<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 September 30, 1999

                                      OR

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

                       Commission file number 000-26275

                               drkoop.com, Inc.
            (Exact name of registrant as specified in its charter)


                Delaware                             95-4697615
     (State or other jurisdiction of             (I.R.S. Employer
     incorporation or organization)           Identification Number)

                          7000 North Mopac, Suite 400
                              Austin, Texas 78731
                   (Address of principal executive offices)
                               ________________


      (512) 583-5667 (Registrant's telephone number, including area code)
                               ________________

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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

     (1)  Yes   X                            No
              -----                             -----
     (2)  Yes   X                            No
              -----                             -----

     As of October 31, 1999 there were 30,304,317 shares of the Registrant's
common stock outstanding.

================================================================================
<PAGE>

                               drkoop.com, Inc.
                                   FORM 10-Q
                   For the Quarter Ended September 30, 1999
                                     INDEX

PART I.       FINANCIAL INFORMATION                                         PAGE
                                                                            ----
Item 1.  Financial Statements

Condensed Balance Sheets at September 30, 1999 (Unaudited) and
          December 31, 1998....................................................3

Condensed Statements of Operations for the three and nine month
          periods ended September 30, 1999 and 1998 (Unaudited)................4

Condensed Statements of Cash Flows for the nine months ended
          September 30, 1999 and 1998 (Unaudited)..............................5

Notes to Condensed Financial Statements (Unaudited)............................6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations.................................11

 Item 3.  Quantitative and Qualitative Disclosures about Market
          Risk................................................................18

PART II.      OTHER INFORMATION

Item 1.   Legal Proceedings...................................................31
Item 2.   Changes in Securities and Use of Proceeds...........................31
Item 3.   Defaults Upon Senior Securities.....................................32
Item 4.   Submission of Matters to a Vote of Security Holders.................32
Item 5.   Other Information...................................................32
Item 6.   Exhibits and Reports on Form 8-K....................................32
SIGNATURES....................................................................33

                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                               drkoop.com, Inc.
                           Condensed Balance Sheets
                     (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                      September 30,        December 31,
 Assets                                                                                    1999                1998
                                                                                      -------------       ------------
 Current assets:                                                                       (Unaudited)
<S>                                                                                   <C>                 <C>
        Cash and cash equivalents                                                       $  49,077           $    --
        Trade accounts receivable, net                                                      2,718                  41
        Prepaids and other                                                                 23,214                  22
                                                                                        ---------           ---------
                 Total current assets                                                      75,009                  63
                                                                                        ---------           ---------

        Equipment, furniture and fixtures, net                                              6,121                 306
        Investment in affiliate, at cost                                                    5,000                --
        Intangible assets, net                                                              3,111                --
        Other assets                                                                        7,252                  11
                                                                                        =========           =========
                 Total assets                                                           $  96,493           $     380
                                                                                        =========           =========

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
        Trade accounts payable                                                          $   4,432           $     804
        Accrued liabilities                                                                 5,591                 520
        Related party payables                                                                202               1,193
        Deferred revenue                                                                    5,562                --
        Convertible note payable to stockholder, net of discount of $49
            at December 31, 1998                                                             --                   451
                                                                                        ---------           ---------
                 Total current liabilities                                                 15,787               2,968
                                                                                        ---------           ---------

         Mandatorily redeemable convertible (Series B) preferred stock;
            liquidation preference of $2,998 at December 31, 1998                            --                18,406

Stockholders' equity (deficit):
        Preferred stock, par value $.001; 15,000,000 shares authorized Series A
             750,000 shares designated; -0- and 619,102 shares
                 issued and outstanding at September 30, 1999
                 and December 31, 1998                                                       --                     1
        Common stock, par value of $.001; 75,000,000 shares authorized
            at September 30, 1999 and 15,000,000 shares authorized at                          30                   8
            December 31, 1998; 30,304,317 and 8,550,360 shares issued
            and outstanding at September 30, 1999 and December 31, 1998
        Additional paid-in capital                                                        140,843                --
        Deferred stock compensation                                                        (3,020)             (1,425)
        Accumulated deficit                                                               (57,147)            (19,578)
                                                                                        ---------           ---------
                 Total stockholders' equity (deficit)                                      80,706             (20,994)
                                                                                        ---------           ---------
                 Total liabilities and stockholders' equity (deficit)                   $  96,493           $     380
                                                                                        =========           =========
</TABLE>

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

                                       3
<PAGE>

                               drkoop.com, Inc.
                      Condensed Statements of Operations
                     (in thousands, except per share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                        Three Months Ended September 30,        Nine Months Ended September 30,
                                                        --------------------------------        -------------------------------
                                                            1999                1998                 1999              1998
                                                        ------------        ------------        ------------      -------------
<S>                                                     <C>                 <C>                 <C>               <C>
   Revenue:
     Content subscription and software license            $    459            $   --             $     913            $   --
     Advertising and sponsorship                             2,402                --                 3,364                --
     Other                                                      49                --                    56                --
                                                        --------------------------------        -------------------------------
                                                             2,910                --                 4,333                --
                                                        --------------------------------        -------------------------------
Operating expenses:
     Production, content and product development             2,390               1,847               5,535               2,802
     Sales and marketing                                    18,585                 649              28,643                 996
     General and administrative                              2,246                 867               5,091               1,687
     Amortization of deferred stock compensation               839                --                 1,912                --
                                                        --------------------------------        -------------------------------
          Total operating expenses                          24,060               3,363              41,181               5,485
                                                        --------------------------------        -------------------------------
Loss from operations                                       (21,150)             (3,363)            (36,848)             (5,485)

Interest income                                                550                  13                 587                  25
                                                        --------------------------------        -------------------------------
     Net loss                                              (20,600)             (3,350)            (36,261)             (5,460)

Accretion of redeemable securitites to fair value             --                  --               (17,255)               --

Dividend to preferred stockholders                            --                  --                (9,147)               --
                                                        --------------------------------        -------------------------------
Loss attributable to common stockholders                  $(20,600)           $ (3,350)         $  (62,663)           $ (5,460)
                                                        ================================        ===============================
Basic and diluted net loss per share attributable
     to common stockholders                               $  (0.68)           $  (0.39)          $   (3.56)           $  (0.68)
                                                        ================================        ===============================
Weighted average shares used in computing basic
     and diluted net loss per share attributable to
     common stockholders                                    30,137               8,550              17,581               8,049
                                                        ================================        ===============================
</TABLE>

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

                                       4
<PAGE>

                               drkoop.com, Inc.
                      Condensed Statements of Cash Flows
                                (in thousands)
                                 (unaudited)

<TABLE>
<CAPTION>

                                                                Nine Months Ended September 30,
                                                                -------------------------------
 OPERATING ACTIVITIES:                                             1999                 1998
                                                                ----------           ----------
<S>                                                            <C>                  <C>
  Net loss                                                      $  (36,261)          $   (5,460)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
       Depreciation and amortization                                 2,357                   34
       Amortization of deferred stock compensation                   1,912                   --
       Provision for doubtful accounts                                 100                   --
       Interest accretion on convertible notes payable                  94                   --

  Changes in assets and liabilities:
       Accounts receivable                                          (2,778)                  --
       Prepaids and other assets                                   (21,180)                (181)
       Accounts payable                                              3,628                  418
       Accrued liabilities                                           5,071                  381
       Related party payables                                         (991)                 (80)
       Deferred revenue                                              5,562                   --
                                                                ----------           ----------
          Cash used in operating activities                        (42,486)              (4,888)
                                                                ==========           ==========
Investing Activities:
  Purchase of furniture, fixtures and equipment                     (6,483)                (229)
                                                                ----------           ----------
          Cash used in investing activities                         (6,483)                (229)
                                                                ----------           ----------
Financing Activities:
  Proceeds from issuance of preferred stock                          3,500                5,454
  Proceeds from issuance of convertible notes payable                5,775                   --
  Proceeds from exercise of stock options                              323                   --
  Proceeds from issuance of common stock, net                       88,448                   --
                                                                ----------           ----------
          Cash provided by financing activities                     98,046                5,454
                                                                ----------           ----------
  Increase / (decrease) in cash and cash equivalents                49,077                  337

  Cash and cash equivalents at beginning of period                      --                    8
                                                                ----------           ----------
  Cash and cash equivalents at end of period                    $   49,077           $      345
                                                                ==========           ==========
</TABLE>

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

                                       5
<PAGE>

                               drkoop.com, Inc.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1999


NOTE 1 - ORGANIZATION

drkoop.com, Inc. (the "Company"), a Delaware corporation, operates an Internet-
based consumer healthcare network, consisting of an interactive Web site
providing consumers with healthcare information and services, as well as
affiliate relationships with portals, other Web sites, local healthcare
organizations and traditional media outlets.

Effective June 11, 1999 the Company completed an initial public offering of
10,781,250 shares, including the underwriter's over allotment, at $9 per share.
Offering proceeds, net of aggregate expenses to the Company (including
underwriters' discount) totaled approximately $88.4 million.  Upon closing of
the initial public offering, each outstanding share of the Company's convertible
Series A and C preferred stock and mandatorily redeemable convertible (Series B)
preferred stock were automatically converted into shares of common stock.  The
conversion resulted in the issuance of 8,594,835 shares of common stock,
including the issuance of 1,345,185 shares of common stock to satisfy in full a
purchase option and related anti-dilution adjustment rights.  An additional
916,908 shares of common stock was issued upon conversion of certain convertible
notes payable.

