     =========

Basic and diluted pro forma net loss
    per share                                                 $   (0.36)
                                                              =========

Weighted average shares used to
    compute basic and diluted net loss
    per share                                      47,160         2,329
                                               ==========     =========

Weighted average shares used to
    compute pro forma basic and
    diluted net loss per share                                   17,983
                                                              =========

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

                              PLANETRX.COM, INC.
                      Condensed Statements of Cash Flows
                           (unaudited, in thousands)

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                         March 31,
                                                            -------------------------------------
                                                                 2000                  1999
                                                            ---------------        --------------
<S>                                                         <C>                    <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                 $       (49,636)       $      (6,428)
   Adjustments to reconcile net loss to net cash used
   in operating activities:
      Depreciation and amortization                                   1,161                  217
      Stock-based compensation                                        4,268                1,208
      Amortization of intangible assets                              10,215                    -
      Changes in assets and liabilities:
          Inventories                                                (1,285)                (801)
          Prepaid expenses and other current assets                  (6,300)              (2,836)
          Other assets                                                  (17)                 (89)
          Accounts payable                                            6,785                  820
          Accrued expenses                                               55                  143
                                                            ---------------        -------------
              Net cash used in operating activities                 (34,754)              (7,766)

 CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases  of property and equipment                              (7,468)              (1,654)
   Purchases of short-term investments                               (9,096)                   -
   Sales of short-term investments                                   61,958                    -
   Proceeds from repayment of employee note                               1                    -
                                                            ---------------        -------------
              Net cash provided by (used in) investing
                activities                                           45,395               (1,654)

 CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of stock for cash, net                          -               25,957
   Proceeds from exercises of Common Stock
     options, net                                                      (140)                 351
   Proceeds from notes payable and equipment financing                2,000                1,000
   Principal payments on capital lease obligations                      (14)                  (2)
                                                            ---------------        -------------
              Net cash provided by financing
                activities                                            1,846               27,306
                                                            ---------------        -------------

 Increase in cash and cash equivalents                               12,487               17,886
 Cash and cash equivalents at beginning of period                    51,629                  935
                                                            ---------------        -------------
 Cash and cash equivalents at end of period                 $        64,116        $      18,821
                                                            ===============        =============

</TABLE>
  The accompanying notes are an integral part of these financial statements.

<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
presentation 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.

Revenue recognition

     The Company recognizes revenue from product sales, net of allowances for
coupons, discounts and estimated returns, when the product is shipped from the
Company's warehouse to the customer. Outbound shipping and handling charges,
which are charged to the customer, are included in net revenue. The Company
provides an allowance for sales returns, based on historical experience, in the
period revenues are recognized. Payment for product sales is generally made by
credit card. Consequently, accounts receivable balances are insignificant and
have been included in other assets. The Company recognizes sponsorship revenue
ratably over the related service period.

     The Company complies with the provisions of Emerging Issues Task Force No.
99-17, "Accounting for Advertising Barter Transactions". The fair value of the
advertising barter transactions can not be reasonably determined and therefore
the revenue and corresponding advertising expenses have not been recorded.

Recent accounting pronouncements

     In March 2000, the Emerging Issues Task Force issued 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 its 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.

     In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements ("SAB 101").  SAB 101 is effective
for all fiscal quarters beginning after March 31, 2000. SAB 101 establishes four
criteria for revenue recognition that are similar to the criteria in the AICPA's
Statement of Position 97-2, "Software Recognition". The Company will adopt SAB
101 in its quarter ending June 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 June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes accounting
and reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will adopt SFAS 133 in its quarter ending June 30, 2000 and does
<PAGE>

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

not expect such adoption to have an impact on the Company's results of
operations, financial position or cash flows.

Note 2 - Balance Sheet Components (in thousands)

<TABLE>
<CAPTION>
                                                                        March 31,        December 31,
                                                                          2000               1999
                                                                       -----------       -----------
<S>                                                                    <C>               <C>
    Property and Equipment:
           Computer equipment and software                             $    10,638       $   10,585
           Equipment under capital leases                                    2,318              339
           Furniture and fixtures                                            1,231            1,169
           Leasehold improvements                                              515              485
           Construction in progress                                          6,012              668
                                                                       -----------       ----------
                                                                            20,714           13,246
           Less:  Accumulated depreciation and amortization                 (3,523)          (2,362)
                                                                       -----------       ----------
                                                                       $    17,191       $   10,884
                                                                       ===========       ==========
</TABLE>
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 on a weighted average basis is
anti-dilutive.

