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

                                    FORM 10-K

(Mark One)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 
     For the fiscal year ended December 31, 1996

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECRUITIES
     EXCHANGE  ACT OF 1934 [NO FEE  REQUIRED]  
     For the  transition  period  from _________________ to ___________________

Commission file number 0-22319

                            PATIENT INFOSYSTEMS, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                      16-1476509
--------------------------------            -----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                      46 Prince Street, Rochester NY 14607
                      ------------------------------------
(Address of principal executive offices)          (Zip Code)

Registrant's  telephone  number,  including area code    (716) 242-7200  

Securities registered pursuant to Section 12 (b) of the Act:

         Title of each class          Name of each exchange on which registered
         -------------------          -----------------------------------------
                None
 
Securities registered pursuant to Section 12 (g) of the Act:

                     Common Stock, $.01 Par Value Per Share
                     --------------------------------------
                                (Title of Class)

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the last 90 days.    Yes [X]   No [ ]


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<PAGE>

     As of February 28, 1997, 7,953,202 shares of Common Stock were outstanding,
and the  aggregate  market  value of the  shares  of  Common  Stock  of  Patient
Infosystems, Inc. held by non-affiliates was approximately $35 million.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
================================================================================

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                                     PART I

Item 1.   Description of Business.

General

     Patient  Infosystems,  Inc. (the  "Company" or "Patient  Infosystems")  was
incorporated  in the State of Delaware on February  22, 1995 under the name DSMI
Corp.,  changed its name to Disease State Management,  Inc. on October 13, 1995,
and then changed its name to Patient  Infosystems,  Inc. on June 28,  1996.  The
Company's   principal  executive  offices  are  located  at  46  Prince  Street,
Rochester, New York 14607 and its telephone number is 716-242-7200.

     Patient  Infosystems  provides  patient-centered  health  care  information
systems and  services to manage,  collect  and  analyze  information  to improve
patient compliance with prescribed treatment  protocols,  to improve the process
of off-site patient management and to enhance patient and provider  information.
The  Company's  technology  platform  integrates  behavior   modification  based
treatment  compliance  algorithms with an advanced voice  recognition  telephone
system, high speed data processing and analysis capability and demand publishing
and information distribution capabilities. The system utilizes trained telephone
operators and computerized  interactive voice response technology to communicate
via  telephone  directly  with the  patient at home in order to gather  relevant
patient data. This data is subsequently evaluated and automatically  transmitted
via computer  generated  reports to health care payors,  providers and patients,
with these reports being tailored to the specific needs of each recipient.

     The Company markets its services to pharmaceutical manufacturers,  pharmacy
benefit  managers  ("PBMs")  and  health  care  payors,  such  as  managed  care
organizations and insurance  companies and health care providers to collect data
outside of the physician office and institutional  setting to enhance compliance
by patients with prescribed  treatment  protocols.  The Company's  disease state
management  programs are  designed to provide the  following  benefits:  (i) for
patients, improved communication with health care resources,  enhanced self-care
skills,  increased treatment adherence resulting in improved quality of care and
reduced  inconvenience,  risk and expense associated with unscheduled  physician
interventions;  (ii) for health  care  providers,  more  information  on patient
progress, quicker identification of hard-to-manage patients, enhanced ability to
make timely treatment modifications,  triage capability and expanded information
for  development  of  improved  treatment  protocols;  and (iii) for  payors and
program  sponsors,  cost-effective  management  of the  disease  risk,  improved
patient compliance and outcomes and enhanced patient and provider  satisfaction.
The  Company`s  systems may also be used to address the full  spectrum of health
care information  needs with respect to care quality,  patient  satisfaction and
patient and provider education

Information Capture, Delivery and Analysis Technologies

     The Company's  technology platform  integrates behavior  modification based
compliance  algorithms with an advanced voice recognition telephone system, high
speed  data  processing  and  analysis  capability  and  demand  publishing  and
information  distribution  capabilities.  The system utilizes trained  telephone
operators and computerized  interactive voice response technology to communicate
via  telephone  directly  with the  patient at home in order to gather  relevant
patient data. In order to minimize costly live operator interaction,  a computer
initiates each call to the patient,  which call is automatically  transferred to
an operator and finally  routed to an  automated  speech  application.  Patients
respond to the recorded speech application by speaking  normally.  This approach
is designed to enable a wider variety of possible  responses  than is achievable
via telephone key pad. Depending on the patient's  response,  situation-specific
algorithms  are applied to modify future  questions and thus help  customize the
collection of data.

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<PAGE>

     The Company's  system analyzes and prepares the captured data for automatic
delivery to the payor,  provider  and patient  using demand  publishing.  Demand
publishing technology enables the creation of highly  individualized  reports by
inserting  stored  graphic  images  and text which can be  customized  for race,
gender and age.  These reports are also  customized  to the  patient's  specific
situation, and the system utilizes the information received during contacts with
the patient to further customize the content of the report. The data relevant to
the  separate  report for health care  providers  is  formatted  in a customized
report to be automatically transmitted via mail, fax or on-line.

     Each  contact  with  a  patient  contributes  to  the  establishment  of  a
longitudinal  data base  which can be  analyzed  to  provide  information  about
treatment modalities for patients, providers and payors. The Company's system is
designed to analyze  patient  compliance  to prescribed  treatment  regimens and
gather additional clinical information so that improvements in such regimens can
be developed.

Integrated Disease State Management System

     The Company's first application of its integrated  information  capture and
delivery  technology is its integrated  disease state  management  system.  This
system is designed  to provide  caregivers  with the  ability to  monitor,  on a
cost-effective  basis,  patient  condition  and  behavior  while the  patient is
between  physician  consultations.  The Company  believes  that this will permit
caregivers to improve patient compliance and, as a consequence,  improve patient
outcomes.

     Each of the  Company's  integrated  disease  state  management  programs is
designed to provide one or more of the following benefits.  For patients,  these
intended benefits include:  (i) improved access to and communication with health
care resources  beyond  existing  hospital care and office and in-home  provider
visits;  (ii) enhanced  self-care skills and knowledge of the disease covered by
the program; (iii) increased treatment compliance,  motivation and confidence in
disease self-management  resulting in improved quality of life; and (iv) reduced
inconvenience,  risk and expense  associated  with  unscheduled  office  visits,
emergency room interventions and hospitalizations.

     For health  care  providers,  these  intended  benefits  include:  (i) more
comprehensive  information on patient progress;  (ii) earlier  identification of
hard-to-manage  patients;  (iii)  enhanced  ability  to  make  timely  treatment
modifications;  (iv) better utilization of health care resources  appropriate to
patient  needs;  and  (v)  expanded  information  for  development  of  improved
treatment methods.

     For payors and program  sponsors,  these  intended  benefits  include:  (i)
cost-effective  management of disease risk;  (ii) improved  patient  compliance;
(iii)  improved  treatment  outcomes;  and (iv)  enhanced  patient and  provider
satisfaction.

     The  Company  enrolled  its first  patients in a disease  state  management
program in October  1996.  Because no patients  have yet completed the course of
scheduled  interventions  in any  of  the  Company's  disease  state  management
programs  there can be no assurance  that the benefits  described  above will be
achieved.

     The Company's disease state management system has three primary components.
First,  using a panel of recognized  medical and clinical  experts,  the Company
develops a  disease-specific  patient  intervention and compliance  program that
includes a template  for the  integration  of each  patient's  history,  current
medical status and treatment  protocol.  If the program is being  developed on a
custom basis for a particular customer, the program is developed in consultation
with  the  customer's  clinical  staff  and  consultants.  Second,  the  Company
establishes  periodic  telephone  contacts  with each  patient  to  monitor  the
patient's  compliance  with  prescribed  therapies  as  well  as  the  patient's
treatment progress.  Third, using the information obtained from patient contacts
and other available  information regarding the patient and his 

                                       4
<PAGE>

or  her  treatment,   such  as  physician  records  and  pharmacy   information,
personalized reports are prepared, typically following each patient contact, for
evaluation by the patient, the patient's health care provider and, on a periodic
basis, payors.

     Development of Disease-Specific Protocols

     The  Company's  disease-specific  compliance  programs  are  developed  for
targeted  diseases  either on a customized or  standardized  basis.  The Company
retains  an  internal  clinical  staff and  panels of  independent  medical  and
clinical  experts  to  identify   guidelines  of  generally  accepted  treatment
protocols and diagnostic interventions for particular diseases. These guidelines
serve as a template for  information  to be gathered from each  patient.  If the
program is being  developed  on a custom basis for a  particular  customer,  the
program is developed in  consultation  with the  customer's  clinical  staff and
consultants.  In  addition,  the  Company's  internal  clinical  staff  conducts
research of  available  databases  and gathers  information  provided by medical
experts, insurance providers,  governmental agencies,  Medicare and Medicaid and
other sources to develop with the medical experts the  disease-specific  program
structure. The resulting compliance protocols are designed to enable the Company
to gather  the  necessary  patient  information  to  determine  the  extent of a
patient's compliance with his or her prescribed treatment,  the effectiveness of
treatment and the progress of the patient's  disease.  As the Company's database
of disease-specific  treatments expands, the Company intends to use that data to
modify,  update and enhance its own disease state management compliance programs
and assist health care providers in improving treatment protocols.

     Patient Enrollment

     When a patient is enrolled in one of the Company's disease state management
programs a patient  history is obtained,  including the histories of the chronic
illness,  medications,  and  surgical  procedures  as well as other  information
deemed relevant by the disease-specific  compliance program. This information is
included  in the  Company's  database  for each  patient  and is used to  create
customized  reports  for  distribution  to each  of the  patient's  health  care
provider  and payor as well as the  patient.  The  patient  report  can  include
information on the prescribed  treatment of the patient's disease as well as the
use of the program and social support  services to improve  compliance  with the
patient's  treatment  regimen.  In addition,  the  Company's  demand  publishing
technology provides personalized behavior modification and educational materials
for the patient.  The health care provider report contains the relevant clinical
and behavioral information gathered from the patient.

     Patient Contacts

     In accordance with a designated  patient contact  schedule,  a patient will
periodically  receive telephone calls from a live operator who, after confirming
the identity of the patient,  will  transfer the patient to an automated  system
that  will  ask  specific   questions   determined   in   accordance   with  the
disease-specific  compliance  program and provide  information and  motivational
feedback.  Patient  contact  schedules  are  established  for each disease state
management  program,  with the  frequency  of patient  contact  varying with the
disease under management and the goal of the applicable  treatment and occurring
as often as daily or as infrequently as on a quarterly  basis. The data gathered
from the patient  during each contact is processed  and stored in the  Company's
database.

     The compliance  program takes into account  patient  responses to treatment
follow-up  questions and initiates  specific courses of action which can include
positive reinforcement messages,  confirmation of prescription  instructions and
scheduled  callbacks  to  remind  the  patient  of the  need to take  prescribed
medication.  In  addition,  questions  to be asked in future  calls are modified
based upon the patient's responses during previous calls.

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<PAGE>

     The Company's  disease state  management  system captures and processes the
information  obtained from the patient  during the contact and  integrates  this
information  with the other data  maintained  by the  Company,  including  prior
patient responses,  patient medical history, treatments administered to date and
the mandated  treatment  protocols  for the disease.  This system  automatically
prepares distinct reports using the Company's demand publishing technologies for
the patient and for the  physician or other  caregiver.  Each report is tailored
for the particular  requirements of each recipient.  The patient's  report,  for
example, may include pictures,  diagrams and informative discussions relating to
the treatment  course  intended to modify or reinforce  certain  behaviors.  The
physician's  report would likely be more  factual and direct and  summarize  the
clinical and behavioral information that has been gathered.

     On a periodic  basis the Company will provide data to the patient's  health
care payor with respect to that patient's progress.  The Company will be able to
include  information  from various data sources in these reports for the purpose
of providing additional  information with respect to a patient. For example, the
Company may be able to interact with the pharmacy  services  division of a payor
to  determine  the  renewal  frequency  of  prescriptions,   which  provides  an
indication  of whether a patient is taking his or her  medication.  In addition,
the system provides the flexibility to allow other  information from physicians'
reports and hospital tests to be included in the periodic reports.

