##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-Q

|      |                                                                                         
|----- | ----------------------------------------------------------------------------------------
|[X]   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|     
|     
|     
|     
|      | For the quarterly period ended June 30, 2001                                            
|     
|     
|     
|     
|      | 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
(State or other jurisdiction of
incorporation or organization) |  | 74-2845054
(I.R.S. Employer
Identification Number)

225 Arizona Avenue, Suite 250
Santa Monica, California 90401-1245
(Address of principal executive offices)



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(310)  395-5700 (Registrants telephone number, including area code)



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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 August 9,
2001 there were 44,248,279 shares of the Registrants
common stock outstanding, which does not include shares of common stock
issuable
upon exercise or conversion of outstanding preferred stock, warrants and
options.



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TABLE OF CONTENTS



|                            |                                                                                               |                                              |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------- |  |  |  |  |  | 
|                            | Item 1: Financial Information                                                                
|                            |                                                                                               | Condensed Balance Sheets                    
|                            |                                                                                               | Condensed Statements of Operations          
|                            |                                                                                               | STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
|                            |                                                                                               | Condensed Statements of Cash Flows          
|                            |                                                                                               | NOTES TO CONDENSED FINANCIAL STATEMENTS     
|                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                            | Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|PART II  OTHER INFORMATION
|                            | Item 1. Legal Proceedings                                                                    
|                            | Item 2. Changes in Securities and Use of Proceeds                                            
|                            | Item 3. Defaults Upon Senior Securities.                                                     
|                            | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                            | Item 5. Other Information.                                                                   
|                            | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                 
|EXHIBIT INDEX              
|EXHIBIT 10.99              
|EXHIBIT 10.100             
|EXHIBIT 10.101             
|EXHIBIT 10.102             
|EXHIBIT 10.103             
|EXHIBIT 10.104             
|EXHIBIT 10.105             

drkoop.com, Inc.
FORM 10-Q
For the Quarter Ended June 30, 2001
INDEX

|                                                                                                         |  |      |    | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                         |  | PAGE
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|PART I. FINANCIAL INFORMATION                                                                            |  |      |    | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 1. Financial Statements                                                                             |  |      |    | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Condensed Balance Sheets at June 30, 2001 (Unaudited) and December 31, 2000                              |  |      | 3  | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Condensed Statements of Operations for the three and six months ended June 30, 2001 and 2000 (Unaudited) |  |      | 4  | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Statement
of Changes in Stockholders Equity for the six months ended
June 30, 2001                      |  |      | 5  | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Condensed Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (Unaudited)           |  |      | 6  | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Notes to Condensed Financial Statements (Unaudited)                                                      |  |      | 7  | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations            |  |      | 12 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                       |  |      | 41 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|PART II. OTHER INFORMATION                                                                               |  |      |    | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 1. Legal Proceedings                                                                                |  |      | 42 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 2. Changes in Securities and Use of Proceeds                                                        |  |      | 43 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 3. Defaults Upon Senior Securities                                                                  |  |      | 43 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 4. Submission of Matters to a Vote of Security Holders                                              |  |      | 43 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 5. Other Information                                                                                |  |      | 43 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Item 6. Exhibits and Reports on Form 8-K                                                                 |  |      | 43 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|SIGNATURES                                                                                               |  |      | 44 | 

2



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##### Table of Contents






Item 1: Financial Information




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

|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |        |        | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ----------------------- | ------ | ---------------- | -------- | ------ | ------ | 
|                                               |                                                                                                                                                                                                                            |                                                      |          | June
30,2001(unaudited) |        | December
31,2000
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                 
|ASSETS                                         |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                                                                                                                                                                                                  |                                                      | $        | 4,450                   |        |                  | $        | 11,464 |       
|                                              
|                                              
|                                              
|                                              
|                                               | Trade accounts receivable, net                                                                                                                                                                                             |                                                      |          | 245                     |        |                  |          | 447    |       
|                                              
|                                              
|                                              
|                                              
|                                               | Prepaid expenses and other current assets                                                                                                                                                                                  |                                                      |          | 2,767                   |        |                  |          | 2,648  |       
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                               |                                                                                                                                                                                                                            | Total current assets                                 |          |                         | 7,462  |                  |          |        | 14,559 | 
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|Property and equipment, net                    |                                                                                                                                                                                                                            |                                                      | 1,976    |                         |        |                  | 6,297    |       
|                                              
|                                              
|                                              
|                                              
|Other assets                                   |                                                                                                                                                                                                                            |                                                      | 607      |                         |        |                  | 355      |       
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                               |                                                                                                                                                                                                                            | Total assets                                         |          | $                       | 10,045 |                  |          | $      | 21,211 | 
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                              
|                                              
|                                              
|                                              
|                                               | Trade accounts payable                                                                                                                                                                                                     |                                                      | $        | 2,269                   |        |                  | $        | 2,488  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued liabilities                                                                                                                                                                                                        |                                                      |          | 1,865                   |        |                  |          | 3,315  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Leases payable                                                                                                                                                                                                             |                                                      |          | 643                     |        |                  |          | 1,000  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Short term notes payable                                                                                                                                                                                                   |                                                      |          | 592                     |        |                  |          |       |       
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred credit                                                                                                                                                                                                            |                                                      |          | 2,000                   |        |                  |          | 2,000  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred revenue                                                                                                                                                                                                           |                                                      |          | 764                     |        |                  |          | 895    |       
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                               |                                                                                                                                                                                                                            | Total current liabilities                            |          |                         | 8,133  |                  |          |        | 9,698  | 
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|Leases payable, less current portion           |                                                                                                                                                                                                                            |                                                      | 623      |                         |        |                  | 933      |       
|                                              
|                                              
|                                              
|                                              
|Deferred credit                                |                                                                                                                                                                                                                            |                                                      | 2,000    |                         |        |                  | 3,000    |       
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                               |                                                                                                                                                                                                                            | Total liabilities                                    |          |                         | 10,756 |                  |          |        | 13,631 | 
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|Commitments and contingencies                  |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                              
|                                              
|                                              
|                                              
|Stockholders (deficit) equity:                |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                              
|                                              
|                                              
|                                              
|                                               | Series D convertible preferred stock, par value $.001; 15,000,000 shares
authorized; liquidation value $41,250; 2,669,750 and 2,750,000 shares issued
and outstanding at June 30, 2001 and December 31, 2000, respectively |                                                      |          | 3                       |        |                  |          | 3      |       
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock, par value $.001; 500,000,000 shares authorized at
June 30, 2001 and December 31, 2000; 42,293,178 and 39,733,410
shares issued and outstanding at June 31, 2001 and December 31, 2000,
respectively          |                                                      |          | 42                      |        |                  |          | 40     |       
|                                              
|                                              
|                                              
|                                              
|Additional paid-in capital                     |                                                                                                                                                                                                                            |                                                      | 212,052  |                         |        |                  | 211,265  |       
|                                              
|                                              
|                                              
|                                              
|Deferred stock compensation                    |                                                                                                                                                                                                                            |                                                      | (5,580   | )                       |        |                  | (6,801   | )     
|                                              
|                                              
|                                              
|                                              
|Accumulated deficit                            |                                                                                                                                                                                                                            |                                                      | (207,228 | )                       |        |                  | (196,927 | )     
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                               |                                                                                                                                                                                                                            | Total stockholders (deficit) equity                 |          |                         | (711   | )                |          |        | 7,580  | 
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       
|                                               |                                                                                                                                                                                                                            | Total liabilities and stockholders (deficit) equity |          | $                       | 10,045 |                  |          | $      | 21,211 | 
|                                               |                                                                                                                                                                                                                            |                                                      |          |                         |        |                  |          |       

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

3



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##### Table of Contents






drkoop.com, Inc.
Condensed Statements of Operations
(in thousands, except per share data)
(unaudited)

|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |        |         |  
|------------------------------------------------------------------------------------------------------------------ | --------------------------------------------- | ------------------------ | ------ | --------------------------- | ------ | ------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                                                                                   |                                               |                          |        | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                                                                                   |                                               |                          |        |                             |        |                          
|                                                                                                                   |                                               |                          |        | 2001                        |        | 2000                      |         | 2001   |         | 2000
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |     
|Revenue:                                                                                                           |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Content subscription and software license     |                          | $      | 431                         |        |                           | $       | 854    |         |      | $       | 923    |         |   | $       | 1,683  |        
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Advertising and sponsorship                   |                          |        | 382                         |        |                           |         | 1,669  |         |      |         | 760    |         |   |         | 5,583  |        
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|                                                                                                                   |                                               | Total revenue            |        |                             | 813    |                           |         |        | 2,523   |      |         |        | 1,683   |   |         |        | 7,266   |  
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|Operating expenses:                                                                                                |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Production, content and product development   |                          |        | 1,521                       |        |                           |         | 5,361  |         |      |         | 3,441  |         |   |         | 11,147 |        
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Sales and marketing                           |                          |        | 266                         |        |                           |         | 25,416 |         |      |         | 832    |         |   |         | 45,281 |        
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | General and administrative                    |                          |        | 2,585                       |        |                           |         | 5,381  |         |      |         | 5,308  |         |   |         | 10,035 |        
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Special charges                               |                          |        |                            |        |                           |         |       |         |      |         | 3,585  |         |   |         |       |        
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Write off of investment and intangible assets |                          |        |                            |        |                           |         | 7,444  |         |      |         |       |         |   |         | 7,444  |        
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Amortization of deferred credit               |                          |        | (500                        | )      |                           |         | (500   | )       |      |         | (1,000 | )       |   |         | (1,000 | )      
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|                                                                                                                   |                                               | Total operating expenses |        |                             | 3,872  |                           |         |        | 43,102  |      |         |        | 12,166  |   |         |        | 72,907  |  
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|Loss from operations                                                                                               |                                               |                          | (3,059 | )                           |        |                           | (40,579 | )      |         |      | (10,483 | )      |         |   | (65,641 | )     
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Interest income, net                                                                                               |                                               |                          | 47     |                             |        |                           | 18      |        |         |      | 182     |        |         |   | 323     |       
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|                                                                                                                   |                                               | Net loss                 |        | $                           | (3,012 | )                         |         | $      | (40,561 | )    |         | $      | (10,301 | ) |         | $      | (65,318 | )
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|Basic
and diluted net loss per share attributable to
common stockholders                                           |                                               | $                        | (0.07  | )                           |        | $                         | (1.18   | )      |         | $    | (0.25   | )      |         | $ | (2.01   | )     
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       
|Weighted average shares used in computing basic
and diluted net loss per share attributable to common
stockholders |                                               |                          | 41,566 |                             |        |                           | 34,312  |        |         |      | 40,696  |        |         |   | 32,555  |       
|                                                                                                                   |                                               |                          |        |                             |        |                           |         |        |         |      |         |        |         |   |         |       

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

4



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##### Table of Contents






drkoop.com, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
(unaudited)

|                                                                   |  |                 |       |              |  |            |   |        |  |         |        |  |  |   |    |  |  |   |         |  
|------------------------------------------------------------------ |  | --------------- | ----- | ------------ |  | ---------- | - | ------ |  | ------- | ------ |  |  | - | -- |  |  | - | ------- | -
|                                                                   |  | PREFERRED STOCK |       | COMMON STOCK |  | ADDITIONAL
|                                                                   |  |                 |       |              |  | PAID-IN   
|                                                                   |  | SHARES          |       | AMOUNT       |  | SHARES     |   | AMOUNT |  | CAPITAL
|                                                                   |  |                 |       |              |  |            |   |        |  |        
|Balance at December 31, 2000                                       |  |                 | 2,750 |              |  | $          | 3 |        |  |         | 39,733 |  |  | $ | 40 |  |  | $ | 211,265 |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance of stock under employee plans                             |  |                 |      |              |  |            |  |        |  |         | 253    |  |  |   |   |  |  |   | 41      |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance of stock options under plan                               |  |                 |      |              |  |            |  |        |  |         |       |  |  |   |   |  |  |   | 3       |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance of warrants pursuant to class action
settlement agreement |  |                 |      |              |  |            |  |        |  |         |       |  |  |   |   |  |  |   | 584     |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance of stock options pursuant to business
acquisition         |  |                 |      |              |  |            |  |        |  |         |       |  |  |   |   |  |  |   | 44      |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Conversion of preferred stock                                      |  |                 | (80   | )            |  |            |  |        |  |         | 2,307  |  |  |   | 2  |  |  |   | (2      | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Deferred stock compensation                                        |  |                 |      |              |  |            |  |        |  |         |       |  |  |   |   |  |  |   | 117     |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Amortization of deferred stock compensation                        |  |                 |      |              |  |            |  |        |  |         |       |  |  |   |   |  |  |   |        |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net loss                                                           |  |                 |      |              |  |            |  |        |  |         |       |  |  |   |   |  |  |   |        |  
|                                                                   |  |                 |       |              |  |            |   |        |  |         |        |  |  |   |    |  |  |   |         |  
|Balance at June 30, 2001                                           |  |                 | 2,670 |              |  | $          | 3 |        |  |         | 42,293 |  |  | $ | 42 |  |  | $ | 212,052 |  
|                                                                   |  |                 |       |              |  |            |   |        |  |         |        |  |  |   |    |  |  |   |         |  

|                                                                   |  |              |        |             |  |       |          |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------ | ------ | ----------- |  | ----- | -------- | - |  | - | ------- | -
|                                                                   |  | DEFERRED     |        |             |  |       |          |   |  |  
|                                                                   |  | STOCK        |        | ACCUMULATED |  |       |          |  
|                                                                   |  | COMPENSATION |        | DEFICIT     |  | TOTAL
|                                                                   |  |              |        |             |  |      
|Balance at December 31, 2000                                       |  | $            | (6,801 | )           |  | $     | (196,927 | ) |  | $ | 7,580   |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance of stock under employee plans                             |  |              |       |             |  |       |         |   |  |   | 41      |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance of stock options under plan                               |  |              | (3     | )           |  |       |         |   |  |   |        |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance
of warrants pursuant to class action
settlement agreement |  |              |       |             |  |       |         |   |  |   | 584     |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Issuance
of stock options pursuant to
business acquisition         |  |              |       |             |  |       |         |   |  |   | 44      |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Conversion of preferred stock                                      |  |              |       |             |  |       |         |   |  |   |        |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Deferred stock compensation                                        |  |              | (117   | )           |  |       |         |   |  |   |        |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Amortization of deferred stock compensation                        |  |              | 1,341  |             |  |       |         |   |  |   | 1,341   |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Net loss                                                           |  |              |       |             |  |       | (10,301  | ) |  |   | (10,301 | )
|                                                                   |  |              |        |             |  |       |          |   |  |   |         |  
|Balance at June 30, 2001                                           |  | $            | (5,580 | )           |  | $     | (207,228 | ) |  | $ | (711    | )
|                                                                   |  |              |        |             |  |       |          |   |  |   |         |  

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

5



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##### Table of Contents






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

|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |         |         |         |       | 
|------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------- | ----------------------------------------------- | ------ | ---------------- | ---- | ------- | ------- | ------- | ----- | 
|                                      |                                                                             |                                                     |                                   |                                                 |        | Six Months Ended
|                                      |                                                                             |                                                     |                                   |                                                 |        | June 30,        
|                                      |                                                                             |                                                     |                                   |                                                 |        |                 
|                                      |                                                                             |                                                     |                                   |                                                 |        | 2001             |      | 2000   
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|Cash flows operating activities:      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net loss                                                                    |                                                     | $                                 | (10,301                                         | )      |                  | $    | (65,318 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net loss to net cash used in operating activities: |                                                     |                                   |                                                 |        |                  |      |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Depreciation and amortization                       |                                   |                                                 | 456    |                  |      |         | 13,658  |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Amortization of stock based charges                 |                                   |                                                 | 2,938  |                  |      |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Amortization of deferred credit                     |                                   |                                                 | (1,000 | )                |      |         | (1,000  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Provision for doubtful accounts                     |                                   |                                                 | (274   | )                |      |         | 514     |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Special charges                                     |                                   |                                                 | 2,947  |                  |      |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Write off of investment and intangible asset        |                                   |                                                 |       |                  |      |         | 7,444   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Changes in assets and liabilities:                                          |                                                     |                                   |                                                 |        |                  |      |         |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Trade accounts receivable                           |                                   |                                                 | 476    |                  |      |         | 3,043   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Other receivable                                    |                                   |                                                 | 36     |                  |      |         | 4,000   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Prepaid expenses and other current assets           |                                   |                                                 | 384    |                  |      |         | 8,964   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Trade accounts payable                              |                                   |                                                 | (219   | )                |      |         | (2,584  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Accrued liabilities                                 |                                   |                                                 | (1,458 | )                |      |         | (2,766  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Related party payables                              |                                   |                                                 |       |                  |      |         | 47      |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Deferred revenue                                    |                                   |                                                 | (131   | )                |      |         | (1,308  | )      
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                      |                                                                             |                                                     | Cash used in operating activities |                                                 |        | (6,688           | )    |         |         | (34,101 | )    
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|Cash flows from investing activities: |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Purchase of property and equipment                  |                                   |                                                 | (201   | )                |      |         | (1,798  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Proceeds from sale of property and equipment        |                                   |                                                 | 416    |                  |      |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Acquisition of intangible assets                    |                                   |                                                 | (21    | )                |      |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Acquisition of StayfitUSA.com assets                |                                   |                                                 | (213   | )                |      |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Acquisition costs pursuant to IVonyx asset purchase |                                   |                                                 | (224   | )                |      |         |        |        
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                      |                                                                             |                                                     | Cash used in investing activities |                                                 |        | (243             | )    |         |         | (1,798  | )    
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|Cash flows from financing activities: |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Repayments of capital leases                        |                                   |                                                 | (666   | )                |      |         |        |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Proceeds from exercise of stock options             |                                   |                                                 | 41     |                  |      |         | 239     |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Proceeds from issuance of common stock, net         |                                   |                                                 |       |                  |      |         | 405     |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Proceeds from bridge loan                           |                                   |                                                 |       |                  |      |         | 1,500   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                      |                                                                             |                                                     |                                   | Cash (used in) provided by financing activities |        |                  | (625 | )       |         |         | 2,144 | 
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                      |                                                                             | Decrease in cash and cash equivalents               |                                   |                                                 | (7,014 | )                |      |         | (33,755 | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Cash and cash equivalents at beginning of period    |                                   |                                                 | 11,464 |                  |      |         | 35,706  |        
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        
|                                      |                                                                             | Cash and cash equivalents at end of period          |                                   | $                                               | 4,450  |                  |      | $       | 1,951   |        
|                                      |                                                                             |                                                     |                                   |                                                 |        |                  |      |        

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

6



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##### Table of Contents






drkoop.com, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)

1. Description of the Business and Summary of Significant Accounting Policies

Through its E-Business
Division, drkoop.com, Inc., a Delaware corporation (the Company), operates an
Internet-based consumer healthcare network and certain other websites. Its
network consists of a consumer-focused interactive website that provides users
with comprehensive health information and services, as well as affiliate
relationships with other websites, healthcare organizations and traditional
media outlets. Its website, www.drkoop.com, is a healthcare portal which
integrates dynamic health content on a wide variety of subjects, interactive
communities and tools as well as opportunities to purchase health related
products and services online.