NOTE 2 - BASIS OF PRESENTATION

The condensed financial statements included herein are unaudited and reflect all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to fairly state the Company's financial
position, results of operations and cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's financial
statements and notes thereto for the year ended December 31, 1998, which are
contained in the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (File No. 333-73459). The results of
operations for the three month periods ended September 30, 1999 and 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year.

NOTE 3 - NET LOSS PER SHARE

Diluted net loss per share has not been presented as the effect of the assumed
exercise of stock options and warrants for common stock shares is antidilutive
due to the Company's net loss.

The following pro forma calculation of net loss per share for the three and nine
months ended September 30, 1999 and 1998, respectively, assumes the conversion
of all outstanding convertible notes payable, preferred stock and mandatorily
redeemable convertible preferred stock into common stock upon the Company's
initial public offering using the if-converted method from their respective
dates of issuance.  This presentation is deemed necessary as the Company's
historical capital structure is not indicative of the current capital structure
due to the automatic conversion of all shares of convertible notes payable,
preferred stock and mandatorily redeemable convertible preferred stock into
common stock concurrent with the closing of the Company's recent initial public
offering.

                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                   Three months ended September 30,      Nine months ended September 30,
                                                  ----------------------------------     -------------------------------
    (in thousands, except per share data)               1999                1998              1999              1998
                                                  ---------------     --------------     -------------     -------------

<S>                                             <C>                   <C>              <C>                 <C>
Net Loss                                        $        (20,600)     $      (3,350)   $      (62,663)     $     (5,460)
                                                  ==============      =============      ============      ============

Basic and diluted:
  Shares used in computing basic and diluted
     net loss                                             30,137              8,550            17,581             8,049
                                                  ==============      =============      ============      ============

  Basic and diluted net loss per share          $          (0.68)     $       (0.39)   $        (3.56)     $      (0.68)
                                                  ==============      =============      ============      ============

Pro forma:
  Shares used above                                       30,137              8,550            17,581             8,049

Pro forma adjustment to reflect weighted
 effect of assumed conversion of convertible
 notes payable and preferred stock                            10              5,845             5,557             2,748
                                                  --------------      -------------      ------------      ------------

Shares used in computing pro forma basic and
 diluted  net loss per share                              30,147             14,395            23,138            10,797
                                                  ==============      =============      ============      ============

Pro forma basic and diluted net loss per        $          (0.68)   $         (0.23)   $        (2.71)   $        (0.51)
 share
                                                  ==============      =============      ============      ============
</TABLE>


NOTE 4 -  COMMITMENTS & CONTINGENCIES

Portal Agreements

Infoseek and Buena Vista
On April 9, 1999, the Company entered into agreements with Infoseek Corporation
and the Buena Vista Internet Group, a unit of The Walt Disney Company, under
which the Company will be the exclusive provider of health and related content
on three Web sites of the Go Network: Go.com Health Center on Infoseek, ESPN.com
Training Room and the Family.com Health Channel. Under the Infoseek agreement,
the Company will be also the premier health content provider for ABCnews.com.

In addition, the Company will be the exclusive pharmacy and drugstore, health
insurance and clinical trials partner in the Go.com Health Center. Under these
agreements, users on the Go Network will be able to access various health
information, services, interactive tools and commerce opportunities through a
co-branded Web site served by the Company.

In the event the Company elects not to provide specific content, content may be
obtained from a third party.

The term of both agreements is for three years, except that each of the parties
may elect to terminate the relationship after two years. The Company will pay
Infoseek and the Buena Vista Internet Group $57.9 million in total consideration
consisting of cash and warrants to purchase 775,000 shares of common stock at an
exercise price of $8.60 per share over the full three year

                                       7
<PAGE>

term. The cash portion of this obligation is payable as approximately $16.2
million in the first year of the agreements, $18.2 million in the second year of
the agreements and $21.3 million in the third year. None of the warrants are
exercisable prior to one year after issuance.

The warrants have been recorded at a fair value of $2.89 per share which was
calculated at the time of issuance using the Black-Scholes option-pricing model
with the following weighted average assumptions: zero dividend yield; 0.5
volatility; risk-free interest rate of 5.0% and an expected life of 3 years.
The Company will recognize the costs associated with the agreements ratably over
the term of the agreements.

America Online.
Effective July 1, 1999, the Company and America Online, Inc. ("AOL") signed a
four-year Interactive Services Agreement  (the "Agreement") pursuant to which
the Company was designated as AOL's premier provider of healthcare content.  The
Agreement obligates the Company to make carriage payments aggregating $89.0
million in cash.  In addition, the Company provided AOL immediately vested
warrants (the "time warrants") to purchase drkoop.com, Inc. common stock and the
right to earn additional warrants based on performance (the "performance
warrants").

The immediately vested time warrants allow AOL to purchase 1,570,932 shares of
the Company's common stock for a purchase price of $15.94 per share (the opening
price on July 1, 1999). The immediately vested warrants may be exercised at any
time on or after June 30, 2000 and on or prior to June 30, 2008, subject to
limited exceptions relating to a change in control of drkoop.com or the early
termination of the Agreement between AOL and drkoop.com. The immediately vested
warrants have been recorded at a fair value of $4.97 per share which was
calculated at the time of issuance using the Black-Scholes option-pricing model
with the following weighted average assumptions: zero dividend yield; 0.75
volatility; risk-free interest rate of 5.5% and an expected life of 1 year. The
Company will recognize the costs associated with the Agreement and the
immediately vested time warrants ratably over the term of Agreement.

As noted above, the Company provided AOL the ability to earn additional
performance warrants, as follows:

 .  Warrants to purchase up to 1,570,932 shares of the Company's common stock for
   a purchase price of $20.00 per share. These warrants are not exercisable, and
   will not become exercisable unless the AOL relationship delivers to
   drkoop.com during the four years of the Agreement traffic objectives,
   measured in page views, at or above agreed upon levels. Accordingly, one-
   fourth of these warrants (i.e., 392,733 warrants) could become vested in each
   of the next four years if those performance objectives are met. Any warrants
   that become vested will be exercisable at any time on or prior to June 30,
   2008.

 .  Warrants to purchase up to an additional 2,749,131 shares of the Company's
   common stock are not exercisable, and will not become exercisable unless the
   AOL relationship delivers specified usage of a new interactive software tool
   to be developed by drkoop.com and jointly deployed by drkoop.com and AOL. The
   warrant specifies four performance hurdles, measured by usage of the new
   tool, which if accomplished will result in 392,733, 392,733, 785,466 and
   1,178,199 warrants becoming vested and exercisable. The exercise price of
   these warrants will be established at the time they become vested and will be
   calculated as 80%, 75%, 70% and 65% of fair market value at such time. Any
   warrants that become vested will be exercisable at any time on or prior to
   June 30, 2008.

                                       8
<PAGE>

The Company has currently not recorded any costs associated with the performance
based warrants.  Should it become probable that AOL will meet the criteria to
earn the performance warrants the Company will record a charge in the period in
which it became probable that AOL would earn the warrants.

All of the warrants include customary ancillary provisions, including anti-
dilution adjustments for stock splits, stock dividends and similar structural
changes.  None of the warrants may be transferred prior to December 8, 1999, or
if the related warrants have not vested.  A change in control transaction
involving drkoop.com could result in an acceleration of the vesting of these
warrants.

The parties also entered into a registration rights agreement which could
require that drkoop.com register any shares of common stock issued to AOL upon
exercise of any warrant for resale under the Securities Act of 1933, although
these rights are subordinated to the rights previously granted in the Amended
and Restated Registration Rights Agreement dated January 29, 1999.

Legal Matters

On April 12, 1999, a civil complaint was filed against the Company attempting to
allege, among other things, fraud and breach of contract regarding a terminated
consulting arrangement and seeking recovery of damages of $4 million, punitive
damages exceeding $5 million, attorney's fees and an injunction prohibiting the
Company from offering stock for sale to the public unless and until it
recognizes plaintiff's claim to options to acquire 232,500 shares of the
Company's common stock alleged to be owed under the consulting agreement. The
Company believes that the claims are without merit and intends to defend this
lawsuit vigorously.

                                       9
<PAGE>

On July 28, 1999 adam.com filed a lawsuit seeking to terminate a content
agreement among the two companies. The lawsuit also seeks relief related to
distribution of some of this content in a manner which adam.com alleges violates
the agreement. The Company believes that the claims are without merit and
intends to defend this lawsuit vigorously.


NOTE 5 -  CHANGES IN CAPITAL STRUCTURE

Effective June 11, 1999, the Company completed an initial public offering of
10,781,250 shares, including the underwriters over allotment, at $9 per share.
(See Note 1).

In June 1999, the Company effected a five-for-two stock split.  The effect of
this stock split has been recorded retroactively to inception of the Company in
the accompanying financial statements.

In June 1999, the Company increased its authorized capital stock to 75,000,000
shares of common stock, par value $0.001 per share.