     Compliance Assistance

     The Company assists payors and health care providers in monitoring  patient
compliance  and works with  health  care  providers  to develop  compliance  and
education  programs that can be implemented  through the Company's  system.  The
Company's   publishing   technology  enables   production  of   patient-specific
compliance  and  education  literature  that  is  customized  for an  individual
patient.  Once this  literature  is prepared it may be delivered to a patient by
mail, facsimile or on-line. In addition,  the Company can implement a variety of
procedures including medication reminders via wireless two-way communication and
more frequent telephone  communications  for non-compliant  patients or patients
with more  difficult  treatment  regimens.  The Company  can provide  additional
support services,  such as an 800 number that will provide recorded  information
with respect to a variety of patient education topics or other support messages.

Patient Infosystems Programs

     The Company is  developing  customized  disease state  management  and risk
assessment  programs  in  conjunction  with a number  of  customers,  as well as
standardized  disease  state  management  programs  in the areas of  asthma  and
diabetes.  Each of the Company's customer agreements for its customized programs
provide for  development  fees to be paid to the Company upon the achievement of
certain  milestones.  In addition,  the agreements for customized  disease state
management  programs  all provide for some form of  exclusivity  period,  during
which the Company is prohibited from engaging or participating in other projects
involving the specific  disease target that is the subject of that program.  The
exclusivity  periods extend until, in general,  a certain date or certain period
(ranging  from eight to 24 months)  following  the  achievement  of a  specified
milestone in the  development  or  implementation  of the  program.  The Company
enrolled its first  patients in a disease  state  management  program in October
1996, and has only a limited number of persons enrolled to date.

     All of the Company's customer  agreements,  which are typically  terminable
without cause by either  party,  require  payment to the Company of  operational
fees per enrolled patient. The amount of the per patient program operational fee
varies with the length, complexity and frequency of patient contacts as dictated
by the respective program protocols. Patient enrollment in each of the Company's
programs  will  depend upon the  identification  and  referral by the  Company's
customers  of patients to the  Company's  system which will vary from program to
program.


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<PAGE>

     The Company has developed or is developing programs in the follwing areas:

     Asthma

     The Company is developing a disease state management  program for asthmatic
patients that is being marketed to payors and other  participants  in the health
care industry.  This program is being  developed in both the English and Spanish
languages.   American  HomePatient,   Inc.  ("American   HomePatient"),   Centra
Healthcare  Administrative  Services,  Inc. ("Centra"),  Health Resources,  Inc.
("Health  Resources") and Harris Methodist Health Plan ("Harris Methodist") have
retained the Company to provide disease state  management  programs for patients
who are suffering from asthma and are enrolled in health care programs for which
these companies provide services.

     Chronic Pain Management

     Bristol-Myers   Squibb   Company,   U.S.   Pharmaceuticals   Division   and
Oncology/Immunology  Division  (collectively  "Bristol-Myers")  has retained the
Company to develop,  implement  and update a program to manage  patients who are
experiencing intense levels of chronic pain.

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<PAGE>

     Congestive Heart Failure

     The Company has entered into a services  agreement  with  Bristol-Myers  to
develop,  implement and operate a disease state management program to aid in the
treatment of patients  suffering from congestive heart failure.  This program is
being developed in both the English and Spanish languages.

     Diabetes

     The Company is developing a disease state  management  program for diabetic
patients  that it is  marketing to payors and other  participants  in the health
care industry.  This program is being  developed in both the English and Spanish
languages. Centra and Health Resources have retained the Company to provide this
disease state  management  program for patients who are suffering  from diabetes
and are  enrolled in health care  programs  for which  these  companies  provide
services.

     Epilepsy

     The Company has been retained by a  pharmaceutical  manufacturer to develop
and implement a risk assessment program for patients suffering from epilepsy.

     Secondary Cardiovascular Disease

     The Company has entered into a services  agreement  with  Bristol-Myers  to
develop,  implement and operate a disease state  management  program relating to
the  prevention  of  cardiovascular  sequelae  in  patients  who  have  recently
experienced  certain  cardiovascular  illnesses  or  treatments  such as angina,
cardiac bypass surgery or myocardial infarction. This program is being developed
in both the English and Spanish languages.

     Weight Management

     Bristol-Myers  has retained the Company to develop and  implement a program
to manage patients  suffering from anorexia or cachexia secondary to a diagnosis
of cancer or AIDS.

     Additional Disease Targets

     The  Company  has  identified  additional  opportunities  in large  chronic
disease markets, including in the treatment of hypertension, chronic obstructive
pulmonary disease, depression,  cancer,  osteoporosis,  arthritis, HIV infection
and high risk  pregnancy.  Each of these  targets has been  identified as having
characteristics   which  make  them  attractive  candidates  for  the  Company's
programs.  The Company is currently  involved in discussions  with customers for
the development of programs in a variety of these areas.

     Significant Customer Concentration

     The  Company's  current  contracts  are  concentrated  in a small number of
customers,  with six of the  Company's  most  significant  contracts  being with
Bristol-Myers.   The  Company  expects  that  its  sales  of  services  will  be
concentrated  in a  small  number  of  customers  for  the  foreseeable  future.
Consequently, the loss of any one of its customers could have a material adverse
effect  on the  Company  and its  operations.  There  can be no  assurance  that
customers will maintain their  agreements with the Company,  enroll a sufficient
number of patients in the  programs  developed by the Company for the Company to
achieve or maintain profitability,  or that customers will renew their contracts
upon expiration or on terms favorable to the Company.

     Relationship with Bristol-Myers 

     The Company has entered  into six  service  agreements  with  Bristol-Myers
relating to the  development,  implementation  and  operation  by the Company of
disease  state  management  programs  for certain  specified  diseases,  and the
development  and  operation  of a  patient  satisfaction  survey  and a  general
medication compliance program (collectively the "Service Agreements").

     Each of the Service  Agreements  provides  for an  exclusivity  period (the
"Exclusivity Period"), during which time the Company is prohibited from engaging
or  participating  in any other projects  involving the specific  disease target
that is the subject of the Service  Agreements.  The Exclusivity  Periods extend
from the effective dates of the Service  Agreements until, in general, a certain
date or a  certain  period  (ranging  from  eight to 24  months)  following  the
achievement of a specified milestone in the development or implementation of the
program  (such as the  completion  of the pilot  program).  Three of the Service
Agreements   provide  that  upon   conclusion  of  the   Exclusitivity   Period,
Bristol-Myers  has the right to  negotiate  with the  Company  for an  exclusive
arrangement  for the  administration  of the disease state  management  program,
provided  that  Bristol-Myers  has enrolled a certain  number of patients in the
program  to date.  In the  event  that  such  negotiations  prove  unsuccessful,
Bristol-Myers  retains a right of first refusal with respect to any other offers
made to the  Company  for such  arrangements  for a period  of nine or 12 months
following the Exclusivity Period.

     The  Service  Agreements  generally  provide  that  Bristol-Myers   retains
ownership to certain  materials  and other work  product  created by the Company
pursuant to the Service Agreements and that the Company is entitled to use other
materials and data. The extent of these rights varies by agreement.  The Company
and  Bristol-Myers  have agreed to  indemnify  each other with respect to losses
arising from  willful or negligent  acts or omissions or breaches of the Service
Agreements by the  indemnifying  party  pursuant to the Service  Agreement.  The
Service  Agreements are terminable  without cause by either party with either 30
or 90 days'  notice.  The Company  has  entered  into  Service  Agreements  with
Bristol-Myers  in the  disease  areas of  congestive  heart  failure,  secondary
cardiology disease, chronic pain and weight management.


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<PAGE>

Other Applications of the Integrated Information Capture and Delivery Technology

     Outcomes Analysis

     The Company intends to utilize information  gathered from patients enrolled
in its programs to serve two purposes.  First,  information  regarding treatment
results,  success of the  compliance  program and patient  reaction to differing
treatments or compliance protocols may be used by the Company to further improve
each disease-specific  compliance program.  Second, this information may be used
by payors,  pharmaceutical  companies and health care providers to assist in the
development  of  improved  treatment  modalities.   The  Company  has  developed
analytical methodologies using database management and information technologies.
The Company intends to use these data analysis  technologies to predict the best
treatment methodologies for patients.

     Clinical Studies

     Many  pharmaceutical  companies  and contract  research  organizations  are
seeking more  economical,  efficient  and  reliable  methods for  compiling  and
analyzing clinical data in conducting  clinical trials.  Furthermore,  many drug
development  protocols have begun to emphasize  subjective criteria and outcomes
information.  The  Company  believes  that its  system  will allow it to develop
programs tailored to the measurement of outcomes data relating to the conduct of
later  stage  clinical  trials.  The Company  believes  that its system can also
assist  pharmaceutical  companies  in studying and  documenting  the efficacy of
approved  products  in  order  to  provide  ongoing  information  to  FDA or for
marketing purposes.

     Patient Surveys

     Organizations  in many different  areas of the health care industry  survey
users regarding  their products and services for a variety of reasons  including
regulatory,  marketing and research purposes. The Company's information systems,
with their ability to proactively  contact patients in a cost-efficient  manner,
may be used for this type of application.

     Demand Management

     Demand  management  involves  assisting  providers  in  evaluating  patient
treatment  needs to identify  those  patients  who may not require  immediate or
intensive services.  The goal of demand management is to reduce the need for and
use of costly,  often  clinically  unnecessary,  medical  services and arbitrary
managed-care  interventions  while  improving  the  overall  quality  of life of
patients.  The Company believes that its system can be used to provide automated
or semi-automated demand management services.

     Case Management

     Patients who are  prescribed  complex or high cost  treatment  regimens may
require  a  higher  level  of   monitoring,   interaction,   care  planning  and
reassessment than patients with less complicated treatment regimens. The Company
believes that its system is capable of providing these enhanced services to such
patients to eliminate or minimize the  unnecessary  costs and medical  attention
that result from a patient's  lack of  compliance  with a  prescribed  treatment
regimen.

Sales and Marketing

     The Company  markets its  integrated  disease  state  management  system to
organizations within the health care industry that are involved in the treatment
of disease or payment of medical  services for  

                                       9
<PAGE>

patients who require  complex or long-term  medical  therapies.  These  industry
organizations include five distinct groups:  pharmaceutical  companies,  medical
service  companies,  PBMs,  health care payors and employer groups.  The Company
employs a sales and  marketing  staff of eight  persons to market the  Company's
systems.  In  addition,  the senior  members  of the  Company's  management  are
actively engaged in marketing the Company's programs.

     The Company intends to expand its marketing efforts by conducting  clinical
studies and  implementing  other measures  designed to document the clinical and
cost benefits it believes  will result from the  application  of its  integrated
information  capture and delivery system.  In collaboration  with the members of
its  expert  panels who are  retained  to develop  program  protocols  and other
research and clinical  technicians,  the Company intends to promote the benefits
of its system through  publication  in clinical  journals and  presentations  at
scientific  conferences  of  the  results  of  these  studies.  The  Company  is
conducting  such studies  designed to produce  significant  short-term data with
respect to its asthma and chronic pain management programs.

Research and Development

     Research and development expenses consist primarily of salaries and related
benefits  and  administrative  costs  allocated  to the  Company's  research and
development  personnel for  development of certain  components of its integrated
information capture and delivery system, as well as development of the Company's
standardized  disease  state  management  programs.   Research  and  development
expenses were $310,552 for the year ended  December 31, 1996, and $89,909 during
the period from  inception  on  February  22, 1995 to  December  31,  1995.  The
increase in these costs from 1995 to 1996 reflects  initiation of development of
the  Company's  standardized  disease  state  management  programs  for patients
suffering from asthma and diabetes.

     The  development  and  maintenance of the  telecommunications  and computer
publishing systems through which the Company operates its integrated information
capture  and  delivery  system  is  a  major  component  of  its  business.  The
communications  and information  technology  industries are subject to rapid and
significant  technological change, and the ability of the Company to operate and
compete is  dependent in  significant  part on its ability to update and enhance
its system continuously.  In order to do so, the Company must be able to utilize
effectively  its  research  and  development   capabilities  and  implement  new
technology in order to enhance its systems.  At the same time,  the Company must
not  jeopardize  its  ability to contact  patients  and to process  and  publish
patient information or adapt to customer  preferences or needs. The Company will
maintain a significant investment in its technology, and therefore is subject to
the risk of technological obsolescence.