The Company also
plans to launch its Consumer Products Division by licensing its brand
for use on certain products (including nutritional supplements) and
its Home Healthcare Division by entering into the home healthcare
services market through its pending acquisition of the operating
assets of IVonyx Group Services, Inc. However, the launch of operations of
both the Consumer Products Division and the Home Healthcare Division
have not yet occurred and are
subject to numerous risks, including, for example, the Companys need for
financing, the risks that the Company will be unable to successfully launch the
drkoop branded line of nutritional supplements, that the IVonyx transaction
will not be consummated and numerous other risks.

2. Basis of presentation

The condensed financial statements included herein are unaudited and
reflect all 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, 2000, which are contained in the Companys Annual
Report on Form 10-K filed with the Securities and Exchange Commission. The
results of operations for the three month periods ended June 30, 2001 and 2000
are not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year.

3. Accounts Receivable

Accounts receivable are net of allowance for doubtful accounts of $874,000
and $1.2 million at June 30, 2001 and December 31, 2000, respectively.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of the following
(in thousands):

|                        |  |          |       |              |  |   |       | 
|----------------------- |  | -------- | ----- | ------------ |  | - | ----- | 
|                        |  | June 30, |       | December 31,
|                        |  | 2001     |       | 2000        
|                        |  |          |       |             
|Prepaid warrant expense |  | $        | 635   |              |  | $ | 1,647 | 
|                       
|                       
|                       
|                       
|Prepaid content expense |  |          | 122   |              |  |   | 69    | 
|                       
|                       
|                       
|                       
|Assets held for sale    |  |          | 1,050 |              |  |   | 300   | 
|                       
|                       
|                       
|                       
|Tax refund receivable   |  |          | 36    |              |  |   |      | 
|Other                   |  |          | 924   |              |  |   | 632   | 
|                        |  |          |       |              |  |   |       | 
|Total                   |  | $        | 2,767 |              |  | $ | 2,648 | 
|                        |  |          |       |              |  |   |       | 

7



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##### Table of Contents



5. Property and Equipment, Net

Property and equipment, net are comprised of the following (in thousands):

|                         |                                           |   |          |       |              |   |        |       | 
|------------------------ | ----------------------------------------- | - | -------- | ----- | ------------ | - | ------ | ----- | 
|                         |                                           |   | June 30, |       | December 31,
|                         |                                           |   | 2001     |       | 2000        
|                         |                                           |   |          |       |             
|Computer equipment       |                                           | $ | 950      |       |              | $ | 4,041  |      
|                        
|                        
|                        
|                        
|Software                 |                                           |   | 1,633    |       |              |   | 2,696  |      
|                        
|                        
|                        
|                        
|Furniture and fixtures   |                                           |   | 63       |       |              |   | 922    |      
|                        
|                        
|                        
|                        
|Leasehold improvements   |                                           |   | 239      |       |              |   | 1,932  |      
|                         |                                           |   |          |       |              |   |        |      
|                         | Total property and equipment, at cost     |   |          | 2,885 |              |   |        | 9,591 | 
|                        
|                        
|                        
|                        
|Accumulated depreciation |                                           |   | (909     | )     |              |   | (3,294 | )    
|                         |                                           |   |          |       |              |   |        |      
|                         | Property and equipment, at net book value |   | $        | 1,976 |              |   | $      | 6,297 | 
|                         |                                           |   |          |       |              |   |        |      

Depreciation expense of $230,000 and $1.4 million, for the quarters ended
June 30, 2001 and 2000 is included in the statements of operations.
Depreciation expense of $455,000 and $2.6 million for the six month periods
ended June 30, 2001 and 2000, respectively, is included in the statements of
operations.

6. Deferred Credit

On July 1, 1999, the Company entered into a software licensing and
distribution agreement, which requires the delivery of software and other
services over the four-year term of the agreement. Total fees paid to the
Company were $8.0 million, of which $4.0 million was paid in fiscal 1999 and
$4.0 million was paid in fiscal 2000. The Company recorded these fees as a
deferred credit and is amortizing the deferred credit to operations over the
term of the contract. The Company amortized $0.5 million for the quarters ended
June 30, 2001 and 2000, and $1.0 for the six month periods ended June 30, 2001
and 2000, respectively.

7. Commitments and Contingencies

Legal Matters

The Company and certain of its prior officers and directors and one of its
current directors are defendants in a consolidated class action lawsuit (the
Consolidated Action) in the United States District Court for the Western
District of Texas captioned In re drkoop.com, Inc. Securities Litigation. The
Consolidated Action, which is maintained on behalf of purchasers of the
Companys securities, alleges violations of the federal securities laws. On
October 16, 2000, pursuant to statutory procedural requirements, the Court
selected lead plaintiffs for the plaintiff class and approved lead plaintiffs
selection of lead plaintiffs counsel. On or about January 11, 2001, the lead
plaintiffs filed a Consolidated Amended Complaint. In June of 2001, the
Consolidated Action was settled in principle, and a Memorandum of Understanding
has been executed by counsel for plaintiffs and defendants to evidence the
agreement in principle. The settlement contemplates a $4.25 million cash
payment by the Companys insurance carriers and the issuance of 4,000,000
7-year warrants to the plaintiffs with an exercise price of $2.50 per share.
The settlement is subject to execution of a definitive settlement agreement and
to court approval. In connection with the settlement, the Company recorded a
charge for the 4,000,000 warrants to be issued with a fair value of $584,000,
based on Black-Scholes valuation with the following weighted average
assumptions: zero dividend yield; 175% volatility; risk free interest rate of
5.0%; and expected life of seven years.

The Company is also a nominal defendant, and certain of its prior officers
and directors are defendants, in a derivative action lawsuit (the Derivative

8



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##### Table of Contents



Action) in the United States District Court for the Western District of
Texas captioned Manju Ahuja v. Georgen-Saad et al. The Derivative Action,
which was filed on January 9, 2001, asserted various claims that the Company
allegedly has against the defendants for alleged breaches of fiduciary duty and
other purported wrongdoings. The Companys time to respond to the complaint
has not yet expired. Separately, the Company has received a letter demanding
that it initiate a derivative action lawsuit asserting various claims that the
letter alleges that it has against certain of its prior officers and directors
for alleged breaches of fiduciary duty and other alleged wrongdoings. The
settlement in principle of the Consolidated Action described above, which
remains subject to execution of a definitive settlement agreement and court
approval, also applies to the Derivative Action.

The Companys counsel has also received letters from a representative of a
regional office of the United States Securities and Exchange Commission (the
SEC) stating that the SEC is investigating the events and circumstances
surrounding the allegations in the Consolidated Action, and asking that
voluntarily provide the SEC with information regarding such events and
circumstances. The SEC letters state that the SECs request for information
should not be construed as an indication by the SEC that any violation of the
federal securities laws has occurred. The investigation described in the
letters was commenced by order of the SEC dated August 16, 2000. The Company
has responded to the letters. In June of 2001, the SEC began taking deposition
testimony from various individuals whom the SEC believes have personal
knowledge of the events under investigation. The Company is voluntarily
cooperating with the SEC with regard to these depositions.

The Company and certain of its prior officers and directors are defendants
in a lawsuit in the District Court of Travis County, Texas (53rd Judicial
District) captioned F. Dennis Pryor III v. drkoop.com, Inc. et al. The
lawsuit, which was filed on February 14, 2001, has been brought by purchasers
of convertible promissory notes issued by the Company. Plaintiffs assert
various claims based on the allegations that they were misinformed as to the
length of the holding period upon conversion of the notes into the Companys
common stock and breach of contract. The Company believes that the claims
alleged in the lawsuit are without merit and intends to defend the lawsuit
vigorously.

The Company is a defendant in a lawsuit in the Superior Court for the
State of California and the County of Los Angeles, Central District captioned
Sunrise International Leasing Corporation vs. drDrew.com, Inc. et al. The
lawsuit, which was filed on March 2, 2001, by Sunrise International Leasing
Corporation, alleges that the Company wrongfully took possession of certain
equipment owned by Sunrise and seeks monetary damages and return of the
equipment. The Company believes that the claims alleged in this matter are
without merit and intends to defend the lawsuit vigorously.

The Company and certain of its prior officers and prior and current
directors are defendants in a class action lawsuit in the United States
District Court for the Southern District of New York captioned Gertsberg vs.
drkoop et al. The lawsuit, which was filed on July 11, 2001, has been brought
on behalf of a purported class of purchasers of the Companys common stock
between June 8, 1999, and December 6, 2000. The complaint alleges that the
defendants violated federal securities laws by issuing and selling common stock
pursuant to the Companys initial public offering without disclosing to
investors that some of the underwriters in the offering, including the lead
underwriters, had solicited and received undisclosed and excessive commissions
from certain investors. Two other class action lawsuits, each filed on
July 26, 2001 and containing similar allegations have been filed
against the Company and certain of its prior officers and prior and current directors. Similar lawsuits have been filed with respect to a
large number of companies, which completed their initial public offerings in
1999 and 2000. The Company believes that the claims alleged in the lawsuit are
primarily directed at the underwriters of the Companys initial public offering
and, as they relate to the Company, are without merit. The Company intends to
defend the lawsuit vigorously.

The Company is a defendant in a lawsuit in the Superior Court for the
State of California of the County of Los Angeles, West District, captioned
Transamerica Business Credit Corporation vs. drkoop.com, Inc. The lawsuit,
which was filed on July 3, 2001, alleges that the Company wrongfully took
possession of certain leased equipment owned by Transamerica and seeks monetary
damages in excess of $1.75 million and return of the equipment.

9



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##### Table of Contents



The Company cannot predict the outcome of the litigation matters described
above or the extent to which the costs of defense and any settlement or award
will be covered by its insurance policies. An adverse determination on one or
more of these matters could result in a material adverse effect on the
Companys financial condition and results of operations.

The Company is also involved in other claims and disputes which are
incidental to the regular conduct of business and which the Company does not
presently believe to be material.

8. Related Party Transactions

In March 2001, the Company entered into a sublease agreement with Prime
Ventures, LLC (Prime). This agreement covers approximately 5,000 square feet
of office space for the Companys principal executive offices. The sublease
agreement is effective as of November 1, 2000 and provides for rent of $18,338
per month. Pursuant to this sublease agreement, Prime will continue to use a
portion of the lease space for rent of $4,000 per month. Prime paid the
Company $4,000 and $12,000 for its share of the rent during the three and six
months ended June 30, 2001, respectively. The Company also paid Prime $19,163
and $241,328 in the three and six months ended June 30, 2001 as a reimbursement
of expenses paid by Prime on behalf of the Company. At June 30,
2001 the Company had a net payable to Prime of $15,000.

Since 1997, the Company has paid a consulting fee to a stockholder of
$20,000 per month. This agreement was amended on May 1, 2001. Total payments
to this stockholder were $60,000 and $60,000 for the quarters ended June 30,
2001 and 2000, respectively and were $112,433 (includes expenses) and $120,000
for the six months ended June 30, 2001 and 2000, respectively.

The Company expects to enter into a working capital credit facility in
connection with or following consummation of the IVonyx acquisition, and has
entered into an agreement with Commonwealth Associates, L.P., whereby the
Company engaged Commonwealth as its exclusive financial advisor with respect to
its efforts to obtain a senior secured loan and/or subordinated loan. In
consideration of such services, the Company has agreed to pay Commonwealth a
cash fee of $100,000 upon the execution of a senior secured definitive loan
document and a cash fee of $100,000 upon execution of a subordinated
definitive loan document.

In February 2001, the Company entered into an agreement with Commonwealth,
whereby it engaged Commonwealth as its exclusive financial advisor to provide
financial advisory services and other investment banking services to the
Company in connection with merger and acquisition transactions. Subject to
certain conditions, the Company has agreed to pay to Commonwealth two percent
(2.0%) of the total consideration paid or received by it in any such
transaction identified by Commonwealth but in no event less than $600,000;
provided, however, that in the event the total consideration is less than $10
million and does not involve the issuance of 25% or more of the Companys
common stock then the minimum payment payable to Commonwealth will be $200,000.
Under this agreement, the Company would be obligated to pay Commonwealth
$200,000 upon the consummation of the IVonyx transaction.

10



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##### Table of Contents



9. Supplemental Cash Flows Information

|                                                                                 |                          |  |                           |     |      |  |   |     | 
|-------------------------------------------------------------------------------- | ------------------------ |  | ------------------------- | --- | ---- |  | - | --- | 
|                                                                                 |                          |  | Six Months Ended June 30,
|                                                                                 |                          |  |                          
|                                                                                 |                          |  | 2001                      |     | 2000
|                                                                                 |                          |  |                           |     |     
|Supplemental disclosure of cash and non-cash investing and
financing activities: |                          |  |                           |     |      |  |   |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cash paid for interest   |  | $                         | 71  |      |  | $ | 168 | 
|                                                                                 |                          |  |                           |     |      |  |   |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Short
term notes payable |  | $                         | 592 |      |  | $ |    | 
|                                                                                 |                          |  |                           |     |      |  |   |    

10. Delisting

On April 30,
2001, the Companys common stock was delisted from the Nasdaq
National Market due to its failure to comply with Nasdaqs $1.00 minimum bid
price requirement.

11. Subsequent Events

Acquisition of IVonyx

On April 16, 2001, the Company entered into an agreement to purchase the
assets of IVonyx Group Services, Inc. and IVonyx, Inc. (collectively IVonyx).
IVonyx is a privately-held provider of intravenous infusion services. The Company anticipates
financing the operations with use of a credit line. The acquisition is expected
to be complete in the third quarter of 2001 and will be accounted for as a
purchase. The acquisition is subject to the satisfaction of numerous closing
conditions.

In July 2001, the Company reached an agreement to amend the original terms
of its agreement with IVonyx, thereby restructuring the amount of consideration
payable to IVonyx in connection with the acquisition of IVonyxs assets. Under
this arrangement, at the closing, the Company will pay IVonyx $2.0 million in
cash and 5,000,000 shares of its common stock. In addition, the Company may be
required to make one (and only one) of the following additional earnout payments to IVonyx as
part of the consideration in this acquisition:



| |  |  | if net income for the first 12 month period following the closing for
the IVonyx business exceeds $2.0 million but is less than $3.0 million,
the Company will be obligated to pay IVonyx an additional $666,667 plus
33% of the incremental net income above $2 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | if net income for the first 12 month period following the closing for
the IVonyx business exceeds $3.0 million but is less than $5.0 million,
the Company will be obligated to pay IVonyx an additional $2.0 million
and 2.5 million shares of its common stock; or      
|
| |  |  | if net income for the first 12 month period following the closing for
the IVonyx business exceeds $5.0 million, the Company will be obligated
to pay IVonyx an additional $2.0 million and 7.5 million shares of its
common stock.                                       

In addition, the Company and IVonyx has agreed that the stock component of
the consideration to be paid in the IVonyx transaction will be structured as a
placement of its common stock exempt from the registration requirements of the
Securities Act. The Company expects to grant piggyback registration rights
with respect to shares of its common stock issued in the transaction. The
transaction is subject to numerous closing conditions, many of which have not
yet been satisfied, and the Company cannot assure you that it will be
consummated. Because the Companys common stock is no longer listed on the
Nasdaq National Market, the Company is not required to seek approval of its
stockholders for the transaction and, consequently, the Company expects to
waive obtaining approval of the transaction by its stockholders as a condition
to its obligation to consummate the transaction. If the transaction is
consummated, the Company anticipates that Peter Molloy, the Chief Executive
Officer of IVonyx, will replace Edward Cespedes as President of the Company,
that Mr. Cespedes will become Vice Chairman of the Companys Board of Directors
and that Albert Henry, the Chairman of IVonyx, and one additional designee of
IVonyx will join the Companys Board of Directors.

11



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##### Table of Contents






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

Forward-Looking Statements

The following discussion of our 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 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 Form 10-K for the year ended
December 31, 2000.

Overview

Our objective is to become a leading provider of science-based, branded
healthcare products, services and information to the Baby Boomer generation.

Through our
E-Business Division, we operate drkoop.com, an Internet-based consumer healthcare network, and
certain other websites. Our network consists of a consumer-focused interactive
website that provides users with comprehensive health information and services,
as well as affiliate relationships with other websites, healthcare
organizations and traditional media outlets. Our website, www.drkoop.com, is a
healthcare portal which integrates dynamic health content on a wide variety of
subjects, interactive communities and tools as well as opportunities to
purchase health related products and services online.

The Company also
plans to launch its Consumer Products Division by licensing its brand
for use on certain products (including nutritional supplements) and
its Home Healthcare Division by entering into the home healthcare
services market through its pending acquisition of the operating
assets of IVonyx Group Services, Inc. However, the launch of operations of
both the Consumer Products Division and the Home Healthcare Division
have not yet occurred and are
subject to numerous risks, including, for example, the Companys need for
financing, the risks that the Company will be unable to successfully launch the
drkoop branded line of nutritional supplements, that the IVonyx transaction
will not be consummated and numerous other risks. See Risk Factors
that May Affect Future Results and Safe Harbor Statement.

Revenues

We currently derive our revenues primarily from advertising and
sponsorship arrangements and content subscription and software licensing fees.
Additionally, we generate lesser revenues from electronic commerce through
alliances with certain retailers of pharmaceuticals and related products.

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 website 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. We have utilized a
combination of third party firms and in-house staff for the sales and insertion
of advertisements on our website. Advertising rates, measured on a cost per
thousand impressions basis, are dependent on whether the impressions are for
general rotation throughout our website or for target audiences and
properties within specific areas of our website.

Sponsorship revenues are derived from long-term contracts generally
ranging from three 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 our website that enhance the promotional
objective of the sponsor. Costs associated

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

Content subscription and software licensing fees are facilitated through
our Community Partnership Program (CPP) and from the sale of calculators.
Subscriptions to our Community Partnership Program generally vary from six
months to two years. Under this program, we develop co-branded Internet pages
and software consisting of visual icons containing embedded links back to our
website 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 ratably over the term of the
CPP contract. Software licenses are also sold as a stand-alone product and are
recognized as revenue upon shipment of the software.

