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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                 Annual Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 2001

                         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                   (IRS Employer
   incorporation or organization)                    Identification
                                                     No.)
   46 Prince Street
   Rochester, New York                                 14607
   (Address of principal executive offices)          (Zip Code)

       Registrant's telephone number, including area code: (585) 242-7200

 Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:
                                      None.

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

                     Common Stock, par value $.01 per share
                                (Title of Class)


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 past 90 days: X-Yes No

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


    The aggregate market value of the voting and nonvoting common equity held
            by nonaffiliates of the registrant as of March 31, 2002:

         COMMON STOCK, PAR VALUE, $.01 PER SHARE- Approximately $520,000

             The number of shares outstanding of the issuer's common
                           stock as of March 31, 2002:

              COMMON STOCK, PAR VALUE, $.01 PER SHARE - 10,956,024

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy  Statement  for the  Registrant's  2002 Annual  Meeting of
Stockholders  to be filed prior to April 30, 2002 are  incorporated by reference
in Part III.

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<PAGE>



                                     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 585-242-7200.

     Patient   Infosystems  is  a  health  management   solutions  company  that
integrates  clinical  expertise  with  advanced  Internet,  call center and data
management  capabilities.  Founded in 1995 as a disease management company,  the
Company has evolved to offer a comprehensive  portfolio of products and services
designed to improve patient clinical outcomes and quality of life, reduce health
care costs, and facilitate patient-provider-payor communication. The Company has
three major product lines.

1)   Population Management.  Systems to collect,  analyze, and report data about
     an overall  target patient  population.  These systems  utilize  telephone,
     Internet,  electronic  or print media as input  sources and may be used for
     risk  identification  and  stratification,  obtaining  information  on care
     quality and patient/member  satisfaction,  and the provision of patient and
     provider education.

2)   Disease Management. Patient-centered disease management and case management
     support  systems  designed to improve  patient  compliance  with prescribed
     treatment  protocols  and to improve  the  process  of  patient  management
     outside  the  traditional  "office  visit".  The  system  utilizes  trained
     telephone operators and computerized  interactive voice response technology
     to communicate via telephone and gather relevant  information directly from
     the  patient.  This  data is  subsequently  automatically  transmitted  via
     electronic or print media to health care payors, providers and patients, as
     appropriate. These services are also available via the Internet.

3)   Demand  Management.  Services to facilitate the  appropriate  deployment of
     costly health care resources.  These systems provide enrolled patients with
     24-hour  access to a registered  nurse for management of their care between
     episodes of medical intervention.

     The   Company   markets   its   services  to  a  broad  range  of  clients:
pharmaceutical and medical equipment and device manufacturers;  pharmacy benefit
managers  ("PBMs");  health  care  payors,  such as managed  care  organizations
("MCOs"),  insurance  companies,  employer  groups  and health  care  providers,
including integrated delivery networks ("IDN's").

     During  its first two  years of  operations,  the  Company  emphasized  the
development of disease  management  programs,  which accounted for a substantial
portion of its  revenue  through  1997.  However,  since  1998,  the Company has
devoted  resources to the  development of other  applications  of its technology
platform,  including demand management,  patient surveys,  outcomes analysis and
Internet-based capabilities. These additional products account for nearly 60% of
the total revenue of the Company  during the 12-month  period ended December 31,
2001.


Recent Developments

     In October  2001,  one of the  Company's  customers  completed  an internal
analysis study of the economic and clinical  outcomes  achieved by the Company's
Congestive  Heart  Failure  program.  The  analysis   demonstrated   significant
improvements  in all measures  including a 44% reduction in admissions and a 49%
reduction  in patient  days  Following  the  completion  of the  analysis,  that
customer  increased the number of patients  enrolled in the Company's program by
103%. No assurances can be given that increased enrollment by this customer will
continue,  nor that  sufficient new patients would be enrolled by this customer,
if any, to have a material effect on the Company's financial position.

     In  October  2001,  the  Company   launched  a  product  designed  for  the
self-insured  union health funds.  The product  offers the Company's  demand and
disease  management  products  integrated  with case management from a strategic
partner.  In December  2001, the first customer  initiated  services.  The first
three months of operation demonstrated a significant return on investment. While
additional new customers are being pursued,  no assurances can be given that any
additional  new  customers  may  result  from these  efforts,  nor that any such
customers will have a material effect on the Company's financial condition.

     In February 2002, the Company accepted the resignation of Carl Korht,  PhD,
as a director of the Company,  effective April 1, 2002. This resignation was for
personal reasons and no dispute with the Company was cited.

     On March 25, 2002, Messrs. John Pappajohn and Derace Shaffer,  directors of
the Company, made a commitment to the Company to obtain the operating funds that
the Company believes would be sufficient to fund its operations through December
31,  2002  based  upon an  operational  forecast  for the  Company.  As with any
forward-looking projection, no assurances can be given concerning the outcome of
the Company's actual financial status given the substantial  uncertainties  that
exist. There can be no assurances given that Messers.  Pappajohn or Schaffer can
raise  either the required  working  capital  through the sale of the  Company's
securities or that the Company can borrow the additional amounts needed.


Information Capture, Delivery and Analysis Technologies Utilizing the Internet

     The Company's  technology platform integrates an advanced telephone system,
high-speed  data  processing  and  analysis   capability,   demand   publishing,
information distribution capabilities and behavior modification-based compliance
algorithms with a real time Internet on-line  communication  system.  The system
utilizes its call center and Internet  technology to  communicate  directly with
the patient at home as well as with payors and  providers in order to gather and
deliver   relevant   patient   data.   Depending   on  a   patient's   response,
situation-specific  algorithms  are applied to target future  questions and thus
help customize the collection of data.

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

     Each  contact  with  a  patient  contributes  to  the  establishment  of  a
longitudinal  database,  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 the patient's  caregivers can
develop improvements in such regimens.


Internet Capabilities

     In 1999, the Company  acquired  substantially  all the assets of HealthDesk
Corporation ("HealthDesk"),  a consumer healthcare software company that focuses
on general  health  and  chronic  disease  management  through  ongoing-targeted
support for  patients,  families and  caregivers.  The acquired  assets  include
HealthDesk OnLine and HealthDesk OnLine for Diabetes,  which are both accessible
through the Internet and on CD-ROM. The Company also acquired  HealthDesk's Care
Team  Connect  product,  which is  accessible  over the  Internet and provides a
communication  mechanism to caregivers.  The Company uses the core  technologies
associated with these products to support the Company's  other  programs,  which
include  the  case  management  support  system,   disease  management,   demand
management, patient surveys and clinical studies.


Integrated Disease Management System

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

     The  Company's  disease  management  programs  are  developed  for targeted
diseases on both a customized  or  standardized  basis.  The  Company's  disease
management system has four major components.

     First, using a panel of 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.  The panel identifies  guidelines for generally accepted
treatment  protocols and diagnostic  interventions  for particular  diseases and
then uses  these  guidelines  to  determine  an  intervention  protocol  and the
information to be gathered from the patient.

     Second, when a patient is enrolled,  a limited patient history is obtained,
which may  include  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 the reports that are
distributed  to the  patient's  health  care  provider  and payor as well as the
patient.

     Third,  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.  Contacts  are  made in  accordance  with a
designated  patient  contact  schedule,  which is  established  for each disease
management  program.  The  frequency  varies  depending  upon the disease  under
management and the goal of the applicable treatment.

     Fourth, the data gathered from the patient during each contact is processed
and  stored in the  Company's  database.  Using the  information  obtained  from
patient contacts and other available  information  regarding the patient and his
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 routine
basis, payors.

     The Company's demand publishing and Internet technology further support the
Company's disease management programs.  These technologies enable the Company to
provide personalized behavior modification and educational materials to patients
in addition to individual patient reports, which may include pictures,  diagrams
and informative  discussions relating to the treatment course intended to modify
or reinforce certain behaviors. At the same time, individual patient reports are
provided to the health care  provider.  These reports are more factual in nature
and contain the  relevant  clinical  and  behavioral  information  that has been
gathered. On a routine basis, the Company can provide summary information to the
patient's  health  care payor with  respect to patient  progress  and  activity.
During 2001,  all of the program  summary  reporting  for its customers was made
available through the Internet.