Competition

     The market for health care  information  products and services is intensely
competitive.  Competitors  vary in size and in scope and breadth of products and
services offered, and the Company competes with various companies in each of its
disease target markets.  Many of the Company's  competitors  have  significantly
greater financial,  technical,  product development and marketing resources than
the Company.  Furthermore,  other major  information,  pharmaceutical and health
care companies not presently  offering  disease state management or other health
care information  services may enter the markets in which the Company intends to
compete.  In addition,  with sufficient  financial and other resources,  many of
these  competitors may provide  services similar to those of the Company without
substantial  barriers.  The Company does not possess any patents with respect to
its  integrated  information  capture and delivery  system,  and although it has
filed a patent  application  with respect to certain  aspects of its  integrated
information  capture  and  delivery  system  and its  integrated  disease  state
management  system,  there can be no assurance that this application will result
in the  issuance  of a patent,  or if issued,  that a patent  would  provide the
Company with any competitive advantage.

                                       10
<PAGE>

     The  Company's   potential   competitors   include  specialty  health  care
companies,  health care  information  system and software  vendors,  health care
management  organizations,  pharmaceutical companies and other service companies
within the health care  industry.  Many of these  competitors  have  substantial
installed  customer  bases in the health care  industry  and the ability to fund
significant product development and acquisition  efforts.  The Company will also
compete  against other  companies that provide  statistical  and data management
services, including clinical trial services to pharmaceutical companies.

     The Company is aware of several large  pharmaceutical  and medical  service
companies that have publicly stated that they intend to be involved in providing
comprehensive  disease state management services.  The Company believes that the
principal  competitive  factors in its market are the ability to link  patients,
health  care  providers  and  payors,  and  provide  the  relevant  health  care
information at an acceptable  cost. In addition,  the Company  believes that the
ability to anticipate  changes in the health care industry and identify  current
needs are important competitive factors.

Quality Control

     The Company has developed  quality control measures designed to insure that
information  obtained  from  patients is  accurately  transcribed,  that reports
covering  each  patient  contact  are  delivered  to health care  providers  and
patients and that the  Company's  personnel  and  technologies  are  interacting
appropriately  with patients and health care providers.  Quality control systems
include random monitoring of telephone calls, patient surveys to confirm patient
participation  and  effectiveness  of the particular  program,  and  supervisory
reviews of telephone agents.

Government Regulation

     The health care  industry,  including the current and proposed  business of
the Company,  is subject to extensive  regulation  by both the Federal and state
governments.  A number of states have extensive  licensing and other  regulatory
requirements   applicable  to  companies  that  provide  health  care  services.
Additionally,  services  provided to health  benefit  plans in certain cases are
subject  to the  provisions  of the  Employee  Retirement  Income  Security  Act
("ERISA")  and may be affected by other state and Federal  statutes.  Generally,
state laws prohibit the practice of medicine and nursing without a license. Many
states  interpret  the practice of nursing to include  health  teaching,  health
counseling,  the provision of care supportive to or restorative of life and well
being  and  the  execution  of  medical  regimens  prescribed  by  a  physician.
Accordingly,  to the extent  that the Company  assists  providers  in  improving
patient  compliance by publishing  educational  materials or providing  behavior
modification training to patients, such activities could be deemed by a state to
be the practice of medicine or nursing. Although the Company has not conducted a
survey  of the  applicable  law in all 50  states,  it  believes  that it is not
engaged in the  practice  of medicine  or  nursing.  There can be no  assurance,
however,  that the Company's  operations  will not be challenged as constituting
the  unlicensed  practice of medicine or nursing.  If such a challenge were made
successfully  in any state,  the Company  could be subject to civil and criminal
penalties  under such  state's  law and could be  required  to  restructure  its
contractual  arrangements  in that  state.  Such  results  or the  inability  to
successfully  restructure  its  contractual  arrangements  could have a material
adverse effect on the Company.

     The  confidentiality  of patient  information  is subject to  regulation by
state law. A variety of statutes and regulations exist safeguarding  privacy and
regulating the disclosure and use of medical  information.  State  constitutions
may provide  privacy rights and states may provide  private causes of action for
violations  of an  individual's  "expectation  of privacy."  Tort  liability may
result from unauthorized access and breaches of patient confidence.  The Company
intends to comply with state law and regulations  governing medical  information
privacy.

                                       11
<PAGE>

     In  addition,  on August 21,  1996  Congress  passed  the Health  Insurance
Portability and  Accountability  Act of 1996,  P.L.  104-191.  This  legislation
requires the Secretary of Health and Human Services to adopt national  standards
for  electronic  health   transactions  and  the  data  elements  used  in  such
transactions.  The  Secretary  is  required  to adopt  safeguards  to ensure the
integrity  and  confidentiality  of such health  information.  Violation  of the
standards  is  punishable  by fines and, in the case of wrongful  disclosure  of
individually  identifiable  health information,  imprisonment.  The Secretary is
required to issue the standards  not later than  February 21, 1998.  The Company
cannot predict what  requirements  will  ultimately be adopted by the Secretary,
however,  such  requirements  could  have an  adverse  effect  on the  Company's
business.

     The Company and its  customers may be subject to Federal and state laws and
regulations  which govern financial and other  arrangements  between health care
providers. These laws prohibit certain fee splitting arrangements between health
care  providers,  as well as direct and  indirect  payments,  referrals or other
financial  arrangements that are designed to induce or encourage the referral of
patients  to,  or the  recommendation  of, a  particular  provider  for  medical
products and services.  Possible  sanctions for violation of these  restrictions
include civil and criminal penalties. Further, criminal violations may result in
mandatory  exclusions of up to five years and additional  permissive  exclusions
from participation in Medicare and Medicaid programs.

     Regulation in the health care field is constantly evolving.  The Company is
unable to predict what government  regulations,  if any,  affecting its business
may be  promulgated  in the future.  The Company's  business  could be adversely
affected by the failure to obtain required licenses and governmental  approvals,
comply with applicable regulations or comply with existing or future laws, rules
or regulations or their interpretations.

Intellectual Property

     The Company  considers  its  methodologies,  processes  and  know-how to be
proprietary.  The Company seeks to protect its proprietary  information  through
confidentiality  agreements with its employees.  The Company's policy is to have
employees   enter  into   confidentiality   agreements   containing   provisions
prohibiting  the  disclosure of  confidential  information to anyone outside the
Company,  requiring  employees  to  acknowledge,  and, if  requested,  assist in
confirming the Company's ownership of any new ideas,  developments,  discoveries
or inventions  conceived  during  employment,  and  requiring  assignment to the
Company of proprietary  rights to such matters that are related to the Company's
business.

     The Company has filed a patent  application with respect to certain aspects
of its integrated  information capture and delivery and integrated disease state
management  systems.  No assurance can be given that a patent will issue or that
if issued such patent will provide the Company with a competitive advantage.

Employees

     As of February 28, 1997, the Company had 46 employees.

Item 2.   Description of Properties.

     The Company's executive and corporate offices are located in Rochester, New
York in  approximately  11,400  square  feet of  leased  office  space  under an
operating lease that expires on November 30, 1999.

Item 3.    Legal Proceedings.

                                       12
<PAGE>

     The Company is not a party to any material legal proceedings.

Item 4.   Submission of Matters To A Vote Of  Security Holders.

     On November 22, 1996 the stockholders of the Company, acting by the written
consent of a majority of  stockholders,  approved a .72 for 1.00  reverse  stock
split of all outstanding shares of its common stock.

                                       13
<PAGE>

                                     PART II

Item 5. Market Price of and  Dividends  on the  Registrant's  Common  Equity and
Related Stockholder Matters.

(a)  Market Information

     The Company's  common stock is traded on the NASDAQ  National Market System
under the symbol  PATI.  The  Company's  initial  public  offering  occurred  on
December 19, 1996,  therefore  information  on the market value per share of the
Company's  common stock as quoted on the NASDAQ  National  Market System is only
available for the period from December 19, 1996 through December 31, 1996.

                        1996 Market Value Per Share
                        ---------------------------
                        Quarter       High     Low
                        -------       ----     ---
                          4th        $9.25    $8.00
                          Year       $9.25    $8.00

(b)  Holders

     The  approximate  number of holders  of the  Company's  common  stock as of
February 28, 1997 is 62. However,  the company believes that there are in excess
of 600 beneficial holders of Common Stock of the Company.

(c)  Dividends

     The Company has never paid cash dividends on its capital stock and does not
anticipate  paying any cash  dividends in the  foreseeable  future.  The Company
currently intends to retain all future earnings, if any, to fund the development
and growth of its business.  Any future determination to pay cash dividends will
be at the discretion of the Board of Directors.

                                       14
<PAGE>

Item 6.  Selected Financial Data.
<TABLE>
<CAPTION>

                                                                  Period from          Period from
                                                               February 22, 1995    February 22, 1995
                                            Year ended         (Inception) to        (Inception) to
                                         December 31, 1996     December 31, 1995    December 31, 1996
                                         -----------------     -----------------    -----------------

Statement of Operations Data:
<S>                                           <C>                   <C>                  <C>     
Revenues                                      $845,412              $113,000             $958,412
                                           -----------           -----------          ----------- 
Costs and Expenses:
  Cost of Sales                                748,322               111,870              860,192
  Sales and Marketing                          913,547               375,384            1,288,931
  General and Administrative                 1,760,760               678,498            2,439,258
  Research and Development                     310,552                89,909              400,461
                                           -----------           -----------          ----------- 
    Total Costs and Expenses                 3,733,181             1,255,661            4,988,842
                                           -----------           -----------          ----------- 
Operating Loss                              (2,887,769)           (1,142,661)          (4,030,430)

Interest Income                                 81,333                26,009              107,342
                                           -----------           -----------          ----------- 
Net Loss                                   $(2,806,436)          $(1,116,652)         $(3,923,088)
                                           ===========           ===========          =========== 
Net Loss Per Common and
  Common Share Equivalents(1)              $      (.44)          $      (.18)         $      (.62)
                                           ===========           ===========          =========== 
Weighted Average Common
  and Common Share Equivalents               6,347,716             5,954,299            6,347,716
                                           ===========           ===========          =========== 
</TABLE>

Balance Sheet Data:                      December 31, 1996    December 31, 1995
                                         -----------------    -----------------
Cash and Cash Equivalents                  $15,666,609            $1,182,080
Working Capital                             14,591,700               611,655
Total Assets                                17,085,387             1,763,629
Total Liabilities                            1,631,650               598,464
Deficit Accumulated During
  the Development Stage                     (3,923,088)           (1,116,652)
Total Stockholders' Equity                  15,453,737             1,165,165


(1)  See  Note 1 of Notes  to  Financial  Statements  for a  description  of the
     calculation of net loss per share.

                                       15
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

     Management's  discussion  and analysis  provides a review of the  Company's
operating  results  for the year ended  December  31,  1996 and the period  from
inception on February 22, 1995 to December 31, 1995, and its financial condition
at December 31,  1996.  The focus of this review is on the  underlying  business
reasons for significant changes and trends affecting the revenues, net earnings,
and  financial  condition  of  the  Company.  This  review  should  be  read  in
conjunction with the accompanying financial statements.

     In an effort to give investors a well-rounded view of the Company's current
condition  and future  opportunities,  this Annual  Report on Form 10-K includes
forecasts by the  Company's  management  about future  performance  and results.
Because they are forward-looking,  these forecasts involve  uncertainties.  They
include risks of market  acceptance of or preference  for the Company's  systems
and  services,  competitive  forces,  the impact of, and changes in,  government
regulations,  general  economic  factors in the healthcare  industry,  and other
factors  discussed in the  Company's  filings with the  Securities  and Exchange
Commission.

Overview

     The Company was formed on February 22, 1995,  is in the  development  stage
and has a limited  operating  history  from which to evaluate  its  performance.
Although the Company has completed the development of its integrated information
capture and delivery system and is developing  several disease state  management
programs for specific diseases,  further development activities may be necessary
to  implement  these  programs.  In October  1996 the  Company  began  enrolling
patients in its first  disease  state  management  program,  and  currently  has
a limited number of patients enrolled in five of its disease-specific programs.

     The Company has generated  limited revenues to date and has recorded losses
since inception, totaling $3,923,088 through December 31, 1996, which losses are
continuing  to date.  The Company  anticipates  that its losses will continue at
least until it has completed the  development of programs for several  customers
and has begun  providing  services to a substantial  number of patients for such
customers.