NOTE 6 -  RELATED PARTY TRANSACTION

Name and Likeness Agreement

The terms of the Company's historical agreements with Dr. C. Everett Koop
pursuant to which the Company obtained the ability to use his name and likeness
and provided to Dr. C. Everett Koop the right to receive a percentage of the
revenue received by the Company from certain activities. To date, these royalty
payments have been immaterial, aggregating $41,000 for the nine months ended
September 30, 1999. Effective August 30, 1999, the Company amended and restated
its agreement with Dr. C. Everett Koop. This amendment made the following
principal changes to the agreement:

     .  The term was extended for an additional five years;

     .  The obligation to make any payments to Dr. C. Everett Koop based on the
        revenues of the Company was completely eliminated; and

     .  As the sole compensation to him for the modifications made in the
        agreement and the services to be provided over its full term, Dr. C.
        Everett Koop was granted options to acquire 214,400 shares of our common
        stock at an exercise price of $17.88 per share (the public trading price
        at the time of grant). The options vest at the rate of approximately
        8,900 shares per month.

                                       10
<PAGE>

NOTE 7 - SUPPLEMENTAL CASH FLOWS INFORMATION


<TABLE>
<CAPTION>
-----------------------------------------------------------------------
                                                                                Nine Months Ended
                                                                                  September 30,
--------------------------------------------------------------------------------------------------------
                                                                             1999               1998
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>  <C>           <C>  <C>
Supplemental Disclosure of Noncash Financing Activities:
--------------------------------------------------------------------------------------------------------
Conversion of related party payable to common stock                  $          -       $            216
--------------------------------------------------------------------------------------------------------
Deferred stock compensation related to options granted               $          3,507   $          -
--------------------------------------------------------------------------------------------------------
Accretion of redeemable securities to fair value                     $         17,255   $          -
--------------------------------------------------------------------------------------------------------
Amortization of deferred stock compensation                          $          1,912   $          -
--------------------------------------------------------------------------------------------------------
Issuance of preferred stock for investment in affiliate              $          5,000   $          -
--------------------------------------------------------------------------------------------------------
Issuance of preferred stock for intangible asset                     $          4,000   $          -
--------------------------------------------------------------------------------------------------------
Obligation to issue common stock pursuant to option
cancellation agreement                                               $          9,147   $          -
--------------------------------------------------------------------------------------------------------
Conversion of convertible notes payable to common stock              $          6,290   $          -
--------------------------------------------------------------------------------------------------------
Conversion of preferred stock to common stock at IPO                 $         35,660   $          -
--------------------------------------------------------------------------------------------------------
Issuance of warrants                                                 $         10,052   $          -
--------------------------------------------------------------------------------------------------------
</TABLE>


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

Forward-Looking Statements

The following discussion of the financial condition and results of operations
should be read in conjunction with our condensed financial statements and the
related notes thereto included elsewhere in this report. This document contains
certain forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions.  When used in
this document, the words "expects," "anticipates," "intends" and "plans" and
similar expressions are intended to identify certain of these forward-looking
statements. The cautionary statements made in this document should be read as
being applicable to all related forward-looking statements wherever they appear
in this document. Our actual results could differ materially from those
discussed in this document. We do not intend to update any of the forward-
looking statements after the date of this filing on Form 10-Q to conform these
statements to actual results.

Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed in our Prospectus dated June 8,
1999.

Overview

Our company operates drkoop.com, an Internet-based consumer healthcare network.
Our network consists of a consumer-focused interactive Web site that provides
users with comprehensive healthcare information and services, as well as
affiliate relationships with portals, other Web sites, healthcare organizations
and traditional media outlets.  Our Web site, www.drkoop.com, is a healthcare
                                              --------------
portal which integrates dynamic healthcare content on a wide

                                       11
<PAGE>

variety of subjects, interactive communities and tools as well as opportunities
to purchase healthcare related products and services on-line.

Revenues
Sources of revenues for the quarter and nine months ended September 30, 1999
were primarily revenues from content subscription and software licensing fees,
and advertising and sponsorship fees.

Content subscription and software licensing fees are facilitated through our
Community Partnership Program ("CPP").  Subscriptions to our Community
Partnership Program run from one to three years.  Under this program, we develop
co-branded Internet pages and software consisting of visual icons containing
embedded links back to our drkoop.com Web site for local healthcare
organizations, such as hospitals and payor organizations.  Advance billings and
collections relating to future services are recorded as deferred revenue and
recognized when revenue is earned.  Sales of software licenses to CPP affiliates
is recognized as revenue upon shipment of the software, provided that the
portion of the contract allocated to the software license is based upon vendor
specific objective evidence of fair value, and collectibility is probable.
Content subscription revenue is recognized ratably over the term of the CPP
contract, generally ranging from one to three years.  Software licenses are also
sold as a stand-alone product independent of the Community Partnership Program.

Advertising revenues are derived primarily from short-term advertising contracts
in which we typically guarantee a minimum number of user "impressions" to be
delivered over a specific period of time for a fixed fee.  Impressions are the
number of times that users on our Web site view an advertisement.  We recognize
advertising revenues at the lesser of the ratio of impressions delivered over
the guaranteed impressions or the straight-line rate over the term of the
contract, provided that no significant obligations remain and collection of the
resulting receivable is probable.  During the quarter and nine months ended
September 30, 1999, we have utilized a combination of third party firms and in-
house staff for the sales and insertion of advertisements on the drkoop.com Web
site.  Advertising rates, measured on a cost per thousand impressions basis, are
dependent on whether the impressions are for general rotation throughout the
drkoop.com Web site or for target audiences and properties within specific areas
of the Web site.

Sponsorship revenues are derived from contracts ranging from one to fifty months
in which we commit to provide sponsors enhanced promotional opportunities that
go beyond traditional banner advertising.  Sponsorships are designed to support
broad marketing objectives, including branding, awareness, product
introductions, research and transactions.  Sponsorship arrangements typically
include the delivery of a guaranteed minimum number of impressions and the
design and implementation of customized pages on the Web site that enhance the
promotional objective of the sponsor.  Costs associated with the development of
the web pages are minimal and are expensed when incurred.  Sponsorship revenues
are recognized at the lesser of the ratio of impressions delivered over the
total guaranteed impressions or the straight-line rate over the term of the
contract, provided that no significant obligations remain and collection of the
resulting receivable is probable.

Dependent upon the complexity of an advertising or sponsorship revenue
arrangement, we may provide initial site design consulting and engineering
services which require the development and implementation of specific Web site
enhancements prior to launching a co-branded site. Revenues and related costs
for initial site design and engineering services are recognized under contract
accounting.

                                       12
<PAGE>

As our market develops, seasonal and cyclical patterns may emerge. These
patterns may affect our revenues. We cannot yet predict to what extent our
operations will prove to be seasonal.

Results of Operations

Revenues.  Our Web site, www.drkoop.com, was launched July 1998.  Revenues
                         --------------
increased to $2.9 million and $4.3 million for the three and nine months ended
September 30, 1999, respectively, as compared to $0 revenues for the comparable
periods of 1998.  Revenue from content subscription and software licenses for
the quarter ended September 30, 1999 totaled $459,000 or 16% of total revenues,
and $913,000 or 21% of total revenue for the nine months then ended.  All
content subscription and software license revenue is considered recurring
revenue.  The increase in content subscription and software license revenue is
attributable to the continued expansion of the Community Partner Program,
resulting in the addition of 15 new contracts during the three months ended
September 30, 1999, bringing the total number of new contracts to 30 for the
nine months ended September 30, 1999.

Advertising and sponsorship revenues totaled $2.4 million, or 83% of total
revenues for the quarter ended September 30, 1999, and $3.4 million, or 78% of
total revenues, for the nine months ended September 30, 1999.  Advertising and
sponsorship revenues include related services revenues of $229,000, or 8% of
total revenue for the quarter ended September 30, 1999, and $432,000, or 10% of
total revenue for the nine months then ended.  Additionally, included in
advertising and sponsorship revenues were recurring revenues from sponsorship
agreements of $864,000, or 30% of total revenues, and $1.2 million, or 27% of
total revenues, for the quarter and nine months ended September 30, 1999,
respectively.  The remaining advertising revenues of $1.3 million, or 45% of
total revenues, and $1.8 million, or 42% of total revenues, for the quarter and
nine months ended September 30, 1999, respectively, were derived from non-
recurring short-term advertising and sponsorship arrangements.  The increase in
advertising and sponsorship revenues was primarily due to an increase in the
number of advertising arrangements combined with an increase in traffic to our
Web site resulting in a higher number of impressions delivered.

Other revenues totaled $49,000 or 2%, of total revenues, for the quarter ended
September 30, 1999, and $56,000, or 1% of total revenues, for the nine months
ended September 30, 1999.  Other revenues consist primarily of fees paid for
successful screenings of potential clinical trials participants.

Included in content subscription and software licensing revenues are barter
transactions that accounted for $30,000 and $80,000 for the three and nine
months ended September 30, 1999, respectively. Barter revenues accounted for
$160,000 and $276,000 of the advertising and sponsorship revenues for the three
and nine months ended September 30, 1999, respectively.  In total, barter
revenues represented $190,000, or 7%, and $356,000, or 8%, of total revenues for
the quarter and nine months ended September 30, 1999.