Contract research organizations offer comprehensive clinical trial
services, which are the basis for obtaining regulatory approval for drugs and
medical devices. The identification and enrollment of qualified individuals
into these studies is usually a time consuming and expensive process. We
created a Clinical Research Center, a portion of our website designed to
educate consumers about clinical trials, including how to find and enroll in an
appropriate trial if the individual and its physician believe that it is a
viable therapy option. We expect to receive transaction fee revenues for
assisting contract research organizations in the identification and enrollment
of qualified individuals into studies.

Since inception, we have incurred significant losses and negative cash
flow, and as of June 30, 2001, we had an accumulated deficit of approximately
$207 million. 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 the areas of expansion of our network, advertising,
distribution, brand promotion, content development, sales and marketing, and
operating infrastructure. To date, our business model has assumed that
consumers will be attracted to and use health information and related content
available on our online network which will, in turn, allow us the
opportunity to sell advertising designed to reach those consumers. However,
this business model has not been successful. Our expanded business model
assumes that we will be able to generate additional revenues from our branded
health and wellness offerings (through online and offline programs), which we
have recently initiated or intend to initiate in the future and through the
provision of home infusion services following consummation of the IVonyx
acquisition. Consummation of the IVonyx acquisition, however, is subject to
various conditions and it is possible that these conditions will not be
satisfied or waived. In addition, our agreement with IVonyx provides that
either party can terminate the agreement if the transaction has not been
consummated prior to August 11, 2001, although we have recently extended this
date to August 17, 2001. We also plan to enter the health and wellness markets
and recently entered into an exclusive manufacturing and distribution agreement
with Gemini Pharmaceuticals to manufacture, market and sell the drkoop branded
line of dietary supplements.

Our business model is not yet proven, we have limited financial resources
to implement it and we cannot assure you that we will ever achieve or sustain
profitability or that our operating losses will not increase in the future or
conform to expectations of the public markets.

During fiscal 2000 we restructured our operations and significantly
reduced staffing levels to better align our operations to the changing business
environment and our revised business model. Staffing levels decreased by 61%,
from 218 employees to 86 employees, in fiscal 2000. Further reductions in the
first and second quarters of fiscal 2001 reduced staffing levels by an
additional 37 and 3 employees, respectively. On July 31, 2001, we had further
reduced our staffing levels to 32 employees.

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We have a very limited operating history on which to base an evaluation of
our business and prospects. Our prospects must be considered in light of the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as the Internet market. In view of the
rapidly evolving nature of our business and our limited operating history, we
believe that period-to-period comparisons are not necessarily meaningful and
should not be relied upon as indications of future performance. Please see
Risk Factors.

Results of Operations

Comparison of the three months ended June 30, 2001 to the three months
ended June 30, 2000.

Revenues.

Revenues decreased by $1.7 million or 68% to $813,000 for the three months
ended June 30, 2001, as compared to $2.5 million for the comparable period of
2000.

Content subscription and software license revenues.

Revenue from content subscription and software licenses for the quarter
ended June 30, 2001 totaled $431,000 or 53% of total revenues, as compared to
$854,000, or 34% of total revenues for the quarter ended June 30, 2000. This
represents a decrease of $423,000 or approximately 50%. All content
subscription and software license revenue is considered recurring revenue. The
decrease in content subscription and software license revenue is attributable
to the decrease in partners in our Community Partner Program from 2000 to 2001.
Additionally, in December 1999, we entered into a content and tools
syndication agreement with a company in Australia. Revenue recognized under
this agreement represents $282,000, or 11% of total revenue for the quarter
ended June 30, 2000. No revenue was recognized under this contract during the
quarter ended June 30, 2001.

Advertising and sponsorship revenues.

Advertising and sponsorship revenues totaled $382,000, or 47% of total
revenues for the quarter ended June 30, 2001 as compared to $1.7 million, or
66% of total revenues, for the same period in 2000, a decrease of approximately
$1.3 million or 77%. Of this decrease, $1.2 million or 92% of the total revenue
decrease was attributable to a decrease in recurring revenues from sponsorship
agreements for the quarter ended June 30, 2001. The decrease in advertising and
sponsorship revenues was primarily due to a decrease in the number of
advertising arrangements, reflecting the general business conditions of
e-commerce companies combined with a decrease in traffic to our website
resulting in a lower number of impressions delivered.

Revenues for the quarter continued to be adversely affected by our widely
publicized liquidity shortfall and similar problems affecting some of our
customers, which resulted in extended sales cycles and extended accounts
receivable cycles. These problems continued to exist as of the date of this
report. We do not record advertising or sponsorship revenues unless we deem
collection of the related account receivable to be probable.

Included in content subscription and software licensing revenues are
barter transactions that accounted for $0 and $30,000 for the three months
ended June 30, 2001 and 2000, respectively. There were no barter revenues
related to advertising and sponsorship for the three months ended June 30, 2001
or 2000, respectively. In total, barter revenues represented $0 and 0%, and
$30,000, or 1%, of total revenues for the quarters ended June 30, 2001 and
2000, respectively.

Production, content and product development expenses.

Production, content and product development expenses consist primarily of
salaries and benefits, contract labor and consulting fees related to content
acquisition and licensing, software development, application development and
website

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operations expense. Production, content and product development expense
decreased by approximately $3.8 million, or 72%, to $1.5 million for the
quarter ended June 30, 2001 from $5.4 million for the quarter ended June 30,
2000. The decrease in production, content and product development costs was
primarily due to the reduction of personnel and the elimination of development
projects. We have outsourced our server maintenance. The reduction in personnel
and development resulted in a decrease in salaries, contract labor and
professional development fees of $1.5 million. We reduced content costs
significantly. Reductions in benefits, marketing, promotional and travel costs
also contributed to the reduction in expenses. We expect that production,
content and development expenses will decrease in the future as we realign our
cost structure with our revised business model.

Sales and marketing expenses.

Sales and marketing
expense consists primarily of salaries and related
costs, portal fees, web-based advertising, commissions, general advertising and
other related expenses. Sales and marketing expense decreased by $25.1 million,
or 99%, to $265,000 from $25.4 million for the quarters ended June 30, 2001 and
2000, respectively. The primary reasons for the decreases were elimination of
costs associated with the distribution agreements with major portals totaling
$9.0 million for the three months ended June 30, 2000 as compared to $0 for the
same period in 2001. The quarter ended June 30, 2000 also included a $9.2
million charge related to amortization of warrant expenses incurred with the
amending of our portal agreements during April 2000. We did not have a
comparable expense in 2001. During the quarter ended June 30, 2000 we
renegotiated our principal portal agreements resulting in the elimination of
most of the cash payment obligations. We experienced a significant decrease in
the number of sales and marketing personnel for the three months ended June 30,
2001, as compared to and increase during the three months ended June 30, 2000.
We anticipate that sales and marketing expenses will remain consistent, as our
portal agreements, with America Online and Go.com, were terminated during April
2000 and as we continue to realign personnel requirements and 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 decreased by $2.8
million, or 52%, to $2.6 million from $5.3 million for the quarters ended June
30, 2001 and 2000, respectively. The primary reasons for the decreases were,
decreased bad debt expenses of approximately $1.2 million, the settlement of
fees owed to a consultant at a discount of $800,000, legal and professional
fees of approximately $528,000 and decreased salaries and related expenses.
Additionally intangible asset amortization of $333,000 was eliminated for the
quarter ended June 30, 2001. In connection with the Class Action settlement
(which is subject to execution of a definitive agreement and court approval),
we took a non-cash charge of $584,000 for the fair value of the warrants
expected to be issued in connection with the settlement. We anticipate that
general and administrative expenses will continue to decrease as we continue to
realign our cost structure with our revised business plan. General and
administrative expenses include stock-based charges of $608,000 and $553,000
for the quarters ended June 30, 2001 and 2000, respectively.

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 $47,000 for the three months ended June 30,
2001 as compared to net interest income of $18,000 for the three months ended
June 30, 2000. The decrease was due to lower average net cash and cash
equivalents balances in 2000 as the Company has utilized cash generated from
our IPO completed in June 1999 to fund operating losses.

Income taxes.

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We have incurred net losses to date. As of December 31, 2000, we had net
operating loss carryforward for financial reporting purposes. We have recorded
an allowance equal to the amount of the carryforward due to the uncertain
realization of these tax benefits.

Comparison of the six months ended June 30, 2000 to the six months ended June
30, 1999.

Revenues.

Revenues decreased by $5.6 million or 77% to $1.7 million for the six
months ended June 30, 2001, as compared to $7.3 million for the comparable
period of 2000.

Content subscription and software license revenues.

Revenue from content subscription and software licenses for the six months
ended June 30, 2001 totaled $923,000 or 55% of total revenues, as compared to
$1.7 million, or 23% of total revenues for the six months ended June 30, 2000.
This represents a decrease of approximately $760,000 or 45%. All content
subscription and software license revenue is considered recurring revenue. The
decrease in content subscription and software license revenue is attributable
to the decrease in partners in our Community Partner Program from 2000 to 2001.
Additionally, in December 1999, we entered into a content and tools
syndication agreement with a company in Australia. Revenue recognized under
this agreement represents $563,000, or 8% of total revenue for the six months
ended June 30, 2000. No revenue was recognized under this contract during the
six months ended June 30, 2001.

Advertising and sponsorship revenues.

Advertising and sponsorship revenues totaled $760,000, or 45% of total
revenues for the six months ended June 30, 2001 as compared to $5.6 million, or
77% of total revenues, for the same period in 2000, a decrease of approximately
$4.3 million or 86%. The decrease in advertising and sponsorship revenues was
primarily due to a decrease in the number of advertising arrangements,
reflecting the general business conditions of e-commerce companies combined
with a decrease in traffic to our website resulting in a lower number of
impressions delivered.

Revenues for the six months continued to be adversely affected by our
widely publicized liquidity shortfall and similar problems affecting some of
our customers, which resulted in extended sales cycles and extended accounts
receivable cycles. These problems continued to exist as of the date of this
report. We do not record advertising or sponsorship revenues unless we deem
collection of the related account receivable to be probable.

Included in content subscription and software licensing revenues are
barter transactions that accounted for $0 and $60,000 for the six months ended
June 30, 2001 and 2000, respectively. Barter revenues related to advertising
and sponsorship for the six months ended June 30, 2001 or 2000 was $0 and
$97,000, respectively. In total, barter revenues represented $0 and 0%, and
$157,000, or 2%, of total revenues for the six months ended June 30, 2001 and
2000, respectively.

Production, content and product development expenses.

Production, content and product development expenses consist primarily of
salaries and benefits, contract labor and consulting fees related to content
acquisition and licensing, software development, application development and
website operations expense. Production, content and product development expense
decreased by approximately $7.7 million, or 69%, to $3.4 million for the six
months ended June 30, 2001 from $11.1 million for the quarter ended June 30,
2000. The decrease in production, content and product development costs was
primarily due to the reduction of personnel and the elimination of development
projects. We have outsourced our server maintenance. The reduction in personnel
and development resulted in a decrease in salaries, contract labor and
professional development fees $3.3 million. We reduced content costs
significantly. Reductions in benefits, marketing, promotional and travel costs
also contributed to the reduction in expenses. We expect that production,
content and development expenses will decrease in the future as we realign our
cost structure with our revised business model.

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Sales and marketing expenses.

Sales and marketing
expense consists primarily of salaries and related
costs, portal fees, web-based advertising, commissions, general advertising and
other related expenses. Sales and marketing expense decreased by $44.4 million,
or 98%, to $832,000 from $45.3 million for the quarters ended June 30, 2001 and
2000, respectively. The primary reasons for the decreases were elimination of
costs associated with the distribution agreements with major portals totaling
$17.0 million for the six months ended June 30, 2000 as compared to $0 for the
six months ended June 30, 2001. The quarter ended June 30, 2000 also included a
$10.3 million charge related to amortization of warrant expenses incurred with
the amending of our portal agreements during April 2000. We did not have a
comparable expense in 2001. During the six months ended June 30, 2000 we
renegotiated our principal portal agreements resulting in the elimination of
most of the cash payment obligations. We experienced a significant decrease in
the number of sales and marketing personnel for the six months ended June 30,
2001, as compared to and increase during the six months ended June 30, 2000.
We anticipate that sales and marketing expenses will remain consistent, as our
portal agreements, with America Online and Go.com, were terminated during April
2000 and as we continue to realign personnel requirements and 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 decreased by $4.7
million, or 47%, to $5.3 million from $10.0 million for the six months ended
June 30, 2001 and 2000, respectively. The primary reasons for the decreases
were, decreased bad debt expenses of approximately $1.2 million, the settlement
of fees owed to a consultant at a discount of $800,000, legal and professional
fees of approximately $1.6 million and decreased salaries and related expenses.
Additionally intangible asset amortization of $333,000 was eliminated for the
six months ended June 30, 2001. In connection with the Class Action settlement
(which is subject to execution of a definitive agreement and court approval)
warrants granted, we took a non-cash charge of $584,000 for the fair value of
the expected to be issued in connection with the settlement. We anticipate
that general and administrative expenses will continue to decrease as we
continue to realign our cost structure with our revised business plan. General
and administrative expenses include stock-based charges of $1.2 million for the
six months ended June 30, 2001 and 2000.

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 $182,000 for the six months ended June 30,
2001 as compared to net interest income of $323,000 for the six months ended
June 30, 2000. The decrease was due to lower average net cash and cash
equivalents balances in 2000 as the Company has utilized cash generated from
our IPO completed in June 1999 to fund operating losses.

Income taxes.

We have incurred net losses to date. As of December 31, 2000, we had net
operating loss carryforward for financial reporting purposes. We have recorded
an allowance equal to the amount of the carryforward due to the uncertain
realization of these tax benefits.

Liquidity and Capital Resources

As of June 30, 2001, we had cash and cash equivalents of approximately
$4.4 million, a reduction of $2.7 million from our cash and short term
investments of $7.1 million as of March 31, 2001 and
current cash liabilities of
$5.4 million, a decrease of $0.2 million from our current liabilities as of
March 31, 2001.

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Cash used in operating activities was $6.1 million and $34.1 million for
the six months ended June 30, 2001, and 2000, respectively. The cash used in
operating activities for these quarters was primarily attributable to funding
net operating losses, which included costs to obtain and create content,
develop products, increase our website traffic and market and promote our
brand.

Cash used in investing activities was $243,000 and $1.8 million for the
six months ended June 30, 2001 and 2000, respectively. Cash used in the
investing activities for the six months ended June 30, 2001 was primarily used
to purchase leasehold improvements in our new office, the assets of
StayfitUSA.com and acquisition costs pursuant to our pending acquisition of
IVonyx.

Cash used by financing activities was $626,000 for the six months ended
June 30, 2001, as compared to cash provided by financing activities of $2.1
million for the six months ended June 30, 2000. The cash used by financing
activities was primarily used to repay a capital lease pursuant to
consolidating and relocating our corporate office and was offset by proceeds
from the financing of our insurance policies.

We are required to pay $2 million of cash to acquire the assets of IVonyx
and will incur transaction expenses relating to acquisition. We
anticipate that the purchase of the assets of IVonyx will be consummated in the
third quarter. However, the transaction is subject to numerous closing
conditions, many of which have not yet been satisfied, and we cannot assure you
that the transaction will be consummated. As previously announced, we will
require additional debt or equity financing in the near future. We have
decided at this time to pursue a financing of between $3 million and $6 million
to address our liquidity needs. We have engaged a placement agent in
connection with the financing. We anticipate that proceeds from the financing
would be for the following purposes: payment of the cash portion of the
purchase price of the assets to be purchased from IVonyx that is due upon the
closing of IVonyx transaction; upgrading the technology systems of IVonyx after
the consummation of the IVonyx acquisition; enhancing our sales and marking
efforts to support and sustain the drkoop branded dietary supplement product
launch; and working capital and general corporate purposes, including the
payment of restructured trade payables. We currently anticipate that the
financing will consist of a newly established series of preferred stock with a
conversion price at a discount to the current market price of our common stock,
although the nature and price of the securities to be issued may be altered
depending on market conditions. In light of the current market price of our
common stock, the common stock equivalent price of the new securities will be
less than the $0.35 conversion price of our Series D Preferred Stock and the
$0.35 exercise price of warrants that we issued in August 2000. In addition,
the terms of the Series D Preferred prohibit the authorization or issuance of
securities senior to the Series D Preferred, such as those contemplated by the
financing, in the absence of appropriate waivers. As a result, we expect the
financing will be conditioned upon obtaining waivers from a requisite number of
our Series D Preferred stockholders and warrant holders of the anti-dilution
provisions of such securities and of any other applicable approval rights
holders of such securities may have relating to the financing. We believe the
such waivers will be binding on all holders of our Series D Preferred and, in
connection with the consummation of the financing, we expect to receive an
opinion of our Delaware counsel to the effect that, subject to the assumptions,
exceptions, limitations and qualifications set forth in the opinion, a Delaware
court, if properly presented with the question, would more likely than not
treat the waiver as effective under Delaware law. However, we are not assured
that a holder of Series D Preferred that does not execute a waiver will not
challenge this conclusion, though we intend to vigorously defend against any
such challenge.

The information provided in this report is not intended to and shall not
be construed as an offer to sell or a solicitation of an offer to buy any of
our securities. Offers to purchase our securities in the financing transaction,
if and when made, will be made solely to a limited number of accredited
investors in a private placement exempt from the registration requirements
under the Securities Act of 1933, as amended. These securities have not been
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from the
registration requirements of the Securities Act.

We currently anticipate that our available cash resources combined with
the estimated net proceeds from the above-referenced proposed financing will be
sufficient to pay the $2.0 million cash portion of the purchase price required
to be paid to IVonyx at the closing of the IVonyx transaction and to meet our
near-term anticipated working capital and capital expenditure requirements
(other than funding the operation of IVonyxs business, which we expect to fund
primarily from the working capital facility described below), including
approximately $250,000 of expenses we anticipate we will incur in the fourth
quarter of 2001 relating to the launch of our drkoop branded nutritional
supplements under our arrangement with

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Gemini Pharmaceuticals and $500,000 we expect to spend to upgrade IVonyxs
technology systems following the closing. However, the proposed financing may
not be consummated prior to the purchase of IVonyxs assets or at all, which
would result in our need to raise additional capital immediately following the
IVonyx acquisition. In addition, if we only close the financing on $3 million,
we will likely need to raise additional capital in the near future to implement
our proposed business plan and meet our ongoing obligations, including the
payment of restructured trade payables. Further, even if we raise $6 million,
we may need to raise additional financing if our projections are not realized,
and even if our projections are realized, we may need to raise additional
financing to meet our ongoing obligations, including the payment of
restructured trade payables.