     The Company has entered into services agreements to develop,  implement and
operate  programs  for:  (i)  patients  who have  recently  experienced  certain
cardiovascular  events;  (ii)  patients  who have been  diagnosed  with  primary
congestive  heart failure;  (iii)  patients  suffering from anorexia or cachexia
secondary to diagnosis of cancer or AIDS;  (iv) patients  suffering from chronic
pain, and (v) patients who are at increased risk of suffering from epilepsy.  In
addition,  the Company  has  entered  into  services  agreements  to operate its
disease  management  programs  for patients  suffering  from asthma or diabetes.
These contracts provide for, and the Company  anticipates  future contracts will
provide  for,  fees paid by its  customers  based  upon the  number of  patients
participating  in each of its programs,  as well as initial program  development
fees from  customers for the  development  of a  disease-specific  program.  The
Company's  program  development  contracts  typically  require  payment from the
customer at the time that the contract is  executed,  with  additional  payments
made as certain development  milestones are met. Development contract revenue is
recognized on a percentage of completion  basis, in accordance with the ratio of
total development cost incurred to the estimated total development costs for the
entire  project.  Losses,  if  any,  related  to  program  development  will  be
recognized  in full as  identified.  The  Company's  contracts  call for a fixed
program operational fee to be paid by the customer for each patient enrolled for
a series of program services as defined in the contract.  The timing of customer
payments for the delivery of program services varies by contract.  Revenues from
program operations are recognized ratably as the program services are delivered.
The amount of the per patient fee varies from program to program  depending upon
the number of patient contacts required, the complexity of the interventions and
the detail 

                                       16
<PAGE>

of the reports  generated.  The Company has not capitalized any costs related to
the  development  of software for use in its disease state  management  programs
since all of such software has been developed for internal use.

     The sales  cycle for the  Company's  programs  is  expected  to extend  for
periods of six to nine months from initial contact to contract execution. During
these  periods,  the Company may expend  substantial  time,  effort and funds to
prepare a contract  proposal  and  negotiate  the  contract.  The Company may be
unable to consummate a commercial  relationship  after the  expenditure  of such
time, effort and financial resources.

     The Company  anticipates  that it will begin to provide  other  services to
customers in the healthcare  industry during 1997 which involve new applications
of its information  capture and delivery system.  These include patient surveys,
health risk assessments,  nursing support lines and marketing support functions.
It is  anticipated  that the revenues  generated  from services other than those
provided in conjunction with disease state management programs will represent an
increasing  percentage of total revenues as the Company  continues to expand the
systems and services that it makes available to its customers.

Results of Operations

     Revenues

     The Company  generated  revenue of $845,412 for the year ended December 31,
1996,  and  $113,000  during the period from  inception  on February 22, 1995 to
December 31, 1995. A summary of these revenues by category is as follows:

                                                         Period from
                                                         February 1995
                                      Year Ended        (Inception) to
Revenues                           December 31,1996    December 31, 1995
--------                           ----------------    -----------------
Development Fees                       $798,138           $ 84,000
Licensing Fees                           35,556               -
Operational Fees                         11,718             29,000
                                       --------           --------
Total Revenues                         $845,412           $113,000
                                       ========           ========

     The increase in program development fees reflects the increase in the level
of development activities for the Company's customized programs. The increase in
program  licensing  fees  reflects the  initiation of licensing of the Company's
standardized  programs.  Revenues from program  operations  are not  significant
because patient  enrollments in the Company's disease state management  programs
were not initiated until October 1996.

     Costs and Expenses

     Cost of sales include salaries and related  benefits,  services provided by
third  parties,  and  other  expenses  associated  with the  development  of the
Company's customized disease state management programs, as well as the operation
of each of its disease state management programs. In addition, cost of sales for
1996 includes  accrued  losses on program  development  in  accordance  with the
Company's policy of recognizing such losses, if any, in full as identified.  The
accrued loss for 1996 is a result of a particular  contract for which the amount
of the program development fee is based upon the success of the program, and the
fact

                                       17
<PAGE>

that the  guaranteed  development  revenue  for this  program  is less  than the
estimated  cost of its  development.  To the extent that the Company enters into
any contracts of this type in the future,  and that those contracts  provide for
guaranteed  development revenue which is less than the estimated cost of program
development, such losses will continue to be accrued. Cost of sales was $748,322
for the year ended December 31, 1996, and $111,870 for the period from inception
on February 22, 1995 to December 31, 1995. The increase in these costs primarily
reflects  an  increased  level of  program  development  activities.  

     Sales and  marketing  expenses  for the year ended  December  31, 1996 were
$913,547,  and  $375,384  for the period from  inception on February 22, 1995 to
December 31, 1995. These costs consist  primarily of salaries,  related benefits
and travel costs.  These  expenditures  allowed the Company to undertake initial
marketing  efforts to  pharmaceutical  companies,  payors and other  health care
services organizations.  The increase in these costs reflects an increase in the
size of the Company's sales and marketing staff.

     General  and  administrative   expenses  include  the  costs  of  corporate
operations,  finance and accounting, human resources and other general operating
expenses of the Company.  General and administrative expenses for the year ended
December 31, 1996 were $1,760,760, and $678,498 for the period from inception on
February 22, 1995 to December  31, 1995.  These  expenditures  were  incurred to
develop the corporate  infrastructure  necessary to support  anticipated program
development  and  operations.  The  increase  in these  costs  was  caused by an
increase  in the  Company's  level of  business  activity,  and the  addition of
required administrative personnel.

     Research and development expenses consist primarily of salaries and related
benefits  and  administrative  costs  allocated  to the  Company's  research and
development  personnel for  development of certain  components of its integrated
information capture and delivery system, as well as development of the Company's
standardized  disease  state  management  programs.   Research  and  development
expenses for the year ended December 31, 1996 were $310,552, and $89,909 for the
period from inception on February 22, 1995 to December 31, 1995. The increase in
these costs reflects  initiation of  development  of the Company's  standardized
disease  state  management  programs  for  patients  suffering  from  asthma and
diabetes.

     During  1996  each  of the  Company's  categories  of  costs  and  expenses
decreased as a percentage of revenues  from the prior  period,  despite the fact
that they increased in absolute dollars,  due to the significant increase in the
Company's revenues during 1996.

     Interest  income was  $81,333 for the year ended  December  31,  1996,  and
$26,009 for the period from inception on February 22, 1995 to December 31, 1995.
The increase in interest income  reflects the additional  funds available to the
Company for  investment as a result of its initial  public  offering on December
19, 1996.

     The Company had a net loss of  $2,806,436  for the year ended  December 31,
1996,  and a loss of  $1,116,652  for the period from  inception on February 22,
1995 to December  31, 1995.  This  represents a loss of $.44 per share for 1996,
and a loss of $.18 per share for the period from  inception on February 22, 1995
to December 31, 1995.

     Liquidity and Capital Resources

     At December  31, 1996 the Company had working  capital of  $14,591,700,  as
compared to $611,655 at December 31, 1995.  Since its  inception the Company has
primarily funded its operations,  working capital needs and capital expenditures
from the sale of equity  securities.  The Company's  initial  capitalization  of
$500,000 was completed in February 1995. The Company  received  $1,800,000  from
the 

                                       18
<PAGE>

sale of equity  securities  in a private  placement  during the third quarter of
1995, and $3,000,000 from the sale of additional  equity securities in a private
placement  during the second  quarter of 1996.  On December 19, 1996 the Company
completed an initial  public  offering of its common stock which  generated  net
proceeds to the Company of $14,082,048.

     Capital expenditures during 1996 were $494,577, as compared to expenditures
of $579,983  during the period from  inception  on February 22, 1995 to December
31, 1995. The expenditures  during both periods  represented the purchase of the
significant technology platform components of the integrated information capture
and  delivery  system as well as  purchases  required to support  the  Company's
growing employee base.

     The Company's development contracts generally require that payments be made
by the  customer  at the time of contract  execution  and at the  achievment  of
certain  milestones  in the  development  process.  These  payments are normally
received in advance of the Company's  recognition of the associated revenue. The
timing of customer payments for program  operation  services varies by contract,
but  typically  occurs prior to the  associated  services  being  provided.  The
Company  recognizes  deferred  revenue for amounts  billed for these services in
advance of the  rendering  of the  services.  The advance  payments  have been a
source of liquidity for the Company.  The Company  anticipates  that its billing
practices are likely to continue in this manner in the forseeable future.

     The Company has been  substantially  dependent  upon the public and private
sale of securities to fund its research and  development  activities and working
capital  requirements.  In order  to  implement  programs  using  the  Company's
integrated information capture and delivery system, the Company will be required
to devote  substantial  additional assets to the development of technology,  the
construction  of  physical  facilities  and the  acquisition  of  telephone  and
computer equipment.  The Company will also be required to retain the services of
employees in advance of obtaining contracts to provide services.

     Inflation

     Inflation did not have a significant  impact on the Company's  costs during
1996 or the period from inception on February 22, 1995 to December 31, 1995. The
Company  continues  to monitor the impact of  inflation in order to minimize its
effects  through  pricing   strategies,   productivity   improvements  and  cost
reductions.

     Forward Looking Statements

     When used in this and in future  filings by the Company with the Securities
and Exchange Commission,  in the Company's press releases and in oral statements
made with the approval of an authorized  executive  officer of the Company,  the
words or phrases "will likely result,"  "expects," "plans," "will continue," "is
anticipated,"  "estimated,"  "project,"  or  "outlook"  or  similar  expressions
(including  confirmations by an authorized  executive  officer of the Company of
any such  expressions  made by a third party with  respect to the  Company)  are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities  Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made.  Such statements are subject to certain
risks and  uncertainties  that could cause actual  results to differ  materially
from  historical  earnings and those  presently  anticipated  or projected.  The
Company has no obligation to publicly  release the result of any revisions which
may  be  made  to any  forward-looking  statements  to  reflect  anticipated  or
unanticipated  events  or  circumstances   occurring  after  the  date  of  such
statements.

                                       19
<PAGE>

Item 8.  Financial Statements.

Index to Financial Statements                                         Page
-----------------------------                                         ----
Independent Auditors' Report                                           21
Balance Sheets                                                         22
Statements of Operations                                               23
Statements of Stockholders' Equity                                     24
Statements of Cash Flows                                               25
Notes to Financial Statements                                          26-31

                                       20
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
  of Patient Infosystems, Inc.:

We have audited the accompanying balance sheets of Patient Infosystems,  Inc. (a
development  stage  enterprise) as of December 31, 1996 and 1995 and the related
statements  of  operations,  stockholders'  equity,  and cash flows for the year
ended  December 31, 1996 and for the periods from February 22, 1995  (Inception)
to December  31, 1995 and from  February  22, 1995  (Inception)  to December 31,
1996.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of Patient  Infosystems,  Inc. at December 31,
1996 and 1995, and the results of its operations and its cash flows for the year
ended  December 31, 1996 and for the periods from February 22, 1995  (Inception)
to December 31, 1995 and from February 22, 1995 (Inception) to December 31, 1996
in conformity with generally accepted accounting principles.



Deloitte & Touche LLP
Rochester, New York
January 31, 1997

                                       21
<PAGE>

PATIENT INFOSYSTEMS, INC.
(A Development Stage Enterprise)

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
--------------------------------------------------------------------------------

ASSETS                                                   1996           1995   
                                                    
CURRENT ASSETS:                                     
  Cash and cash equivalents                          $15,666,609    $ 1,182,080
  Accounts receivable                                    386,215          4,055
  Prepaid expenses and other                        
     current assets                                      170,526         23,984
                                                     -----------    -----------
        Total current assets                          16,223,350      1,210,119
                                                    
PROPERTY AND EQUIPMENT, net                              862,037        553,510
                                                     -----------    -----------
                                                    
TOTAL ASSETS                                         $17,085,387    $ 1,763,629
                                                     ===========    ===========
                                                    
LIABILITIES AND STOCKHOLDERS' EQUITY                
                                                    
CURRENT LIABILITIES:                                
  Accounts payable                                   $   196,674    $   362,769
  Accrued salaries and wages                             127,029         48,259
  Accrued initial public offering costs                  446,568           --
  Accrued expenses                                       211,457         19,381
  Deferred revenue                                       582,783        168,055
  Accrued loss on development contracts                   67,139           --
                                                     -----------    -----------
        Total current liabilities                      1,631,650        598,464
                                                     -----------    -----------
                                                    
COMMITMENTS  (Note 6)                               
                                                    
STOCKHOLDERS' EQUITY:                               
  Preferred stock - $.01 par value:                 
    shares - authorized: 5,000,000;        
    Series A Convertible Preferred Stock;
        issued and outstanding:  
        1996 -0-; 1995 - 1,800,000                          --           18,000
    Series B Convertible Preferred Stock;           
        issued and outstanding:  None                       --             --
  Common stock - $.01 par value:  shares            
    - authorized: 20,000,000; issued and            
    outstanding:  1996 - 7,653,202;                 
    1995 - 3,602,880                                      76,532         36,029
  Additional paid-in capital                          19,300,293      2,227,788
  Deficit accumulated during the                    
    development stage                                (3,923,088)     (1,116,652)
                                                     -----------    -----------
        Total stockholders' equity                    15,453,737      1,165,165
                                                     -----------    -----------
                                                    
                                                    
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $17,085,387    $ 1,763,629
                                                     ===========    ===========
                                                


See notes to financial statements.


