Dr. KOOP

1
Dr. KOOP

• Professor Joshua Livnat, Ph.D., CPA
• 311 Tisch Hall
• New York University
• 40 W. 4th St.
• NY NY 10012
• Tel. [phone] Fax [phone]
• jlivnat_at_stern.nyu.edu
• Web page www.stern.nyu.edu/jlivnat

2
Overview

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

3
Dr. Koop (KOOP)

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

4
Business Model

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

5
Advantages

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

6
Disadvantages

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

7
Dr. Koop - Material Facts

• Site effective July 1998.
• IPO in June 1999, raised 88.5 million.
• Over 1.3 million registered members at the end of
  March 2000.
• Monthly traffic during Q2 of 2000 was around 1.85
  million unique visitors.
• Entered agreements with Infoseek and AOL to
  supply content and to purchase traffic.

8
Traffic Data (Media Metrix)
AOL
AOL
Infoseek
Infoseek
9
Price of Traffic

• Promised Infoseek and Buena Vista 57.9 million
  in cash and 775,000 warrants (8.60 exercise
  price) over three years.
• 30.5 million shares outstanding on 12/31/99.
• Recognized expenses of 7.2 million in 1999, and
  2.7 million in Q1/00.
• In Q2/00 terminated the agreement as of July
  2000. Obligated to pay 5.3 million in cash, and
  additional 820,000 warrants (1.25 exercise
  price).

10
Price of Traffic

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

11
Revenues
12
Income Statement Data
13
Income Statement Ratios
14
Liquidity
15
Cash Burn Rate

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

16
Revenue Analysis

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

17
Expense Analysis

• High content expenses
• Extremely high marketing expenses. Attempted to
  purchase traffic in a hurry.
• High GA expenses as compared to its revenues.
• High PPE and investments in other firms.

18
Restructured Agreements

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

19
New Investors

• Private placement on 08/22/00 from group of VCs
  led by ComVest Venture Partners.
• Total investment can reach 27.5 million.
• A new management team was appointed.

20
New Financing
Qualified audit opinion