Because we are not acquiring any of IVonyxs accounts receivable, we will
be required to fund IVonyxs operations from existing capital and through a new
bank line of credit until we are able to monetize receivables that we generates
from IVonyxs business after the closing date of the transaction. As a result,
in addition to the above-referenced proposed equity financing, we will need to
have in place a working capital credit facility secured by accounts receivable
generated from the business acquired from IVonyx following the closing date of
the IVonyx acquisition. We are in the process of negotiating a
receivables-backed line of credit to permit us to borrow against accounts
receivable that we generate from IVonyxs operations following the closing of
the transaction, and it is a condition to our obligation to consummate the
IVonyx acquisition that a $7.0 million line of credit be established to fund
the business acquired from IVonyx following the consummation of the IVonyx
acquisition. However, we cannot assure you that these negotiations will be
successful, that the terms of any such facility will be acceptable to us or
that such a facility will provide us with sufficient borrowing capacity.

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 us or our
stockholders. If such financing is not available when required or is not
available on acceptable terms, we may be unable to meet operating obligations.
See Risk Factors.

Risk Factors That May Affect Future Results and Safe Harbor Statement

Investors are cautioned that this Form 10-Q contains forward-looking
statements that involve risks and uncertainties, including the following: (i)
our plans, strategies, objectives, expectations and intentions are subject to
change at any time at the discretion of management and the Board of Directors;
(ii) our plans and results of operations will be affected by our ability to
manage our growth and working capital; (iii) our business is highly competitive
and the entrance of new competitors or the expansion of the operations by
existing competitors in our markets could adversely affect our plans and
results of operations. The risk factors described below are not a comprehensive
list of risk factors that apply to our business. These risk factors include
certain risks that are becoming applicable to our business as we implement our
expanded business model, which includes our pending acquisition of IVonyx and
offering other products and services in the offline health and wellness market
that we have not previously offered.

Risks Related to Our Business

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Our need for additional financing is uncertain as is our ability to raise
further financing.

We will require additional debt or equity financing in the near future.
As previously announced, we have decided at this time to pursue a financing of
between $3 million and $6 million to address our liquidity needs. We have
engaged a placement agent in connection with the financing. We currently
anticipate that the financing will consist of a newly established series of
preferred stock with a conversion price at a discount to the current market
price of our common stock, although the nature and price of the securities to
be issued may be altered depending on market conditions. The market price of
our common stock on August 2, 2001, was $0.126. The financing is expected to
be completed on or before the date that the purchase of the assets of IVonyx,
Inc. is consummated, although there can be no assurance that this will be the
case.

We currently anticipate that our available cash resources combined with
the estimated net proceeds from the above-referenced proposed financing will be
sufficient to pay the $2.0 million cash portion of the purchase price required
to be paid to IVonyx at the closing of the IVonyx transaction and to meet our
near-term anticipated working capital and capital expenditure requirements
(other than funding the operation of IVonyxs business, which we expect to fund
primarily from the working capital facility described below), including
approximately $250,000 of expenses we anticipate we will incur in the fourth
quarter of 2001 relating to the launch of drkoop branded nutritional
supplements under our arrangement with Gemini Pharmaceuticals and $500,000 we
expect to spend to upgrade IVonyxs technology systems following the closing.
However, the proposed financing may not be consummated prior to the purchase of
IVonyxs assets or at all, which would result in our needing to raise
additional capital immediately following the IVonyx acquisition. In addition,
if we only close the financing on $3 million, we will likely need to raise
additional capital in the near future to implement our proposed business plan
and meet our ongoing obligations, including the payment of restructured trade
payables. Further, even if we raise $6 million, we may need to raise
additional financing if our projections are not realized, and even if our
projections are realized, we may need to raise additional financing to meet our
ongoing obligations, including the payment of restructured trade payables.

In addition, because we are not acquiring any of IVonyxs accounts
receivable we will be required to fund IVonyxs operations from existing
capital until we are able to monetize receivables that we generate from
IVonyxs business after the closing date of the transaction. Such receivables
generally take 90-180 days to collect and, as a result, we will require
additional debt financing to fund IVonyxs operations following consummation of
the transaction. We are in the process of negotiating a receivables-backed
line of credit to permit us to borrow against accounts receivable that we
generate from IVonyxs operations following the closing of the transaction, and
it is a condition to our obligation to consummate the IVonyx acquisition that a
$7.0 million line of credit be established to fund the business acquired from
IVonyx following the consummation of the IVonyx acquisition. However, we
cannot assure you that these negotiations will be successful, that the terms of
any such facility will be acceptable to the Company or that such a facility
will provide the Company with sufficient borrowing capacity.

We may also need to raise additional funds to meet known needs or to
respond to future business contingencies which may include the need to:



| |  | fund more rapid expansion;                        
|- |  | --------------------------------------------------
| 
| |  | fund additional capital or marketing expenditures;

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| |  | develop new or enhance existing editorial content, features, services and products;
|- |  | -----------------------------------------------------------------------------------
| 
| |  | enhance our operating infrastructure;                                              
| 
| |  | respond to competitive pressures; or                                               
| 
| |  | acquire complementary businesses or necessary technologies.                        

If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders or debtholders. Further,
currently there is little if any ability for Internet content companies
targeted to specific consumer markets, such as us, to raise capital in the
public markets. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
editorial content, features or services, or otherwise respond to competitive
pressures would be significantly limited.

Our common stock has been delisted from the Nasdaq National Market and our
stock price has been volatile.

On April 30, 2001 our common stock was delisted from the Nasdaq National
Market due to our failure to comply with Nasdaqs $1.00 per share minimum bid
price and net tangible asset requirements. Our common stock currently trades
on the Over the Counter Bulletin Board maintained by the National Quotation
Bureau, Inc. This is generally considered to be a less efficient trading
market, and our stock price, as well as the liquidity of our common stock, may
be adversely impacted as a result.

Anti-Dilution and Other Provisions of Series D Preferred Stock and
Warrants

Under the terms of our outstanding Series D 8% Convertible Preferred Stock
(the Series D Preferred), subject to certain exceptions and in the absence of
appropriate waivers, in the event we issue securities at a common stock
equivalent price per share of less than $0.35 (such as the contemplated
offering of a new series of preferred stock), the conversion price per share of
our outstanding Series D Preferred will be reduced to the common stock
equivalent price of such new securities. The warrants which we issued in
August 2000 to purchase an aggregate of 27,278,997 shares of common stock for
an exercise price of $0.35 per share have similar anti-dilution provisions. In
addition, the terms of our Series D Preferred prohibit the authorization or
issuance of securities senior to the Series D Preferred, in the absence of
appropriate waivers. We expect the financing we are currently pursuing will be
conditioned upon obtaining waivers from a requisite number of Series D
Preferred stockholders and warrant holders of the anti-dilution provisions of
such securities and of any other applicable approval rights holders of such
securities may have relating to the financing. Accordingly, we will seek such
waivers. We believe that such a waiver will be binding on all holders of the
Series D Preferred and, in connection with the proposed financing, we expect to
receive an opinion of our Delaware counsel to the effect that, subject to the
assumptions, exceptions, limitations and qualifications set forth in the
opinion, a Delaware Court if properly presented with the question, would more
likely than not treat the waiver as effective under Delaware law. However, we
cannot assure you that a holder of Series D Preferred that does not execute a
waiver will not challenge this conclusion, though we intend to vigorously
defend against any such challenge. In addition, the Company intends to seek
waivers from holders of the above-referenced warrants of the anti-dilution
provisions contained therein.

Future sales of shares by existing stockholders as well as the issuance of
additional shares of our common stock could result in a decline in the market
price of the stock.

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Shares of our common stock eligible for future sale, including shares
issuable upon conversion of a new series of preferred stock, could have a
dilutive effect on the market for our common stock and could adversely affect
the market price. The asset purchase agreement with IVonyx contemplates that
any IVonyx stockholders that receive our stock in the transaction will enter
into a one-year lock-up agreement, which, in most instances, will prevent them
from transferring the shares of our common stock they receive for one year from
the closing date. Sales of substantial amounts of our common stock in the
public market following the asset purchase and issuance of a new series of
preferred stock could adversely affect the market price of our common stock.

In addition, we have registered the resale of 127,034,165 shares of our
common stock, including shares of common stock that are currently outstanding,
shares of common stock issuable upon conversion of our presently outstanding
Series D Preferred and shares of our common stock issuable upon exercise of
outstanding warrants. These shares comprise in excess of 50% of
our current outstanding common stock on a fully diluted basis (includes 25.7
million options available but unissued under the Companys option plans), and
the sale of such shares pursuant to the currently effective registration
statements could have a material adverse effect on the market price of our
common stock.

The Company has a limited operating history and has not attained
profitability and expects to continue to incur losses in the foreseeable
future.

Since inception, the Company has incurred significant losses and negative
cash flow, and as of June 30, 2001 the Company had an accumulated deficit of
$207.2 million. The Company has not achieved profitability and expects to
continue to incur operating losses for the foreseeable future as it
funds
operating and capital expenditures in the areas of implementing its new
business model, advertising, promoting the drkoop brand, developing content on
its website, sales and marketing, and operating infrastructure. Although the
Company is in the process of implementing an expanded business model through
the creation of its consumer products and home healthcare divisions, to date
the Companys business model had assumed that consumers will be attracted to
and use health information and related content available on its online network
which will, in turn, allow the opportunity to sell advertising and sponsorship
designed to reach those consumers. The Company is cognizant of the decline in
the Internet advertising market and is restructuring its business to reduce the
Companys dependence on advertising revenues in the future. The Internet-based
business model that the Company has pursued since inception has not been
successful and it cannot assure you that it will ever achieve or sustain
profitability or that its operating losses will not increase in the future or
be inconsistent with the expectations of the public market. The Company has
received a report from its independent auditors for its fiscal year ended
December 31, 2000 containing an explanatory paragraph that describes the
uncertainty as to its ability to continue as a going concern due to its
historical negative cash flow and because, as of the date they rendered their
opinion, the Company did not have access to sufficient committed capital to
meet its projected operating needs for at least the next twelve months.

Our pending transaction to acquire the operating assets of IVonyx may not
be consummated.

Consummation of the IVonyx transaction is subject to various conditions
and it is possible that these conditions will not be satisfied or waived. In
addition, our agreement with IVonyx provides that either party can terminate
the agreement if the transaction has not been consummated prior to August 11,
2001, although we have recently extended this date to August 17, 2001. If the
conditions in the agreement are not satisfied or waived or the transaction is
not consummated for any other reason, we will nevertheless bear significant
expenses incurred in connection with the negotiation, execution and attempted
consummation of the transaction. Failure to consummate the transaction would
delay indefinitely or prevent our entry into the home healthcare services
market, which is a significant component of our new business strategy. In
addition, failure to consummate the transaction would materially affect our
future financial results. IVonyxs business is significantly larger than ours.
IVonyx had revenues of approximately $28.5 million and net income of
approximately $1.0 million in the fiscal year ended December 31, 2000, as

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compared with the Companys revenues of approximately $10.6 million and
net loss of approximately $121.2 million for the same period.

The Companys business is difficult to evaluate because it has an
extremely limited operating history.

The Company was incorporated in July 1997 and launched its Internet
operations in July 1998. Accordingly, the Company has an extremely limited
operating history. An investor in the Companys common stock must consider the
risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies with
limited capital in new and rapidly evolving markets, including the Internet
market. These risks and difficulties include the Companys ability to:



| |  |  | attract a larger audience of users to its Internet-based consumer health network;                                                                                                                                
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | implement its expanded offline business model through the creation of its consumer products and home healthcare divisions;                                                                                       
|
| |  |  | enter markets in which the Company has not previously operated, including the consumer products and home healthcare markets;                                                                                     
|
| |  |  | increase awareness of the drkoop brand;                                                                                                                                                                          
|
| |  |  | strengthen user loyalty and increase the number of registered users;                                                                                                                                             
|
| |  |  | offer compelling online content, services, products and e-commerce opportunities;                                                                                                                                
|
| |  |  | maintain the Companys current, and develop new, affiliate and commerce relationships;                                                                                                                           
|
| |  |  | attract a large number of advertisers who desire to reach the Companys users;                                                                                                                                   
|
| |  |  | respond effectively to the offerings of competitive providers of health information on the Internet;                                                                                                             
|
| |  |  | continue to develop and upgrade the Companys technology;                                                                                                                                                        
|
| |  |  | attract, retain and motivate qualified personnel; and                                                                                                                                                            
|
| |  |  | develop new online and offline revenue streams in areas such as
consumer products, home healthcare, physician services, market research,
licensing of tools and other technology and international
opportunities.

The Company cannot
assure you that its business strategy will be
successful or that the Company will successfully address any of these risks or
difficulties. If the Company fails to address adequately any of these risks or
difficulties, its business would likely suffer. Please see Managements
Discussion and Analysis of Financial Condition and Results of Operations.

The Company currently has litigation pending against it and cannot predict
the outcome of such litigation.

The Company and certain of its prior officers and directors and one of its
current directors are defendants in a consolidated class action lawsuit (the
Consolidated Action) in the United States District Court for the Western
District of Texas captioned In re drkoop.com, Inc. Securities Litigation. The
Consolidated Action, which is maintained on behalf of purchasers of the
Companys securities, alleges violations of the federal securities laws. On
October 16, 2000, pursuant to statutory procedural requirements, the Court
selected lead plaintiffs for the plaintiff class and approved lead plaintiffs
selection of lead plaintiffs counsel. On or about January 11, 2001, the lead
plaintiffs filed a Consolidated Amended Complaint. In June of 2001, the
Consolidated Action was settled in principle, and a Memorandum of Understanding
has been executed by counsel for plaintiffs and defendants to evidence the
agreement in principle. The settlement contemplates a $4.25 million cash
payment by the Companys insurance carriers and the issuance of 4,000,000
7-year warrants to the plaintiffs with an exercise price of $2.50 per share.
The settlement is subject to execution of a definitive settlement agreement and
to court approval. In connection with the settlement, the Company recorded a
charge for the 4,000,000 warrants expected to be issued with a fair value of
$584,000, based on Black-Scholes valuation with the following weighted average

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assumptions: zero dividend yield; 175% volatility; risk free interest rate
of 5.0%; and expected life of seven years.

The Company is also a nominal defendant, and certain of its prior officers
and directors are defendants, in a derivative action lawsuit (the Derivative
Action) in the United States District Court for the Western District of Texas
captioned Manju Ahuja v. Georgen-Saad et al. The Derivative Action, which was
filed on January 9, 2001, asserted various claims that the Company allegedly
has against the defendants for alleged breaches of fiduciary duty and other
purported wrongdoings. The Companys time to respond to the complaint has not
yet expired. Separately, the Company has received a letter demanding that it
initiate a derivative action lawsuit asserting various claims that the letter
alleges that it has against certain of its prior officers and directors for
alleged breaches of fiduciary duty and other alleged wrongdoings. The
settlement in principle of the Consolidated Action described above, which
remains subject to execution of a definitive settlement agreement and court
approval, also applies to the Derivative Action.

The Companys counsel has also received letters from a representative of a
regional office of the United States Securities and Exchange Commission (the
SEC) stating that the SEC is investigating the events and circumstances
surrounding the allegations in the Consolidated Action, and asking that
voluntarily provide the SEC with information regarding such events and
circumstances. The SEC letters state that the SECs request for information
should not be construed as an indication by the SEC that any violation of the
federal securities laws has occurred. The investigation described in the
letters was commenced by order of the SEC dated August 16, 2000. The Company
has responded to the letters. In June of 2001, the SEC began taking deposition
testimony from various individuals whom the SEC believes have personal
knowledge of the events under investigation. The Company is voluntarily
cooperating with the SEC with regard to these depositions.

The Company and certain of its prior officers and directors are defendants
in a lawsuit in the District Court of Travis County, Texas (53rd Judicial
District) captioned F. Dennis Pryor III v. drkoop.com, Inc. et al. The
lawsuit, which was filed on February 14, 2001, has been brought by purchasers
of convertible promissory notes issued by the Company. Plaintiffs assert
various claims based on the allegations that they were misinformed as to the
length of the holding period upon conversion of the notes into the Companys
common stock and breach of contract. The Company believes that the claims
alleged in the lawsuit are without merit and intends to defend the lawsuit
vigorously.

The Company is a defendant in a lawsuit in the Superior Court for the
State of California and the County of Los Angeles, Central District captioned
Sunrise International Leasing Corporation vs. drDrew.com, Inc. et al. The
lawsuit, which was filed on March 2, 2001, by Sunrise International Leasing
Corporation, alleges that the Company wrongfully took possession of certain
equipment owned by Sunrise and seeks monetary damages and return of the
equipment. The Company believes that the claims alleged in this matter are
without merit and intends to defend the lawsuit vigorously.

The Company and certain of its prior officers and prior and current
directors are defendants in a class action lawsuit in the United States
District Court for the Southern District of New York captioned Gertsberg vs.
drkoop et al. The lawsuit, which was filed on July 11, 2001, has been brought
on behalf of a purported class of purchasers of the Companys common stock
between June 8, 1999, and December 6, 2000. The complaint alleges that the
defendants violated federal securities laws by issuing and selling common stock
pursuant to the Companys initial public offering without disclosing to
investors that some of the underwriters in the offering, including the lead
underwriters, had solicited and received undisclosed and excessive commissions
from certain investors. Two other class action lawsuits, each filed on
July 26, 2001 and containing similar allegations have been filed
against the Company and certain of its prior officers and prior and
current directors. Similar lawsuits have been filed with respect to a
large number of companies, which completed their initial public offerings in
1999 and 2000. The Company believes that the claims alleged in the lawsuit are
primarily directed at the underwriters of the Companys initial public offering
and, as they relate to the Company, are without merit. The Company intends to
defend the lawsuit vigorously.

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The Company is a defendant in a lawsuit in the Superior Court for the
State of California of the County of Los Angeles, West District, captioned
Transamerica Business Credit Corporation vs. drkoop.com, Inc. The lawsuit,
which was filed on July 3, 2001, alleges that the Company wrongfully took
possession of certain leased equipment owned by Transamerica and seeks monetary
damages in excess of $1.75 million and return of the equipment.

The Company cannot predict the outcome of the litigation matters described
above or the extent to which the costs of defense and any settlement or award
will be covered by the Companys insurance policies. An adverse determination
on one or more of these matters could result in a material adverse effect on
the Companys financial condition and results of operations.

The Companys business is changing rapidly, which could cause its
quarterly operating results to vary and its stock price to fluctuate.