                                       22
<PAGE>

PATIENT INFOSYSTEMS, INC.
(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

                                                Period from       Period from
                                             February 22, 1995 February 22, 1995
                                 Year ended    (Inception) to    (Inception) to
                                December 31,    December 31,      December 31,
                                    1996           1995              1996
                                                                
REVENUES                        $   845,412     $   113,000        $   958,412
                                -----------     -----------        ----------- 
                                                                  
COSTS AND EXPENSES:                                               
  Cost of sales                     748,322         111,870            860,192
  Sales and marketing               913,547         375,384          1,288,931
  General and administrative      1,760,760         678,498          2,439,258
  Research and development          310,552          89,909            400,461
                                -----------     -----------        ----------- 
                                                                  
     Total costs and expenses     3,733,181       1,255,661          4,988,842
                                -----------     -----------        ----------- 
                                                                  
OPERATING LOSS                   (2,887,769)     (1,142,661)        (4,030,430)
                                                                  
INTEREST INCOME                      81,333          26,009            107,342
                                -----------     -----------        ----------- 
                                                                  
NET LOSS                        $(2,806,436)    $(1,116,652)       $(3,923,088)
                                ===========     ===========        =========== 
                                                                  
NET LOSS PER COMMON AND                                           
  COMMON SHARE                                                    
  EQUIVALENTS                   $      (.44)    $      (.18)       $      (.62)
                                ===========     ===========        =========== 
                                                                  
                                                                  
WEIGHTED AVERAGE COMMON                                           
  AND COMMON SHARE                                                
  EQUIVALENTS                     6,347,716       5,954,299          6,347,716
                                ===========     ===========        =========== 
                                                                 


See notes to financial statements.

                                       23
<PAGE>

PATIENT INFOSYSTEMS, INC.
(A Development Stage Enterprise)

STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 22, 1995 (INCEPTION) TO DECEMBER 31, 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                            Deficit
                                                                                                          Accumulated
                                                                                            Additional    During the      Total
                                                Preferred Stock          Common Stock        Paid-in      Development  Stockholders'
                                               Shares      Amount      Shares     Amount     Capital         Stage        Equity

<S>                                          <C>            <C>      <C>         <C>          <C>       <C>             <C>        
Sale of common stock, substantially
  all of which was issued on 
  February 22, 1995 at $0.14 per share            --          --     3,602,880   $36,029      464,371   $      --       $   500,400

Sale of Series A convertible preferred 
  stock at $1.00  per share in August and 
  September 1995 (net of  issuance 
  costs of $18,583)                          1,800,000      18,000        --        --      1,763,417          --         1,781,417

Net loss for the period from 
  Inception to  December 31, 1995                 --          --          --        --           --      (1,116,652)     (1,116,652)
                                            ----------     -------   ---------   -------   ----------   -----------     -----------

Balances, December 31, 1995                  1,800,000      18,000   3,602,880    36,029    2,227,788    (1,116,652)      1,165,165

Sale of Series B convertible preferred 
  stock at $5.00 per share in May
  and June 1996 (net of issuance 
  costs of $3,250)                             600,000       6,000        --        --      2,990,750          --         2,996,750

Compensation expense related to 
  issuance of stock warrants                      --          --          --        --         13,208          --            13,208

Exercise of stock warrants                        --          --         4,322        43        2,959          --             3,002

Sale of common stock at $8.00 per share 
  in December 1996 (net of issuance 
  costs of $1,917,952)                            --          --     2,000,000    20,000   14,062,048          --        14,082,048

Conversion of Series A and B 
  convertible preferred stock
  to common stock                           (2,400,000)    (24,000)  2,046,000    20,460        3,540          --              --

Net loss for the year end 
  December 31, 1996                               --          --          --        --           --      (2,806,436)     (2,806,436)
                                            ----------     -------   ---------   -------   ----------   -----------     -----------


Balances, December 31, 1996                       --      $   --     7,653,202   $76,532   19,300,293   $(3,923,088)    $15,453,737
                                            ==========    ========   =========   =======   ==========   ===========     ===========
</TABLE>


See notes to financial statements.

                                       24
<PAGE>


PATIENT INFOSYSTEMS, INC.
(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                  Period from      Period from
                                                               February 22, 1995 February 22, 1995
                                                   Year ended    (Inception) to   (Inception) to
                                                   December 31,    December 31,     December 31,
                                                      1996            1995             1996

<S>                                               <C>             <C>              <C>         
OPERATING ACTIVITIES:
  Net loss                                        $(2,806,436)    $(1,116,652)     $(3,923,088)
  Adjustments to reconcile net                                                    
    loss to net cash used in                                                      
    operating  activities:                                                        
      Depreciation and amortization                   186,050          26,473          212,523
      Compensation expense related                                                
        to issuance of stock warrants                  13,208            --             13,208
      Increase in accounts receivable                (382,160)         (4,055)        (386,215)
      Increase in prepaid expenses and                                            
        other current assets                         (146,542)        (23,984)        (170,526)
      (Decrease) increase in accounts payable        (166,095)        362,769          196,674
      Increase in accrued salaries and wages           78,770          48,259          127,029
      Increase in accrued expenses                    192,076          19,381          211,457
      Increase in deferred revenue                    414,728         168,055          582,783
      Increase in accrued loss on                                                 
        development contracts                          67,139            --             67,139
                                                  -----------     -----------      ----------- 
                                                                                  
                                                                                  
            Net cash used in operating                                            
              activities                           (2,549,262)       (519,754)      (3,069,016)
                                                  -----------     -----------      ----------- 
                                                                                  
INVESTING ACTIVITY:                                                               
  Property and equipment additions                   (494,577)       (579,983)      (1,074,560)
                                                  -----------     -----------      ----------- 
                                                                                  
FINANCING ACTIVITIES:                                                             
  Proceeds from issuance of common                                                
    and preferred stock, net                       17,081,800       2,281,817       19,363,617
  Increase in accrued initial                                                     
    public offering costs                             446,568            --            446,568
                                                  -----------     -----------      ----------- 
                                                                                  
            Net cash provided by                                                  
              financing activities                 17,528,368       2,281,817       19,810,185
                                                  -----------     -----------      ----------- 
                                                                                  
INCREASE IN CASH AND CASH  EQUIVALENTS             14,484,529       1,182,080       15,666,609
                                                                                  
CASH AND CASH EQUIVALENTS AT                                                      
  BEGINNING OF PERIOD                               1,182,080            --               --
                                                  -----------     -----------      ----------- 
                                                                                  
CASH AND CASH EQUIVALENTS AT                                                      
  END OF PERIOD                                   $15,666,609     $ 1,182,080      $15,666,609
                                                  ===========     ===========      ===========
</TABLE>
                                                                               


See notes to financial statements.


                                       25
<PAGE>

PATIENT INFOSYSTEMS, INC.
(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 1995 AND 1996
--------------------------------------------------------------------------------

1.    BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Organization  - Patient  Infosystems,  Inc.  designs  and  develops  health care
information systems and services to manage, collect and analyze  patient-related
information to improve patient compliance with prescribed  treatment  protocols.
Through its various patient  compliance  programs for disease state  management,
the  Company  provides  important  benefits  for the  patient,  the health  care
provider and the payor. The Company was incorporated in Delaware on February 22,
1995 under the name DSMI Corp.,  changed its name to Disease  State  Management,
Inc.  on October  13,  1995,  and on June 28,  1996  changed its name to Patient
Infosystems,  Inc.  The  Company  has  selected  December 31 as the close of its
fiscal year.

Development   Stage  Activities  -  Through  December  31,  1996  the  Company's
development  activities  have  consisted  primarily  of efforts to raise  funds,
develop the first  application of its  information  capture and delivery  system
(which is a system that proactively  collects and analyzes  information relevant
to patients in specific  disease  categories to improve patient  compliance with
prescribed  regimens),  and market its disease management  programs for specific
diseases.  Successful  completion  of the  Company's  program  development,  and
ultimately  the  attainment of profitable  operations,  is dependent upon future
events, including achieving market acceptance of its products.

Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual amounts could differ
from those estimates.

Fair  Value of  Financial  Instruments  - The  Company's  financial  instruments
consist of cash and cash equivalents,  accounts  receivable and accounts payable
which are carried at cost, which approximates fair market value.

Revenue  Recognition and Deferred  Revenue - The Company's  principal  source of
revenue to date has been from  contracts with a  pharmaceutical  company for the
development and operation of disease  management  programs for chronic diseases.
Deferred  revenue  represents  amounts billed in advance under these  contracts.
Future revenue sources are expected to include disease  management  programs and
other health care information system applications.

Development  Contracts - The Company's program  development  contracts typically
require  payment  from the  customer at the time that the  contract is executed,
with  additional  payments  made as  certain  development  milestones  are  met.
Development  contract revenue is recognized on a percentage of completion basis,
in accordance with the ratio of total development cost incurred to the estimated
total development  costs for the entire project.  Losses, if any, are recognized
in full as identified.

Program  Operations - The Company's program  operation  contracts call for a per
enrolled patient fee to be paid by the customer for a series of program services
as defined in the contract.  The timing of customer payments varies by contract,
but  typically  occurs in advance of the  associated  services  being  provided.
Revenues from program  operations are recognized ratably as the program services
are delivered.

Cash and Cash Equivalents - Cash and cash equivalents  include all highly liquid
debt instruments with original maturities of three months or less.

Concentrations of Credit Risk - Financial  instruments which potentially subject
the Company to concentration of credit risk consist principally of cash and cash
equivalents  and  accounts  receivable.  The  Company  places  its cash and cash
equivalents with high credit quality institutions.

                                       26
<PAGE>

The Company's current contracts are concentrated in a small number of customers,
with  six  of  the  Company's   fifteen   contracts  being  with  one  customer.
Consequently, the loss of any one of its customers could have a material adverse
effect on the Company and its operations.

During the year ended  December 31, 1996,  and the period from February 22, 1995
(Inception)  to December  31,  1995,  approximately  $796,800  (94%) and $84,000
(74%),  respectively,  of the Company's  revenues  arose from contracts with one
customer.  At December  31, 1996 and  December  31,  1995,  accounts  receivable
included  balances of $265,940 and $0,  respectively,  from  contracts with that
customer.

Property and Equipment - Property and equipment are stated at cost. Depreciation
is computed using the  straight-line  method over the estimated  useful lives of
the assets, which range from 3 to 10 years.

In 1996,  the  Company  adopted  Statement  of  Financial  Accounting  Standards
("SFAS") No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to Be Disposed  Of".  SFAS No. 121 requires  that  long-lived
assets and certain  identifiable  intangibles to be held and used be reported at
the lower of carrying amount or fair value.  Assets to be disposed of and assets
not expected to provide any future service potential to the Company are recorded
at the lower of carrying amount or fair value less cost to sell. The adoption of
SFAS No. 121 did not have a material effect on the Company's  financial position
or results of operations.

Research and Development - Research and development costs consist principally of
compensation  and  benefits  paid  to  Company   employees.   All  research  and
development costs are expensed as incurred.

Income Taxes - The Company uses the asset and liability method of accounting for
income taxes in accordance with Statement of Financial  Accounting Standards No.
109,  "Accounting  for  Income  Taxes".  Under the asset and  liability  method,
deferred  income tax assets and  liabilities  are  recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and net operating loss and tax credit carryforwards.

Net Loss Per Share - Net loss per share is based on the weighted  average number
of common shares outstanding subsequent to the Company's initial public offering
in 1996.  Pursuant to rules of the Securities and Exchange Commission Staff, all
common and common  equivalent  shares issued by the Company at a price less than
the initial public  offering  price during at least the 12 months  preceding the
offering  date (using the  treasury  stock  method until shares are issued) have
been  included  in the  calculation  of  common  and  common  equivalent  shares
outstanding for all periods  presented prior to the December 1996 initial public
offering.

Retirement  Plan - The  Company  has a  retirement  plan which  qualifies  under
Section  401(k) of the  Internal  Revenue  Code.  This  retirement  plan  allows
eligible  employees to contribute 1% to 15% of their income on a pretax basis to
the plan. The Company's annual  contribution to the plan is at the discretion of
the Board of Directors.  The Company made no  contributions to this plan in 1996
or 1995.