<PAGE>
Patient Infosystems Products

     The Company's product offerings fall into four major categories:

o    "CareSense" disease management and compliance programs
o    "ForeQuest" patient survey programs
o    "Nurse 411" demand management programs
o    Internet-based products and services


"CareSense" disease management and compliance programs

     The Company  develops  customized  disease  management and risk  assessment
programs in conjunction with a number of its customers,  as well as standardized
disease management  programs for a variety of customers.  The Company's customer
agreements  for its  customized  programs  generally  provide  for some  form of
development  fees to be paid to the  Company  upon the  achievement  of  certain
milestones.  In addition,  the  agreements  for  customized  disease  management
programs  may  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 following the
achievement of a specified milestone in the development or implementation of the
program. As the Company's products have matured,  development fees have declined
and the need to grant exclusivity has decreased.  The Company enrolled its first
patients in a disease  management program in October 1996, and has enrolled more
than 496,000  patients in those programs  through February 2002. The Company and
its customers have had limited  success in sustaining  enrollment of substantial
numbers of patients.

     The Company's customer  agreements,  which are typically terminable without
cause by either party,  require payment to the Company of operational  fees. The
amount  of the  program  operational  fee  generally  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.

     The Company's "CareSense" programs are:


     Asthma

     The  Company  has  developed  disease  management  programs  for  asthmatic
patients that have been marketed to payors and other  participants in the health
care  industry,  and such programs  have been  provided to patients  since 1997.
Through  February  2002,  the  Company  has had  approximately  15,000  patients
participate in these programs  through  separate  service  agreements  with nine
different health care companies


     Congestive Heart Failure

     The Company has services  agreements with Bristol-Myers and Astra-Zeneca to
develop,  implement  and  operate  disease  management  programs  to  aid in the
treatment of patients  suffering from congestive heart failure.  The Company has
completed the  development of the program in the English and Spanish  languages.
These programs have been provided to patients  since 1997, and through  February
2002,  the Company has had  approximately  18,700  patients  participate  in the
programs.

<PAGE>
     Diabetes

     The Company has developed disease management programs for diabetic patients
that have been  marketed  to payors and other  participants  in the health  care
industry.  Bristol-Myers,  along with four other  entities,  have  retained  the
Company to provide  disease  management  programs for patients who are suffering
from diabetes and are enrolled in health care programs for which these companies
provide services.  These programs have been provided to patients since 1997, and
through  February  2002,  the  Company  has had  approximately  10,700  patients
participate in these programs.


     Secondary Cardiovascular Disease

     The Company has entered into a services  agreement  with  Bristol-Myers  to
develop,  implement  and operate a disease  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.  The Company has completed the development of
this  program in both the English and Spanish  languages.  This program has been
provided to patients since 1997, and through  February 2002, the Company has had
approximately 500 patients participate in this program.


     Hypertension

     The  Company  has   developed  a  compliance   program  for  patients  with
hypertension  that has been  marketed  to payors and other  participants  in the
health care industry. Bristol-Myers and RxAmerica have each retained the Company
to  provide  this  compliance  program  for  patients  who  are  suffering  from
hypertension  and are enrolled in health care programs for which these companies
provide  services.  Through  February  2002,  approximately  830  patients  have
participated in this program.

Program Re-designs

     During 2001 the Company took on a major  project to  re-design  each of its
CareSense  products  in  order to be more  responsive  to the  market.  Specific
changes  to the  programs,  which  are now in the  development  phase,  include:
targeted  interventions  by severity of the patient's  disease;  introduction of
additional  clinical  content and  inclusion of the NURSE411  Demand  Management
service as a 24 hour nurse help line.

Additional Disease Targets

     The  Company  has  identified  additional  opportunities  in large  chronic
disease  markets,  including  the  treatment  of chronic  obstructive  pulmonary
disease, cancer, osteoporosis, arthritis, HIV infection and high-risk pregnancy.
Each of these targets has been  identified as having  characteristics  that 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.


Pharmaceutical and Medical Equipment Support Programs

     The  Company has  delivered  custom  programs  sold to  pharmaceutical  and
medical device  manufacturers  that are intended to add value to their direct to
consumer  marketing  efforts.  The Company has been  retained by  Bristol-Myers,
Astra-Zeneca,  Janssen and Abbott to develop and operate  programs  that support
specific products in the areas of diabetes, anxiety, prostatis and others. As of
February  2002,   approximately  32,000  patients  have  participated  in  these
programs. In October 2000, the Company was retained by Urologix, Inc. to develop
and operate a Prostate Care Center to provide  telephonic  and Internet  support
for their direct to consumer advertising campaign. During the 1-year term of the
Urologix agreement 1,460 men participated in this program.

<PAGE>

"Nurse 411" demand management programs

     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. During 2000, the parent company of
Kentucky  Medicaid  (CHA HMO),  a customer  of the Company  since  1997,  made a
strategic decision to leave the Medicaid market sector. The Company continues to
provide and expand service to CHA HMO for commercial  insurance.  The Company is
currently providing demand management to approximately 100,000 enrollees for CHA
HMO, Inc., Health Right and other clients.


"ForeQuest" patient survey programs

     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.  The Company has developed a series of
automated  surveys ranging from general health to disease specific  instruments.
The product line includes  surveys for NCQA,  CAHPS;  reminder surveys for HEDIS
measures;  SF-12;  child health  questionnaire;  patient  satisfaction;  asthma;
diabetes;  back  pain;  depression;  maternity;  and the Pra  Plus  for  elderly
populations.   Through  February  2002,   approximately  418,000  patients  have
participated in these survey programs.


Internet-based products and services

     The Company's Case Management  Support System ("CMSS") is an Internet-based
software product that is used by case management  organizations.  The customer's
case managers access the system using an approved  browser and Internet  Service
Provider  ("ISP")  connection.  (Browser  and ISP are not  supplied  by  Patient
Infosystems.)  The system enables care managers to effectively  interface  with,
and utilize,  Patient  Infosystems'  "CareSense"  and  "ForeQuest"  intervention
programs for patient care  planning and  implementation  improves  case managers
efficiency and productivity. Additionally, the CMSS provides the case management
organization's  management  with a reporting  tool and a case  distribution  and
documentation tool that can be used to better monitor and manage case management
activity.  Patient Infosystems  licenses it's CMSS software and operating system
to customers  who agree to an initial  license fee plus ongoing user and support
fees.  Through  February 2002, the Company has sold two CMSS contracts that have
two-year and four-year terms respectively.


Other Applications of the Integrated Information Capture and Delivery Technology


Outcomes Analysis

     The Company expects to utilize aggregate 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.

<PAGE>

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 the Food and Drug
Administration or for marketing purposes.


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

     Through 1997, the Company's efforts focused primarily on the development of
disease management  programs.  Beginning in 1998, the Company began aggressively
marketing the other services that its technology  platform can provide including
demand management, patient surveys, pharmaceutical support programs and outcomes
analysis.  The  Company  markets its  integrated  disease  management  system to
organizations within the health care industry that are involved in the treatment
of disease or payment of medical  services for  patients who require  complex or
long-term medical therapies.  These industry organizations include five distinct
groups:   pharmaceutical  and  medical  equipment  manufacturers,   health  care
providers,  pharmacy benefits managers,  health care payors and employer groups.
In July 2000,  the Company  entered into an agreement  with USI  Administrators,
Inc., along with several of its subsidiaries  (collectively known as "USI"), one
of the country's largest third party  administrators  (TPA's),  to co-market its
products  and  services  to  USI's  potential   employer  client  base.  Similar
agreements  have been  executed with Health Data  Solutions  and Future  Health.
Health Data Solutions is a company that provides claims processing  services and
ancillary  network  referral  services  to  provider   networks,   managed  care
organizations,  and TPA's. The Company  currently  employs a sales and marketing
staff of two 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.  Future Health is a population risk management company that
provides risk identification case management, utilization management and disease
management, primarily for self funded employer groups.

     Studies have been conducted to document the clinical and cost benefits that
result from the application of its integrated  information  capture and delivery
system.  The results of these studies are being used to supplement the Company's
marketing  efforts.  The Company  intends to continue to promote the benefits of
its products  through press  releases,  direct  marketing  and possibly  through
publication in clinical  journals and  presentations  at scientific  conferences
referencing  the favorable near  term-results of these studies.  To date,  these
studies have pertained to the Company's  asthma,  diabetes and congestive  heart
failure programs.

<PAGE>

Research and Development

     Research and development  expenses consist  primarily of salaries,  related
benefits  and  administrative  costs  allocated  to the  Company's  research and
development  personnel.  These personnel are actively involved in the conversion
of the Company's technology platform to a fully web-enabled design. Research and
development costs have decreased as the Company has completed the development of
its primary disease management  programs.  The Company anticipates that research
and development  expenses will remain  relatively  constant in future periods as
the Company continues its internal process to update its products.

     The  development  and  maintenance  of the  telecommunications  and  demand
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  significantly  dependent  on its  ability to update and  enhance its
system continuously.  In order to do so, the Company must be able to effectively
utilize 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. There can be no assurance
that the Company will be able to develop and implement  technological changes to
its system.  The Company  maintains a significant  investment in its technology,
and  therefore  is subject  to the risk of  technological  obsolescence.  If the
Company's  technology  were  rendered  obsolete,   the  Company's  business  and
operating results would be materially adversely affected.