Production, content and product development expenses.  Production, content and
product development expenses consist primarily of salaries and benefits,
consulting fees and other costs related to content acquisition and licensing,
software development, application development and Web site operations expense.
Production, content and product development expense increased by $543,000, or
29%, from $1.8 million for the quarter ended September 30, 1998 to $2.4 million
for the quarter ended September 30, 1999, and by $2.7 million, or 98%, from $2.8
million for the nine months ended September 30, 1998 to $5.5 million for the
nine months ended September 30 1999.  The increase in production, content and
product development costs was primarily due to the addition of personnel,
resulting in higher salaries, benefits and travel costs, combined with an

                                       13
<PAGE>

increase in content licensing required as our Web site has continued to develop
and expand.  We believe that in order to remain competitive, significant
investments in content development and operating infrastructure will be
required; therefore, we expect that production, content and product development
expenses will continue to increase in absolute dollars for the foreseeable
future.

Sales and marketing expenses.  Sales and marketing expense consist primarily of
salaries and related costs, portal fees, web-based advertising, commissions,
general advertising and other related expenses.  Sales and marketing expense
increased by $17.9 million, from $649,000 to $18.6 million for the quarters
ended September 30, 1998 and 1999, respectively, and by $27.6 million, from
$996,000 to $28.6 million for the nine months ended September 30, 1998 and 1999,
respectively.  The primary reasons for the increases were costs associated with
the distribution agreements with major portals totaling $10.1 million and $12.9
million for the three and nine months ended September 30, 1999, respectively, as
compared to $0 for the same periods in 1998.   Advertising and promotion
expenses for the drkoop.com Web site totaled $5.7 million and $10.6 million for
the three and nine months ended September 30, 1999, respectively, as compared to
$390,000 and $621,000 for the three and nine months ended September 30, 1998,
respectively.  Additionally, we experienced significant growth in the numbers of
sales and marketing personnel, resulting in salary and related expenses of
approximately $2.8 million and $5.1 million for the three and nine months ended
September 30, 1999, respectively, as compared to $259,000 and $375,000 for the
three and nine months ended September 30, 1998, respectively.  We anticipate
that sales and marketing expenses will continue to increase in absolute dollars
in the foreseeable future as we continue to hire additional personnel and
increase expenditures for distribution, advertising, brand promotion, public
relations and other marketing activities.

General and administrative expenses.  General and administrative expenses
consist primarily of salaries and related costs for general corporate functions,
including executive, finance, accounting, investor relations, human resources,
facilities and fees for professional services.  General and administrative
expenses increased by $1.4 million, or 159%, from $867,000 to $2.2 million for
the quarters ended September 30, 1998 and 1999, respectively, and by $3.4
million, or 202% from $1.7 million to $5.1 million for the nine months periods
ended September 30, 1998 and 1999, respectively.  The primary reasons for the
increases were the addition of personnel, increased professional fees and the
amortization of the intangible assets.  We anticipate that general and
administrative expenses will continue to increase in absolute dollars for the
foreseeable future, although at a slower rate than the other expense categories.

Deferred stock compensation expense. We have recorded non-cash deferred stock
compensation costs in the aggregate of $5.0 million in connection with the grant
of certain stock options to our employees in 1998 and 1999.  The deferred stock
compensation is being amortized over the four-year vesting period of such
options. Of the total deferred stock compensation, $839,000 and $1.9 million
were amortized in the three and nine months ended September 30, 1999,
respectively. There were no such expenses in the comparable periods in 1998.

Net interest income.   Net interest income includes interest income from our
cash balances and interest expenses related to our financing obligations,
particularly on the convertible notes payable prior to conversion and capital
leases on computer equipment.  Net interest income was $550,000 and $13,000 for
the three months ended September 30, 1999 and 1998, respectively, and $587,000
and $25,000 for the nine months ended September 30, 1999 and 1998, respectively.
The increase was due to higher average net cash and cash equivalents balances
resulting from the investment of the proceeds from our IPO completed in June
1999.

                                       14
<PAGE>

Income tax.  We have incurred net losses to date.  As of September 30, 1999, we
had net operating loss carryforwards of $43.5 million for financial reporting
purposes.  We have recorded a valuation reserve equal to the amount of the
carryforward due to the uncertain realization of these tax benefits.

Liquidity and Capital Resources

Until our initial public offering in June 1999, which raised net proceeds of
$88.4 million, we have financed our operations primarily through equity sales
and convertible notes payable debt financing.  At September 30, 1999 we had
$49.1 million in cash and cash equivalents and working capital of $59.2 million.
We currently have a backlog of $25.1 million in contracts for which the services
have not yet been delivered.

Cash used in operating activities for the nine months ended September 30, 1999
of $42.5 million was due primarily to a net operating loss of $36.3 million and
increases in accounts receivable of $2.8 million, prepaid expenses of $21.2
million and a decrease in related party payables of $1.0 million.  These amounts
were offset by non cash charges for amortization of deferred stock compensation
of $1.9 million and depreciation and amortization of $2.4 million and increases
in accounts payable of $3.6 million, accrued liabilities of $5.1 million and
deferred revenue of $5.6 million, respectively.  The increases in accounts
payable and accrued liabilities are attributable to the increased expenses
associated with the continued development and promotion of our Web site.  The
increase in prepaid expenses is primarily the result of prepayments required
under the terms of various portal and content contracts.  The increases in
accounts receivable and deferred revenue are the results of the increases in our
client base.  Cash used in operating activities for the nine months ended
September 30, 1998 of $4.9 million was due primarily to a net operating loss of
$5.5 million and an increase in prepaid assets of $181,000, offset by increases
in accounts payable of $418,000 and accrued liabilities of $381,000.

Cash used in investing activities was $6.5 million and $229,000 for the nine
months ended September 30, 1999 and 1998, respectively.  Net cash used for
investing activities for these periods consisted primarily of capital
expenditures for computer equipment and software.

Net cash provided by financing activities was $98.0 million for the nine months
ended September 30, 1999, compared to $5.5 million during the same period of
1998. Net cash provided by financing activities resulted primarily from proceeds
from our initial public offering for which we received approximately $88.4
million in net proceeds and, to a lesser extent, proceeds from the issuance of
Series C Convertible Preferred Stock for $3.5 million, issuance of convertible
notes payable resulting in $5.8 million of proceeds, and the exercise of stock
options resulting in $323,000 of proceeds.  The $5.5 million in proceeds
received during the first nine months of 1998 was from the issuance of preferred
stock.

The terms of our historical agreements with Dr. C. Everett Koop pursuant to
which we obtained the ability to use his name and likeness and provided Dr.
C. Everett Koop the right to receive a percentage of the revenue received by our
company from certain activities. To date, these royalty payments have been
immaterial, aggregating $41,000 for the nine months ended September 30, 1999.
Effective August 30, 1999, we amended and restated our agreement with Dr. C.
Everett Koop. This amendment made the following principal changes to the
agreement:

     .  The term was extended for an additional five years;

                                       15
<PAGE>

     .  The obligation to make any payments to Dr. C. Everett Koop based on the
        revenues of our company was completely eliminated; and

     .  As the sole compensation to him for the modifications made in the
        agreement and the services to be provided over its full term, Dr. C.
        Everett Koop was granted options to acquire 214,400 shares of our common
        stock at an exercise price of $17.88 per share (the public trading price
        at the time of grant). The options vest at the rate of approximately
        8,900 shares per month.


We currently believe that our available cash resources are sufficient to meet
our anticipated working capital and capital expenditure requirements for at
least the next 12 months.  No assurance can be given that we will not be
required to raise additional financing prior to such time. If additional funds
are raised through the issuance of equity securities, our stockholders may
experience significant dilution.  Furthermore, there can be no assurance that
additional financing will be available when needed or that if available, such
financing will include terms favorable to our stockholders or us. If such
financing is not available when required or is not available on acceptable
terms, we may be unable to develop or enhance our products and services, take
advantage of business opportunities or respond to competitive pressures, any of
which could have a material adverse effect on our business, financial condition
and results of operations.


Impact of the Year 2000

Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.

State of Readiness

In our analysis of the state of readiness for Y2K, we have focussed on two
areas: corporate information technology and Internet information delivery
systems.

Corporate information technology: We have tested and verified the Y2K readiness
of our standard software installation, which is loaded on each employee's
computer system. The evaluation included the operating system as well as mission
critical applications required to function on a daily basis, such as e-mail,
contact management, word processing, spreadsheet, database and presentation
software. In addition, all of our mission critical centralized applications have
been updated to the latest versions, which are stated to be Y2K compliant by the
vendor, and/or verified compliant by vendor provided Y2K test tools.

The remaining tests relate to hardware and support equipment issues, networks
and infrastructure (including elevators, heating and air conditioning systems,
and security systems), and special purpose software applications. We will
perform a complete inventory of hardware and software in use by various
departments throughout the company, and work with vendors to verify compliance.
The inventory process will be followed by a build-up of our test environment,
which will include a snapshot of our mission-critical servers and a number of
workstations loaded with software in use throughout the company. Tests will be
conducted in an environment that is

                                       16
<PAGE>

identical to, but isolated from, our existing corporate network. Issues that
arise during these tests will be addressed and software updates applied to all
workstations as needed. Any information technology components that are found to
be non-compliant will be upgraded or replaced with compliant components.