Stock Split - On November 22,  1996,  the Company  effected a .72-for-1  reverse
stock split of all outstanding shares of common stock.  Accordingly,  all shares
and per share  amounts have been  adjusted to reflect the reverse stock split as
though it had occurred at February 22, 1995.

                                       27
<PAGE>

2.   PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

                                          December 31   December 31,
                                             1996          1995

Computer software                         $  307,735     $137,153
Computer equipment                           409,681      242,393
Telephone equipment                          134,656      120,233
Leasehold improvements                        37,729       12,200
Office furniture and equipment               184,708       68,004
                                          ----------     --------
                                           1,074,509      579,983
Less accumulated depreciation                          
  and amortization                           212,472       26,473
                                          ----------     --------
                                                       
Property and equipment, net               $  862,037     $553,510
                                          ==========     ========

3.   INCOME TAXES

The  Company  has not  recorded  any income tax  expense  during the period from
Inception  to December  31, 1996  because of  operating  losses  incurred  since
inception.

As of December 31, 1996,  the Company has net operating loss  carryforwards  for
Federal income tax purposes of  approximately  $3,900,000 which are available to
offset future Federal taxable income. These carryforwards expire in 2011. No tax
benefit relating to the net operating loss  carryforwards  has been reflected in
the financial statements due to the uncertainty regarding the utilization of any
such  benefit,  and a  valuation  allowance  has been  recognized  to offset any
deferred tax asset related to this item.  Future benefit may occur to the extent
taxable income is earned prior to the expiration of the carryforward period.

4.   PUBLIC OFFERING OF COMMON STOCK

In December 1996,  the Company sold 2,000,000  shares of common stock through an
initial  public  offering  which  generated  net proceeds of  $14,082,048  after
deducting  applicable  issuance  costs and  expenses.  On January  8,  1997,  an
additional  300,000 shares of common stock were sold pursuant to an underwriters
over-allotment  provision,  which  generated  net  proceeds  to the  Company  of
$2,232,000 after deducting underwriting discounts and commissions.

In connection  with this initial  public  offering,  the  Company's  outstanding
shares  of  Series A and B  convertible  preferred  stock  were  converted  into
2,046,000 shares of common stock.

5.    STOCK OPTIONS AND WARRANTS

The Company has an Employee  Stock Option Plan (the "Stock Option Plan") for the
benefit of certain  employees,  non-employee  directors,  and key advisors.  The
Company has adopted the  disclosures-only  provision  of  Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based   Compensation".
Accordingly,  no compensation cost has been recognized for the Stock Option Plan
as it relates to employees. Had compensation cost for the Company's stock option
plan been  determined  based on the fair  value at the date of grant for  awards
consistent  with the  provisions of SFAS No. 123, the Company's net loss and net
loss per common and common share  equivalents  would have been  increased to the
pro forma amounts indicated below:

                                       28
<PAGE>

                                                Period from       Period from
                                             February 22, 1995 February 22, 1995
                                                (Inception)       (Inception)
                               Year ended     to December 31,   to December 31,
                           December 31, 1996       1995              1996

Net loss - as reported       $(2,806,436)      $(1,116,652)      $(3,923,088)
                                                               
Net loss - pro forma         $(2,879,457)      $(1,125,428)      $(4,004,885)
                                                               
Net loss per common                                            
  and common share                                             
  equivalents - as reported  $      (.44)      $      (.18)      $      (.62)
                                                               
Net loss per common                                            
  and common share                                             
  equivalents - pro forma    $      (.46)      $      (.18)      $      (.64)

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes  option-pricing  model using an assumed risk-free interest rate of
7% and an  expected  life of 7 years.  As the  Company  was still  considered  a
private  company for the  purposes of applying  SFAS No. 123 for the period from
Inception  to June 30,  1996,  the Company did not include a  volatility  factor
assumption in its fair value model.  For the options granted after July 1, 1996,
the  Company  has used a  volatility  factor of .60.  For  purposes of pro forma
disclosure, the estimated fair value of each option is amortized to expense over
that option's vesting period. The Stock Option Plan authorizes  1,080,000 shares
of common stock to be issued.

Stock  options  granted  under the Stock  Option  Plan may be of two types:  (1)
incentive stock options and (2) nonqualified stock options.  The option price of
such grants shall be  determined  by a Committee of the Board of Directors  (the
"Committee"),  but shall not be less than the estimated fair market value of the
common stock at the date the option is granted. The terms of the grants shall be
fixed by the Committee,  with no term lasting longer than ten years. The ability
to exercise such options  shall be determined by the Committee  when the options
are  granted.  All of the  outstanding  options vest at the rate of 20% per year
with the exception of 36,000 options which were vested as of the date of grant.

                                       29
<PAGE>

A summary of stock option activity follows:

                                                                    Weighted-
                                                  Outstanding        Average
                                                    Options       Exercise Price
Options granted during the period 
  from Inception to December 31, 1995 
  (weighted average fair value of $.13)             658,800           $ .35
                                                                      
Options forfeited by holders during the                               
  period from Inception to December 31, 1995        (65,520)          $ .54
                                                                      
Options exercised during the period                                   
  from Inception to December 31, 1995                (2,880)          $ .14
                                                    -------         
                                                                      
Options outstanding at December 31, 1995            590,400           $ .33
                                                                      
Options granted during the year ended                                 
  December 31, 1996 (weighted average                                 
  fair value of $3.24)                              365,400           $5.32
                                                                      
Options forfeited by holders during the year                          
  ended December 31, 1996                           (63,840)          $ .87
                                                    -------         
                                                                      
Options outstanding at December 31, 1996            891,960           $2.34
                                                    =======  
                                                                      
Options exercisable at December 31, 1996            154,320           $ .30
                                                    =======  
                                                                      
Options available for grant at December 31, 1996    188,040           
                                                    =======  

The  following  table   summarizes   information   concerning   outstanding  and
exercisable options at December 31, 1996:

                           Options Outstanding            Options Exercisable
                  ------------------------------------   ----------------------
                                 Weighted                
                                 Average     Weighted                  Weighted
                                Remaining     Average                   Average
   Range of          Number    Contractual   Exercise      Number      Exercise
Exercise Price    Outstanding      Life        Price     Exercisable     Price

  $.14 - $.99       504,900        8.34       $  .28       143,460         .24
                                                                         
 $1.00 - $1.99      104,040        8.88         1.42         9,360        1.04
                                                                         
 $2.00 - $4.99      130,740        9.25         2.08         1,500        2.08
                                                                         
$5.00 - $10.00      152,280        9.83        10.00          --           --
                    -------                                -------
                                                                         
                    891,960                                154,320             
                    =======                                =======
                                                                      
                                  
The Company also has outstanding stock purchase  warrants  entitling the holders
to purchase a total of 100,800  shares of common  stock at prices  ranging  from
$.14 to $10.00 per share (weighted  average exercise price of $.84). At December
31, 1996,  25,920 of these  warrants are  currently  vested,  with the remaining
74,880 warrants  vesting at 20% per year. The Company has recorded  compensation
cost of $13,208  for the year ended  December  31, 1996 in  connection  with the
issuance of these warrants.

                                       30
<PAGE>

6.   COMMITMENTS

The  Company  leases  office  space  for its main  operating  facility  under an
operating  lease agreement  expiring in November 1999.  Rental expense from this
lease for the year ended  December  31,  1996 and the period from  Inception  to
December 31, 1995 was $70,479 and $40,375, respectively.

At  December  31,  1996,  future  minimum  lease  payments  under this lease are
summarized as follows:

                1997                               $152,910
                1998                                158,608
                1999                                150,535
                                                   --------
                                            
                                                   $462,053
                                                   ========
                          
                                       31
<PAGE>

Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

     None.


                                       32
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The following table sets forth certain information concerning the Company's
directors and executive officers as of February 28,1997.

Name                                Age   Position
----                                ---   --------
Derace L. Schaffer, M.D...........   48   Chairman of the Board
Donald A. Carlberg................   45   Director, President and Chief 
                                              Executive Officer
Gregory D. Brown..................   35   Senior Vice President, Chief Financial
                                              Officer, Secretary and Treasurer
James D. Turner...................   37   Senior Vice President, Sales and 
                                              Marketing
Kent A. Tapper....................   41   Vice President, Systems Engineering
John Pappajohn....................   68   Director
Barbara J. McNeil, M.D., Ph.D.....   56   Director
Carl F. Kohrt, Ph.D...............   53   Director

     Derace L.  Schaffer,  M.D. has been Chairman of the Board and a Director of
the Company since its inception in February  1995.  Since 1980 Dr.  Schaffer has
been the  President  of The Ide Group,  P.C.,  a group of  physicians  providing
radiological services at multiple locations in New York State, and since 1990 he
has also been President of The Lan Group, a venture capital firm specializing in
health care investments.  He serves as a Clinical Professor at the University of
Rochester  School of Medicine  and a Director of  NeuralTech,  Inc.,  NeuralMed,
Inc., Preferred Oncology Networks of America, Inc., American Physician Partners,
Inc., The Care Group,  Inc.,  Oncor,  Inc. and Medifax,  Inc. as well as several
not-for-profit corporations.

     Donald A.  Carlberg  has been  President,  Chief  Executive  Officer  and a
Director of the Company since its inception. From February 1993 to December 1994
Mr.  Carlberg  served  as  Chief   Executive   Officer  of  Patient   Management
Technologies,  Inc., a medical services  consulting  company,  which he founded.
From  1992 to 1994 Mr.  Carlberg  served  as  Senior  Vice  President  Sales and
Marketing  for  Neurocare,  Inc./Paradigm  Health  Corp.  From  1990 to 1992 Mr.
Carlberg served as Director of Managed Care for Baxter Healthcare  International
where he started managed care initiatives for its Caremark  Division.  From 1985
to 1990 Mr. Carlberg held several senior level positions in managed care at Blue
Cross/Blue  Shield  of  Rochester,  New  York  and  Independence  Blue  Cross in
Philadelphia, Pennsylvania.

     Gregory D. Brown has been Senior Vice President,  Chief Financial  Officer,
Secretary  and  Treasurer of the Company  since May 1995.  From 1989 to 1995 Mr.
Brown was Chief  Financial  Officer of Pappajohn  Capital  Resources,  a venture
capital firm specializing in health care investments, and Equity Dynamics, Inc.,
a financial consulting firm, both located in Des Moines, Iowa. From 1984 to 1989
Mr. Brown was a Senior Accountant with Vroman,  McGowen,  Hurst,  Clark & Smith,
P.C., a certified public accounting firm.

     James D. Turner has been Senior Vice President,  Sales and Marketing of the
Company  since  September  1996.  Mr.  Turner  served as  Director  of  Business
Development for Preferred  Oncology Networks of America,  Inc. from January 1996
to September  1996.  From 1987 to 1995 Mr. Turner held various sales,  marketing
and business development positions with divisions of Coram Healthcare,  Inc. and
Baxter  Healthcare   International,   most  recently  as  Director  of  Business
Development.

     Kent A. Tapper has been Vice President,  Systems Engineering of the Company
since July 1995.  Prior to joining the Company  and since 1992,  Mr.  Tapper was
Product Manager,  Audio Response and Call Center Platforms for Northern Telecom,
Inc.  From 1983 to 1992 Mr.  Tapper held Product  Manager,  Systems  Engineering
Manager and various engineering management positions with Northern Telecom.

                                       33
<PAGE>

     John Pappajohn has been a Director of the Company since its inception,  and
served as its Secretary and Treasurer  from  inception  through May 1995.  Since
1969 Mr.  Pappajohn has been the sole owner of Pappajohn  Capital  Resources,  a
venture capital firm specializing in health care  investments,  and President of
Equity Dynamics,  Inc., a financial consulting firm, both located in Des Moines,
Iowa. He serves as a Director for the following  public  companies:  CORE, Inc.,
Drug Screening Systems, Inc., Fuisz Technologies, Ltd., GalaGen, Inc., OncorMed,
Inc., The Care Group, Inc., HealthDesk  Corporation,  United Systems Technology,
Inc. and Pace Health Management Systems, Inc.