<PAGE>

                                  RISK FACTORS

     An investment in the Company's  Common Stock is  speculative  in nature and
involves a high degree of risk.  No  investment  in the  Company's  Common Stock
should be made by any person who is not in a position to lose the entire  amount
of such investment.

Working Capital Shortfalls;  Urgent Need for Working Capital, Possible Cessation
of Operations, Qualified Auditors' Opinion;

     The  Company  has never  earned  profits  and has been  dependent  upon its
initial public offering,  private  placements of its equity securities and debt,
through  which the  Company  has raised  over $25  million to date,  to fund its
working  capital  requirements.  The  Company  incurred  an  operating  loss  of
approximately  $4  million  for the  year  ended  December  31,  2001 and had an
approximate $4.69 million deficit in working capital and a shareholders' deficit
of  approximately  $6.36 million at December 31, 2001. Since September 2000, the
Company's  operations  have been supported  substantially  by loans from certain
directors of the Company. On March 25, 2002, Messrs.  Pappajohn and Shaffer made
a  commitment  to the  Company to obtain the  operating  funds that the  Company
believes  would be sufficient to fund its operations  through  December 31, 2002
based upon an operational  forecast for the Company. As with any forward-looking
projection,  no assurances can be given  concerning the outcome of the Company's
actual financial status given the substantial  uncertainties  that exist.  There
can be no assurances given that Messers.  Pappajohn or Schaffer can raise either
the required  working  capital  through the sale of the Company's  securities or
that the Company can borrow the additional  amounts  needed.  If it is unable to
identify  additional  sources of capital,  the Company will be required to cease
operations.  As a result of the above,  the Independent  Auditors' Report on the
Company's  consolidated  financial  statements  appearing  at Item 8 includes an
emphasis  paragraph   indicating  that  the  Company's   recurring  losses  from
operations, negative working capital and stockholders' deficit raise substantial
doubt  about its  ability  to  continue  as a going  concern.  The  accompanying
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

History of Operating Losses; Continued Limited Patient Enrollment

     The Company has incurred  losses in every  quarter  since its  inception in
February 1995. The Company's ability to operate profitably is dependent upon its
ability to develop and market its products in an economically successful manner.
To date,  the Company has been unable to do so. No assurances  can be given that
the Company will be able to generate revenues or ever operate  profitably in the
future.

     The Company's  prospects must be considered in light of the numerous risks,
expenses,   delays  and  difficulties  frequently  encountered  in  an  industry
characterized  by  intense  competition,  as well as the risks  inherent  in the
development  of  new  programs  and  the   commercialization   of  new  services
particularly  given its failure to date to operate  profitably.  There can be no
assurance that the Company will achieve  recurring revenue or profitability on a
consistent basis, if at all.

     In October 1996, the Company began enrolling  patients in its first disease
management program and only began substantial  patient contacts during 1998. The
Company  currently  has  patients  enrolled  in  five  of  its  disease-specific
programs.  Through February 2002, an aggregate of approximately  650,000 persons
have been enrolled in Company programs. However, the Company has never been able
to enroll a sufficient number of patients to cover the cost of its programs. The
participation of patients in the Company's  programs has been limited by several
factors,  including  the limited  ability of clients to provide the Company with
accurate information with respect to the specific patient populations, including
coding errors that necessitated extensive  labor-intensive data processing prior
to program  implementation.  In addition, the Company has encountered resistance
from patients and other sources of information to the Company's systems.

<PAGE>

Consequences of the Need to Raise Additional Working Capital;

     In  connection  with their  financing  the  Company's  operations,  Messers
Pappajohn and Schaffer have been granted  warrants to purchase 625,000 shares of
common  stock at an  aggregate  price of $0.05 per  share and have been  awarded
2,319,156  shares of common  stock over the last 2 years.  As the Company  seeks
additional financing or purchases, it is likely that it will issue a substantial
number of  additional  shares  that may be  extremely  dilutive  to the  current
stockholders. As a result, the value of outstanding shares of common stock could
decline further.


Resignations of Directors; Management

     In March 2001,  Dr.  Barbara  McNeil,  a director of the Company,  resigned
effective  April 15th 2001.  In February  2002,  Carl  Korht,  a director of the
Company,  resigned  effective April 1, 2002.  None of the foregoing  individuals
cited any dispute with the Company and all such individuals indicated that their
reasons for departing from the Company were personal.

     No assurance can be given that the Company's  current or future  members of
management will be able to operate the business of the Company effectively.


Terminability of Agreements; Exclusivity Provisions

     The Company's  current  services  agreements  with its customers  generally
automatically  renew and may be terminated by those customers without cause upon
notice  of  between  30  and  90  days.  In  addition,  the  Company  has  given
Bristol-Myers  a right of first  refusal  in  responding  to any  third  party's
request for proposal where the Bristol-Myers  sponsored programs may be offer by
the Company, and has agreed not to resell these programs to any of Bristol-Myers
pharmaceutical   competitors.   In  general,   customer  contracts  may  include
significant  performance criteria and implementation  schedules for the Company.
Failure  to  satisfy  such  criteria  or meet  such  schedules  could  result in
termination of the agreements.


New Concept; Uncertainty of Market Acceptance;  Limitations of Commercialization
Strategy

     In  connection  with  the   commercialization   of  the  Company's   health
information system, the Company is marketing relatively new services designed to
link patients,  health care providers and payors in order to provide specialized
disease  management  services for targeted chronic  diseases.  However,  at this
time,  services  of this  type  have  not  gained  general  acceptance  from the
Company's customers.  This is still perceived to be a new business concept in an
industry  characterized  by an  increasing  number of market  entrants  who have
introduced or are developing an array of new services. As is typical in the case
of a new business  concept,  demand and market  acceptance for newly  introduced
services  are  subject  to a high  level of  uncertainty,  and  there  can be no
assurance  as to the  ultimate  level of  market  acceptance  for the  Company's
system,  especially in the health care  industry,  in which the  containment  of
costs is emphasized. Because of the subjective nature of patient compliance, the
Company may be unable, for an extensive period of time, to develop a significant
amount of data to demonstrate to potential  customers the  effectiveness  of its
services.  Even after such time,  no assurance  can be given that the  Company's
data and results will be  convincing or  determinative  as to the success of its
system.  There can be no  assurance  that  increased  marketing  efforts and the
implementation of the Company's  strategies will result in market acceptance for
its services or that a market for the Company's  services will develop or not be
limited.

<PAGE>

Unpredictability of Patient Behavior May Affect Success of Programs

     The ability of the Company to monitor and modify  patient  behavior  and to
provide  information to health care providers and payors,  and  consequently the
success of the  Company's  disease  management  system,  is  dependent  upon the
accuracy of information  received from  patients.  The Company has not taken and
does not expect that it will take,  specific  measures to determine the accuracy
of  information  provided  to the Company by patients  regarding  their  medical
histories.  No  assurance  can be given  that the  information  provided  to the
Company by patients  will be accurate.  To the extent that  patients have chosen
not to comply with prescribed treatments, such patients might provide inaccurate
information  to avoid  detection.  Because of the  subjective  nature of medical
treatment,  it will be difficult for the Company to validate or confirm any such
information.  In the event that  patients  enrolled  in the  Company's  programs
provide  inaccurate  information to a significant  degree,  the Company would be
materially and adversely affected.  Furthermore,  there can be no assurance that
patient  interventions  by the Company will be successful  in modifying  patient
behavior,  improving  patient health or reducing  costs in any given case.  Many
potential  customers  may seek data from the Company with respect to the results
of its programs prior to retaining it to develop new disease management or other
health information  programs.  The Company's ability to market its system to new
customers may be limited if it is unable to demonstrate  successful  results for
its programs.


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  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.

     The Company's  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 also competes against
other companies that provide statistical and data management services, including
clinical trial services to pharmaceutical companies.

     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. There can
be no assurance  that  competitive  pressures  will not have a material  adverse
effect on the Company.


Substantial Fluctuation in Quarterly Operating Results

     The Company's  results of operations  have  fluctuated  significantly  from
quarter to quarter as a result of a number of factors,  including the volume and
timing of sales and the rate at which customers implement disease management and
other health information programs within their patient populations. Accordingly,
the Company's future  operating  results are likely to be subject to variability
from  quarter to  quarter  and could be  adversely  affected  in any  particular
quarter.