In parallel with the testing activity we will develop a contingency plan, with
alternative methods to existing processes, and preparations for unexpected
complications or failures in environments that are out of our control, such as
supply chain, environmental and communication dependencies. We will continue to
work with business partners and current suppliers of services and products, and
identify areas that need attention.

Internet information delivery systems: We are in the process of relocating our
site to a new facility.  As part of this move, all information technology
components are being replaced.  One purchase requirement for these components
was a statement of Y2K readiness from the vendor.  As the new site is being
assembled, the team will conduct a Y2K readiness assessment. This assessment
will encompass all areas including product delivery, reporting, and support
systems.

First, a comprehensive audit of all hardware, software and web site dependencies
will be carried out to collect Y2K compliance information.  Computers, network
devices, and dedicated appliances will be classified as (a) compliant, (b)
update needed, or (c) non-compliant after research is performed with appropriate
vendors and manufacturers.  Commercial software products will be reviewed and
classified similarly.  Additionally, statements of Y2K compliance will be
obtained from critical service providers.

Second, third-party tools will be used to verify Y2K compliance where possible.
These utilities will confirm proper BIOS date-handling and software maintenance
patch levels.  They will also report on violations against a database of known
Y2K problems.

Next, a series of Y2K simulations will be run against the site as a whole.
These simulations will test for the proper operation of all hardware and
software components as several Y2K-related date transitions occur.

Finally, any corrective actions found to be required will be taken to bring any
components determined to be non-compliant to an acceptable state of compliance.

Risks. We are unable to assess the Y2K readiness of the Internet as a whole.
Since our business depends on visitors reaching our site, if a significant
number of Internet Service Providers have Y2K related problems, our traffic may
suffer.

Uninterruptible power supplies (UPS) and backup generators protect our Internet
information delivery site, our Internet Service Provider, and our corporate
infrastructure systems.  While we are prepared for significant power outages, we
may not be able to continue to operate if electric service is unavailable for
extended periods.  Similarly, extended outages elsewhere may affect the ability
of our visitors to reach us.

In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from delivering drkoop.com, decrease the use of the
Internet or prevent users from accessing drkoop.com, any of which would have a
material adverse effect on

                                       17
<PAGE>

our business, results of operations and financial condition. Further, as noted
above we are heavily dependent on the accuracy of certifications provided by
third party vendors and the effectiveness of our testing tools and methods.

Costs. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to,
and are expected to continue to relate to, the operating costs associated with
time spent by employees in the evaluation process and Year 2000 compliance
matters generally. We do not presently anticipate that such expenditures will be
material.

Contingency Plan.

As discussed above, we are engaged in an ongoing Year 2000 assessment and have
developed preliminary contingency plans. The results of our analyses and the
responses received from third-party vendors and service providers will be taken
into account to revise our contingency plans as necessary. It is our goal to
finalize our contingency plans by December 1, 1999.

New Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
We currently do not engage in or plan to engage in derivative instruments or
hedging activities.


Item 3.   Quantitative and Qualitative Disclosure About Market Risk

We are not subject to any meaningful market risks related to currency, commodity
prices or similar matters.  We are sensitive to short-term interest rates
fluctuations to the extent that such fluctuations impact the interest income we
receive on the investment of the proceeds from our initial public offering.

Risks Related to Our Business

Our business is difficult to evaluate because we have an extremely limited
operating history.

We were incorporated in July 1997 and launched our Internet operations in July
1998. Accordingly, we have an extremely limited operating history. An investor
in our common stock must consider the risks, uncertainties, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets,
including the Internet market. These risks and difficulties include our ability
to:

     .  attract a larger audience of users to our Internet-based consumer
        healthcare network;

     .  increase awareness of our brand;

     .  strengthen user loyalty and increase the number of registered users;

                                       18
<PAGE>

     .  offer compelling on-line content, services and e-commerce opportunities;

     .  maintain our current, and develop new, affiliate relationships;

     .  attract a large number of advertisers who desire to reach our users;

     .  respond effectively to the offerings of competitive providers of
        healthcare information on the Internet;

     .  continue to develop and upgrade our technology; and

     .  attract, retain and motivate qualified personnel.

We also depend on the growing use of the Internet for advertising, commerce and
communication, and on general economic conditions. We cannot assure you that our
business strategy will be successful or that we will successfully address these
risks or difficulties. If we fail to address adequately any of these risks or
difficulties our business would likely suffer. Please see

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements for detailed information on our
extremely limited operating history.

Our business is changing rapidly, which could cause our quarterly operating
results to vary and our stock price to fluctuate.

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. If we
have a shortfall in revenues in relation to our expenses, or if our expenses
precede increased revenues, then our business would be materially adversely
affected. This would likely affect the market price of our common stock in a
manner which may be unrelated to our long-term operating performance.

Important factors which could cause our results to fluctuate materially include:

     .  our ability to attract and retain users;

     .  our ability to attract and retain advertisers and sponsors and maintain
        advertiser and sponsor satisfaction;

     .  traffic levels on our Internet site;

     .  our ability to attract and retain customers and maintain customer
        satisfaction for our existing and future e-commerce offerings;

     .  new Internet sites, services or products introduced by us or our
        competitors;

     .  the level of Internet and other on-line services usage;

     .  our ability to upgrade and develop our systems and infrastructure and
        attract new personnel in a timely and effective manner;

     .  our ability to successfully integrate operations and technologies from
        any acquisitions, joint ventures or other business combinations or
        investments; and

                                       19
<PAGE>

     .  technical difficulties or system downtime affecting the operation of our
        Web site.

Our revenues for the foreseeable future will remain dependent on user traffic
levels, advertising and e-commerce activity on drkoop.com and the level of
affiliate subscriptions. Such future revenues are difficult to forecast. In
addition, we plan to increase our sales and marketing operations, obtain broader
distribution for our service, expand and develop content and upgrade and enhance
our technology and infrastructure development in order to support our growth.

Many of the expenses associated with these activities--for example, personnel
costs, portal fees, and technology and infrastructure costs--are relatively
fixed in the short-term. We may be unable to adjust spending quickly enough to
offset any unexpected revenue shortfall, in which case our results of operations
would suffer.

We have a history of losses and negative cash flow and anticipate continued
losses.

Since our inception, we have incurred significant losses and negative cash flow,
and as of September 30, 1999, had an accumulated deficit of approximately $57.1
million, which included $17.3 million for accretion to fair value of the
mandatory redeemable Series B convertible preferred stock. We have not achieved
profitability and expect to continue to incur operating losses for the
foreseeable future as we fund operating and capital expenditures in areas such
as expansion of our network, distribution, advertising, brand promotion, content
development, sales and marketing, and operating infrastructure. Our business
model assumes that consumers will be attracted to and use healthcare information
and related content available on our Internet-based consumer healthcare network
that will, in turn, allow us the opportunity to sell advertising designed to
reach those consumers. Our business model also assumes that those consumers will
access important healthcare needs through electronic commerce using our Web site
and that local healthcare organizations will affiliate with us. This business
model is not yet proven, and we cannot assure you that we will ever achieve or
sustain profitability or that our operating losses will not increase in the
future.

We must establish, maintain and strengthen our brand in order to attract users
to our network and generate advertising, sponsorship and e-commerce revenue.

In order to expand our audience of users and increase our on-line traffic, we
must establish, maintain and strengthen our brand. For us to be successful in
establishing our brand, healthcare consumers must perceive us as a trusted
source of healthcare information, and advertisers, merchants and manufacturers
must perceive us as an effective marketing and sales channel for their products
and services. We expect that we will need to increase substantially our
marketing budget in our efforts to establish brand recognition and brand
loyalty. Our business could be materially adversely affected if our marketing
efforts are not productive or if we cannot strengthen our brand.

Key elements of our marketing and brand building strategies are dependent on our
relationship with Dr. C. Everett Koop.

A key element of our strategy is to associate our company with former U.S.
Surgeon General C. Everett Koop, Chairman of the Board of our company and a
person who we believe is viewed by consumers as a trustworthy and credible
leader in the healthcare field.

                                       20
<PAGE>

We are a party to an amended and restated agreement, dated August 30, 1999, with
Dr. C. Everett Koop which permits us to use his image, name and likeness in
connection with healthcare-related services and products. Under this agreement,
our use of Dr. C. Everett Koop's name, image or likeness is subject to his prior
written approval of the resulting products, which may not be unreasonably
withheld.

As consideration for the amendment and extension of the Koop agreement, we
granted Dr. C. Everett Koop options to purchase 214,400 shares of common stock
for an exercise price of $17.88 per share.

The Koop agreement is exclusive and for a term of five years, subject to
automatic renewal for additional five-year terms unless it is terminated by
either party within 120 days of the end of each term.

If the Koop Agreement is terminated other than due to a breach or default by us,
we will have the right on a non- exclusive basis for three years following the
end of the term to rebrand and sell approved products bearing the name, image or
likeness of Dr. C. Everett Koop.