The Companys revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, not all of which are in the
Companys control. If the Company has a shortfall in revenues in relation to
its expenses or if expenses precede increased revenues, then the Companys
business would suffer and the Company may not be able to finance its growth
plans for its business or to pay expenses in a timely manner. This would
likely affect the market price of the Companys common stock in a manner which
may be unrelated to its long-term operating performance. These conditions
existed in the quarter ended June 30, 2001.

Important factors which could cause the Companys results to fluctuate
materially include:



| |  |  | the Companys ability to raise sufficient capital and generate
sufficient revenue to continue to fund its existing operations and to
implement its new business model, including its plans in the consumer
products and home healthcare areas;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Companys ability to attract and retain users to its websites;                                                                                                                                                                            
|
| |  |  | the ability to attract and retain advertisers and sponsors and maintain advertiser and sponsor satisfaction;                                                                                                                                  
|
| |  |  | traffic levels on the Companys Internet site;                                                                                                                                                                                                
|
| |  |  | the ability to attract and retain customers and maintain customer satisfaction for the Companys existing and future on and offline offerings;                                                                                                
|
| |  |  | new Internet sites, services or products introduced by the Company or its competitors;                                                                                                                                                        
|
| |  |  | the level of Internet and other online services usage;                                                                                                                                                                                        
|
| |  |  | the ability to upgrade and develop the Companys systems and infrastructure and attract new personnel in a timely and effective manner;                                                                                                       
|
| |  |  | the ability to develop new revenue streams;                                                                                                                                                                                                   
|
| |  |  | the ability to successfully integrate operations and technologies from any acquisitions, joint ventures or other business combinations or investments;                                                                                        
|
| |  |  | technical difficulties or system unavailability affecting the operation of the Companys website; and                                                                                                                                         
|
| |  |  | the ability to attract new business partners, many of whom have
become unsure of the Companys long term viability based on recent
adverse press coverage.                                                                                    

The Companys revenues for the foreseeable future will remain principally
dependent on user traffic levels, and advertising and sponsorship activity, as
well as on the Companys offering of products and services in the health and
wellness market that the Company has not previously offered. The Company will
also be dependent on the further development of revenue streams related to
e-commerce activities, physician services, market research, sales of
interactive tools and similar technology products and the level of affiliate
subscriptions in the Companys domestic and international content partner
programs. Such future revenues are difficult to forecast due to, among other
things, the involvement of third parties and the time lag in receiving sales
data and because these are all new, developing businesses.

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Many of the expenses associated with these activities for example,
personnel costs, and technology and infrastructure costs are relatively fixed
in the short-term. The Company has endeavored over the past several quarters
to reduce the cost of operating its business. However, the Company may be
unable to adjust spending quickly enough to offset any revenue or capital
shortfall, in which case its results of operations and liquidity would suffer
materially.

The Companys expanded business model contemplates developing and offering
products and services that the Company has not previously developed and
offered, and the Company may not be able to derive incremental revenues from
these offerings.

The Companys expanded business model contemplates that the Company will
develop, offer and license its brand in connection with products and services
targeting segments of the health and wellness market, both online and offline,
that the Company has not previously developed or offered. For example, through
its consumer products division, the Company intends to target consumers for
sales of drkoop branded health and wellness products, and through its pending
acquisition of IVonyx, the Company intends to offer home infusion services to
consumers. The Company has not previously developed or offered these types of
products or services, and there can be no assurance that these offerings will
be successful or generate additional revenue. If the implementation of the
Companys expanded business model does not result in significant incremental
revenues to it, the Company will require additional equity or debt financing to
continue its operations.

The Companys pending transaction with IVonyx involves risks.

If consummated, the Companys transaction with IVonyx involves the partial
integration of two companies that have previously operated independently. The
Companys basic operations and those of IVonyx will remain essentially
independent, but portions of the administrative and support aspects of IVonyxs
business will be consolidated with those of the Company. The combination of
the companies will require, among other things, integration of the companies
management staffs, coordination of the companies sales and marketing efforts,
and identification and elimination of redundant and/or unnecessary overhead.
The Company intends to retain the services of G. Peter Molloy, Jr., currently
the President and Chief Executive Officer of IVonyx, to become the Companys
President upon the closing of the IVonyx acquisition. The Company previously
has not provided home infusion therapy services and its current management team
may not be able to perceive all of the risks inherent in a home infusion
therapy business. No assurance can be given that the Company will not
encounter difficulties in operating IVonyx or in integrating the administrative
and support functions of the two companies or that the benefits expected from
such operation and integration will be realized. Achieving these anticipated
business benefits will depend in part on whether the operations of IVonyx can
be integrated with the Companys operations in an efficient, effective and
timely manner. There can be no assurance that this will occur. Any delays or
unexpected costs incurred in connection with such operations or integration
could have a material adverse effect on the Companys and/or IVonyxs business,
results of operations or financial condition.

Under the terms of the purchase agreement, the Company is not assuming the
liabilities of IVonyx except with respect to certain enumerated liabilities
which the Company has specifically agreed to assume. IVonyx has informed the
Company that it intends to liquidate following the closing of the IVonyx
transaction. It is possible that creditors of IVonyx who are not paid in full
may seek to recover claims they may have against IVonyx from the Company.
Although the Company would challenge the validity of such claims, there is no
assurance that the Company will be successful and the Company may incur legal
fees and other expenses in connection therewith. Further, while the purchase
agreement allows the Company to seek indemnification from IVonyx for such
claims, there can be no assurance that IVonyx will have sufficient assets to
satisfy any of its indemnification obligations to the Company.

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Acquisitions could harm our business.

We acquired drDrew.com, Inc., in November 2000 and the assets of
StayfitUSA, LLC in March 2001, and in April 2001, we signed an agreement to
purchase the assets of IVonyx, which is subject to numerous closing conditions.
We expect to experience difficulty in integrating the personnel, products,
technologies or operations of these companies. For example, we recently
determined that it was not in our immediate interests to focus on the
StayFitUSA business model, and we are in the process of taking steps to unwind
that transaction. Assimilating acquired businesses involves a number of other
risks, including, but not limited to:



| |  |  | the potential disruption of our businesses;                                                                                                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the potential impairment of relationships with our employees, customers and strategic partners;                                                                                                                                                                                            
|
| |  |  | the additional expense associated with a write-off of a portion
of goodwill and other intangible assets due to changes in market
conditions, the U.S. and global economy or the economy in the markets
in which we compete or because acquisitions are not providing the
benefits expected;
|
| |  |  | unanticipated costs or the incurrence of unknown liabilities;                                                                                                                                                                                                                              
|
| |  |  | the need to manage more geographically-dispersed operations, such as IVonyxs offices in Michigan, Illinois, Tennessee, Louisiana and New Jersey;                                                                                                                                          
|
| |  |  | diversion of management resources from other business concerns;                                                                                                                                                                                                                            
|
| |  |  | the inability to retain the employees of the acquired businesses;                                                                                                                                                                                                                          
|
| |  |  | adverse effects on existing customer relationships of acquired companies;                                                                                                                                                                                                                  
|
| |  |  | the difficulty of assimilating the operations and personnel of the acquired businesses;                                                                                                                                                                                                    
|
| |  |  | our inability to incorporate acquired technologies successfully into our Internet infrastructure services; and                                                                                                                                                                             
|
| |  |  | the inability to maintain uniform standards, controls, procedures and policies.                                                                                                                                                                                                            

If we are unable to successfully address any of these risks for future
acquisitions, our business could be harmed.

The Company depends on its business relationship with its manufacturer and
distributor, Gemini Pharmaceuticals.

The Company has entered into an exclusive manufacturing and distribution
agreement with Gemini Pharmaceuticals to manufacture, market and sell the
drkoop branded line of dietary supplements. Under the agreement, Gemini is
required to pay the Company a monthly royalty fee to be mutually agreed upon on a per
product basis based on net sales revenues generated by Gemini in connection
with the agreement. Although the Company and Gemini have agreed in principle to the general
parameters of our arrangement with Gemini and have discussed the parameters of
royalty payments to be paid to us, the pricing terms for specific products have
not yet been agreed upon and will be determined on a case by case basis. In
the event we are unable to reach agreement on pricing terms for the products to
be produced by Gemini, Gemini would not be obligated to produce or distribute
drkoop branded products. Further, these products are in the process of being
developed by Gemini, and any delays in the development of these products or the
research and development process could result in a delay in the products
anticipated launch date. In addition, once the Company has approved the products
developed by Gemini, if Gemini is unable to meet the Companys manufacturing
and delivery requirements at some time in the future, the Company may suffer
interruptions of delivery of certain products while it establishes an
alternative

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source. The Company will also rely on third-party carriers for product
shipments, including shipments to and from Geminis distribution facilities.
The Company is therefore subject to the risks, including employee strikes and
inclement weather, associated with any carriers ability to provide delivery
services to meet the fulfillment and shipping needs. Failure to deliver
products to the Companys customers in a timely and accurate manner would harm
its reputation and its business and results of operations.

The Company must establish, maintain and strengthen the drkoop brand in
order to attract users to its network and generate revenue from existing and
new businesses.

In order to expand the Companys audience of users, increase its online
traffic and successfully implement its new business plans, the Company must
establish, maintain and strengthen the drkoop brand. For it to be successful
in establishing the drkoop brand, healthcare consumers must perceive it as a
reputable source of health information and products, and advertisers, merchants
and manufacturers must perceive it as an effective marketing and sales channel
for their products and services. In addition, the Company must be perceived as
being financially stable. If the Companys marketing efforts are not
productive or if the Company cannot strengthen the drkoop brand, its website
will receive a lower level of user traffic and the Company may experience a
decline in the number of advertisers, content providers and sponsors who
support its website. In addition, the Company may not be able to
implement its offline business model in the consumer products and home
healthcare areas. A key element of the Companys strategy to establish,
maintain and strengthen the drkoop brand is to encourage consumers to associate
it with Dr. C. Everett Koop. The Company believes that consumers consider Dr.
Koop to be a trustworthy and credible leader in the healthcare field, although
at times he has been at the center of controversy on various healthcare-related
issues. The Company cannot assure you, however, that Dr. Koop will maintain
this reputation, and any damage to his reputation may reduce the commercial
viability of the drkoop brand. Allegations of impropriety, even if unfounded,
could therefore damage Dr. Koops reputation and may adversely materially
affect the Companys business. In addition, the Companys relationship with
Dr. Koop terminates for any reason, the Company will need to change the name of
its website and its business, and devote substantial resources towards building
a new marketing and brand strategy.

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, Dr. 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 health and wellness fields. We recently entered into a Third
Amended and Restated Name and Likeness Agreement with Dr. Koop, which
supersedes our previous agreement with him, and which permits us to use his
image, name and likeness in connection with our medical and health information
network as well as medical, healthcare and/or wellness-related services,
products and/or commerce. Under the agreement, our use of Dr. Koops name,
image or likeness is subject to his prior written approval of the resulting
products, although he may not unreasonably withhold his approval. The Dr. Koop
agreement is exclusive and for a term of seven years, subject to automatic
renewal for additional five-year terms unless it is terminated by either party
not more than 270 and not less than 180 days before the end of each term. The
agreement further provides that Koop may only terminate in the event we are in
material breach of the contract and do not cure that material breach within a
designated timeframe or under certain other circumstances. If the Dr. Koop
agreement is terminated other than due to a breach or default by us, we will
have the right to use the name, image or likeness of Dr. Koop on a
non-exclusive basis, potentially with other users of his name and likeness.
Additionally, we will have the right to use the name, image or likeness of Dr.
Koop on an exclusive basis, with respect to any products or services involving
or related to our medical and health information network, as well as medical,
healthcare and/or wellness-related services, products, or commerce for a period
of five years after the termination of the agreement. Furthermore, Dr. Koops
name, image or likeness

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may not be licensed or otherwise conveyed to any direct competitor. If we
default in our obligations and do not promptly cure the default, Dr. Koop may
terminate the Dr. Koop agreement, no rebranding period will apply and we would
lose all rights to use Dr. Koops name, image and likeness on the 90th day
after such termination. Dr. Koop may also terminate the Dr. Koop agreement
under certain circumstances upon a change in control of our company to which
Dr. Koop does not give his prior consent, in which event the agreement
automatically terminates and all rights in the Dr. Koop name granted under the
agreement immediately revert to Dr. Koop. The rights granted to us under this
agreement are intended to survive the incapacity or death of Dr. Koop. Upon
the occurrence of any such event, all actions with respect to Dr. Koop under
the agreement, including Dr. Koops approval rights, will be exercisable on
behalf of Dr. Koop by a representative designated by Dr. Koop, currently his
son.

If our agreement with
Dr. Koop is 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 website and would need to devote substantial
resources towards building a new marketing and brand strategy. Without the
ability to use Dr. Koops name and likeness or Dr. 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 website. If Dr. Koop ends his affiliation
with us, we could suffer a significant loss of credibility and trust with
health consumers as a result. Any development that would cause Dr. Koop (or
his representative upon Dr. Koops incapacity or death) to exercise his right
to terminate his relationship with us or which otherwise would cause us to lose
the benefits of our affiliation with him would cause our business, results of
operation and financial condition to suffer. We do not maintain key person
life insurance for Dr. Koop or any of our personnel.

The Company has terminated its major portal contracts which may result in
reduced traffic to its website.

On April 9, 1999, the Company entered into agreements with Infoseek
Corporation and the Buena Vista Internet Group, units of The Walt Disney
Company, under which the Company became the exclusive provider of health and
related content on three websites of the GO Network. Under the Infoseek
agreement, the Company was also the premier health content provider for
ABCNews.com. The term of these agreements was for three years and they
required the Company to pay an aggregate of $57.9 million in cash over three years.
The Company also issued warrants to acquire 775,000 shares of its common stock
at an exercise price of $8.60 per share. Additionally, on
July 1, 1999, the
Company entered into agreements with America Online, Inc. under which the
Company became the premier health content provider across five AOL brands:
America Online, CompuServe, AOL.com, Netscape Netcenter and Digital City. The
term of the agreement was for four years and it required the Company
to pay $89
million over four years, plus issue fully vested and
performance-based warrants to purchase shares of the Company's common stock. These
transactions were premised on the assumption that the traffic to the Companys
website that would be obtained from these arrangements would permit it to earn
revenues greater than the payments made to them. These assumptions proved to
be untrue, and since the Company was unsuccessful in generating sufficient
revenues to offset these expenditures, the Company renegotiated these
agreements. Both of these agreements were renegotiated in April 2000 and are
no longer in effect.

Due to our renegotiation, the carriage of the Companys service on the GO
Network has ended and the Companys relationship with AOL has terminated. The
Company and AOL remain parties to a separate contract for which the Company
was paid $8.0 million in advance. This contract imposes obligations on the
Company relating to the development of a personal medical record tool and could
result in potential
financial penalties to the Company if such tool is not satisfactorily
developed by it.

In order to attract
and retain its audience of users, the Company must
provide health content, tools and other features, which meet the changing
demands of those users.

One of the Companys fundamental business objectives is for its website to
be a reputable source of health information and services. As with any form of
media

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that depends on consumer usage and interest, the Company has to provide
editorial content and other features such as interactive tools
between users and its website in order to continue to attract and
retain its audience of users. The Company expects that competitive factors
will create a continuing need for it to retain, improve and add to its
editorial content, interactive tools and other features. The Company will not
only have to expend significant funds and other resources to continue to
improve its network, but the Company must also properly anticipate and respond
to consumer preferences and demands. Competition for content has increased the
fees charged by high quality content providers and the Company expects this
trend to continue. The addition of new features will also require that the
Company continue to improve the technology underlying its website. These
requirements require significant time and financial commitments, and the
Company may fail to implement them quickly and efficiently. If the Company
fails to expand the breadth of its offerings quickly or if these offerings fail
to achieve market acceptance, our business will suffer significantly as a
result of decreased consumer interest in its website and a reduction in
advertising and sponsorship revenues.

The Companys online business model relies on Internet advertising and
sponsorship activities, which may not be an effective or profitable marketing
media and may create a perceived conflict of interest issue.

Although the Companys revised business plan focuses on sources of revenue
in addition to advertising, its future continues to depend in part on increased
use of the Internet as an advertising medium. The Company expects to derive a
portion of its revenues from advertising and sponsorships. The
Internet advertising market is new and rapidly evolving, and the Company cannot
yet predict its effectiveness as compared to traditional media advertising. As
a result, demand and market acceptance for Internet advertising solutions
remain uncertain. Most of the Companys 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. The Company 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 the Companys ability to generate
advertising revenues would suffer. Further, the Companys relationship with
advertisers and sponsors could be perceived as a conflict of interest by users
regardless of the safeguards put in place to segregate the Companys editorial
and commercial activities. The Company is cognizant of the decline in the
Internet advertising market and will strive to reduce its dependence on
advertising revenues in the future.

Companies use various pricing models to sell advertising on the Internet.
For example, some arrangements rely on the display of an impression to a
user, while others require that the user gain access to the advertisers
website by clicking on a direct link located on the Companys website. It is
difficult for the Company to predict which, if either, will emerge as the
industry standard, thereby making it difficult to project its future
advertising rates and revenues. Moreover, measurements of site visitors may
not be accurate or trusted by our advertising customers. There are no uniformly
accepted standards for the measurement of visitors to a website, no
accurate measurement of visitors to a website, and no one accurate measurement for any given Internet visitor metric. The Companys
advertising revenues could also suffer in the same way if the Company is unable
to adapt to new forms of Internet advertising. Moreover, filter software
programs have become available in the marketplace that filter, limit or prevent
advertising from being delivered to an Internet users computer. Widespread
adoption of this software could halt the commercial viability of Internet
advertising.

The process of managing advertising is an increasingly important and
complex task. The Company has retained L90, Inc. to perform ad sales representation
and to act as

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its exclusive third party advertising sales agent
for its website. There
can be no assurance that the Company or third party companies will effectively manage
and measure the placement of advertisements on the Companys websites and that errors
will not occur. The Company cannot assure you that there will be no miscalculations of
these or other measurements in the future. Any miscalculations or other
problems with reporting these measurements could have a material adverse effect
on the Companys business, financial condition or stock price.

In order to execute the Companys growth plan the Company must attract,
retain and motivate highly skilled employees, and the Company faces significant
competition from other Internet-related, brick and mortar and
traditional media companies in doing so.