<PAGE>

Dependence on Data Processing and Telephone Equipment

     The  business  of the  Company  is  dependent  upon its  ability  to store,
retrieve,  process  and  manage  data  and to  maintain  and  upgrade  its  data
processing  capabilities.  Interruption of data processing  capabilities for any
extended length of time, loss of stored data, programming errors, other computer
problems or  interruptions  of telephone  service could have a material  adverse
effect on the business of the Company.


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 of
1974,  as amended  ("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.  There can be no
assurance,  however,  that the  Company's  operations  will not be challenged as
constituting the unlicensed practice of medicine.  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  Company  is subject to state laws  governing  the  confidentiality  of
patient  information.  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.

     In  addition,  on August 21,  1996  Congress  passed  the Health  Insurance
Portability  and  Accountability  Act of  1996  ("HIPAA"),  P.L.  104-191.  This
legislation  requires  the  Secretary  of the  Department  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 in the process of  promulgating  and  publishing
proposed  rules  addressing  the  standards,  however,  no final rules have been
adopted to date. Final rules were adopted during 2001, the  implementation  time
line  extends  into  2003.  Although  the  Company  intends  to comply  with all
applicable laws and regulations  regarding medical information privacy,  failure
to do so 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  that govern  financial  and other  arrangements  among  health care
providers.  These laws prohibit certain fee splitting  arrangements among 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.  Specifically,  HIPAA increased the amount
of civil monetary  penalties from $2,000 to $10,000.  Criminal  penalties  range
from  misdemeanors,  which carry fines of not more than $10,000 or  imprisonment
for not more than one year, or both, to felonies,  which carry fines of not more
than $25,000 or  imprisonment  for not more than five years,  or both.  Further,
criminal violations may result in permanent mandatory  exclusions and additional
permissive exclusions from participation in Medicare and Medicaid programs.

     Furthermore,  the Company and its  customers  may be subject to federal and
state laws and regulations  governing the submission of false healthcare  claims
to the government and private payers. Possible sanctions for violations of these
laws and regulations include minimum civil penalties between  $5,000-$10,000 for
each false claim and treble damages.

     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.

Significant and Extensive Changes in the Health Care Industry

     The health care  industry is subject to changing  political,  economic  and
regulatory  influences that may affect the procurement  practices and operations
of health care industry participants. Several lawmakers have announced that they
intend to propose programs to reform the U.S. health care system. These programs
may contain proposals to increase governmental involvement in health care, lower
reimbursement  rates and  otherwise  change the  operating  environment  for the
Company and its targeted customers.  Health care industry participants may react
to these proposals and the uncertainty  surrounding such proposals by curtailing
or deferring certain  expenditures,  including those for the Company's programs.
The Company cannot predict what impact,  if any, such changes in the health care
industry  might  have  on its  business,  financial  condition  and  results  of
operations.  In addition, many health care providers are consolidating to create
larger health care delivery enterprises with greater regional market power. As a
result, the remaining enterprises could have greater bargaining power, which may
lead to price erosion of the Company's  programs.  The failure of the Company to
maintain  adequate  price  levels  could have a material  adverse  effect on the
Company.


Significant Customer Concentration

     During 2000, a significant  customer ceased operation of services  supplied
by  the  Company,  which  had a  material  adverse  effect  on  the  results  of
operations.  As of December 31, 2001, the Company now has more customers than it
did at December 31, 1999 or 2000.  While the customer base is more diverse there
is still a significant concentration of the Company's business in a small number
of customers,  with several of the Company's most  significant  contracts  being
with Astra-Zeneca,  CHA Health and Independence  Blue Cross. 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.

<PAGE>

Dependence on Customers for Marketing and Patient Enrollment

     The  Company  has  limited  financial,  personnel  and other  resources  to
undertake extensive marketing activities. One element of the Company's marketing
strategy  involves  marketing   specialized   disease  management   programs  to
pharmaceutical  companies and managed care  organizations,  with the intent that
those  customers will market the program to parties  responsible for the payment
of health care costs, who will enroll patients in the programs. Accordingly, the
Company, will to a degree, be dependent upon its customers,  over whom it has no
control,  for the  marketing  and  implementation  of its  programs  and for the
receipt  of  valid  patient  information.  The  timing  and  extent  of  patient
enrollment is  completely  within the control of the  Company's  customers.  The
Company has faced  difficulty in receiving  reliable  patient  information  from
certain  customers,  which has hampered  its ability to complete  certain of its
projects.  To the extent that an adequate number of patients are not enrolled in
the program,  or enrollment of initial patients by a customer is delayed for any
reason, the Company's revenue may be insufficient to support its activities.


Control of the Company

     The Company is controlled by the executive officers,  directors and certain
stockholders of the Company who beneficially own in the aggregate  approximately
67% of the  outstanding  Common  Stock.  As a result  of such  ownership,  these
stockholders,  in the event  they act in  concert,  will have  control  over the
management  policies of the Company  and all matters  requiring  approval by the
stockholders of the Company, including the election of directors.


Potential Liability and Insurance

     The Company will provide  information  to health care providers and managed
care  organizations  upon which  determinations  affecting  medical care will be
made, and it could share in potential  liabilities for resulting adverse medical
consequences  to patients.  In addition,  the Company could have potential legal
liability  in the  event it fails to  record or  disseminate  correctly  patient
information. The Company maintains an errors and omissions insurance policy with
coverage of $5 million in the aggregate and per occurrence. Although the Company
does not believe  that it will  directly  engage in the  practice of medicine or
direct  delivery  of  medical  services  and has not  been a party  to any  such
litigation,  it maintains a  professional  liability  policy with coverage of $5
million in the aggregate and per occurrence.  There can be no assurance that the
Company's procedures for limiting liability have been or will be effective, that
the Company  will not be subject to  litigation  that may  adversely  affect the
Company's results of operations, that appropriate insurance will be available to
it in the future at acceptable  cost or at all or that any insurance  maintained
by the Company  will cover,  as to scope or amount,  any claims that may be made
against the Company.

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.

<PAGE>

Employees

     As of March 31, 2002, the Company had 45 full and part-time employees.

Financial Information

     For  financial  information  concerning  the  Company,  see  the  financial
statements and the notes thereto included elsewhere herein.


Item 2. Description of Properties.

     The Company's executive and corporate offices are located in Rochester, New
York in  approximately  5,000  square  feet of  leased  office  space  under  an
operating lease that expires on June 30, 2002.

         The Company believes its plants and facilities are suitable and
adequate, and have sufficient productive capacity, to meet its current needs.


Item 3. Legal Proceedings.

     Neither the Company nor any of its  subsidiaries is a party to any material
legal proceedings.


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter ended December 31, 2001.

<PAGE>

                                     PART II


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

(a)  Market Information

     The following table sets forth, for the periods indicated, the range of the
high and low closing sale price for the Company's  Common  Stock.  The Company's
stock was traded on the NASDAQ  National  Market until September 14, 2000 and is
now traded on the OTC Bulletin Board market.

<TABLE>
<CAPTION>
                             High         Low
       1999
<S>                          <C>          <C>
       First Quarter         $2.81        $1.31
       Second Quarter        $2.88        $2.13
       Third Quarter         $3.00        $1.88
       Fourth Quarter        $3.00        $1.38

       2000
       First Quarter         $4.81        $1.25
       Second Quarter        $2.13        $0.53
       Third Quarter         $0.97        $0.28
       Fourth Quarter        $0.56        $0.13

       2001
       First Quarter         $0.20        $0.09
       Second Quarter        $0.43        $0.06
       Third Quarter         $0.29        $0.17
       Fourth Quarter        $0.17        $0.04
</TABLE>

(b)  Holders

     The approximate  record number of holders of the Company's  common stock as
of March 31, 2002 is 69. However,  the Company believes that there are in excess
of 750 beneficial holders of Common Stock of the Company.

(c)  Dividends

     The Company is paying 9%  cumulative  dividends on its Series C Convertible
Preferred Stock that was issued March 31, 2000. The Company  anticipates payment
of dividends on this class of stock annually and expects that it may be required
to pay additional dividends on any classes of preferred stock that may be issued
to raise working capital.

(d)  Recent sales of unregistered securities

     On March 31,  2000,  the Company  completed a private  placement of 100,000
shares  of newly  issued  Series C 9%  Cumulative  Convertible  Preferred  Stock
("Series C"), raising $1,000,000 in total proceeds. The shares were sold to four
accredited investors,  under an exemption from registration pursuant to Rule 506
of the Securities Act of 1933.  There was no placement  agent and no commissions
were paid to any party.  These  shares can be  converted  into Common Stock at a
rate of 8 shares of Common  Stock to 1 share of Series C Preferred  Stock.  Each
Series C share has voting rights equivalent to 8 shares of Common Stock (800,000
shares).  John Pappajohn and Derace Schaffer,  members of the Board of Directors
of  the  Company,   purchased  50,000  and  25,000  shares  of  Series  C  Stock
respectively.  The  proceeds  from this  issuance  have been used to support the
Company's operations.