If we default in our obligations and do not promptly cure the default, Dr. C.
Everett Koop may terminate the Koop agreement, no rebranding period will apply
and we would lose all rights to use Dr. C. Everett Koop's name and likeness on
the 90th day after such termination. Dr. C. Everett Koop may also terminate the
Koop agreement upon a change in control of our company.

If our agreement with Dr. C. Everett Koop were terminated prior to the end of
its current term or not renewed at the end of its current term, we would need to
change the name of our Web site and devote substantial resources towards
building a new marketing and brand strategy. Without our ability to use Dr. C.
Everett Koop's name and likeness or Dr. C. Everett Koop's participation in our
business, we may not be able to continue to attract a significant amount of user
traffic and advertisers to our Web site.

The potential also exists that if Dr. C. Everett Koop ends his affiliation with
our company, we could suffer a significant loss of credibility and trust with
healthcare consumers as a result.

Any development that would cause Dr. C. Everett Koop to exercise his right to
terminate his relationship with our company or which otherwise would cause us to
lose the benefits of our affiliation with him would have a material adverse
effect on our business, results of operation and financial condition.

We do not maintain "key person" life insurance for Dr. C. Everett Koop or any of
our personnel.

We have committed significant financial and marketing resources to expand our
network; if we are unable to earn revenues in excess of these commitments, our
business will suffer.

In order to expand our network, we have entered into a number of strategic
partnerships which involve the payment of significant funds for prominent or
exclusive carriage of our healthcare information and services. These
transactions are premised on the assumption that the traffic we obtain from
these arrangements will permit us to earn revenues in excess of the payments
made to partners. This assumption is not yet proven, and if we are unsuccessful
in generating sufficient resources to offset these expenditures, we will likely
be unable to operate our business. On April 9, 1999 we entered into agreements
with Infoseek Corporation and the Buena Vista Internet Group, a unit of The Walt
Disney Company, under which we will be the exclusive provider of

                                       21
<PAGE>

health and related content on three Web sites of the Go Network. Under the
Infoseek agreement, drkoop.com will also be the premier health content provider
for ABCnews.com. The term of these agreements is for three years for total
consideration of approximately $57.9 million, including warrants to purchase
shares of our common stock. Additionally, on July 1, 1999 we entered into
agreements with America Online, Inc under which we will be the premier health
content provider across five AOL brands: America Online, CompuServe, AOL.COM,
Netscape Netcenter and Digital City. The term of the agreement is for four years
for cash payments of $89 million, plus fully vested and performance-based
warrants to purchase shares of our common stock.

In order to attract and retain our audience of users, we must provide healthcare
content, tools and other features which meet the changing demands of those
users.

One of our fundamental business objectives is for drkoop.com to be a trusted
source for healthcare information and services. As with any form of consumer-
oriented media, we have to provide editorial content and other features such as
interactive tools, that consumers demand in order to continue to attract and
retain our audience of users. We expect that competitive factors will create a
continuing need for us to retain, improve and add to our editorial content,
interactive tools and other features. We will not only have to expend
significant funds and other resources to continue to improve our network, but we
must also properly anticipate and respond to consumer preferences and demands.
Competition for content will likely increase the fees charged by high quality
content providers. The addition of new features will also require that we
continue to improve the technology underlying our Web site. These requirements
are significant, and we may fail to execute on them quickly and efficiently. If
we fail to expand the breadth of our offerings quickly, or these offerings fail
to achieve market acceptance, our business will suffer significantly.

Our business model relies on Internet advertising and sponsorship activities
which may not be effective or profitable marketing media.

Our future is highly dependent on increased use of the Internet as an
advertising medium. We expect to derive a substantial portion of our revenues
from advertising and sponsorships. The Internet advertising market is new and
rapidly evolving, and we cannot yet predict its effectiveness as compared to
traditional media advertising. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience advertising over the Internet
and have allocated only a limited portion of their advertising budgets to
Internet advertising. The adoption of Internet advertising, particularly by
those entities that have historically relied upon traditional media for
advertising, requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. Such customers may
find Internet advertising to be less effective for promoting their products and
services relative to traditional advertising media. We cannot assure you that
the market for Internet advertising will continue to emerge or become
sustainable. If the market for Internet advertising fails to develop or develops
more slowly than we expect, then our ability to generate advertising revenues
would be materially adversely affected.

Various pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenues. Our advertising revenues could be adversely affected if we are unable
to adapt to new forms of Internet advertising. Moreover, "filter" software
programs are available that limit or prevent advertising from being delivered to
an Internet user's computer.

                                       22
<PAGE>

Widespread adoption of this software could adversely affect the commercial
viability of Internet advertising.

In order to execute our growth plan we must attract, retain and motivate highly
skilled employees, and we face significant competition from other Internet and
new media companies in doing so.

Our ability to execute our growth plan and be successful also depends on our
continuing ability to attract, retain and motivate highly skilled employees. In
addition to Dr. C. Everett Koop, Chairman of the Board, we depend on the
continued services of key board members, our senior management and other
personnel, particularly Donald W. Hackett, President and Chief Executive
Officer. As we continue to grow, we will need to hire additional personnel in
all operational areas. Competition for personnel throughout the Internet and
related new-media industry is intense. We may be unable to retain our key
employees or attract, assimilate or retain other highly qualified employees in
the future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business will be adversely affected.

Due to the factors noted above and the other risks discussed in this section,
you should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance. It is possible that in some
future periods our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock may
underperform or fall. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

We depend on third-party relationships, many of which are short-term or
terminable, to generate advertising and provide us with content.

We depend, and will continue to depend, on a number of third-party relationships
to increase traffic on drkoop.com and generate advertising and other revenues.
Outside parties on which we depend include unrelated Web site operators that
provide links to drkoop.com, providers of healthcare content and portals which
provide us with carriage and ad serving. Many of our arrangements with third-
party Internet sites and other third-party service providers are not exclusive
and are short-term or may be terminated at the convenience of either party. We
cannot assure you that third parties regard our relationship with them as
important to their own respective businesses and operations. They may reassess
their commitment to us at any time in the future and may develop their own
competitive services or products.

We intend to produce only a portion of the healthcare content that will be found
on the drkoop.com network. We will rely on third-party organizations that have
the appropriate expertise, technical capability, name recognition, reputation
for integrity and willingness to syndicate product content for branding and
distribution by others. As health-related content grows on the Internet, we
believe that there will be increasing competition for the best product
suppliers, which may result in a competitor acquiring a key supplier on an
exclusive basis, or in significantly higher content prices. Such an outcome
could make the drkoop.com network less attractive or useful for an end user
which could reduce our advertising and e-commerce revenues.

We cannot assure you that we will be able to maintain relationships with  third
parties that supply us with content, carriage, software or related products or
services that are crucial to our success,

                                       23
<PAGE>

or that such content, software, products or services will be able to sustain any
third-party claims or rights against their use. Also, we cannot assure you that
the content, software, products or services of those companies that provide
access or links to our Web site will achieve market acceptance or commercial
success. Accordingly, we cannot assure you that our existing relationships will
result in sustained business partnerships, successful product or service
offerings or the generation of significant revenues for us.

We have recently experienced and are currently experiencing rapid growth in our
business, and our inability to manage this growth could harm our business.

We have experienced and are currently experiencing a period of significant
growth. This growth has placed, and the future growth we anticipate in our
operations will continue to place, a significant strain on our resources. As
part of this growth, we will have to implement new operational and financial
systems and procedures and controls, expand, train and manage our employee base,
and maintain close coordination among our technical, accounting, finance,
marketing, sales and editorial staffs. If we are unable to manage our growth
effectively, our business, results of operations and financial condition could
be adversely affected.

Any future acquisitions we make of companies or technologies may result in
disruptions to our business and/or the distraction of our management, due to
difficulties in assimilating acquired personnel and operations.

We may acquire or make investments in complementary businesses, technologies,
services or products if appropriate opportunities arise. From time to time we
engage in discussions and negotiations with companies regarding our acquiring or
investing in such companies' businesses, products, services or technologies, and
we regularly engage in such discussions and negotiations in the ordinary course
of our business. Some of those discussions also contemplate the other party
making an investment in our company.  We cannot assure you that we will be able
to identify future suitable acquisition or investment candidates, or if we do
identify suitable candidates, that we will be able to make such acquisitions or
investments on commercially acceptable terms or at all. If we acquire or invest
in another company, we could have difficulty in assimilating that company's
personnel, operations, technology and software. In addition, the key personnel
of the acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in integrating the acquired products,
services or technologies into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and adversely affect our results of operations. Furthermore, we may
incur indebtedness or issue equity securities to pay for any future
acquisitions. The issuance of equity securities would be dilutive to our
existing stockholders.

If our ability to expand our network infrastructure is constrained in any way we
could lose customers and suffer damage to our operating results.

Presently, a relatively limited number of consumers use our Web site. We must
continue to expand and adapt our network infrastructure to accommodate
additional users, increase transaction volumes and changing consumer and
customer requirements. We may not be able to accurately project the rate or
timing of increases, if any, in the use of our Web site or to expand and upgrade
our systems and infrastructure to accommodate such increases. Our systems may
not accommodate increased use while maintaining acceptable overall performance.
Service lapses could cause our users to instead use the on-line services of our
competitors.