         Pro forma net loss per share is computed using the weighted average
number of common shares outstanding and the assumed conversion of the Company's
Series A, B, C, and D Preferred Stock into shares of the Company's common stock
at the date of original issuance.

         The following table sets forth the computation of basic and diluted net
loss per share and pro forma basic and diluted net loss per share for the
periods indicated (in thousands, except per share amounts):

<PAGE>

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

<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                         March 31,
                                                ----------------------------
                                                   2000              1999
                                                ----------        ----------
<S>                                             <C>               <C>
Numerator:
     Net loss                                   $  (49,636)       $   (6,428)
                                                ==========        ==========
Denominator:
     Weighted average common shares                 52,249             5,282
     Weighted average unvested common shares
      subject to repurchase                         (5,089)           (2,953)
                                                ----------        ----------
     Denominator for basic and diluted
      calculation                                   47,160             2,329
                                                ==========        ==========
     Weighted average effect of pro forma
     conversion of preferred stock:
       Series A Preferred Stock                          -            11,059
       Series B Preferred Stock                          -             4,595
       Series C Preferred Stock                          -                 -
       Series D Preferred Stock                          -                 -
                                                ----------        ----------
       Denominator for pro forma basic and
       diluted calculation                          47,160            17,983
                                                 =========        ==========
Net loss per share:
       Basic and diluted                         $   (1.05)       $   (2.76)
                                                 =========        ==========
       Pro forma basic and diluted               $   (1.05)       $   (0.36)
                                                 =========        ==========
</TABLE>

Note 4--Borrowings

     In January 1999, the Company entered into a $2.0 million capital lease
credit facility with a financing institution. Interest accrues from the date of
each draw down at a rate of 8.25% per annum. The arrangement allows for
principal and accrued interest to be paid out in 42 equal monthly installments
from the date of each drawn down. The company drew down the entire facility
during the first quarter of 2000, and approximately $2.0 million remained
outstanding as of March 31, 2000.

Note 5--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. The Company is working with this sponsor to determine the impact
this action will have on future sponsorship revenues, if any.

Note 6--Subsequent Events

     In April 2000, the Company granted non-qualified stock options to employees
to purchase 2.9 million shares of Common Stock at an exercise price of $2.55 per
share, 15% below fair market value at the time of grant.  In connection with the
stock option grants, the Company recorded unearned compensation of approximately
$1.3 million.

     In May 2000, the Company adopted a bonus program for certain employees. The
program may pay out a maximum of $5.96 million in 2001 for the achievement of
milestones in 2000 and 2001.
<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 April 2000, Michael Beindorff was appointed Chief Executive Officer of
PlanetRx.com.  William J. Razzouk will continue as chairman of PlanetRx.com, and
will help oversee the growth of our distribution center and pharmacy operations,
and facilitate strategic partnerships for the company.

     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 May 2000 the sponsor's shareholders approved a
merger with another pharmaceutical company. We are working with this sponsor to
determine the impact these events will have on future sponsorship revenues, if
any.

Results of Operations

     Because we launched our website on March 18, 1999 and have a short
operating history, we believe that period-to-period comparisons prior to the
second quarter of 1999 are less meaningful than an analysis of recent quarterly
operating results. Accordingly, we are providing a discussion and analysis of
our results of operations that compares the quarter ended March 31, 2000 to the
quarter ended December 31, 1999.

     The following table sets forth unaudited quarterly statement of operations
data for the five quarters ended March 31, 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 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.