     Barbara J. McNeil, M.D., Ph.D. has been a Director of the Company since May
1995. Dr. McNeil is Head of the Department of Health Care Policy and a Professor
of  Radiology  at  Harvard  Medical  School  where  she has  served  in  various
capacities  since 1971. For four years she has served as Chair of the Blue Cross
Massachusetts Hospital Association Fund for Cooperative Innovation and currently
she is a member of the National  Council on Radiation  Protection,  the American
College  of  Radiology  and its Board of  Chancellors,  the  Society  of Nuclear
Medicine,  the  Advisory  Council  for the  Agency for  Health  Care  Policy and
Research,  and the National Academy of Sciences' Institute of Medicine where she
is a Council member. She also serves as a Director of CV Therapeutics, Inc.

     Carl F. Kohrt,  Ph.D.  has been a Director of the Company since April 1996.
Dr. Kohrt is Executive Vice President and Assistant Chief  Operating  Officer of
the Eastman Kodak Company, where he has served in various capacities since 1971.
Dr.  Kohrt is a  recipient  of a Sloan  Fellowship  for  study at  Massachusetts
Institute of Technology.

     No family  relationship exists between any of the above executive officers.
The normal term of office for all executive  officers listed above runs from one
Annual Meeting of Stockholders of the Company to the next, or approximately  one
year.

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the Company's  executive  officers and directors,  and persons who own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange  Commission.
Based on a review of the copies of reports furnished to the Company, the Company
believes  that during the year ended  December 31, 1996 all filing  requirements
applicable to its officers,  directors  and ten percent  beneficial  owners were
met,  except that initial  reports of beneficial  ownership on Form 3 were filed
late.

Committees of the Board of Directors

     The Board of Directors of the Company has  appointed  two  committees:  the
Audit Committee and the Compensation Committee. The Audit Committee periodically
reviews the Company's auditing practices and procedures,  makes  recommendations
to management  or to the Board of Directors as to any changes to such  practices
and  procedures  deemed  necessary  from time to time to comply with  applicable
auditing rules,  regulations and practices,  and recommends independent auditors
for the Company to be elected by the  stockholders.  The Compensation  Committee
meets periodically to make  recommendations to the Board of Directors concerning
the compensation and benefits  payable to the Company's  executive  officers and
other  senior   executives.   The  Company   reimburses   directors   for  their
out-of-pocket expenses incurred in attending Board and Committee meetings.

Item 11. Executive Compensation.

Director Compensation

     During 1996 no separate cash  compensation or fees are payable to directors
of the Company, other than reimbursement of expenses incurred in connection with
attending meetings.

     On April 8, 1996, the Company  granted  options to acquire 36,000 shares of
Common  Stock at an  exercise  price of $2.08 per  share to Dr.  Carl  Kohrt,  a
director of the Company.

                                       34
<PAGE>

Executive Compensation

     The  following  table  sets forth the  compensation  paid or accrued by the
Company for services  rendered in all capacities  for executive  officers of the
Company who received  compensation  in excess of $100,000 during the period from
inception on February 22, 1995 to December 31, 1995 and during 1996.

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                                 Long-Term
                                                                                            Compensation Awards
                                                    Annual Compensation                    Securities Underlying
                                                    --------------------                          Options
Name and Principal Position                Year             Salary            Bonus                 (#)
---------------------------                ----             ------            -----         -------------------
<S>                                         <C>           <C>                <C>                   <C>   
Donald A. Carlberg, President               1996          $131,731           $25,000               18,000
and Chief Executive Officer                 1995(1)        $96,417           $15,000              216,000

Gregory D. Brown, Sr. Vice                  1996          $103,077           $20,000               10,800
President, Chief Financial                  1995(1)        $60,034                $0               90,000
Officer, Secretary and Treasurer        

Giancarla Miele, Vice President             1996          $103,077            $5,000               36,000
of Operations (2)                           1995(1)        $16,912                $0               36,000
                                       
George T. Witter, Vice President            1996          $119,062           $12,500               18,000
of Sales (3)                                1995(1)        $49,512                $0               54,000

</TABLE>

(1)  Reflects  compensation paid from inception on February 22, 1995 to December
     31, 1995.
       
(2)  Ms.  Miele  resigned her position as Vice  President  of  Operations  as of
     February 7, 1997.
       
(3)  Mr. Witter  resigned his position as Vice President of Sales as of November
     1, 1996.


The following table sets forth certain information  regarding options granted to
the Chief Executive  Officer and other executive  officers of the Company during
1996.

                              Option Grants in 1996
<TABLE>
<CAPTION>

                               Individual Grants                                 Potential Realizable Value  
                             -----------------------                             at Assumed Annual Rates of 
                          Number of         % of Total                          Stock Price Appreciation for
                          Securities      Options Granted  Exercise                    Option Term (2)      
                      Underlying Options  to Employees in    Price   Expiration -----------------------------
        Name            Granted (#)(1)      Fiscal Year     $/Share     Date        5% ($)        10% ($)
        ----            --------------      -----------     -------     ----        ------        -------
<S>                         <C>                <C>           <C>      <C>         <C>             <C>    
Donald A. Carlberg          18,000             4.9%          $2.08    4/08/06     $23,546         $59,670
Gregory D. Brown            10,800             3.0%          $2.08    4/08/06      14,127          35,802
James D. Turner             72,000            19.7%         $10.00   11/22/06     452,804       1,147,495
George T. Witter            18,000             4.9%          $2.08    4/08/06      23,546          59,670
Giancarla C. Miele          36,000             9.9%          $2.08    4/08/06      47,092         119,340

</TABLE>

(1)  All options  will become  exercisable  at the rate of 20% per year from the
     date of grant and have ten year terms as long as the optionee's  employment
     with the Company  continues.  The exercise price of each option is equal to
     the fair market  value of the  underlying  Common  Stock on the date of the
     grant, as determined by the Board of Directors.

(2)  Future  value of current  year grants  assumes  appreciation  in the market
     value of the Common Stock of 5% and 10% per year over the  ten-year  option
     period as required by the rules of the Securities  and Exchange  Commission
     and do not represent the Company's estimate or projection of actual values.
     The actual value  realized  may be greater than or less than the  potential
     realizable values set forth in the table.

                                       35
<PAGE>

No  stock  options  were  exercised  by the  Chief  Executive  Officer  or other
executive  officers of the Company during 1996.  The following  table sets forth
certain  information  regarding  unexercised options held by the Chief Executive
Officer and other executive officers of the Company at December 31, 1996.

                         December 31, 1996 Option Values
<TABLE>
<CAPTION>

                         Number of Securities Underlying Unexercised             Value of Unexercised
                                         Options at                             In-the-Money Options at
                                    December 31, 1996(#)                        December 31, 1996($)(1)
                                    --------------------                        -----------------------
Name                        Exercisable           Unexercisable           Exercisable           Unexercisable
----                        -----------           -------------           -----------           -------------
<S>                             <C>                   <C>                  <C>                    <C>       
Donald A. Carlberg              72,000                162,000              $651,960               $1,425,060
Gregory D. Brown                18,000                 82,800               162,000                  725,436
James A. Turner                      0                 72,000                     0                        0
Kent A. Tapper                   7,200                 28,800                65,592                  262,368
Giancarla C. Miele               7,200                 64,800                59,112                  494,568

</TABLE>

(1)  Calculated based upon $9.25 market value of the underlying securities as of
     December 31, 1996.

Stock Option Plan

     The Company's Stock Option Plan (the "Plan") was originally  adopted by the
Board of Directors  and  stockholders  in June 1995.  Up to 1,080,000  shares of
Common Stock have been  authorized  and  reserved  for issuance  under the Plan.
Under the Plan,  options may be granted in the form of incentive  stock  options
("ISOs") or  non-qualified  stock options ("NQOs") from time to time to salaried
employees,  officers, directors and consultants of the Company, as determined by
the Compensation Committee of the Board of Directors. The Compensation Committee
determines the terms and conditions of options granted under the Plan, including
the exercise  price.  The Plan  provides that the  Committee  must  establish an
exercise price for ISOs that is not less than the fair market value per share at
the date of the grant.  However, if ISOs are granted to persons owning more than
10% of the voting  stock of the  Company,  the Plan  provides  that the exercise
price must not be less than 110% of the fair market  value per share at the date
of the grant. The Plan also provides for a non-employee  director to be entitled
to receive a one-time  grant of a NQO to purchase  36,000  shares at an exercise
price equal to fair market value per share on the date of their initial election
to the Company's  Board of Directors.  Such NQO is  exercisable  only during the
non-employee  director's  term  and  automatically  expires  on  the  date  such
director's service terminates.  Each option,  whether an ISO or NQO, must expire
within ten years of the date of the grant.

     As of December 31, 1996 there were 891,960  options  outstanding  under the
Plan,  378,900 of which  have an  exercise  price of $.14 per share,  126,000 of
which have an exercise price of $.69 per share, 46,800 of which have an exercise
price of $1.04 per share,  57,240 of which have an  exercise  price of $1.74 per
share,  130,740 of which have an exercise price of $2.08 per share,  and 152,280
of which have an exercise price of $10.00 per share.  Of these  options,  36,000
were  granted as of March 1, 1995 to Mr.  Carlberg and vested  immediately.  The
remainder of Mr. Carlberg's options and all other options granted under the plan
vest as to 20% of the option grant on the first  anniversary  of the grant,  and
20% on each subsequent anniversary.

Employment Agreement

     The Company has entered into an employment  agreement with Mr.  Carlberg as
its President and Chief Executive  Officer dated March 1, 1995, which has a term
of one year and is automatically  renewed for successive one-year periods unless
either  party  receives  written  notice  from the other  party of such  party's
intention not to renew within 60 days of the  agreement's  expiration  date. The
agreement  calls for Mr. Carlberg to receive a base salary of $125,000 per year,
which was increased to $150,000 per year in September  1996.  Upon  execution of
the agreement,  Mr.  Carlberg  received a $15,000 signing bonus and an option to
purchase  up to 180,000  shares of Common  Stock of the  Company at an  exercise
price of 

                                       36
<PAGE>

$.14 per share, and on March 1, 1996 he received a $25,000 bonus. The option has
a  ten-year  term,  vests over five years and was 20%  vested  upon  grant.  The
remainder  of the  option  vests at a rate of 20% per  year,  and the  option is
therefore  fully  exercisable  after the first  five  years of  employment.  Mr.
Carlberg is eligible for any discretionary  bonuses and additional option grants
in amounts to be determined by the Company's  Board of Directors  based upon the
performance  of the  Company  and Mr.  Carlberg.  The  agreement  prohibits  Mr.
Carlberg from engaging in any business  activity  involving the  measurement  of
clinical  outcomes  for  patients  with  acute  or  chronic  diseases,   or  the
measurement  of  patient  compliance  with  prescribed  treatments  for acute or
chronic  diseases  within one year of the termination of his employment with the
Company.

Board Compensation Committee Report on Executive Compensation

     Because the Company  completed its public offering in late December 1996 no
formal Compensation Committee meetings have yet been held.  Compensation for the
Company's  Executive  Officers was  determined in light of the  responsibilities
involved in commencing the Company's business operations, developing its initial
customer relationships and negotiating with the Company's investment bankers.

     The  Compensation  Committee  intends to evaluate the  performance  of each
executive officer of the Company in the context of the goals and challenges that
the Company faces over the next year.  Because of the  Company's  early stage of
development,  the Committee will consider  factors other than  profitability  in
determining compensation for the next year.

                                       37
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management.


The following  table sets forth  certain  information  regarding the  beneficial
ownership of the shares of the  Company's  Common Stock as of December 31, 1996,
(i) by each person the Company knows to be the beneficial owner of 5% or more of
the outstanding shares of Common Stock, (ii) each named executive officer listed
in the Summary  Compensation  Table, (iii) each director of the Company and (iv)
all executive officers and directors of the Company as a group.

                                                 Shares             Percentage
                                              Beneficially         Beneficially
            Beneficial Owner (1)                 Owned                 Owned
            --------------------                 -----                 -----
Derace L. Schaffer (2)......................   1,711,700              21.4%
John Pappajohn (3)..........................   1,449,680              18.1%
Edgewater Private Equity Fund II, L.P.,          970,000              12.2%
666 Grand Avenue, Suite 200
Des Moines, IA 50309
Donald A. Carlberg (4)......................      72,000                *
Gregory D. Brown (5)........................      23,760                *
James D. Turner (6).........................           -                *
Kent A. Tapper (7)..........................       7,300                *
Barbara J. McNeil  (7)......................       7,200                *
Carl F. Kohrt (8)...........................           -                *
All directors and executive officers as a
group (8 persons) (9).......................   3,271,640              38.9%

----------
*    Less than one percent.