                                       24
<PAGE>

Many of our service agreements, such as those with our Community Partners,
contain performance standards. If we fail to meet these standards, our customers
could terminate their agreements with us or require that we refund part or all
of the license fees. The loss of any of our service agreements and/or associated
revenues would directly and significantly impact our business.  We may be unable
to expand or adapt our network infrastructure to meet additional demand or our
customers' changing needs on a timely basis, at a commercially reasonable cost,
or at all.

We may have liability for information we provide on our Web site or which is
accessed from our Web site.

Because users of our Web site access health content and services relating to a
condition they may have or may distribute our content to others, third parties
may sue us for defamation, negligence, copyright or trademark infringement,
personal injury or other matters. We could also become liable if confidential
information is disclosed inappropriately. These types of claims have been
brought, sometimes successfully, against on-line services in the past. Others
could also sue us for the content and services that are accessible from our Web
site through links to other Web sites or through content and materials that may
be posted by our users in chat rooms or bulletin boards. While our agreements,
including those with content providers, in some cases provide that we will be
indemnified against such liabilities, such indemnification, if available, may
not be adequate. Our insurance may not adequately protect us against these types
of claims. Further, our business is based on establishing the drkoop.com network
as a trustworthy and dependable provider of healthcare information and services.
Allegations of impropriety, even if unfounded, could therefore have a material
adverse effect on our reputation and our business.

Any failure or inability to protect our intellectual property rights could
adversely affect our ability to establish our brand.

Our intellectual property is important to our business. We rely on a combination
of copyright, trademark and trade secret laws, confidentiality procedures and
contractual provisions to protect our intellectual property.  Federal
registrations are pending for the trademark "drkoop.com," as well as other
service and trademarks which incorporate the Dr. Koop name. Our right to use the
Dr. Koop name is granted to us under an agreement with Dr. C. Everett Koop. If
we lose our right to use the Dr. Koop name, we would be forced to change our
corporate name and adopt a new domain name. These changes could confuse current
and potential customers and would adversely impact our business. We also rely on
a variety of technologies that are licensed from third parties, including our
database and Internet server software, which is used in the drkoop.com Web site
to perform key functions. These third-party licenses may not be available to us
on commercially reasonable terms in the future.

Year 2000 problems may disrupt our operations which could result in lost
revenues and increased operating costs.

Because our business depends on computer software, we are assessing the Year
2000 readiness of our systems. We are also in the process of contacting certain
third-party vendors, licensors and providers of hardware, software and services
regarding their Year 2000 readiness. Following our Year 2000 assessment and
after contacting these third parties, we will be able to make a final evaluation
of our state of readiness, potential risks and costs, and to determine to what
extent a contingency plan is necessary. Third-party software, hardware or
services incorporated into our systems may need to be revised or replaced, which
could be time consuming and expensive,

                                       25
<PAGE>

potentially resulting in lost revenues and increased costs for us. For a
preliminary evaluation of the potential impact of these Year 2000-related issues
on us, please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Impact of the Year 2000."

We do not expect to pay dividends, and investors should not buy our common stock
expecting to receive dividends.

We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future. Investors should not purchase our common stock with the expectation of
receiving cash dividends

We are subject to anti-takeover provisions in our charter and in our contracts
that could delay or prevent an acquisition of our company, even if such an
acquisition would be beneficial to our stockholders.

Certain provisions of our certificate of incorporation, our bylaws, Delaware law
and material contracts to which we are party could make it more difficult for a
third party to acquire us, even if doing so might be beneficial to our
stockholders.

Our business may face additional risks and uncertainties not presently known to
us which could cause our business to suffer.

In addition to the risks specifically identified in this section or elsewhere in
this report, we may face additional risks and uncertainties not presently known
to us or that we currently deem immaterial which ultimately impair our business,
results of operations and financial condition.

Risks Related to Our Industry

Consumers and the healthcare industry must accept the Internet as a source of
healthcare content and services for our business model to be successful.

To be successful, we must attract to our network a significant number of
consumers as well as other participants in the healthcare industry. To date,
consumers have generally looked to healthcare professionals as their principal
source for health and wellness information. Our business model assumes that
consumers will use healthcare information available on our network, that
consumers will access important healthcare needs through electronic commerce
using our Web site, and that local healthcare organizations and other
participants in the healthcare industry will affiliate with us. Our business
model also assumes that the services provided by our network will be supported
in part by advertising, sponsorship and similar activities purchased by
companies with commercial interests in the healthcare industry and that this
practice will be accepted by consumers.  Our business model is not yet proven,
and if we are unable to successfully implement our business model, our business
will be materially adversely affected.

The Internet industry is highly competitive and changing rapidly, and we may not
have the resources to compete adequately.

The number of Internet Web sites offering users healthcare content, products and
services is vast and increasing at a rapid rate. These companies compete with us
for users, advertisers, e-

                                       26
<PAGE>

commerce transactions and other sources of on-line revenues. In addition,
traditional media and healthcare providers compete for consumers' attention both
through traditional means as well as through new Internet initiatives. We
believe that competition for healthcare consumers will continue to increase as
the Internet develops as a communication and commercial medium.

We compete directly for users, advertisers, e-commerce merchants, syndication
partners and other affiliates with numerous Internet and non-Internet
businesses, including:

     .  health-related on-line services or Web sites targeted at consumers, such
        as accesshealth.com, ahn.com, betterhealth.com, drweil.com,
        healthcentral.com, healthgate.com, intelihealth.com, mayohealth.org;
        mediconsult.com, onhealth.com, thriveonline.com and webmd.com;

     .  on-line and Internet portal companies, such as America Online, Inc.;
        Microsoft Network; Yahoo! Inc.; Excite, Inc.; Lycos Corporation and
        Infoseek Corporation which commonly distribute multiple sources of
        healthcare data;

     .  electronic merchants and conventional retailers that provide healthcare
        goods and services competitive to those available from links on our Web
        site;

     .  hospitals, HMOs, managed care organizations, insurance companies and
        other healthcare providers and payors which offer healthcare information
        through the Internet; and

     .  other consumer affinity groups, such as the American Association of
        Retired Persons, SeniorNet and ThirdAge Media, Inc. which offer
        healthcare-related content to specific demographic groups.

Many of these potential competitors are likely to enjoy substantial competitive
advantages compared to our company, including:

     .  the ability to offer a wider array of on-line products and services;

     .  larger production and technical staffs;

     .  greater name recognition and larger marketing budgets and resources;

     .  larger customer and user bases; and

     .  substantially greater financial, technical and other resources.

To be competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and our competitors' innovations by
continuing to enhance our products and services, as well as our distribution,
sales and marketing channels.  We must also meet or exceed evolving consumer
expectations and competitive standards regarding medical ethics, Internet ethics
and privacy concerns.  Increased competition could result in a loss of our
market share or a reduction in our prices or margins. Competition is likely to
increase significantly as new companies enter the market and current competitors
expand their services.

                                       27
<PAGE>

Since we operate an Internet-based network, our business is subject to
government regulation relating to the Internet which could impair our
operations.

Because of the increasing use of the Internet as a communication and commercial
medium, the government has adopted and may adopt additional laws and regulations
with respect to the Internet covering such areas as user privacy, pricing,
content, taxation, copyright protection, distribution and characteristics and
quality of production and services.

Since we operate a healthcare network over the Internet, our business is subject
to government regulation specifically relating to medical devices, the practice
of medicine and pharmacology, healthcare regulation, insurance and other matters
unique to the healthcare area.

Laws and regulations have been or may be adopted with respect to the provision
of healthcare-related products and services on-line, covering areas such as:

     .  the regulation of medical devices;

     .  the practice of medicine and pharmacology and the sale of controlled
        products such as pharmaceuticals on-line;

     .  the regulation of government and third-party cost reimbursement; and

     .  the regulation of insurance sales.

FDA Regulation of Medical Devices. Some computer applications and software are
considered medical devices and are subject to regulation by the United States
Food and Drug Administration. We do not believe that the FDA will regulate our
current applications or services; however, our applications and services may
become subject to FDA regulation. Additionally, we may expand our application
and service offerings into areas that subject us to FDA regulation. We have no
experience in complying with FDA regulations. We believe that complying with FDA
regulations would be time consuming, burdensome and expensive and could delay or
prevent our introduction of new applications or services.

Regulation of the Practice of Medicine and Pharmacology. The practice of
medicine and pharmacology requires licensing under applicable state law. We have
endeavored to structure our Web site and affiliate relationships to avoid
violation of state licensing requirements, but a state regulatory authority may
at some point allege that some portion of our business violates these statutes.
Any such allegation could result in a material adverse effect on our business.
Further, any liability based on a determination that we engaged in the practice
of medicine without a license may be excluded from coverage under the terms of
our current general liability insurance policy.