The Companys ability to execute its growth plan and be successful also
depends on its continuing ability to attract, retain and motivate
highly skilled employees. In addition to Dr. C. Everett Koop, Chairman of the
Board, the Company depends on the continued services of key board members, its
senior management and other personnel. The Company has faced particular
challenges recently in light of its well-publicized difficulty in obtaining
funds and capital, its low stock price which has fallen below the exercise
price of most of the stock options granted to employees and a very competitive
labor market for technology workers. In addition, market trends indicate
that many employees are generally seeking jobs with traditional brick and
mortar companies, which are perceived as providing better job security, as
opposed to Internet-related businesses. Recently, a significant number of the
Companys employees have been terminated in cost cutting efforts or voluntarily
departed to pursue other opportunities. The Company may be unable to retain
its key employees or attract, assimilate or retain other highly qualified
employees in the future. The Company has from time to time in the past
experienced, and the Company expects to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. If the Company does not succeed in attracting new personnel or
retaining and motivating its current personnel, the Company will experience
difficulty in sustaining the level and quality of its business.

The Company depends,
and will continue to depend on third-party relationships, many of which are
short-term or terminable, to generate advertising and provide it with content.

The Company depends, and will continue to depend, on a number of
third-party relationships to increase traffic on www.drkoop.com and
www.drDrew.com and generate advertising and other revenues. Outside parties on
which the Company depends include unrelated website operators that provide
links to the Companys website, providers of health content and portals which
provide it with the ability to operate and run the website. Many of the
Companys arrangements with third-party Internet sites and other third-party
service providers are not exclusive and are short-term or may be terminated at
any time by either party. The Company cannot assure you that third parties
regard the Companys relationship with them as important to their own
respective businesses and operations. They may reassess their
commitment to the Company at any time in the future and may develop their own competitive services or
products. In addition, there can be no assurance that the businesses of such
operators and providers will remain viable and continue operations in the
future.

The Company intends to produce only a portion of the health content that will
be found on its network. The Company 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. The Companys content
agreement for the Drug Checker feature on the Companys website is up for
renewal in the next year. Failure to renew existing content relationships may
result in a competitor acquiring a key content provider on an exclusive basis.
This could make the Companys network less attractive or useful
to end
users, which could reduce the Companys advertising and e-commerce revenues.

The Company cannot assure you that it will be able to maintain
relationships with third parties that supply it with content, carriage,
software or related products or services that are crucial to the Companys
success, or that such content, carriage, software, products or services will be
able to sustain any third-party claims or rights against their use. Also, the
Company cannot assure you that

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the content, software, products or services of those companies that
provide access or links to the Companys website will achieve market acceptance
or commercial success. As a result, the Companys existing relationships might
not result in sustained business partnerships, successful product or service
offerings or the generation of significant revenues for it.

If the Companys ability to expand its network infrastructure is
constrained in any way the Company could lose customers and suffer damage to
its operating results.

Presently, a relatively limited number of consumers use the Companys
website. The Company must continue to expand and adapt its network
infrastructure to accommodate additional users, increased transaction volumes
and changing consumer and customer requirements and preferences. The Company
may not be able to accurately project the rate or timing of increases or
changes, if any, in the use of its website or to expand and upgrade its systems
and infrastructure to accommodate such increases or changes, if any. The Companys
systems may not accommodate increased use while maintaining acceptable overall
performance. Service lapses could cause its users to instead use the online
services of its competitors.

Many of the Companys service agreements, such as those with its online
communitys partners, contain performance standards. If the Company fails to
meet these standards, its partners could terminate their agreements with it or
require that the Company refund part or all of the license fees. The loss of
any of the Companys service agreements and/or associated revenues would
directly and significantly impact the Companys business. The Company may be
unable to expand or adapt its network infrastructure to meet additional demand
or its customers changing needs on a timely basis, at a commercially
reasonable cost, or at all.

The Company may have liability for information it provides on its website
or which is accessed from its website.

Because users of the Companys website access health content and services
relating to a condition they may have or may distribute the Companys content
to others, third parties may sue it for defamation, negligence, copyright or
trademark infringement, personal injury or other matters. The Company could
also become liable if confidential information is disclosed inappropriately.
These types of claims have been brought, sometimes successfully, against online
service providers in the past. Privacy concerns have also resulted in recent
actions by the Federal Trade Commission and other government agencies. Others
could also sue it for the content and services that are accessible from the
Companys website through links to other websites or through content and
materials that may be posted by its users in chat rooms or bulletin boards.
While the Companys agreements, including those with content providers, in some
cases provide that the Company will be indemnified against such liabilities,
such indemnification, if available, may not be adequate. The Companys
insurance may not adequately protect it against these types of claims.
Further, its business is based on establishing the drkoop network as a
trustworthy and dependable provider of health information and services.
Allegations of impropriety, even if unfounded, could therefore damage the
Companys reputation and business.

Any failure or inability to protect the Companys intellectual property
rights could adversely affect the Companys business.

The Companys intellectual property is important to its business. The
Company relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect the Companys
intellectual property. The service mark DRKOOP.COM is registered in the
United States, and other applications are pending for other service marks which
incorporate the Dr. Koop name. The Company also owns applications and
registrations in the United States for other marks. The Companys right to use
the Dr. Koop name is granted to it under an agreement with Dr. C. Everett Koop.
If the Company loses its right to use the Dr. Koop name, the Company would be
forced to discontinue use of the service marks, change its corporate name and
adopt a new domain name. These

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changes could confuse current and potential customers and would adversely
impact the Companys business. The Company also relies on a variety of
technologies that are licensed from third parties, including the Companys
database and Internet server software, which is used in its website to perform
key functions. These third-party licenses may not be available to it on
commercially reasonable terms in the future.

We do not expect to pay dividends, and investors should not invest in 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. Holders of Series D Preferred are entitled to receive quarterly
dividends at the rate of 8% per annum and are payable only when, as, and if
declared by our Board of Directors. Such dividends are noncumulative. No
dividends may be paid on any common stock or any security junior to the Series
D Preferred unless all dividends on the Series D Preferred for past and current
dividends have been paid. Investors should not purchase our common stock with
the expectation of receiving cash dividends. In addition, if the Company
issues additional shares of preferred stock in the future, holders of such shares would likely be entitled to a dividend
preference as well over holders of common stock.

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 a 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 may ultimately
impair our business, results of operations and financial condition.

Risks Related to The Companys Industry

E-Business Division

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

To be successful, the Company must attract to its network a significant
number of consumers as well as other participants in the health industry. To
date, consumers have generally looked to healthcare professionals as their
principal source for health and wellness information. The Companys business
model assumes that consumers will use health information available on its
network, that consumers will access important health needs through electronic
commerce using its website, and that local healthcare organizations and other
participants in the healthcare industry will affiliate with it. The Companys
business model also assumes that the services provided on its network will be
supported in part by advertising, sponsorship and similar activities purchased
by companies with commercial interests in the healthcare industry and that
consumers will accept this practice. The Companys prior business model has
been proven to be unsuccessful and the Company has not reached break-even as to
earnings or cash flow. In addition, its revenues which have historically been
and continue to be primarily based on advertising and e-commerce, have declined
significantly in the last twelve months. The Companys revenues for

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the quarter ended June 30, 2001 were $813,000 as compared to revenues of
$2.5 million for the quarter ended June 30, 2000.

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

The number of Internet websites offering users health content, products
and services is vast and increasing. These companies compete with the
Company for
users, advertisers, e-commerce transactions and other sources of online
revenues. In addition, traditional media and healthcare providers compete for
consumers attention both through traditional means as well as through new
Internet initiatives. The Company believes that competition for health
consumers will continue to increase as the Internet develops as a communication
and commercial medium. The Company competes directly for users, advertisers,
e-commerce merchants, syndication partners and other affiliates with numerous
Internet and non- Internet businesses, including:



| |  |  | health-related online services or websites targeted at consumers,
such as healthcentral.com, healthgate.com, intelihealth.com,
mayohealth.org, thriveonline.com and webmd.com;                                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | online and Internet portal companies, such as America Online, Inc.;
Microsoft Network; Yahoo! Inc.; Excite@Home, Inc.; Lycos Corporation and
GO.com, which commonly distribute multiple sources of health data;
|
| |  |  | electronic merchants and conventional retailers that provide health
goods and services competitive to those available from links on its
website;                                                               
|
| |  |  | hospitals, HMOs, managed care organizations, insurance companies and
other healthcare providers and payors which offer healthcare information
through the Internet; and                                        
|
| |  |  | healthcare information technology organizations such as Healtheon/WebMD, Cerner, IDX and Eclipsys.                                                                                                             

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



| |  |  | the ability to offer a wider array of online 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, the Company must respond promptly and effectively to
the challenges of technological change, evolving standards and the
its competitors innovations by continuing to enhance its products and services, as
well as its distribution, sales and marketing channels. The Company 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 the Companys market share or a reduction
in its prices or margins. Competition is likely to increase significantly as
new companies enter the market and current competitors expand their services or
consolidate with each other or form other strategic alliances.

There is no established market for the consumer health e-commerce
transactions the Company facilitates.

The Company plans to develop relationships with retailers, manufacturers
and other providers to offer health products and services through direct links
from its website to their website. Such a strategy involves numerous risks and
uncertainties. There is no established business model for the sale of health
products or services over the Internet. Accordingly, the Company has limited
experience in the sale of products and services online and the development of
relationships with retailers, manufacturers or other providers of such products
and services, and the Company cannot predict the rate at which consumers will
elect to

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engage in this form of commerce or the compensation that the Company will
receive for enabling these transactions.

Consumers may sue the
Company if any of the products or services that are sold
through its website are defective, fail to perform properly or injure the user,
even if such goods and services are provided by unrelated third parties. Some
of the Companys agreements with manufacturers, retailers and other providers
contain provisions intended to limit its exposure to liability claims. These
limitations may not however prevent all potential claims, and the Companys
insurance may not adequately protect it from these types of claims. Liability
claims could require it 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 the Companys reputation and
its business.

Internet capacity constraints may impair the ability of consumers to
access the Companys website, which could hinder its ability to generate
advertising revenues.

The Companys success will depend, in 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;                                                           
|
| |  |  | delays in the development or
adoption of new standards and protocols required to handle increased
levels of Internet activity; and
|
| |  |  | 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 support the demands placed on it.

The Companys online business is dependent on the continuous, reliable and
secure operation of its website and related tools and functions it provides as
well as the Internet generally. The Company relies on the Internet and,
accordingly, depends 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. There have also been recent
incidents involving significant disruptions to websites and the Internet
generally caused by hackers through the spread of computer viruses, denial of
service attacks or similar actions which compromise network security and
reliability or damage the personal computers and networks of users. The
Company has also suffered service outages from time to time, although to date
none of these interruptions has significantly harmed its business operations or
financial condition. To the extent that the Companys service is interrupted,
its users will be inconvenienced, the Companys commercial customers will
suffer from a loss in advertising or transaction delivery may be diminished and
the Companys reputation may be damaged. Some of these outcomes could directly
result in a reduction in its stock price, significant negative publicity and
litigation. The Companys 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. The Company does not have full
redundancy for all of its computer and telecommunications facilities and does
not maintain a back-up data facility. The Companys business interruption
insurance may be inadequate to protect it in the event of a catastrophe. The
Company also depends on third parties to provide potential users with web
browsers and Internet and online services necessary for access to its website.
In the past, the Companys users have occasionally experienced difficulties
with Internet and other online services due to system failures, including
failures unrelated to its systems. Any sustained disruption in Internet access
provided by third parties could adversely impact our business for the same
reasons as stated above.

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Growth of Internet businesses, particularly in the healthcare sector, may
be impacted by privacy or security concerns.

In February of 2000, concerns about access to consumers private data on
the Internet were raised through published reports regarding whether the
practices of a large third-party ad serving corporation could result in the
identification of individual consumers by their Internet behavior. In response
to these reports, the Company took immediate action, such as designating a
Chief Privacy Officer; launching a privacy center, which explains to consumers
issues regarding online privacy; releasing a more detailed privacy statement;
and severing our business relationship with our ad serving company and
replacing it with an in-house ad serving solution, which was subsequently moved
to another third-party ad server with whom the Company has successfully
negotiated a specialized privacy protection agreement. Pursuant to this
agreement, personally identifiable information will not be collected from
consumers without the specific opt-in consent of the consumer for the purpose
intended, and furthermore, where such information is voluntarily provided by
the consumer, it will be protected and not shared without a specific
consent by
the consumer to do so. In December 1999, the Company helped form a consortium
of over a dozen e-Health companies called Hi-Ethics, which is dedicated to
adopting best practice standards for companies in the sector. The group
ratified and released privacy principles related to content, advertising,
electronic commerce, and connectivity in the second quarter of 2000.

The Company retains confidential customer information in its database, and
there is no way of determining whether the usage of health websites may be
adversely impacted by such concerns. While the Companys privacy statement
makes clear that no personally identifiable user data will be shared without
such individuals express consent, it is critical that the facilities and
infrastructure which allow it to enforce this policy remain secure and are
perceived by consumers to be secure. Despite the implementation of privacy and
security measures, its infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors or similar disruptive events. Security
and privacy are important concerns for the Company especially as it
develops
additional interactive tools which will retain private user data on its system,
and any perception that this personal data is not private and secure would
likely be a severe public relations problem for the Company and its brand.

Since the Company
operates an Internet-based network, its business is
subject to government regulation relating to the Internet, which could impair
its 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 the Company
operates a health network over the Internet, the Companys
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 health-related products and services online, covering areas such
as:



| |  |  | the regulation of medical devices;                                                                           
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | the practice of medicine and pharmacology and the sale of controlled products such as pharmaceuticals online;
|
| |  |  | the regulation of government and third-party cost reimbursement; and                                         
|
| |  |  | the regulation of insurance sales.                                                                           

FDA Regulation of Medical Devices. The U.S. government considers some
computer applications and software to be medical devices and subjects these
medical device applications and software to regulation by the United States
Food and Drug Administration. The Company does not believe that the FDA will
regulate the Companys current applications or services; however, the Companys
applications and services may become subject to FDA regulation. Additionally,
the Company may expand

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its application and service offerings into areas that subject it to FDA
regulation. The Company has no experience in complying with FDA regulations.
The Company believes that complying with FDA regulations would be time
consuming, burdensome and expensive and could delay or prevent the Companys
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. The
Company has endeavored to structure its website and online 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 impact on our business by
resulting in lawsuits or otherwise requiring that the Company substantially
change its business to comply with those statutes. If the Company were
required to comply with these licensing statutes, compliance could be costly or
not possible. Further, any liability based on a determination that the Company
engaged in the practice of medicine without a license may be excluded from
coverage under the terms of the Companys current general liability insurance
policy. The operations of the Companys Home Healthcare Division, as described
below, will be subject to these legal requirements.

State Insurance Regulation. In addition, the Company markets insurance
online, offered by unrelated third parties, and receives 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 the
Companys activities. The Company has not sought or received a license under
any states insurance laws. If the Company were required to comply with such
licensing laws, compliance could be costly or not possible.

Home Healthcare Division

The home healthcare market is competitive and subject to lawsuits.

The segments of the offline healthcare market in which IVonyx operates are
highly competitive and are becoming more competitive. In each of our lines of
business, there are relatively few barriers to entry. Our competitors include
national providers and local providers of healthcare products. Also, infusion
therapy is being affected by increasing availability in oral form of
medications, which previously were available only by intravenous infusion.

In addition, participants in the healthcare market are subject to lawsuits
based upon alleged malpractice, product liability, negligence or similar legal
theories, many of which involve large claims and significant defense costs. We
face the risk that such claims will increase once we enter the home infusion
therapy market and other sections of the health and wellness market. We intend
to maintain insurance against professional and product liability; however, a
successful claim substantially in excess of our insurance coverage limits could
have a materially adverse effect upon us. Further, insurance policies are
subject to annual renewal, and it may not be possible to obtain liability
insurance in the future on acceptable terms to us or at all. Also, claims against
us, regardless of their merit or eventual outcome, may have a material adverse
effect upon our reputation.

Complex laws and regulations are applicable to IVonyxs business and
future changes in those laws and regulations could have a material adverse
effect on us.

The healthcare industry, including home infusion therapy services, is
subject to stringent laws and regulations at both the federal and state levels,
requiring compliance with licensing and certification, complex reimbursement,
record-keeping, health information exchange and medical waste disposal and
safety requirements. We presently anticipate that we can procure all necessary
permits, licenses and certifications; however, failure to obtain, renew or
maintain required regulatory approvals or licenses could have a material
adverse effect on our business.

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Federal law sets forth health information standards to provide guidelines
for electronic transactions and code sets, unique provider, employer, health
plan and patient identifiers, security and electronic signatures as well a
protecting privacy in the exchange of identifiable health information. The
Department of Health and Human Services has released two rules mandating
compliance with federal standards. First, if the IVonyx transaction is
consummated, we will be required to implement the uniform standards governing
common healthcare transactions by October 16, 2002 and to comply with new
standards relating to the privacy of the use and disclosure of individually
identifiable health information by April 14, 2003. Rules governing the
security of health information have been proposed but have not yet been issued
in final form.

At this time, we anticipate that we will be able to comply with the new
federal requirements following our asset acquisition of IVonyx; however
although we cannot estimate the cost of compliance with the new and proposed
requirements, it will likely have a significant effect on the manner in which
IVonyx exchanges health information. The cost of compliance, therefore, could
have a material adverse effect on our business, financial condition, results of
operation or cash flow. Our failure to comply with the new federal laws may
result in criminal penalties and civil sanctions.

Financial relationships between IVonyx and physicians or other referral
sources are subject to strict and ambiguous limitations under Medicare and
Medicaid fraud and abuse laws and under the so-called Stark Law. In addition,
the provision of services, pharmaceuticals and equipment are subject to strict
licensing and safety requirements. Following our asset acquisition of IVonyx,
violations of these laws and regulations could subject us to severe fines,
facility shutdowns and possible exclusion from participation in federal
healthcare programs such as Medicare and Medicaid. Changes in these healthcare
laws, new interpretations of the existing laws, or changes in payment
methodologies may have a significant effect on our business and results of
operations.

Pricing and payment pressures could have a material adverse effect on us.

The healthcare industry is currently experiencing market-driven reforms
placing pressure on healthcare providers to reduce healthcare costs. These
market-driven reforms are resulting in industry-wide consolidation. The effect
of the consolidation may create downward pressure on home healthcare margins as
payors such as managed care organizations and suppliers exert pricing pressures
on home healthcare providers. IVonyxs commercial and managed care provider
customers represented in excess of 80% of IVonyxs annual revenues in 2000.
Also, the home healthcare industry is generally characterized by long
collection cycles for accounts receivables due to the complex and time
consuming requirements for obtaining reimbursement from payors. In connection
with the asset acquisition of IVonyx, we are not acquiring IVonyxs accounts
receivables. Accordingly, following our asset acquisition of IVonyx, we will
have to build up the receivables base from which we can collect against which
we can borrow. Because we will incur operating expenses relating to IVonyxs
business following consummation of the acquisition before the receivables base
is built up and collected, we expect that our working capital will be initially
negatively impacted. While state prompt-payment laws and managements
collection efforts can help accelerate the timing of payment, no assurances can
be made that these efforts will be successful in reducing the level of accounts
receivables. In addition, few barriers to entry exist in local home healthcare
markets. As a result, we may face increased competition in the future that may
further increase pricing pressure and limit our ability to maintain or increase
our market share. The ultimate timing and effect of these market-driven
reforms cannot be predicted. These reforms may result in a material adverse
effect on our business, results of operation or financial condition.