     In 2001, the Company borrowed  $2,736,500 from Mr. Pappajohn in the form of
demand notes secured by the assets of the Company.  The Company anticipates that
it will need to borrow additional funds before it can secure capital through the
issuance of additional securities.  From January 1, 2002 through March 31, 2002,
an additional  $416,000 has been borrowed from Mr. Pappajohn under substantially
the same  terms.  On March  25,  2002,  Messrs.  Pappajohn  and  Shaffer  made a
commitment  to the  Company  to obtain  the  operating  funds  that the  Company
believes  would be sufficient to fund its operations  through  December 31, 2002
based upon an operational  forecast for the Company. As with any forward-looking
projection,  no assurances can be given  concerning the outcome of the Company's
actual financial status given the substantial  uncertainties  that exist.  There
can be no assurances given that Messers.  Pappajohn or Schaffer can raise either
the required  working  capital  through the sale of the Company's  securities or
that the Company can borrow the additional amounts needed.

Item 6. Selected Financial Data.

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                             2001          2000          1999         1998          1997
Statement of Operations Data:
<S>                                     <C>           <C>           <C>          <C>           <C>
Revenues                                 $1,586,443    $2,139,262    $3,545,207   $2,344,072    $2,062,373
Costs and expenses:
  Cost of sales                            2,420,151     3,906,010     5,219,562    4,011,710     2,574,214
  Sales and marketing                        813,975     1,425,990     2,809,554    1,929,525     1,853,224
  General and administrative               2,028,804     2,329,585     1,916,003    1,490,210     1,244,287
  Research and development                  190,731       305,543       967,365      298,686       489,115

    Total costs and expenses              5,453,661     7,967,128    10,912,484    7,730,131     6,160,840

Operating loss                           (3,867,218)   (5,827,866)   (7,367,277)  (5,386,059)   (4,098,467)

Other (expenses) income                    (598,087)     (211,340)     (250,897)     556,592       835,116

NET LOSS                                 (4,465,305)   (6,039,206)   (7,618,174)  (4,829,467)   (3,263,351)

  Convertible preferred stock dividends     (90,000)     (617,500)         -            -             -

NET LOSS ATTRIBUTABLE TO
 COMMON SHAREHOLDERS                    $(4,555,305)  $(6,656,706)  $(7,618,174) $(4,829,467)  $(3,263,351)

Net loss per share - basic and diluted       $(0.47)       $(0.82)       $(0.95)      $(0.60)       $(0.41)

Weighted average
  common shares outstanding               9,770,501     8,135,635     8,032,533    8,018,398     7,980,094

</TABLE>
<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                              2001           2000          1999          1998           1997
Balance Sheet Data:
<S>                                      <C>            <C>               <C>         <C>           <C>
Cash and cash equivalents                    $29,449        $28,231      $489,521    $6,316,955       $779,317
Working capital                          (4,686,322)    (1,375,391)       414,132     7,992,894     13,242,387
Total assets                               1,222,133      2,292,244     3,844,395    10,519,727     15,036,473
Long term obligations                      2,500,000      2,500,000       500,000           -              -
Total liabilities                          7,578,011      4,481,225     1,427,732       894,339        587,728
Total stockholders' (deficit) equity     (6,355,878)    (2,188,981)     2,416,663     9,625,388     14,448,745
</TABLE>

<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 years ended December 31, 2001, 2000 and 1999, and its
financial  condition at December  31,  2001.  The focus of this review is on the
underlying  business  reasons for significant  changes and trends  affecting the
revenues, net losses, and financial condition of the Company. This review should
be read in conjunction with the accompanying consolidated 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.  Although  the Company has
completed the  development  of its integrated  information  capture and delivery
system and has  developed  several  disease  management  programs  for  specific
diseases,  the  Company is  continuing  to refine its  products  for  additional
applications.  In October 1996 the Company began enrolling patients in its first
disease management  program and began substantial  patient contacts during 1998.
Also in 1998,  the  Company  expanded  its  products  offered to include  demand
management  and health  related  surveys.  The Company  currently  has  patients
enrolled in more than 30 of its  disease-specific,  demand  management or survey
programs.  Through February 2002, an aggregate of over 496,000 persons have been
enrolled or participated  in Company  programs.  However,  the Company has never
been able to enroll a  sufficient  number of  patients  to cover the cost of its
programs.  The enrollment of patients in the Company's programs has been limited
by several  factors,  including  the  limited  ability of clients to provide the
Company  with  accurate   information  with  respect  to  the  specific  patient
populations, including coding errors that necessitated extensive labor-intensive
data processing prior to program implementation.

     In  response  to these  market  dynamics,  the  Company  has taken  several
tactical and strategic steps including, formal designation of internal personnel
at customer sites to assist clients with  implementation;  closer integration of
Company  systems  personnel with clients to facilitate  accurate data transfers;
promotion  of a broader  product line to enable  clients to enter the  Company's
disease  management  programs through a variety of channels;  fully  integrating
demand,  disease and case management  services to facilitate internal mechanisms
for patent  referrals and providing the customers  access and control over their
patient's  confidential  information though targeted use of Internet technology.
The Company's demand  management  services and automated surveys (general health
and  disease-specific),  can provide  mechanisms for enrollment to the Company's
disease management  programs.  The Company continues to develop  capabilities or
relationships  that will enable its customers to more  effectively  leverage the
data stored in their legacy  systems.  Nevertheless,  no assurance  can be given
that the  Company's  efforts will succeed in  increasing  patient  enrollment in
Company programs.

     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 asthma;  (iv) patients
suffering from diabetes, (v) patients who are suffering from hypertension,  (vi)
demand  management,  which provides  access to nurses,  and (vii) various survey
initiatives  which  assess,  among other  things:  satisfaction,  compliance  of
providers  or payors to national  standards,  health  status or risk of specific
health related events.  These  contracts  provide for fees paid by its customers
based upon the number of patients participating in each of its programs, as well
as initial program implementation and set-up fees from customers.  To the extent
that the Company has had limited  enrollment  of patients in its  programs,  the
Company's  operations  revenue has been, and may continue to be limited.  During
1999 and 2000,  the Company has  committed  increased  resources  to  developing
strategic  upgrades of its  information and  telecommunications  technologies to
leverage the emerging capabilities of the Internet. Moreover, as the Company has
completed  the  development  of its  primary  disease  management  programs,  it
anticipates  that  development  revenue will  continue to be minimal  unless and
until the Company enters into new development agreements.  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 typically call for a
fee to be paid by the customer for each patient enrolled for a series of program
services,  pay for those services  incrementally  as they are delivered or pay a
fixed fee per  patient or member each month for bundled  program  services.  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,  the cost of the  resources  used and the  detail  of the
reports  generated.

     Revenues from  Operations,  which includes fees received by the Company for
operating its programs is the most significant source of the Company's revenues.
The Company is continuing to devote significant  marketing efforts to increasing
the number of programs that are in operation as well as development resources to
expand  its  products  that  include  licensing  of  Internet-based  technology.
Nevertheless,  the Company is still supporting a substantial  infrastructure  in
maintaining  the  capacity  necessary  to deliver its  services and to offer its
services to new customers.  Therefore,  the Company will be required to increase
substantially  the number of patient  contacts and management  programs to cover
the costs necessary to maintain the capability to service its customers. In that
the Company began  substantial  patient  contacts  during 1998 and has still, to
this  date,  increased  contacts  at a  relatively  slow  rate,  the  Company is
continually  examining its costing  structures to determine the levels that will
be necessary to achieve profitability.

     During  2001,  the  Company  continued  efforts  to  reduce  costs  through
structural changes in its operation:  closing a facility and a further reduction
of staff. These changes have reduced the Company's loss before  depreciation and
amortization  from $4.7 million for the 12-month  period ended December 31, 2000
to $3.7 million for the same period of 2001.

     The sales cycle for the  Company's  programs may be extensive  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.

     In February 1999, the Company, through a wholly-owned  subsidiary,  Patient
Infosystems  Acquisition  Corp.,  acquired  substantially  all of the  assets of
HealthDesk  Corporation,  a  consumer  healthcare  software  company,  primarily
engaged in the business of designing and developing  Internet-based  products in
the healthcare,  wellness and disease  management  industries for $761,463.  The
Company  obtained funds for the HealthDesk  acquisition from its available cash.
The assets that were acquired by the Company  included  inventory,  intellectual
property,  hardware  and  software.  In  August  2000,  the  Company's  board of
directors  approved a merger of Patient  Infosystems  Acquisition Corp. into the
Company.