Federal and State Healthcare Regulation. We earn a service fee when users on our
Web site purchase prescription pharmacy products from certain of our e-commerce
partners. The fee is not based on the value of the sales transaction.  Federal
and state "anti-kickback" laws prohibit granting or receiving referral fees in
connection with sales of pharmacy products that are reimbursable under federal
Medicare and Medicaid programs and other reimbursement programs. Although there
is uncertainty regarding the applicability of these regulations to our e-
commerce revenue strategy, we believe that the service fees we receive from our
e-commerce partners are for the primary purpose of marketing and do not
constitute payments that would violate federal or

                                       28
<PAGE>

state "anti-kickback" laws. However, if our program were deemed to be
inconsistent with federal or state law, we could face criminal or civil
penalties. Further, we would be required either not to accept any transactions
which are subject to reimbursement under federal or state healthcare programs or
to restructure our compensation to comply with any applicable anti-kickback laws
or regulations. In addition, similar laws in several states apply not only to
government reimbursement but also to reimbursement by private insurers. If our
activities were deemed to violate any of these laws or regulations, it could
cause a material adverse affect on our business, results of operations and
financial condition.

State Insurance Regulation. In addition, we market insurance on-line, offered by
unrelated third parties, and receive referral fees from those providers in
connection with this activity. The use of the Internet in the marketing of
insurance products is a relatively new practice. It is not clear whether or to
what extent state insurance licensing laws apply to our activities. If we were
required to comply with such licensing laws, compliance could be costly or not
possible. This could have a material adverse effect on our business.

There is no established market for the consumer healthcare e-commerce
transactions we facilitate.

We plan to develop relationships with retailers, manufacturers and other
providers to offer healthcare products and services through direct links from
our Web site to their Web site. Such a strategy involves numerous risks and
uncertainties. There is no established business model for the sale of healthcare
products or services over the Internet. Accordingly, we have limited experience
in the sale of products and services on-line and the development of
relationships with retailers, manufacturers or other providers of such products
and services, and we cannot predict the rate at which consumers will elect to
engage in this form of commerce or the compensation that we will receive for
enabling these transactions.

Consumers may sue us if any of the products or services that are sold through
our Web site are defective, fail to perform properly or injure the user, even if
such goods and services are provided by unrelated third parties. Some of our
agreements with manufacturers, retailers and other providers contain provisions
intended to limit our exposure to liability claims. These limitations may not
however prevent all potential claims, and our insurance may not adequately
protect us from these types of claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages.
As a result, any such claims, whether or not successful, could seriously damage
our reputation and our business.

Internet capacity constraints may impair the ability of consumers to access our
Web site, which could hinder our ability to generate advertising revenues.

Our success will depend, in large part, upon a robust communications industry
and infrastructure for providing Internet access and carrying Internet traffic.
The Internet may not prove to be a viable commercial medium because of:

     .  inadequate development of the necessary infrastructure such as a
        reliable network backbone;

     .  timely development of complementary products such as high speed modems;

                                       29
<PAGE>

     .  delays in the development or adoption of new standards and protocols
        required to handle increased levels of Internet activity; or

     .  increased government regulation.

If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it.

Our business is dependent on the continuous, reliable and secure operation of
our Web site and related tools and functions we provide.

We rely on the Internet and, accordingly, depend upon the continuous, reliable
and secure operation of Internet servers and related hardware and software.
Recently, several large Internet commerce companies have suffered highly
publicized system failures which resulted in adverse reactions to their stock
prices, significant negative publicity and, in certain instances, litigation. We
have also suffered service outages from time to time, although to date none of
these interruptions has materially adversely effected our business operations or
financial condition. To the extent that our service is interrupted, our users
will be inconvenienced, our commercial customers will suffer from a loss in
advertising or transaction delivery and our reputation may be diminished. Some
of these outcomes could directly result in a reduction in our stock price,
significant negative publicity and litigation. Our computer and communications
hardware are protected through physical and software safeguards. However, they
are still vulnerable to fire, storm, flood, power loss, telecommunications
failures, physical or software break-ins and similar events. We do not have full
redundancy for all of our computer and telecommunications facilities and do not
maintain a back-up data facility.  Our business interruption insurance may be
inadequate to protect us in the event of a catastrophe. We also depend on third
parties to provide potential users with web browsers and Internet and on-line
services necessary for access to our Web site. In the past, our users have
occasionally experienced difficulties with Internet and other on-line services
due to system failures, including failures unrelated to our systems. Any
sustained disruption in Internet access provided by third parties could
adversely impact our business.

We retain confidential customer information in our database. Therefore, it is
critical that our facilities and infrastructure remain secure and are perceived
by consumers to be secure. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors or similar disruptive problems. A material security breach
could damage our reputation or result in liability to us.

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<PAGE>

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

On April 12, 1999, a civil complaint was filed as Agrawal v. drkoop.com, Inc.,
Donald W. Hackett and John F. Zaccaro in the District Court of Travis County,
Texas, 126 Judicial District, Case No. 99-04294. In the lawsuit, plaintiff
attempts to allege causes of action including fraud, constructive fraud,
promissory estoppel, negligent misrepresentation, breach of contract,
conversion, stock fraud, defamation and misrepresentation. Plaintiff claims,
among other things, that misrepresentations were made to him regarding his
involvement in the early stages of development of drkoop.com and we breached a
consulting agreement entered into between him and our company in September 1998.
Plaintiff seeks recovery of actual damages which he alleges to be $4 million,
punitive damages alleged to be in excess of $5 million, attorneys fees and costs
and a temporary and permanent injunction prohibiting drkoop.com from offering
stock for sale to the public unless and until we recognize plaintiff's alleged
right to options to acquire 232,500 shares of our common stock which he claims
are owed to him under the consulting agreement.  No injunction has been issued.
We believe that plaintiff is not entitled to recover on his claims and intend to
defend this lawsuit vigorously. We filed a counterclaim against the plaintiff on
April 27, 1999 in which we allege causes of action including breach of contract,
fraudulent inducement, breach of fiduciary duty and professional malpractice.

On July 28, 1999 adam.com filed a lawsuit seeking to terminate a content
agreement among the two companies. The lawsuit also seeks relief related to
distribution of some of this content in a manner which adam.com alleges violates
the agreement. We believe that the claims are without merit and intends to
defend this lawsuit vigorously.


Item 2.   Changes in Securities and Use of Proceeds

During the quarter ended September 30, 1999, we issued the following equity
securities in transactions exempt from registration under the Securities Act of
1933:

     .  On July 1, 1999, we issued warrants to purchase up to 5,890,995 shares
        of common stock to America Online, Inc. in connection with the
        establishment of a business relationship. The terms of the relationship
        and the warrants (including the consideration and terms of exercise) are
        more fully described in the notes to the condensed financial statements
        provided with this report and in our Current Report on Form 8-K dated
        July 6, 1999. This issuance was exempt from registration by operation of
        Section 4(2) of the Securities Act and Regulation D promulgated
        thereunder.

     .  During the quarter we issued an aggregate of 703,396 shares of common
        stock upon the issue of compensatory stock options granted prior to our
        initial public offering at various exercise prices. Total cash
        consideration received by us aggregated $76,095. These issuances were
        exempt from registration by operation of Rule 701 promulgated under the
        Securities Act.

     In June 1999, we completed our initial public offering through an
underwritten public offering pursuant to a Registration Statement on Form S-1
(File No. 333-73459).  These funds have been the principal source of liquidity
for us during the quarter ended September 30, 1999

                                       31
<PAGE>

and were used to fund operating losses and make capital expenditures as
described in the financial statements included with this report.


Item 3.   Defaults Upon Senior Securities.

        Not Applicable.

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

        None.

Item 5.   Other Information.

        None.

Item 6.   Exhibits and Reports on Form 8-K.

(a)  Exhibits:

The Exhibit Index attached hereto is hereby incorporated by reference to this
Item.

(b)  Reports on Form 8-K for the quarter ended September 30, 1999.

Report on Form 8-K filed on July 7, 1999: The text of a joint press release
between our company, drkoop.com, Inc and America Online, Inc. dated July 6,
1999, announcing a four-year strategic alliance between the two companies.

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<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                  drkoop.com, Inc.


Date:  November 10, 1999           /s/ Susan Georgen Saad
                                  -------------------------------
                                  Name    Susan Georgen Saad
                                  Title:  Chief Financial Officer

                                       33
<PAGE>

                                 EXHIBIT INDEX


Exhibit Number    Exhibit Title


10.49             Amended Name & Likeness Agreement by and between
                  Company and C. Everett Koop, M.D.

10.50+            Interactive Services Agreement by and between
                  Company and America Online, Inc.

10.51+            Development and Services Agreement by and between
                  Company and America Online, Inc.

10.52             Registration Rights Agreement by and between
                  Company and America Online, Inc.

10.53             Warrant to Purchase 1,570,932 shares of Common
                  Stock Issued to America Online dated July 1, 1999.

10.54+            Performance Warrant to Purchase 1,570,932 shares
                  of Common Stock Issued to America Online dated
                  July 1, 1999.

10.55+            Performance Warrant to Purchase 2,749,131 shares
                  of Common Stock Issued to America Online dated
                  July 1, 1999.

10.56             Lease Agreement by and between Company and Plaza 7000, Ltd.

27.1              Financial Data Schedule


+   Confidential Treatment Requested
                                       34