<PAGE>

                              PlanetRx.com, Inc.
                   Unaudited Quarterly Results Of Operations
                                (in thousands)
<TABLE>
<CAPTION>
                                                                                  Quarter Ended
                                               -------------------------------------------------------------------------------
                                               March 31,        December 31,       September 30,     June 30,      March 31,
                                                  2000              1999               1999            1999           1999
                                               -------------------------------------------------------------------------------
<S>                                            <C>              <C>                <C>               <C>           <C>
Net revenue:
      e-commerce                                $  7,813          $  4,564           $   2,670         $  595         $    27
      Sponsorship                                    960               537                 411            160              35
                                                ------------------------------------------------------------------------------
                                                   8,773             5,101               3,081            755              62
Cost of net revenue:
      e-commerce                                   7,245             4,260               2,535            654              40
      Sponsorship                                    156                 -                  65             18              17
                                                ------------------------------------------------------------------------------
                                                   7,401             4,260               2,600            672              57
                                                ------------------------------------------------------------------------------
Gross profit                                       1,372               841                 481             83               5
Operating expenses:
      Marketing and sales                         28,704            28,330              17,240          7,021           2,516
      Product development                          6,595             5,686               4,006          1,843           1,411
      General and administrative                   2,327             1,874               2,208          1,443             923
      Amortization of intangible assets           10,215             8,926                 547             77               -
      Stock-based compensation                     4,268             8,192               3,301          3,100           1,208
                                                -----------------------------------------------------------------------------
             Total operating expenses             52,109            53,008              27,302         13,484           6,058
                                                ------------------------------------------------------------------------------
Operating loss                                   (50,737)          (52,167)            (26,821)       (13,401)         (6,053)
Interest income (expense), net                     1,101               963                 112           (272)           (375)
                                                ------------------------------------------------------------------------------
Net loss                                        $(49,636)        $ (51,204)          $ (26,709)     $ (13,673)      $  (6,428)
                                                ==============================================================================
</TABLE>

Net Revenue

     Net revenue for the three months ended March 31, 2000 was approximately
$8.8 million, a 72% increase over revenues of $5.1 million in the fourth quarter
of 1999.  E-commerce revenues increased to $7.8 million for the quarter, a 71%
increase from the $4.6 million in the fourth quarter of 1999.  Sponsorship
revenues increased by 79%, reaching $960,000 in the first quarter of 2000 as
compared to $537,000 in the fourth quarter of 1999.

     We recognize revenue from product sales, net of allowances for coupons,
discounts and estimated returns, when the product is shipped from our warehouse
to the customer. Outbound shipping and handling charges, which are charged to
the customer, are included in net revenue. We provide an allowance for sales
returns, based on historical experience, in the period revenues are recognized.
Payment for product sales is generally made by credit card. Consequently,
accounts receivable balances are insignificant and have been included in other
assets. We recognize sponsorship revenue ratably over the related service
period.

     We comply with the provisions of Emerging Issues Task Force No. 99-17,
"Accounting for Advertising Barter Transactions".  The fair value of the
advertising barter transactions cannot be reasonably determined and therefore
the revenue and corresponding advertising expenses have not been recorded.

Cost of Net Revenue

     Our cost of net revenue for the three months ended March 31, 2000 was
approximately $7.4 million. For the three months ended December 31, 1999 our
cost of net revenue was approximately $4.3 million. Our gross margin for both
the three months ended March 31, 2000 and the three months ended December 31,
1999 was approximately 16%. Gross margins on e-commerce remained constant at
approximately 7% for the first quarter of 2000 and the fourth quarter 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 declined
to 84% in the first quarter of 2000 from 100% achieved in the fourth quarter of
1999, primarily due to third-party fees.

<PAGE>

Operating Expenses

     Marketing and Sales. Marketing and sales expenses increased to
approximately $28.7 million during the three months ended March 31, 2000 from
approximately $28.3 million in the fourth quarter of 1999. This increase is due
primarily to costs relating to marketing and promotional campaigns.

     Product Development. Product development expenses increased to
approximately $6.6 million during the three months ended March 31, 2000 from
approximately $5.7 million during the three months ended December 31, 1999. This
increase is related to the maintenance of our websites and system development
and related increased headcount.

     General and Administrative. General and administrative expenses increased
to approximately $2.3 million during the three months ended March 31, 2000 from
$1.9 million during the three months ended December 31, 1999. This increase is
primarily related to increases in head count and an increase in professional
service fees.

     Amortization of Intangible Assets. Amortization of intangible assets
increased to $10.2 million in first quarter of 2000 from $8.9 million in the
fourth quarter of 1999. The amortization recorded is attributable to the
amortization of intellectual property related to domain names acquired in 1998
and 1999 and intangible assets resulting from the purchase of selected assets
and liabilities of YourPharmacy.com 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 $2.5 million for the three months ended March 31,
2000, primarily in connection with stock options granted during the period. Our
stock-based compensation expense totaled approximately $4.3 million for the
three months ended March 31, 2000, as compared to $8.2 million in the prior
quarter, of which $3.2 million related common stock issued for a charitable
contribution. The remaining deferred stock compensation balance of approximately
$23.1 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. As of March 31, 2000 the balance outstanding under interest bearing
liabilities was approximately $9.3 million compared to $7.3 million as of
December 31, 1999.