     During  2001,  the  Company  felt the  pressure of severe  working  capital
shortfalls.  The  Company's  available  cash had been  reduced  to a level  that
substantially  limits its operations.  Although the Company established lines of
credit in the  amount of $2.5  million,  raised $1 million in equity in 2000 and
issued $3.9 million in demand  notes,  the Company is continuing to incur losses
and must identify substantial additional capital to sustain its operations.  The
Company's operations are currently being funded by loans being made on a monthly
basis by a director of the Company.  On March 25, 2002,  Messrs.  Pappajohn  and
Shaffer made a commitment to the Company to obtain the operating  funds that the
Company believes would be sufficient to fund its operations through December 31,
2002  based  upon  an  operational   forecast  for  the  Company.  As  with  any
forward-looking projection, no assurances can be given concerning the outcome of
the Company's actual financial status given the substantial  uncertainties  that
exist. There can be no assurances given that Messers.  Pappajohn or Schaffer can
raise  either the required  working  capital  through the sale of the  Company's
securities or that the Company can borrow the additional amounts needed. In such
instance,  if the  Company  is unable to  identify  any  additional  sources  of
capital, it will likely be forced to cease operations. As a result of the above,
the  Independent  Auditors'  Report  on  the  Company's  consolidated  financial
statements  appearing at Item 8 includes an emphasis  paragraph  indicating that
the Company's  recurring  losses from  operations,  negative working capital and
stockholders'  deficit raise  substantial  doubt about the Company's  ability to
continue as a going concern. The accompanying  consolidated financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

     In December  1999, the Company  established a credit  facility with Norwest
Bank Iowa,  National  Association,  now Wells Fargo Bank,  ("Norwest")  for $1.5
million  (the  "Original  Line of  Credit").  The  Original  Line of  Credit  is
guaranteed  by two of the  Company's  directors:  John  Pappajohn  and Derace L.
Schaffer (the "Original Guarantees"). In March 2000, the Original Line of Credit
was  increased  to a total  of $2.5  million  (the  "line of  Credit")  and also
guaranteed by Messrs. Pappajohn and Schaffer (the "Additional Guarantees").

     Interest under the Line of Credit is the prime rate of interest established
by Norwest or, at the Company's  election,  the LIBOR Rate Option. The principal
and any unpaid  interest  under the line of Credit are due and  payable on March
31,  2003.  There is a  commitment  fee of 0.25% per annum on the average  daily
unused  amount of the Line of Credit to be paid  quarterly in arrears  beginning
June 30, 2001. In conjunction  with the Line of Credit,  the Company  granted to
Norwest a security interest in all of the Company's assets.

     In consideration of the Original Guarantees, the Company granted to each of
Messers.  Pappajohn  and  Schaffer  warrants to purchase  187,500  shares of the
Company's Common Stock at an exercise price of $1.5625 per share,  which was the
closing  price  of  the  Company's   Common  Stock  on  December  28,  1999.  In
consideration  of the  Additional  Guarantees,  the  Company  granted to each of
Messers.  Pappajohn  and  Schaffer  warrants to purchase  125,000  shares of the
Company's  Common Stock at an exercise price of $2.375 per share,  which was the
closing price of the Company's Common Stock on March 21, 2000.

     On March 28, 2001, the Company  entered into an Amended and Restated Credit
Agreement  with Wells  Fargo Bank Iowa,  N.A.,  which  extended  the term of the
Company's credit facility to March 31, 2002 under  substantially the same terms.
Dr. Schaffer and Mr.  Pappajohn,  two directors of the Company,  guaranteed this
extension. In consideration for their guarantees,  the Company re-priced 625,000
warrants  previously  granted in connection  with prior  guarantees to $0.05 per
share,  effective April 1, 2001. The fair value of these  re-priced  warrants is
$35,735. The estimated fair value of the re-priced warrants was determined using
the Black Scholes method.

     On March 28, 2002,  Wells Fargo Bank, N.A.  extended the term of the credit
facility to March 31, 2003 under  substantially the same terms. Dr. Schaffer and
Mr.  Pappajohn also guaranteed  this  extension.  As of the date of this filing,
there has been no compensation  for the continued  guarantee.  It is likely that
there  will be some form of  compensation  during  2002 in  connection  with the
extended guarantee.

     On March 31,  2000,  the Company  completed a private  placement of 100,000
shares  of newly  issued  Series C 9%  Cumulative  Convertible  Preferred  Stock
("Series  C"),  raising  $1,000,000  in  total  proceeds.  These  shares  can be
converted  into Common Stock at a rate of 8 shares of Common Stock to 1 share of
Series C Preferred Stock.  Each Series C share has voting rights equivalent to 8
shares  of  Common  Stock  (800,000  shares).  Messers  Pappajohn  and  Schaffer
purchased 50,000 and 25,000 shares of Series C Stock, respectively. The proceeds
from this issuance have been used to support the Company's operations.

     In 2001, the Company  borrowed  $2,736,500 from Mr Pappajohn in the form of
demand notes, secured by the assets of the Company. The Company anticipates that
it will need to borrow additional funds before it can secure additional  capital
through the issuance of additional securities. Between January 1, 2002 and March
31, 2002, an additional  $416,000 has been  borrowed  from Mr.  Pappajohn  under
substantially the same terms. On March 25, 2002,  Messrs.  Pappajohn and Shaffer
made a commitment to the Company to obtain the operating  funds that the Company
believes  would be sufficient to fund its operations  through  December 31, 2002
based upon an operational  forecast for the Company. As with any forward-looking
projection,  no assurances can be given  concerning the outcome of the Company's
actual financial status given the substantial  uncertainties  that exist.  There
can be no assurances given that Messers.  Pappajohn or Schaffer can raise either
the required  working  capital  through the sale of the Company's  securities or
that the Company can borrow the additional amounts needed.

     On June 6,  2001,  the  Company  issued  a total  of  2,319,156  shares  of
unregistered Common Stock to Mr. Pappajohn and Dr. Schaffer in consideration for
their continued  extension of loans.  Based upon recent trading of the Company's
Common Stock at the time of issuance,  the Company  assigned a fair market value
of $0.15 per  share or a total of  $347,873  to these  unregistered  shares  and
recognized this amount as an operating expense in June of 2001.

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Revenues

     Revenues are comprised of revenues from operations  fees,  development fees
and licensing fees.  Revenues decreased 25.8% from $2,139,262 for the year ended
December 31, 2000 to $1,586,443  for the year ended December 31, 2001. A summary
of these revenues by category, is as follows for the years ended December 31:

<TABLE>
<CAPTION>
Revenues                   2001          2000
                       ----------    ----------
<S>                    <C>           <C>
Operations Fees        $1,386,311    $1,941,810
Development Fees           78,632        81,626
Licensing Fees            121,500       115,826
                       ----------    ----------
Total                  $1,586,443    $2,139,262
                       ==========    ==========
</TABLE>

     Revenues from  operations fees decreased 28.6% from $1,941,810 for the year
ended  December  31, 2000 to  $1,386,311  for the year ended  December 31, 2001.
Operations  revenues  are  generated  as the  Company  provides  services to its
customers for their  disease-specific  programs,  patient  surveys,  health risk
assessments,  patient  satisfaction  surveys,  physician  education programs and
marketing  support  programs.  Operations  revenues  decreased  in  2001  due to
termination  of Medicare  products by two of the  Company's  key  customers  and
completion of two pharma  projects  that  generated  substantial  revenue in the
first half of 2000, but made immaterial contribution during 2001.

     Revenues from  development  fees  decreased  3.7% from $81,626 for the year
ended  December 31, 2000 to $78,632 for the year ended  December  31,  2001.  In
2000, the Company received  development revenues from a variety of customers for
creation of or  modification  to specific  programs.  The Company has  completed
substantially  all services under these  agreements  and is primarily  receiving
revenues  in  connection  with  the   enhancement  of  its  existing   programs.
Development  revenues  include  clinical,  technical and  operational  design or
modification of the Company's primary disease management  programs.  Development
revenues have declined from year to year since the year ended December 31, 1997,
as the Company  reduced the amount of development  work it has performed for its
customers.  The Company  anticipates  that  revenue from  development  fees will
continue to decline unless the Company enters into new development agreements.

     Revenues  from  licensing  fees  increased  4.9% from $115,826 for the year
ended  December  31,  2000 to $121,500  for the year ended  December  31,  2001.
Licensing  revenue  represents  amounts that the Company  charges its customers,
either on a one-time only or continuing  basis, for the right to enroll patients
in or the right to license other entities certain of its programs, primarily the
Company's  Internet-based  Case  Management  Support  System  product line.  The
Company has not  entered  into any new  licensing  contracts  and a  substantial
portion the initial license fees for the existing contracts have been collected.
The company  anticipates  that revenue from  licensing  will  decrease in future
periods unless new license agreements are signed.