Healthcare reform may materially affect our business.

The healthcare industry is subject to a dynamic regulatory environment.
Changes in the law, new interpretations of existing laws or changes in
reimbursement methodologies may have a significant effect on the definition of
allowable activities, the costs of doing business and the amount of
reimbursement from

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government and other third-party payors. Efforts to contain the federal
budget, including the Medicare and Medicaid programs, have brought about
healthcare reform proposals. State legislators have also, from time to time,
considered healthcare reform proposals. Congress and state legislators can be
expected to continue to review areas ripe for reform in healthcare delivery
systems and reimbursement methodologies and the public will continue to debate
these issues in the future. The ultimate timing and effect of federal and
state legislative efforts is uncertain. Any such legislation may result in a
material adverse effect on our business, results of operation, cash flow or
financial condition.

Consumer Products

The dietary
supplement market is highly competitive and we may
not have the resources to compete effectively.

Numerous companies, most of which are significantly larger in size and
possess greater financial, personnel, distribution and other resources than us,
compete with us in the development, manufacture and marketing of dietary
supplements. These companies include large and regional supplement
manufacturers, pharmaceutical companies and food distributors, among others.
We do not currently have operating experience in this area. Competition from
such companies could have a material adverse effect on us because such
companies have greater financial and other resources available to them and
possess manufacturing, distribution and marketing capabilities far greater than
ours. We also face competition in both the health food store and mass market
distribution channels from private label dietary supplements and multivitamins
offered by health and natural food store chains, drugstore chains, mass
merchandisers and supermarket chains.

The Companys future sales of the dietary supplements and other future
consumer products are dependent on consumer and industry perception of these
products efficacy, safety and quality.

While the Company intends that all drkoop branded dietary supplement
formulations bearing the drkoop brand be based on scientific evidence, future
sales will be highly dependent upon consumers perception of the safety and
quality of drkoop branded products as well as similar products distributed by
other companies (which may not adhere to the same quality standards as drkoop
branded products). The Company could be adversely affected in the event any of
the drkoop branded products or any similar products distributed by other
companies should prove or be asserted to be ineffective or unsafe to consumers.
In addition, because of the Companys dependence upon consumer perceptions,
adverse publicity associated with illness or other adverse effects resulting
from consumers failure to consume the drkoop branded products as suggested by
the manufacturer of such products or other misuse or abuse of the drkoop
branded products or any similar products distributed by other companies could
have a material adverse effect on the Companys results of operations and
financial condition. Furthermore, the Company believes the recent growth
experienced by the nutritional supplement market is based in part on national
media attention regarding recent scientific research suggesting potential
health benefits from regular consumption of certain vitamins and other
nutritional products. Such research has been described in major medical
journals, magazines, newspapers and television programs. The scientific
research to date is preliminary, and there can be no assurance of future
favorable scientific results and media attention or of the absence of
unfavorable or inconsistent findings.

Product Liability

The Company faces risk of exposure to product liability claims in the
event that the use of drkoop branded products results in injury. The Company
anticipates becoming an additional insured under a new insurance policy to be
obtained by Gemini Pharmaceuticals, with which it has contracted to manufacture
its dietary supplement product line. In addition, Gemini has agreed to
indemnify the Company for injuries to third parties from products
covered by its
agreement with Gemini. However, there can be

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no assurance that such insurance will become available through Gemini or
if available will be adequate to cover liabilities or that Gemini will be able
to comply with its indemnification obligations in the absence of insurance
coverage. Even if the insurance coverage through Gemini becomes unavailable, there
can be no assurance the Company can obtain insurance at a reasonable cost or at
all.

Complex laws and regulations are applicable to the Companys consumer
product business and future changes in those laws and regulations could have a
material adverse effect on it.

The Company has entered into a license agreement with Gemini Pharmaceuticals
pursuant to which it will license the drkoop brand to Gemini in connection with
the production, promotion, advertisement, sale and distribution of certain
dietary supplements. The Company will participate in the ongoing advertisement and
marketing efforts relating to these products. Gemini will be responsible for
manufacturing, packaging, shipping, distribution and sale of the products,
among other responsibilities.

The Federal Food and Drug Administration (FDA) regulates the
formulations, manufacturing and labeling of dietary supplements in the United
States under the Federal Food, Drug and Cosmetic Act, or FFDCA, and the
regulations promulgated thereunder. The FFDCA defines the terms food and
dietary supplement and sets forth various conditions that unless complied
with may constitute adulteration or misbranding of such products. In October
1994, the FFDCA was amended by enactment of the Dietary Supplement and Health
Education Act (DSHEA), which introduced a new statutory framework governing
the composition and labeling of dietary supplements. DSHEA created a new class
of dietary supplements, which includes vitamins, minerals, herbs, amino acids
and other dietary substances for human use to supplement the diet.
Significantly, the legislation grandfathers, with certain limitations, dietary
ingredients on the market before October 15, 1994. A dietary supplement which
contains a new dietary ingredient, one not on the market before October 15,
1994, requires evidence of a history of use or other evidence of safety
establishing that it will reasonably be expected to be safe.

In addition, dietary supplements are subject to the Nutrition Labeling and
Education Act of 1990 (NLEA), which amended the FFDCA, that prohibits the use
of any health claims for dietary supplements, unless the health claim is
supported by significant scientific agreement and is either pre-approved by the
FDA or the subject of substantial government scientific publications and a
notification to the FDA. However, the DSHEA amends the NLEA by providing that
statements of nutritional support may be used in labeling for dietary
supplements without FDA pre-approval if certain requirements, including
prominent disclosure on the label of the lack of FDA review of the relevant
statement, possession by the marketer of substantiating evidence for the
statement and post-use notification to the FDA, are met. Such statements
commonly referred to as structure function claims may describe how particular
nutritional supplements affect the structure, function or general well being of
the body.

The FDA has broad authority to enforce the provisions of the laws and
regulations applicable to dietary supplements, including the power to seize
adulterated or misbranded products or unapproved new drugs, to request their
recall from the market, to enjoin further manufacture or sale, to publicize
information about a hazardous product, to issue warning letters, and to
institute criminal proceedings. The Company can provide no assurance that either the
Company or Gemini will meet all FDA requirements applicable to their respective
obligations under the license agreement. Failure of either party to meet such
FDA requirements could have a material adverse effect on the
Companys results of
operations and financial condition.

The Federal Trade Commission (FTC), which exercises jurisdiction over
the advertising of dietary supplements, has in the past several years
instituted enforcement actions against several dietary supplement companies for
false and misleading advertising of certain products. These enforcement
actions have resulted in consent decrees, agency cease and desist orders,
injunctions, and the payment of fines by the companies involved. In addition,
the FTC has increased its scrutiny of infomercials and Internet sites. The FTC
has been very active in enforcing its requirements that companies possess
adequate substantiation in their files for claims in product advertising. The Company
can provide no assurance that the FTC will not

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scrutinize the advertising of the products that are the subject of the
licensing agreement and pursue enforcement actions against the Company or
Gemini in the future.

The Company may also be subject to additional laws and regulations administered by
the FDA, the FTC, or other regulatory authorities, such as the individual state
attorney generals who have authority under individual state consumer protection
laws to impose injunctions and fines within their states. In addition, if the Company
elects to distribute or permit the distribution of drkoop branded products in
countries other than the United States the Company would become subject to regulatory
requirements in those countries. The Company is unable to predict the nature of such
laws, regulations, interpretations or applications, nor can the Company predict what
effect additional governmental regulations or administrative orders, when and
if promulgated, may have on its business. Among other things, they could
require the reformulation of certain products to meet new standards, recall or
discontinuance of certain products not able to be reformulated, imposition of
additional record keeping requirements, expanded documentation of the
properties of certain products, expanded or different labeling, and additional
scientific substantiation. Any or all of these requirements could have a
material adverse effect on the Company's results of operations and financial condition.

Forward-looking statements contained in this report may not be realized.

This report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risks faced
by us described above and elsewhere in this Form 10-Q. We undertake no
obligation after the date of this report to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.




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.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

The Company and certain of its prior officers and directors and one of its
current directors are defendants in a consolidated class action lawsuit (the
Consolidated Action) in the United States District Court for the Western
District of Texas captioned In re drkoop.com, Inc. Securities Litigation. The
Consolidated Action, which is maintained on behalf of purchasers of the
Companys securities, alleges violations of the federal securities laws. On
October 16, 2000, pursuant to statutory procedural requirements, the Court
selected lead plaintiffs for the plaintiff class and approved lead plaintiffs
selection of lead plaintiffs counsel. On or about January 11, 2001, the lead
plaintiffs filed a Consolidated Amended Complaint. In June of 2001, the
Consolidated Action was settled in principle, and a Memorandum of Understanding
has been executed by counsel for plaintiffs and defendants to evidence the
agreement in principle. The settlement contemplates a $4.25 million cash
payment by the Companys insurance carriers and the issuance of 4,000,000
7-year warrants to the plaintiffs with an exercise price of $2.50 per share.
The settlement is subject to execution of a definitive settlement agreement and
to court approval. In connection with the settlement, the Company recorded a
charge for the 4,000,000 warrants expected to be issued with a fair value of
$584,000, based on Black-Scholes valuation with the following weighted average
assumptions: zero dividend yield; 175% volatility; risk free interest rate of
5.0%; and expected life of seven years.

The Company is also a nominal defendant, and certain of its prior officers
and directors are defendants, in a derivative action lawsuit (the Derivative
Action) in the United States District Court for the Western District of Texas
captioned Manju Ahuja v. Georgen-Saad et al. The Derivative Action, which was
filed on January 9, 2001, asserted various claims that the Company allegedly
has against the defendants for alleged breaches of fiduciary duty and other
purported

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wrongdoings. The Companys time to respond to the complaint has not yet
expired. Separately, the Company has received a letter demanding that it
initiate a derivative action lawsuit asserting various claims that the letter
alleges that it has against certain of its prior officers and directors for
alleged breaches of fiduciary duty and other alleged wrongdoings. The
settlement in principle of the Consolidated Action described above, which
remains subject to execution of a definitive settlement agreement and court
approval, also applies to the Derivative Action.

The Companys counsel has also received letters from a representative of a
regional office of the United States Securities and Exchange Commission (the
SEC) stating that the SEC is investigating the events and circumstances
surrounding the allegations in the Consolidated Action, and asking that
voluntarily provide the SEC with information regarding such events and
circumstances. The SEC letters state that the SECs request for information
should not be construed as an indication by the SEC that any violation of the
federal securities laws has occurred. The investigation described in the
letters was commenced by order of the SEC dated August 16, 2000. The Company
has responded to the letters. In June of 2001, the SEC began taking deposition
testimony from various individuals whom the SEC believes have personal
knowledge of the events under investigation. The Company is voluntarily
cooperating with the SEC with regard to these depositions.

The Company and certain of its prior officers and directors are defendants
in a lawsuit in the District Court of Travis County, Texas (53rd Judicial
District) captioned F. Dennis Pryor III v. drkoop.com, Inc. et al. The
lawsuit, which was filed on February 14, 2001, has been brought by purchasers
of convertible promissory notes issued by the Company. Plaintiffs assert
various claims based on the allegations that they were misinformed as to the
length of the holding period upon conversion of the notes into the Companys
common stock and breach of contract. The Company believes that the claims
alleged in the lawsuit are without merit and intends to defend the lawsuit
vigorously.

The Company is a defendant in a lawsuit in the Superior Court for the
State of California and the County of Los Angeles, Central District captioned
Sunrise International Leasing Corporation vs. drDrew.com, Inc. et al. The
lawsuit, which was filed on March 2, 2001, by Sunrise International Leasing
Corporation, alleges that the Company wrongfully took possession of certain
equipment owned by Sunrise and seeks monetary damages and return of the
equipment. The Company believes that the claims alleged in this matter are
without merit and intends to defend the lawsuit vigorously.

The Company and certain of its prior officers and prior and current
directors are defendants in a class action lawsuit in the United States
District Court for the Southern District of New York captioned Gertsberg vs.
drkoop et al. The lawsuit, which was filed on July 11, 2001, has been brought
on behalf of a purported class of purchasers of the Companys common stock
between June 8, 1999, and December 6, 2000. The complaint alleges that the
defendants violated federal securities laws by issuing and selling common stock
pursuant to the Companys initial public offering without disclosing to
investors that some of the underwriters in the offering, including the lead
underwriters, had solicited and received undisclosed and excessive commissions
from certain investors. Two other class action lawsuits, each filed on
July 26, 2001 and containing similar allegations have been filed
against the Company and certain of its prior officers and prior and
current directors. Similar lawsuits have been filed with respect to a
large number of companies, which completed their initial public offerings in
1999 and 2000. The Company believes that the claims alleged in the lawsuit are
primarily directed at the underwriters of the Companys initial public offering
and, as they relate to the Company, are without merit. The Company intends to
defend the lawsuit vigorously.

The Company is a defendant in a lawsuit in the Superior Court for the
State of California of the County of Los Angeles, West District, captioned
Transamerica Business Credit Corporation vs. drkoop.com, Inc. The lawsuit,
which was filed on July 3, 2001, alleges that the Company wrongfully took
possession of certain leased equipment owned by Transamerica and seeks monetary
damages in excess of $1.75 million and return of the equipment.

The Company cannot predict the outcome of the litigation matters described
above or the extent to which the costs of defense and any settlement or award
will be covered by its insurance policies. An adverse determination on one or
more of

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these matters could result in a material adverse effect on the Companys
financial condition and results of operations.

The Company is also involved in other claims and disputes which are
incidental to the regular conduct of business and which it does not presently
believe to be material.




Item 2. Changes in Securities and Use of Proceeds



|(c) |  | Private Placements of Securities.
|--- |  | ---------------------------------

Not applicable.



|(d) |  | Use of Proceeds
|--- |  | ---------------

Not applicable.




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 June 30, 2001.
|--- |  | --------------------------------------------------------

Reports on Form 8-K filed on July 9, 2001: The text of a press release,
describing the settlement of a consolidated securities class action lawsuit as
well as a shareholders derivative lawsuit filed in the same court.

Reports on Form 8-K filed on July 16, 2001: Describing the Companys
determination to pursue a private placement financing.

Reports on Form 8-K filed on July 27, 2001: Describing certain recent
developments at the Company, including the Company and IVonyxs agreement to
amend the asset purchase agreement, the license agreement entered into by and
between the Company and Gemini Pharmaceuticals, a lawsuit filed against the
Company and certain of its prior officers and prior and current directors, and
certain financial information of the Company.

Reports on Form 8-K filed on July 31, 2001: Including as an exhibit, Amendment
No. 1 of Asset Purchase Agreement, by and among the Company, IVonyx Group
Services, Inc., IVonyx, Inc., and drkoop LifeCare, Inc. (formerly known as
Infusion Acquisition Sub, Inc.).

Reports on Form 8-K filed on August 8, 2001: Containing certain historical
financial information of IVonyx Group Services, Inc. and pro forma financial information of
the Company and IVonyx.

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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: August 14, 2001 |                                                     | /s/ Stephen Plutsky
|                      |                                                    
|                      | Name Stephen Plutsky
Title: Chief Financial Officer

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description                                                                                                                                                                     
|        |  |                                                                                                                                                                                 
|1.1(i)  |  | Form of Underwriting Agreement.                                                                                                                                                 
|       
|       
|       
|       
|3.1(i)  |  | Restated Certificate of Incorporation of drkoop.com, Inc, a
Delaware corporation, as currently in effect.                                                                       
|       
|       
|       
|       
|3.2(i)  |  | Bylaws of drkoop.com, Inc., a Delaware corporation, as currently
in effect.                                                                                                     
|       
|       
|       
|       
|3.3(i)  |  | Form of Bylaws of drkoop.com, Inc., a Delaware corporation, as in
effect after the closing of the offering made under this
registration statement.                              
|       
|       
|       
|       
|3.4(i)  |  | Form of Restated Certificate of Incorporation of drkoop.com,
Inc., a Delaware corporation, to be filed after the closing of
the offering made under this registration statement.
|       
|       
|       
|       
|3.5(i)  |  | Certificate of Amendment of Restated Certificate of Incorporation
of drkoop.com, Inc., a Delaware corporation.                                                                  
|       
|       
|       
|       
|3.6(v)  |  | Certificate of Designation of Series 8% Convertible Preferred
Stock of drkoop.com, Inc.                                                                                         
|       
|       
|       
|       
|4.1(i)  |  | Specimen common stock certificate.                                                                                                                                              
|       
|       
|       
|       
|4.2(v)  |  | Bridge Warrant to purchase 13,071,107 shares issued to ComVest
Venture Partner L.P.                                                                                             
|       
|       
|       
|       
|4.3(v)  |  | Bridge Warrant to purchase 1,714,607 shares issued to
Commonwealth Associates, L.P.                                                                                             
|       
|       
|       
|       
|4.4(v)  |  | Bridge Warrant to purchase 6,142,857 shares issued to
Commonwealth Associates, L.P.                                                                                             
|       
|       
|       
|       
|4.5(v)  |  | Form of Prime Investor Warrants.                                                                                                                                                
|       
|       
|       
|       
|4.6(v)  |  | Prime Warrants to purchase 3,629,000 shares issued to Prime
Ventures, LLC.                                                                                                      
|       
|       
|       
|       
|4.7(v)  |  | Amended and Restated Registration Rights Agreement dated as of
August 22, 2000 by and among the company, Commonwealth
Associates, L.P. and the other signatures thereto.        
|       
|       
|       
|       
|10.1(i) |  | Amended and Restated 1997 Stock Option Plan.                                                                                                                                    
|       
|       
|       
|       
|10.2(i) |  | 1999 Equity Participation Plan.                                                                                                                                                 
|       
|       
|       
|       
|10.3(i) |  | Amended and Restated Registration Rights Agreement, dated as of
January 29, 1999.                                                                                               