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 March 31, 2000, we had cash and
cash equivalents and investments in marketable debt securities totaling $76.4
million compared to $116.7 million at December 31, 1999.
<PAGE>

     Net cash used in operating activities was approximately $34.8 million
during the three months ended March 31, 2000, primarily a result of quarterly
net losses as well as increases in prepaid expenses, accounts receivable and
inventories, partially offset by increases in accounts payable and non-cash
charges for depreciation and amortization.

     Net cash provided by investing activities was approximately $45.4 million
during the three months ended March 31, 2000, primarily consisting of the
acquisition of equipment and systems, including computer equipment and fixtures
and furniture.

     Net cash provided by financing activities was approximately $1.8 million
during the three months ended March 31, 2000, primarily consisted of net
proceeds from equipment financing.

     As of March 31, 2000, our principal commitments consisted of obligations
outstanding under operating leases, a note payable, and marketing agreements
with certain web portals aggregating approximately $96.2 million through 2005.

     We may need to raise additional funds to meet operating requirements in
the future. 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 March 2000, the Emerging Issues Task Force issued 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 our 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.

     In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements ("SAB 101").  SAB 101 is effective
for all fiscal quarters beginning after March 31, 2000. SAB 101 establishes four
criteria for revenue recognition that are similar to the criteria in the AICPA's
Statement of Position 97-2, "Software Recognition". We will adopt SAB 101 in our
quarter ending June 30, 2000 and do not expect such adoption to have a
significant impact on our results of operations, financial position or cash
flows.

     In June 1998 and 1999, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" and SFAS No. 137, "Accounting for
Derivatives and Hedging Activities--Deferral of the Effective Date of SFAS No.
133" ("SFAS 133"), respectively. SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes accounting
and reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. We will
adopt SFAS 133 in our quarter ending June 30, 2000 and do not expect such
adoption to have an impact on our results of operations, financial position or
cash flows.


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

Our limited operating history makes forecasting future results difficult

     We were incorporated on March 31, 1995 and only 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
<PAGE>

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 $49.6 million for the three
months ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit
of $152.9 million. We anticipate that our losses will increase significantly
from current levels because we expect to incur additional costs and expenses
related to:

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

   .  the expansion of our inventory management and distribution operations at
      our facilities in Memphis, Tennessee or in new facilities established
      elsewhere;

   .  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;

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

   .  increases in our general and administrative functions to support our
      growing operations; 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;
<PAGE>

   .  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 establish the PlanetRx.com brand or attract repeat customers, we
may not be able to increase our revenues

   We believe that we must continue to strengthen the PlanetRx.com brand,
particularly because of the early stage and competitive nature of the online
market for our products. If we fail to establish our brand quickly, we will be
at a competitive disadvantage and may lose the opportunity to build a critical
mass of customers. The development of our brand will depend largely on the
success of our marketing efforts and our ability to provide consistent, high
quality customer experiences. We cannot be certain that our brand promotion
activities will be successful, or will result in increased revenues. If we
achieve increased revenues, there can be no assurance that these revenues will
be sufficient to offset the expenditures incurred in building our brand.

   In addition, 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.


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;
<PAGE>

   .  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.


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. is complex and requires significant
cash payments for which we may receive no benefit

   In October 1999, we completed a series of agreements with Express Scripts,
Inc. and its wholly owned subsidiary, YourPharmacy.com. These agreements involve
many aspects of our business, including the sale of equity securities, the
operation of our respective websites, significant cash payments to Express
Scripts, and the inclusion of us as an authorized pharmacy in the Express
Scripts network. These arrangements are complex and will require significant
efforts to operate successfully. As a result, there are many risks related to
these arrangements, including some that we may not have foreseen.