     Costs and Expenses

     Cost of sales includes 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.

     Cost of sales decreased 38% from $3,906,010 for the year ended December 31,
2000 to $2,420,151  for the year ended  December 31, 2001. The decrease in these
costs  primarily  reflects a decreased  level of operational  activities and the
full year realization of program  development  cost reductions  initiated during
last few months of 2000.

     Sales and marketing  expenses  decreased 42.9% from $1,425,990 for the year
ended December 31, 2000 to $813,975 for the year ended December 31, 2001.  These
costs consist  primarily of salaries,  related benefits and travel costs,  sales
materials and other marketing related expenses.  Decreased spending in this area
is  attributable  to the  Company's  efforts to reduce  costs and to its limited
available  capital,  resulting  in a  smaller  sales  and  marketing  staff  and
increased  dependence on marketing  partners  during the year ended December 31,
2001.  It is  anticipated  that the Company  will need to invest  heavily in the
sales and marketing  process in future  periods if funds are  available.  To the
extent that the Company has limited funds available for sales and marketing,  or
cannot leverage its marketing partnerships adequately,  it will likely be unable
to  invest in the  necessary  marketing  activities  to  generate  substantially
greater sales.

     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  decreased 12.9%
from  $2,329,585 for the year ended December 31, 2000 to $2,028,804 for the year
ended December 31, 2001. The decrease in these costs was caused by the reduction
in the  amortization  of in debt issuance and other  financing  costs related to
funding  operations  and pay decreases for officers of the Company.  Without the
financing cost,  general and  administrative  expense would have decreased 12.2%
from  $1,664,835 for the year ended December 31, 2000 to $1,461,379 for the year
ended  December 31, 2001.  The Company  expects that general and  administrative
expenses will remain relatively  constant in future periods,  but may experience
fluctuations due to uncertainties related to financing costs.

     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, its  Internet-based  software products
and its standardized disease state management programs. Research and development
expenses  decreased  37.6% from $305,543 for the year ended December 31, 2000 to
$190,731  for the year ended  December  31,  2001.  The decrease in research and
development  expenses  reflects the transition of the Company's  investment into
Internet technology into operational systems during 2001.

     Other  Income/Expense  is  comprised  of  interest  income  and  losses  on
investments. The net totals are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                          2001        2000
                                     -----------  -----------
<S>                                  <C>          <C>
              Interest expense       $ (410,063)  $ (190,997)
              Other income (expense)
                Other                    11,976     (20,343)
                ReCall                 (200,000)        -
                                     -----------  -----------
              Total Expense          $ (598,087)  $ (211,340)
                                     ===========  ===========
</TABLE>

     Interest expense is due to debt. Interest expense increased to $410,063 for
the year ended  December 31, 2001 from $190,997 for the year ended  December 31,
2000. The increase in interest  expense  reflects the increased debt required to
fund operations.

     The other expense for the year ended  December 31, 2001 consists  primarily
of an impairment of an investment. In September of 2001 the Company was notified
that Recall  Services,  Inc.  was ceasing  operations  and declared its $200,000
investment in Recall Services, Inc. impaired.

     The Company had no tax expense in 2001  because,  in part,  to  recording a
full  valuation  allowance  to reduce its  deferred  tax assets.  The  Company's
deferred tax assets consist primarily of the tax benefit associated with its net
operating loss carryforwards.

     Management of the Company has evaluated the available evidence about future
taxable income and other possible sources of realization of deferred tax assets.
The valuation  allowance  reduces  deferred tax assets to zero, which represents
management's  best  estimate of the amount of such deferred tax assets that more
likely than not will be realized.

     For the year ended  December  31,  2001,  the Company  declared  $90,000 in
dividends  on  convertible  preferred  stock.  On March 31,  2000,  the  Company
completed a private  placement  of 100,000  shares of newly  issued  Series C 9%
Cumulative Convertible Preferred Stock ("Series C"), raising $1,000,000 in total
proceeds.  These shares can be converted into Common Stock at a rate of 8 shares
of Common Stock to 1 share of Series C Preferred Stock.  Each Series C share has
voting  rights  equivalent  to 8 shares of Common Stock  (800,000  shares).  The
proceeds from this issuance have been used to support the Company's operations.

     The  Company  had  a  net  loss  attributable  to  common  stockholders  of
$4,555,305 for the year ended December 31, 2001,  compared to $6,656,706 for the
year ended  December  31,  2000.  This  represents  a loss of $.47 per basic and
diluted share for 2001 and $.82 for 2000.

<PAGE>

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Revenues

     Revenues are comprised of revenues from operations  fees,  development fees
and licensing fees.  Revenues decreased 39.7% from $3,545,207 for the year ended
December 31, 1999 to $2,139,262  for the year ended December 31, 2000. A summary
of these revenues by category, is as follows for the years ended December 31:

<TABLE>
<CAPTION>
Revenues                          2000           1999

<S>                          <C>            <C>
Operations Fees              $ 1,941,810    $ 3,270,900
Development Fees                  81,626        227,307
Licensing Fees                   115,826         47,000
                             -----------    -----------
Total                        $ 2,139,262    $ 3,545,207
                             ===========    ===========
</TABLE>


     Revenues from  operations fees decreased 40.6% from $3,270,900 for the year
ended  December  31, 1999 to  $1,941,810  for the year ended  December 31, 2000.
Operations  revenues  are  generated  as the  Company  provides  services to its
customers for their  disease-specific  programs,  patient  surveys,  health risk
assessments,  patient  satisfaction  surveys,  physician  education programs and
marketing support programs.  Operations revenues decreased significantly in 2000
due to  termination  of  Medicare  by two of the  Company's  key  customers  and
completion of two pharma projects.

     Revenues from  development  fees decreased 64.1% from $227,307 for the year
ended  December 31, 1999 to $81,626 for the year ended  December  31,  2000.  In
1999, the Company received  development revenues from a variety of customers for
creation of or  modification  to specific  programs.  The Company has  completed
substantially  all services under these  agreements  and is primarily  receiving
revenues  in  connection  with  the   enhancement  of  its  existing   programs.
Development  revenues  include  clinical,  technical and  operational  design or
modification of the Company's primary disease management  programs.  Development
revenues have declined from year to year since the year ended December 31, 1997,
as the Company  reduced the amount of development  work it has performed for its
customers.  The Company  anticipates  that  revenue from  development  fees will
continue to decline unless the Company enters into new development agreements.

     Revenues from  licensing  fees  increased  146.4% from $47,000 for the year
ended  December  31,  1999 to $115,826  for the year ended  December  31,  2000.
Licensing  revenue  represents  amounts that the Company  charges its customers,
either on a one-time only or continuing  basis, for the right to enroll patients
in or the right to license other entities certain of its programs, primarily the
Company's  Internet-based  Case  Management  Support  System  product line.  The
Company  had  licensing  fees of  $115,826  from the sale of its  Internet-based
products in 2000.

     Costs and Expenses

     Cost of sales includes 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.

     Cost of sales  decreased  25.2% from $5,219,562 for the year ended December
31, 1999 to  $3,906,010  for the year ended  December 31, 2000.  The decrease in
these costs  primarily  reflects a decreased  level of program  development  and
operational activities.

     Sales and marketing  expenses  decreased 49.2% from $2,809,554 for the year
ended  December  31, 1999 to  $1,425,990  for the year ended  December 31, 2000.
These costs consist  primarily of salaries,  related  benefits and travel costs,
sales materials and other marketing related expenses. Decreased spending in this
area is attributable to the Company's efforts to reduce costs and to its limited
available  capital,  resulting in a smaller sales and marketing staff during the
year ended  December 31, 2000. It is  anticipated  that the Company will need to
invest heavily in the sales and marketing process in future periods if funds are
available.  To the extent that the Company has limited funds available for sales
and  marketing,  it will likely be unable to invest in the  necessary  marketing
activities to generate substantially greater sales.

     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  increased 21.6%
from  $1,916,003 for the year ended December 31, 1999 to $2,329,585 for the year
ended  December  31,  2000.  The  increase  in these  costs  was  caused  by the
amortization  of $664,750 in debt issuance costs related to funding  operations.
Without the debt issuance cost,  general and  administrative  expense would have
decreased  13.1%  from  $1,916,003  for the  year  ended  December  31,  1999 to
$1,664,835  for the year ended  December  31,  2000.  The Company  expects  that
general and  administrative  expenses will decrease in future periods as expense
controls and infrastructure reductions are implemented.

