1 Dr. KOOP Professor Joshua Livnat, Ph.D., CPA 311 Tisch Hall New York University 40 W. 4th St. NY NY Tel. (212) Fax (212) Web page:

2 Overview Dr. KOOP Site Classification and business model Facts from public sources Purchased traffic Revenue sources Expenses Recent developments

3 Dr. Koop (KOOP) Business to consumers Entertainment/Content site –Some E-Commerce potential Revenue sources –Advertising - short-term arrangements –Advertising - health-care products and services –Partnerships - referral services - recurring revenues –Content sale and licensing –Others (clinical trials, etc.)

4 Business Model Provide free content in the health-care area. Attract enough users. Earn advertising and referral fees from: –Drug firms –Health-care providers –Identification of patients for clinical trials/particular drugs. Sell content to others

5 Advantages Health is a primary concern of individuals. A large number of potential users. A growing market Public demands to know more about health- related issues. Strong competition among drug companies and health-care providers.

6 Disadvantages How to attract visitors to the site. Large marketing costs. How to attract advertisers. How to attract affiliates - long term partners. Updating contents. Deterring competitors.

7 Dr. Koop - Material Facts Site effective July IPO in June 1999, raised $88.5 million. Over 1.3 million registered members at the end of March Monthly traffic during Q2 of 2000 was around 1.85 million unique visitors. Entered agreements with Infoseek and AOL to supply content and to purchase traffic.

8 Traffic Data (Media Metrix) Infoseek AOL Infoseek

9 Price of Traffic Promised Infoseek and Buena Vista $57.9 million in cash and 775,000 warrants ($8.60 exercise price) over three years million shares outstanding on 12/31/99. Recognized expenses of $7.2 million in 1999, and $2.7 million in Q1/00. In Q2/00 terminated the agreement as of July Obligated to pay $5.3 million in cash, and additional 820,000 warrants ($1.25 exercise price).

10 Price of Traffic The AOL four-year agreement required Dr. Koop to pay AOL net cash of $81 million, 1.5 million warrants ($15.94 exercise price), and 4.3million more warrants based on performance. Koop paid net of $12.25 million until the end of Q1/00, and recognized expenses of $12.25 million in 1999 and $6 million in Q1/00. In Q2/00, Koop issues 3.5 million shares to AOL in lieu of further cash payments and warrants.

11 Revenues

12 Income Statement Data

13 Income Statement Ratios

14 Liquidity

15 Cash Burn Rate Net Operating Cash Outflow in Q2/00 was $(34.1) million. Capital expenditures $1.8 million in Q2/00. Will run out of cash within 0.7 month, if it can postpone suppliers and employees, earlier if not. Can it borrow money? See PPE on 10-K.

16 Revenue Analysis Total revenue in Q2/00 $2.5 million. Content subscription and software license $.85 million (33%). Advertising and sponsorship revenues $1.7 million (66%). E-commerce $.01 million (1%). 33 Partners on 6/30/00, compared to 32 on 3/31/00 and 33 on 12/31/99.

17 Expense Analysis High content expenses Extremely high marketing expenses. Attempted to purchase traffic in a hurry. High G&A expenses as compared to its revenues. High PP&E and investments in other firms.

18 Restructured Agreements Traffic agreements restructured. May affect future traffic and future revenues. Terminated agreement with HealthMagic, writing off an investment of $5 million. Fired 35% of its labor force. Retained Bear Sterns to advise on its future options. Can it survive?

19 New Investors Private placement on 08/22/00 from group of VC’s led by ComVest Venture Partners. Total investment can reach $27.5 million. A new management team was appointed.

20 Qualified audit opinion New Financing