   In particular, we have committed to pay Express Scripts a minimum of $14.7
million annually for five years, with a potential five-year extension, plus an
incremental fee based on Express Scripts members' activity on our website.
Express Scripts has committed to actively promote us as Express Scripts' online
pharmacy; however, we do not control the choice of ads and the advertising may
not result in additional customers. If we are not successful in converting a
significant number of Express Scripts members into customers, we may not receive
any benefit from our cash payments to Express Scripts and our revenues will be
harmed.
<PAGE>

   Additionally, while our relationship with Express Scripts significantly
broadens our ability to provide prescription medication to consumers with
insurance reimbursement plans, it may 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 develop their own Internet capabilities that may
compete with us. In addition, many insurance companies have existing contracts
with chain drugstores and pharmacy benefit managers that have announced their
intentions to establish online pharmacies.

   In addition, it is likely that some insurance companies and pharmacy benefit
managers will 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.


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.
<PAGE>

   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 a relationship that gives them access to a major pharmacy
benefit manager. 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.

   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.
<PAGE>

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 December 1999, we entered into an agreement with another major
pharmaceutical manufacturer to develop a unique Web site for allergy 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 external interference.


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.

   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 dispensation of prescription drugs could produce
liability and negative publicity that would be adverse to our business.
Pharmacies occasionally make mistakes relating to
<PAGE>

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 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.
<PAGE>

   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.


Our growth and changing operations have placed a significant burden on our
management system and resources, and any inability to manage this growth could
result in higher operating costs and lower gross margins

   We have expanded our operations rapidly since our inception and the launch of
our PlanetRx.com website in March 1999. The number of our employees increased
from 33 on December 31, 1998 to 445 on March 31, 2000. Additionally, many of our
senior management have joined us within the last twelve months. We intend to
hire additional personnel in order to pursue existing and potential market
opportunities. Our growth has placed, and our anticipated future operations will
continue to place, a significant strain on our management systems and resources,
which could result in slower revenue growth, increased operating costs and lower
gross margins. Our ability to successfully offer products and services and
implement our business strategy in a rapidly evolving market requires an
effective planning and management process. We also expect that we will need to
continue to improve our transaction-processing, operational, financial and
managerial controls and reporting systems and procedures as we grow.

   Many of our senior management have no prior management experience at public
companies, and many of our executive officers have no prior management
experience in the healthcare industry. We cannot be certain that our current and
planned personnel, systems, procedures and controls will be adequate to support
our future operations, that management will be able to hire, train, retain,
motivate and manage required personnel or that our management will be able to
successfully identify, manage and exploit existing and potential market
opportunities.


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
<PAGE>

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. For example, we recently introduced the sale of branded
cosmetics and salon hair care products on our PlanetRx.com website. 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.


If we do not successfully expand our distribution operations, we may not be able
to meet customer demand, which would result in loss of customers and revenues

   If we do not successfully expand our distribution operations on an ongoing
basis to accommodate increases in demand, we will not be able to fulfill our
customers' orders in a timely manner, which would harm our business. All of our
distribution operations are handled at our facilities in Memphis, Tennessee. Any
future expansion may cause disruptions in our business and may be insufficient
to meet our ongoing distribution requirements.


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 may need
to raise additional funds to meet our operating requirements in the future.
However,we cannot be sure that additional financing would be available to us on
favorable terms or at all.

   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.


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
<PAGE>

   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 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.
<PAGE>
   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 William J. Razzouk,
Chairman of the Board, and 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. Many of our senior
management joined us within the last twelve months, including Michael Beindorff
and Steve Valenzuela, our Chief Financial Officer. Our future success depends on
the ability of these officers to effectively work together with our original
management team. Except for Mr. Razzouk, 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.


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
<PAGE>
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.


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.
<PAGE>

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. In addition, certain computer programs that
were date sensitive to the Year 2000 may not process the Year 2000 as a leap
year and any negative consequential effects may remain unknown.


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

   Based upon shares outstanding as of April 30, 2000, executive officers,
directors and entities affiliated with them will, in the aggregate, beneficially
own approximately 53.7% of our outstanding common stock. These stockholders, if
acting together, would be able to significantly influence all matters requiring
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
<PAGE>
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 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.


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.
<PAGE>

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.

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

None.

ITEM 5. OTHER INFORMATION

None.

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

(a)  Exhibits

     See Exhibit Index.
<PAGE>

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter covered by this Form
     10-Q.
<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: May 15, 2000
<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.

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.
<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.

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.

** Corrected version of previously filed document.

+  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.