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|          |  |                                                                                                                             
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------
|10.4(i)   |  | Employment Agreement dated January 27, 1999 by and between
Company and Susan M. Georgen-Saad.                               
|         
|         
|         
|         
|10.5(i)   |  | Employment Agreement dated August 1, 1997 by and between Company
and Donald W. Hackett.                                     
|         
|         
|         
|         
|10.6(i)   |  | Employment Agreement dated August 1, 1997 by and between Company
and Robert C. Hackett, Jr.                                 
|         
|         
|         
|         
|10.7(i)   |  | Employment Agreement dated August 1, 1997 by and between Company
and Louis A. Scalpati.                                     
|         
|         
|         
|         
|10.8(i)   |  | Employment Agreement dated January 15, 1999 by and between
Company and Dennis J. Upah.                                      
|         
|         
|         
|         
|10.9+(i)  |  | Distribution Agreement dated April 9, 1999 by and between Company
and Infoseek Corporation.                                 
|         
|         
|         
|         
|10.10+(i) |  | Content Agreement dated March 30, 1999 by and between Company and
the Trustees of Dartmouth College.                        
|         
|         
|         
|         
|10.11+(i) |  | D.A.R.T. Service Agreement dated November 15, 1998 by and between
Company and DoubleClick, Inc.                             
|         
|         
|         
|         
|10.12+(i) |  | Distribution Agreement dated April 9, 1999 by and between Company
and Buena Vista Internet Group.                           
|         
|         
|         
|         
|10.13(i)  |  | Software Sale, License and Development Agreement dated January
29, 1999 by and between Company and HealthMagic, Inc.        
|         
|         
|         
|         
|10.14+(i) |  | Content License and Distribution Agreement dated March 10, 1999
by and between Company and @Home Network.                   
|         
|         
|         
|         
|10.15(i)  |  | Tradename License Agreement dated January 5, 1999 by and between
Company and C. Everett Koop, M.D.                          
|         
|         
|         
|         
|10.16(i)  |  | Consulting Letter Agreement dated October 1, 1997 by and between
Company and C. Everett Koop, M.D.                          
|         
|         
|         
|         
|10.17+(i) |  | License Agreement dated July 13, 1998 by and between Company and
Multum Information Services, Inc.                          
|         
|         
|         
|         
|10.18+(i) |  | Linking Agreement dated February 10, 1999 by and between Company
and Physicians Online.                                    
|         
|         
|         
|         
|10.19+(i) |  | Content License Agreement dated December 11, 1998 by and between
Company and Excite, Inc. (terminated on March 1, 1999)     
|         
|         
|         
|         
|10.20+(i) |  | Interim Linking Agreement dated January 28, 1999 by and between
Company and Quotesmith.com.                                 
|         
|         
|         
|         
|10.21+(i) |  | First Amendment to License Agreement dated March 25, 1999 by and
between Company and Multum Information Services, Inc.      
|         
|         
|         
|         
|10.22(i)  |  | Tradename License Agreement dated June 1, 1998 by and between
Company and Nancy Snyderman, M.D.                             
|         
|         
|         
|         
|10.23     |  | Reserved                                                                                                                    
|         
|         
|         
|         
|10.24(i)  |  | Agreement for Sub-Sublease dated May 20, 1998 by and between
Company and The Software Atelier L.L.C.                        
|         
|         
|         
|         
|10.25     |  | Reserved                                                                                                                    
|         
|         
|         
|         
|10.26+(i) |  | Internet Advertising Sales Agreement dated October 16, 1998 by
and between Company and WinStar Interactive Media Sales, Inc.

46



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##### Table of Contents



|           |  |                                                                                                                                                                                                         
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.27(i)   |  | Consulting Letter Agreement dated October 1, 1997 by and between
Company and John Zaccaro.                                                                                                              
|          
|          
|          
|          
|10.28+(i)  |  | Sponsorship Agreement dated March 11, 1999 by and between Company
and Vitamin Shoppe Industries, Inc.                                                                                                   
|          
|          
|          
|          
|10.29+(i)  |  | Preferred Partner Agreement dated April 1999 by and between
Company and Salon Internet, Inc.                                                                                                            
|          
|          
|          
|          
|10.30(i)   |  | Master Community Partner Program Agreement dated January 29, 1999
by and between Company and Adventist Health System Sunbelt
Healthcare Corporation.                                                    
|          
|          
|          
|          
|10.31      |  | Reserved                                                                                                                                                                                                
|          
|          
|          
|          
|10.32(i)   |  | Form of Community Partner Program Agreement.                                                                                                                                                            
|          
|          
|          
|          
|10.33(i)   |  | Form of Indemnification Agreement.                                                                                                                                                                      
|          
|          
|          
|          
|10.34(i)   |  | 1999 Employee Stock Purchase Plan.                                                                                                                                                                      
|          
|          
|          
|          
|10.35(i)   |  | Investment Agreement dated January 29, 1999 by and among Company,
Adventist Health System Sunbelt Healthcare Corporation and
HealthMagic, Inc.                                                          
|          
|          
|          
|          
|10.37(i)   |  | Letter Agreement dated January 29, 1999 by and among Company,
Superior Consultant Holdings Corporation, Adventist Health System
Sunbelt Healthcare Corporation, HealthMagic, Inc. and Donald W.
Hackett.
|          
|          
|          
|          
|10.38(i)   |  | Stock Restriction Agreement dated January 29, 1999 by and among
Company, HealthMagic, Inc. and Adventist Health System Sunbelt
Healthcare Corporation.                                                  
|          
|          
|          
|          
|10.39(i)   |  | Loan Agreement dated December 24, 1998 between Company and Neal
Longwill.                                                                                                                               
|          
|          
|          
|          
|10.40(i)   |  | Form of Loan Agreement between Company and accredited investors.                                                                                                                                        
|          
|          
|          
|          
|10.41(i)   |  | Loan Agreement dated March 3, 1999 between Company and Adventist
Health System Sunbelt Healthcare Corporation.                                                                                          
|          
|          
|          
|          
|10.42(i)   |  | Warrant to Purchase Shares of Common Stock Issued to Infoseek
Corporation as of April 9, 1999.                                                                                                          
|          
|          
|          
|          
|10.43(i)   |  | Agreement for Issuance and Sale of Stock between Company and
Superior Consultant Holdings Corporation dated April 28, 1998.                                                                             
|          
|          
|          
|          
|10.44(i)   |  | Letter of Donald W. Hackett dated April 28, 1998 constituting a
Voting Agreement between Donald W. Hackett and Superior
Consultant Holdings Corporation.                                                
|          
|          
|          
|          
|10.45(i)   |  | Option and Put Agreement dated April 28, 1998 between Company and
Superior Consultant Holdings Corporation.                                                                                             
|          
|          
|          
|          
|10.46(i)   |  | Service Agreement dated April 29, 1998 between Company and
Superior Consultant, Inc., a wholly owned subsidiary of Superior
Consultant Holdings Corporation.                                            
|          
|          
|          
|          
|10.47(i)   |  | Warrant to Purchase Shares of Common Stock Issued to Buena Vista
Interactive Group as of April 9, 1999.                                                                                                 
|          
|          
|          
|          
|10.48(ii)  |  | Netscape Agreement.                                                                                                                                                                                     
|          
|          
|          
|          
|10.49(iii) |  | Amended Name & Likeness Agreement by and between Company and C.
Everett Koop, M.D.                                                                                                                      

47



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##### Table of Contents



|            |  |                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.50+(iii) |  | Interactive Services Agreement by and between Company and America
Online, Inc.                                                                                                 
|           
|           
|           
|           
|10.51+(iii) |  | Development and Services Agreement by and between Company and
America Online, Inc.                                                                                             
|           
|           
|           
|           
|10.52(iii)  |  | Registration Rights Agreement by and between Company and America
Online, Inc.                                                                                                  
|           
|           
|           
|           
|10.53(iii)  |  | Warrant to Purchase 1,570,932 shares of Common Stock Issued to
America Online dated July 1, 1999.                                                                              
|           
|           
|           
|           
|10.54+(iii) |  | Performance Warrant to Purchase 1,570,932 shares of Common Stock
Issued to America Online dated July 1, 1999.                                                                  
|           
|           
|           
|           
|10.55+(iii) |  | Performance Warrant to Purchase 2,749,131 shares of Common Stock
Issued to America Online dated July 1, 1999.                                                                  
|           
|           
|           
|           
|10.56(iii)  |  | Lease Agreement by and between Company and Plaza 7000, Ltd.                                                                                                                    
|           
|           
|           
|           
|10.57+(iv)  |  | First Amendment to Interactive Services Agreement by and between
the Company and America Online, Inc. effective April 12, 2000.                                                
|           
|           
|           
|           
|10.58+(iv)  |  | Amendment to Distribution Agreement by and between the Company
and Buena Vista Internet Group and by and between the Company and
Infoseek Corporation effective April 15, 2000.
|           
|           
|           
|           
|10.59(iv)   |  | Warrant to Purchase 820,000 Shares of Common Stock issued to
Infoseek Corporation dated April 24, 2000.                                                                        
|           
|           
|           
|           
|10.60(iv)   |  | Registration Agreement by and between the Company and Adventist
Health System Sunbelt Healthcare Corporation effective April 18,
2000.                                         
|           
|           
|           
|           
|10.61(iv)   |  | Second Amended and Restated Name and Likeness Agreement by and
between the Company and Dr. C. Everett Koop effective June 22,
2000.                                            
|           
|           
|           
|           
|10.62(iv)   |  | Placement Agency Agreement by and between the Company and
Commonwealth Associates, L.P. dated June 23, 2000.                                                                   
|           
|           
|           
|           
|10.63(iv)   |  | General Security Agreement by and among the Company, Commonwealth
Associates, L.P. and ComVest Venture Partners, L.P. dated June
23, 2000.                                     
|           
|           
|           
|           
|10.64(iv)   |  | Registration Rights Agreement by and among the Company,
Commonwealth Associates, L.P. and ComVest Capital Management, LLC
dated June 23, 2000.                                 
|           
|           
|           
|           
|10.65(iv)   |  | 8% Senior Secured Promissory Note by and between the Company and
ComVest Venture Partners, L.P. dated June 23, 2000.                                                           
|           
|           
|           
|           
|10.66(iv)   |  | 8% Senior Secured Promissory Note by and between the Company and
Commonwealth Associates, L.P. dated June 23, 2000.                                                            
|           
|           
|           
|           
|10.67(iv)   |  | Warrant to Purchase 3,200,000 Shares of Common Stock Issued to
ComVest Venture Partners, L.P. dated June 23, 2000.                                                             
|           
|           
|           
|           
|10.68(iv)   |  | Warrant to Purchase 800,000 Shares of Common Stock Issued to
Commonwealth Associates, L.P. dated June 23, 2000.                                                                
|           
|           
|           
|           
|10.69(iv)   |  | Warrant to Purchase 2,500,000 Shares of Common Stock Issued to
ComVest Venture Partners, L.P. dated June 30, 2000.                                                             
|           
|           
|           
|           
|10.70(iv)   |  | Credit Agreement by and between the Company and Commonwealth
Associates, L.P. dated June 30, 2000.                                                                             

48



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##### Table of Contents



|          |  |                                                                                                                       
|--------- |  | ----------------------------------------------------------------------------------------------------------------------
|10.71(iv) |  | Promissory Note by and between the Company and Commonwealth
Associates, L.P. dated June 5, 2001.                      
|         
|         
|         
|         
|10.72(iv) |  | Employment Agreement Extension by and between the Company and
Donald W. Hackett dated June 16, 2000.                  
|         
|         
|         
|         
|10.73(iv) |  | Employment Agreement Extension by and between the Company and
Louis A. Scalpati dated June 16, 2000.                  
|         
|         
|         
|         
|10.74(iv) |  | Agreement and Complete Release by and between the Company and
Peter Brumleve dated April 12, 2000.                    
|         
|         
|         
|         
|10.75(iv) |  | Agreement and Complete Release by and between the Company and Ian
Bagnall dated June 6, 2000.                         
|         
|         
|         
|         
|10.76(iv) |  | Agreement and Complete Release by and between the Company and
Susan M. Georgen-Saad dated July 5, 2000.               
|         
|         
|         
|         
|10.77(iv) |  | Agreement and Complete Release by and between the Company and
John Osborne dated July 7, 2000.                        
|         
|         
|         
|         
|10.78(iv) |  | Agreement and Complete Release by and between the Company and
Dennis J. Upah dated July 27, 2000.                     
|         
|         
|         
|         
|10.79(iv) |  | Amendment to the Agreement and Complete Release by and between
the Company and Dennis J. Upah dated July 27, 2000.    
|         
|         
|         
|         
|10.81(v)  |  | Amendment to Agency Agreement dated as of August 22, 2000 between
the Company and Commonwealth Associates, L.P.       
|         
|         
|         
|         
|10.81(v)  |  | Letter Agreement dated August 18, 2000 between Commonwealth
Associates, L.P. and the Company.                         
|         
|         
|         
|         
|10.82(v)  |  | Letter Agreement dated August 22, 2000 between Prime Ventures,
LLC and the Company.                                   
|         
|         
|         
|         
|10.83(v)  |  | Form of Lock-up Agreement.                                                                                            
|         
|         
|         
|         
|10.84(v)  |  | Non-Qualified Stock Option Agreement dated as of August 22, 2000
by and between the Company and Richard M. Rosenblatt.
|         
|         
|         
|         
|10.85(v)  |  | Non-Qualified Stock Option Agreement dated as of August 22, 2000
by and between the Company and Edward A. Cespedes.   
|         
|         
|         
|         
|10.86(v)  |  | Non-Qualified Stock Option Agreement dated as of August 22, 2000
by and between the Company and Stephen Plutsky.      
|         
|         
|         
|         
|10.87(v)  |  | Employment Agreement dated August 22, 2000 by and between the
Company and Richard M. Rosenblatt.                      
|         
|         
|         
|         
|10.88(v)  |  | Employment Agreement dated August 22, 2000 by and between the
Company and Edward Cespedes.                            
|         
|         
|         
|         
|10.89(v)  |  | Employment Agreement dated August 22, 2000 by and between the
Company and Stephen Plutsky.                            
|         
|         
|         
|         
|10.90(v)  |  | Employment Agreement dated October 24, 2000 by and between the
Company William H. Carlson.                            
|         
|         
|         
|         
|10.91(v)  |  | Asset Purchase Agreement dated November 1, 2000 by and between
Sherwood Partners, Inc. and the Company.               
|         
|         
|         
|         
|10.92(vi) |  | Employment Agreement dated November 14, 2000 between Greg Taylor
and the Company.                                     
|         
|         
|         
|         
|10.93(vi) |  | Option Agreement dated November 14, 2000 between Greg Taylor and
the Company.                                         

49



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##### Table of Contents



|            |  |                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.94(vi)   |  | Financial Advisory Service Agreement dated February 28, 2001
between the Company and Commonwealth Associates, L.P.                                                                                                             
|           
|           
|           
|           
|10.95(vii)  |  | Asset Purchase Agreement, by and among IVonyx Group Services,
Inc., IVonyx, Inc., the Company, and Infusion Acquisition Sub,
Inc., dated as of April 13, 2001.                                                                 
|           
|           
|           
|           
|10.96(viii) |  | Third Amended and Restated Name and Likeness Agreement by and
between the Company and Dr. C. Everett Koop effective May 1,
2001.                                                                                               
|           
|           
|           
|           
|10.97(ix)   |  | License Agreement by and between Gemini Pharmaceuticals and
drkoop.com, Inc., dated as of June 21, 2001.                                                                                                                       
|           
|           
|           
|           
|10.98(x)    |  | Amendment No. 1 to Asset Purchase Agreement, by and among IVonyx
Group Services, Inc., IVonyx, Inc., drkoop.com, Inc., and drkoop
LifeCare, Inc. (formerly known as Infusion Acquisition Sub,
Inc.), dated as of July 30, 2001.
|           
|           
|           
|           
|10.99       |  | Non-Qualified Stock Option Agreement dated
as of April 10, 2001 by and between the Company and Edward A.
Cespedes.                                                                                                             
|           
|           
|           
|           
|10.100      |  | Non-Qualified Stock Option Agreement dated
as of April 10, 2001 by and between the Company and Stephen
Plutsky.                                                                                                                
|           
|           
|           
|           
|10.101      |  | Non-Qualified Stock Option Agreement dated
as of April 10, 2001 by and between the Company and Greg Taylor.                                                                                                                    
|           
|           
|           
|           
|10.102      |  | Non-Qualified Stock Option Agreement dated
as of April 10, 2001 by and between the Company and William H.
Carlson.                                                                                                             
|           
|           
|           
|           
|           
|           
|           
|           
|10.103      |  | Engagement Letter dated as of June 8, 2001 by and between the
Company and Commonwealth Associates, L.P.                                                                                                                        
|           
|           
|           
|           
|10.104      |  | Non-Qualified Stock Option Agreement dated
as of August 6, 2001 by and between the Company and Richard M.
Rosenblatt.                                                                                                          
|           
|           
|           
|           
|10.105      |  | Non-Qualified Stock Option Agreement dated as of August 6, 2001 by and
between the Company and Richard M. Rosenblatt.                                                                                                          



---

|(i)    |  | Incorporated by reference from the Companys Form S-1
(333-73459).                                                                                           
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|      
|      
|      
|(ii)   |  | Incorporated by reference from the Companys quarterly report on
Form 10-Q for the quarter and six months ended June 30, 1999,
filed August 13, 1999.        
|      
|      
|      
|      
|(iii)  |  | Incorporated by reference from the Companys quarterly report on
Form 10-Q for the quarter and nine months ended September 30,
1999, filed November 15, 1999.
|      
|      
|      
|      
|(iv)   |  | Incorporated by reference from the Companys quarterly report on
Form 10-Q for the quarter and six months ended June 30, 2000,
filed August 21, 2000.        
|      
|      
|      
|      
|(v)    |  | Incorporated by reference from the Companys current report on
Form 8-K dated August 22, 2000, filed September 1, 2000.                                      
|      
|      
|      
|      
|(vi)   |  | Incorporated by reference from the Companys annual report on
Form 10-K dated December 31, 2000, filed April 2, 2001.                                        
|      
|      
|      
|      
|(vii)  |  | Incorporated by reference from the Companys current report on
Form 8-K dated April 13, 2001, filed April 16, 2001.                                          
|      
|      
|      
|      
|(viii) |  | Incorporated by reference from the Companys quarterly report on
Form 10-Q for the quarterly period ended March 31, 2001.                                    

50



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##### Table of Contents



|(ix) |  | Incorporated by reference from the Companys current report on
Form 8-K dated July 27, 2001, filed July 27, 2001.                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(x)  |  | Incorporated by reference from the Companys current report on
Form 8-K dated July 31, 2001, filed July 31, 2001.                                                   
|    
|    
|    
|    
|+    |  | Company has requested confidential treatment pursuant to Rule 406
for a portion of the referenced exhibit and has separately filed
such exhibit with the Commission.

51