(1) Unless otherwise noted, the address of each of the listed persons is c/o the
Company at 46 Prince Street, Rochester, New York 14607.

(2) Includes 288,000 shares held by Dr. Schaffer's minor children. Also includes
7,200  shares  which are  issuable  upon the exercise of options that are either
currently exercisable or which become exercisable within 60 days of December 31,
1996.  Does not include 28,800 shares  subject to outstanding  options which are
not exercisable within 60 days of December 31, 1996.

(3) Includes 360,000 shares held by Halkis, Ltd., a sole proprietorship owned by
Mr. Pappajohn,  360,000 shares held by Thebes, Ltd., a sole proprietorship owned
by Mr.  Pappajohn's  spouse and 360,000 shares held directly by Mr.  Pappajohn's
spouse.  Mr.  Pappajohn  disclaims  beneficial  ownership of the shares owned by
Thebes, Ltd. and by his spouse.  Includes options to purchase 7,200 shares which
are either currently  exercisable or which become  exercisable within 60 days of
December 31, 1996. Does not include 28,800 shares subject to outstanding options
which are not exercisable within 60 days of December 31, 1996.

(4)  Represents  options to purchase  72,000  shares which are either  currently
exercisable or which become  exercisable  within 60 days of the date of December
31, 1996. Does not include  162,000 shares subject to outstanding  options which
are not exercisable within 60 days of December 31, 1996.

(5)  Includes  options to  purchase  18,000  shares  which are either  currently
exercisable  or which  become  exercisable  within 60 days of December 31, 1996.
Does not include  82,800  shares  subject to  outstanding  options which are not
exercisable within 60 days of December 31, 1996.

(6) Does not include 72,000 shares subject to outstanding  options which are not
exercisable within 60 days of December 31, 1996.

                                       38
<PAGE>

(7)  Includes  options to  purchase  7,200  shares  which are  either  currently
exercisable  or which  become  exercisable  within 60 days of December 31, 1996.
Does not include  28,800  shares  subject to  outstanding  options which are not
exercisable within 60 days of December 31, 1996.

(8) Does not include 36,000 shares subject to outstanding  options which are not
exercisable within 60 days of December 31, 1996.

(9)  Includes  options to purchase  118,800  shares  which are either  currently
exercisable  or which  become  exercisable  within 60 days of December 31, 1996.
Does not include  468,000  shares  subject to  outstanding  options and warrants
which are not exercisable within 60 days of December 31, 1996.

Item 13. Certain Relationships and Related Transactions

     The Company was initially capitalized on February 22, 1995 through the sale
of 3,600,000  shares of its Common Stock for $.14 per share.  Included among the
participants  in that  transaction  were Dr.  Derace  Schaffer,  Chairman of the
Board,  who purchase  1,656,000  shares,  Dr.  Schaffer's  spouse who  purchased
144,000 shares, John Pappajohn, a director, who purchased 541,800 shares, a sole
proprietorship  owned by Mr.  Pappajohn  which  purchased  360,000  shares.  Mr.
Pappajohn's  spouse,  who purchased  360,000 shares,  and a sole  proprietorship
owned by Mr. Pappajohn's spouse which purchase 360,000 shares.

     In August and  September of 1995 the Company sold  1,800,000  shares of its
Series A Preferred  Stock in a private  placement for $1.00 per share.  Included
among the  participants  in that  transaction  were Gregory D. Brown,  Sr., Vice
President,  Chief  Financial  Officer,  Secretary and  Treasurer,  who purchased
10,000  shares,  and Mr.  Pappajohn who purchased  10,000  shares.  In addition,
Edgewater Private Equity Fund II, L.P.,  ("Edgewater"),  a five percent owner of
the Common Stock of the Company, acquired 1,000,000 shares of Series A Preferred
Stock in the Series A Preferred Stock offering.

     In May and June  1996,  the  Company  sold  600,000  shares of its Series B
Preferred Stock in a private  placement for $5.00 per share.  Included among the
participants in that transaction were Dr. Schaffer, who purchased 20,000 shares,
Mr.  Pappajohn,  who purchased  40,000  shares,  and Edgewater  which  purchased
200,000 shares.

                                       39
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  Financial Statements:

The financial statements of the Company are included in Part II, Item 8.

(b)  Reports on Form 8 - K:

No reports on Form 8-K were  filed  during the fourth  quarter of the year ended
December 31, 1996.

(c)  Exhibits:

         Exhibit #         Description of Exhibits
         ---------         -----------------------
         (3)               Articles of Incorporation and By-Laws:

                           Certificate of Incorporation
                           Incorporated  herein by reference from Exhibit 3.1 on
                           Form S-1 Registration Statement of the Company, filed
                           with the Commission on December 17, 1996.

                           By-Laws
                           Incorporated  herein by reference from Exhibit 3.3 on
                           Form S-1 Registration Statement of the Company, filed
                           with the Commission on December 17, 1996.

         (10)              Material contracts:

                           10.1  Employment  agreement  with Donald A. Carlberg,
                           President and Chief Executive Officer, dated March 1,
                           1995,  incorporated by reference from Exhibit 10.1 on
                           Form S-1 Registration Statement of the Company, filed
                           with the Commission on December 17, 1996.

                           10.2  Patient  Infosystems,  Inc.  Stock Option Plan,
                           incorporated  by reference  from Exhibit 10.2 on Form
                           S-1 Registration Statement of the Company, filed with
                           the Commission on December 17, 1996.

                           10.3   Patient   Infosystems,   Inc.   Stock   Option
                           Agreement,  incorporated  by  reference  from Exhibit
                           10.3  on  Form  S-1  Registration  Statement  of  the
                           Company,  filed with the  Commission  on December 17,
                           1996.

                           10.4  Services  Agreement  dated  September  18, 1995
                           between  the Company  and  Bristol-Myers  Squibb U.S.
                           Pharmaceuticals,  a division of Bristol-Myers  Squibb
                           Company,  incorporated by reference from Exhibit 10.4
                           on Form S-1  Registration  Statement  of the Company,
                           filed with the Commission on December 17, 1996.

                           10.5  Services   Agreement  dated  February  1,  1996
                           between  the Company  and  Bristol-Myers  Squibb U.S.
                           Pharmaceuticals,  a division of Bristol-Myers  Squibb
                           Company,  incorporated by reference from Exhibit 10.5
                           on Form S-1  Registration  Statement  of the Company,
                           filed with the Commission on December 17, 1996.

                           10.6 Services  Agreement dated March 30, 1996 between
                           the  Company and  Bristol-Myers  Squibb  Oncology,  a
                           division    of    Bristol-Myers    Squibb    Company,
                           incorporated  by reference  from Exhibit 10.6 on Form
                           S-1 Registration Statement of the Company, filed with
                           the Commission on December 17, 1996.

                                       40
<PAGE>

                           10.7 Services  Agreement dated April 23, 1996 between
                           the     Company     and     Bristol-Myers      Squibb
                           Oncology/Immunology,   a  division  of  Bristol-Myers
                           Squibb   Company,   incorporated  by  reference  from
                           Exhibit  10.7 on Form S-1  Registration  Statement of
                           the Company,  filed with the  Commission  on December
                           17, 1996.

                           10.8  Services   Agreement  dated  October  16,  1995
                           between  the Company  and  Bristol-Myers  Squibb U.S.
                           Pharmaceuticals,  a division of Bristol-Myers  Squibb
                           Company,  incorporated by reference from Exhibit 10.8
                           on Form S-1  Registration  Statement  of the Company,
                           filed with the Commission on December 17, 1996.

                           10.9 Services  Agreement  dated June 24, 1996 between
                           the   Company   and   American   HomePatient,   Inc.,
                           incorporated  by reference  from Exhibit 10.9 on Form
                           S-1 Registration Statement of the Company, filed with
                           the Commission on December 17, 1996.

                           10.10 Services  Agreement dated June 21, 1996 between
                           the  Company and  Equifax  Healthcare  Administrative
                           Services, a division of Equifax,  Inc.,  incorporated
                           by  reference   from   Exhibit   10.10  on  Form  S-1
                           Registration Statement of the Company, filed with the
                           Commission on December 17, 1996.

                           10.11 Services  Agreement dated July 28, 1996 between
                           the  Company and  Equifax  Healthcare  Administrative
                           Services, a division of Equifax,  Inc.,  incorporated
                           by  reference   from   Exhibit   10.11  on  Form  S-1
                           Registration Statement of the Company, filed with the
                           Commission on December 17, 1996.

                           10.12  Services  Agreement  dated  September 13, 1996
                           between   the    Company   and   Health    Resources,
                           Inc.(Asthma),  incorporated by reference from Exhibit
                           10.12  on  Form  S-1  Registration  Statement  of the
                           Company,  filed with the  Commission  on December 17,
                           1996.

                           10.13  Services  Agreement  dated  September 13, 1996
                           between       the       Company       and      Health
                           Resources Inc. (Diabetes), incorporated by  reference
                           from Exhibit 10.13 on Form S-1 Registration Statement
                           of the Company, filed with the Commission on December
                           17, 1996.

                           10.14  Services  Agreement  dated  September 13, 1996
                           between the Company and Harris Methodist Health Plan,
                           incorporated  by reference from Exhibit 10.14 on Form
                           S-1 Registration Statement of the Company, filed with
                           the Commission on December 17, 1996.

         (11)              Statement of  Computation  of Per Share  Earnings See
                           page 45 of this Annual report on Form 10-K.

         (27)              Financial Data Schedule
                           Filed electronically

All other  exhibits are omitted  because they are not applicable or the required
information is shown elsewhere in this Annual Report on Form 10-K.


                                       41
<PAGE>

Exhibit 11. Statement of Computation of Per Share Earnings.

                            PATIENT INFOSYSTEMS, INC.
                        COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                                  Period From February     Period From February
                                                            Year Ended            22, 1995 (Inception)     22, 1995 (Inception)
                                                         December 31, 1996        to December 31, 1995     to December 31, 1996
                                                         -----------------        --------------------     --------------------
<S>                                                           <C>                      <C>                     <C>         
Net Loss ...............................................      $(2,806,436)             $(1,116,652)            $(3,923,088)

Weighted average Common Stock outstanding...............        3,678,435                3,602,880               3,678,435

Weighted average Series A Convertible Preferred Stock
outstanding.............................................        1,296,000                  518,400               1,296,000

Weighted average Series B Convertible Preferred Stock
outstanding.............................................          437,500                        -                 437,500

Staff Accounting Bulletin Common Stock Equivalents:
       Series A Convertible Preferred Stock issued     
       August and September 1995, calculated using the
       treasury stock method ...........................               -                   642,600                       -

       Series B Convertible Preferred Stock issued May
       and June 1996, calculated using the treasury    
       stock method.....................................           177,365                 375,000                 177,365

       Dilutive effect of stock options granted in the
       preceding twelve months, calculated using the  
       treasury stock method............................           758,416                 815,419                 758,416

Number of shares to be used in calculation..............         6,347,716               5,954,299               6,347,716

Loss per common share...................................      $      (.44)             $      (.18)            $      (.62)
                                                              ===========              ===========             ===========
</TABLE>

                                       42
<PAGE>

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.


PATIENT INFOSYSTEMS, INC.

By: /s/ Donald A. Carlberg
    ------------------------------------
    Donald A. Carlberg
    Director, President, and Chief Executive Officer

Pursuant to the  requirements  the  Securities  and Exchange  Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

By:   /s/ Donald A. Carlberg                            March 24, 1997
     ----------------------------------                 -------------------
     Donald A. Carlberg                                 Date
     Director, President and Chief Executive Officer


By:   /s/ Gregory D. Brown                              March 28, 1997
     ----------------------------------                 -------------------
     Gregory D. Brown                                   Date
     Senior Vice President, Chief Financial Officer,
        Secretary and Treasurer


By:   /s/ Derace Schaffer, M.D.                         March 24, 1997
     ----------------------------------                 -------------------
     Derace Schaffer, M.D.                              Date
     Chairman of the Board


By:   /s/ John Pappajohn                                March 29, 1997
     ----------------------------------                 -------------------
     John Pappajohn                                     Date
     Director


By:  /s/ Barbara J. McNeil, M.D., Ph.D.                 March 24, 1997
     ----------------------------------                 -------------------
     Barbara J. McNeil, M.D., Ph.D.                     Date
     Director


By:  /s/ Carl F. Kohrt, Ph.D.                           March 25, 1997
     ----------------------------------                 -------------------
     Carl F. Kohrt, Ph.D.                               Date
     Director

                                       43