     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, its  Internet-based  software products
and its standardized disease state management programs. Research and development
expenses  decreased  68.4% from $967,365 for the year ended December 31, 1999 to
$305,543  for the year ended  December  31,  2000.  The decrease in research and
development  expenses  reflects the transition of the Company's  investment into
Internet technology during 1999 into operational systems during 2000.

     Other  Income/Expense  is  comprised  of  interest  income  and  losses  on
investments. The net totals are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                 2000        1999
                                             ----------- -----------
<S>                                          <C>           <C>
              Interest (expense) income      $ (190,997)   $166,164
              Other expense
                Other                           (20,343)   (167,063)
                Pulse Group                        -       (250,000)
                                             ----------- -----------
              Total Income/(Expense)         $ (211,340) $ (250,897)
                                             =========== ===========
</TABLE>

     Interest  expense is due to debt.  Interest  income is generated  primarily
from cash balances and short-term money market  investments.  Interest decreased
to an expense of $190,997 for the year ended December 31, 2000 from an income of
$166,164 for the year ended December 31, 1999.  The decrease in interest  income
reflects the use by the Company of its available  cash and increased  borrowings
required to fund operations.

     The other expense for the year ended December 31, 2000 includes  variations
in Canadian currency ("CN$") for PATI Canada and the sale or insurance  recovery
of certain fixed assets of the Company.  In June 2000, the Company  consolidated
operational  locations and sold or abandoned  certain fixed assets which were no
longer required resulting in a loss, net of an insurance recovery, of $12,643.

     The  Company's  income tax  expense  in 2000  consisted  of state  taxes of
$13,422.  The Company's nominal tax expense is due, in part, to recording a full
valuation  allowance to reduce its deferred tax assets  consisting  primarily of
the tax benefit associated with its net operating loss carryforwards.

     Management of the Company has evaluated the available evidence about future
taxable income and other possible sources of realization of deferred tax assets.
The valuation  allowance  reduces  deferred tax assets to zero, which represents
management's  best  estimate of the amount of such deferred tax assets that more
likely than not will be realized.

     For the year ended  December 31,  2000,  the Company  declared  $617,500 in
dividends  on  convertible  preferred  stock.  On March 31,  2000,  the  Company
completed a private  placement  of 100,000  shares of newly  issued  Series C 9%
Cumulative Convertible Preferred Stock ("Series C"), raising $1,000,000 in total
proceeds.  These shares can be converted into Common Stock at a rate of 8 shares
of Common Stock to 1 share of Series C Preferred Stock.  Each Series C share has
voting  rights  equivalent  to 8 shares of Common Stock  (800,000  shares).  The
proceeds from this issuance have been used to support the Company's operations.

     The fair market value of the Company's Common Stock at the time of issuance
of Series C Stock  was  $1.9375  per  share.  The  Series C  Preferred  Stock is
convertible at any time into common stock at a price equal to $1.25 per share of
Common Stock  resulting in a discount,  or  beneficial  conversion  feature,  of
$0.6875 per share. The incremental fair value of $550,000 for the 100,000 shares
of Series C Preferred issued is deemed to be the equivalent of a preferred stock
dividend.  The Company  recorded the deemed  dividend at the date of issuance by
offsetting  charges  and  credits to  additional  paid in  capital of  $550,000,
without any effect on total stockholders'  equity. In addition,  the Company has
accrued $67,500 in dividend  expense,  which will become payable to the Series C
stockholders on March 31, 2001.

     The  Company  had  a  net  loss  attributable  to  common  stockholders  of
$6,656,706 for the year ended December 31, 2000,  compared to $7,618,174 for the
year ended  December  31,  1999.  This  represents  a loss of $.82 per basic and
diluted share for 2000 and $.95 for 1999.

     Liquidity and Capital Resources

     At  December  31,  2001  the  Company  had a  working  capital  deficit  of
$4,686,322  as compared to working  capital of  $1,375,391 at December 31, 2000.
Also  at  December  31,  2001,  the  Company  had  a  stockholders'  deficit  of
$6,355,878.  Through  December 31, 2001 these amounts reflect the effects of the
Company's continuing losses, issuance of demand notes totaling $3,907,500 due to
directors of the Company and long term borrowings of $2,500,000 against its line
of credit.  The Company has never earned  profits and since its  inception,  the
Company has primarily  funded its operations,  working capital needs and capital
expenditures  from the sale of  equity  securities.  The  Company  is  currently
maintaining it operations only through the receipt of continuing  loans from one
of its directors.  If these loans or additional  funds were not  available,  the
Company would likely be required to cease operations.

     In December 1999, the Company  established a credit facility for $1,500,000
guaranteed by Derace Schaffer and John Pappajohn,  two directors of the Company.
In consideration for their  guarantees,  the Company granted to Dr. Schaffer and
Mr.  Pappajohn  warrants to purchase an  aggregate  of 375,000  shares of common
stock for $1.5625 per share.  In March  2000,  the  facility  was  increased  by
$1,000,000 under substantially the same terms, also guaranteed by the same Board
members.  Additional  warrants  to purchase an  aggregate  of 250,000  shares of
Common Stock for $2.325 per share,  were granted to Dr. Derace  Schaffer and Mr.
John Pappajohn for their guarantee of this additional line of credit.

     On March 28, 2001, the Company  entered into an Amended and Restated Credit
Agreement  with Wells  Fargo Bank Iowa,  N.A.,  which  extended  the term of the
Company's credit facility to March 31, 2002 under  substantially the same terms.
Dr. Schaffer and Mr.  Pappajohn,  two directors of the Company,  guaranteed this
extension. In consideration for their guarantees,  the Company re-priced 625,000
warrants  previously  granted in connection  with prior  guarantees to $0.05 per
share,  effective April 1, 2001. The fair value of these  re-priced  warrants is
$35,735. The estimated fair value of the re-priced warrants was determined using
the Black Scholes method.

     On March 28, 2002,  Wells Fargo Bank, N.A.  extended the term of the credit
facility to March 31, 2003 under  substantially the same terms. Dr. Schaffer and
Mr.  Pappajohn also guaranteed  this  extension.  As of the date of this filing,
there has been no compensation  for the continued  guarantee.  It is likely that
there  will be some form of  compensation  during  2002 in  connection  with the
extended guarantee.

     On March 31,  2000,  the Company  completed a private  placement of 100,000
shares  of newly  issued  Series C 9%  Cumulative  Convertible  Preferred  Stock
("Series  C"),  raising  $1,000,000  in total  proceeds.  Messers  Pappajohn and
Schaffer purchased 50,000 and 25,000 shares of Series C Stock respectively.  The
proceeds from this issuance have been used to support the Company's operations.

     On June 6,  2001,  the  Company  issued  a total  of  2,319,156  shares  of
unregistered  Common Stock to Mr. Pappajohn and Dr. Schaffer as compensation for
their continued  financial support of the Company.  Based upon recent trading of
the Company's Common Stock at the time of issuance,  the Company assigned a fair
market  value of $0.15 per share or a total of  $347,873  to these  unregistered
shares and realized this amount as an operating expense in June of 2001.

     The  Company has  expended  significant  amounts to expand its  operational
capabilities  including increasing its administrative and technical costs. While
the Company has  curtailed its spending  levels,  to the extent that revenues do
not increase substantially, the Company's losses will continue and its available
capital will diminish  further.  The Company's  operations  are currently  being
funded by loans being made on a bi-weekly basis by a director of the Company. On
March 25, 2002,  Messrs.  Pappajohn and Shaffer made a commitment to the Company
to obtain the operating  funds that the Company  believes would be sufficient to
fund its operations through December 31, 2002 based upon an operational forecast
for the Company.  As with any forward-looking  projection,  no assurances can be
given  concerning the outcome of the Company's actual financial status given the
substantial  uncertainties  that exist.  There can be no  assurances  given that
Messers.  Pappajohn or Schaffer can raise  either the required  working  capital
through the sale of the Company's  securities or that the Company can borrow the
additional  amounts  needed.  In such  instance,  if the  Company  is  unable to
identify any  additional  sources of capital,  it will likely be forced to cease
operations.  As a result of the above,  the Independent  Auditors' Report on the
Company's  consolidated  financial  statements  appearing  at Item 8 includes an
emphasis  paragraph   indicating  that  the  Company's   recurring  losses  from
operations raise  substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

     Capital  expenditures  during 2001 were $9,240, as compared to expenditures
of $16,404 during 2000 and $433,598 during 1999. The  expenditures  during these
periods  represented  the  purchase of  technology  platform  components  of the
integrated  information  capture  and  delivery  systems  as well  as  purchases
required to maintain the Company's technology infrastructure.

     Nasdaq Listing Status

     The  Company's  securities  were delisted  from the Nasdaq  National  Stock
Market effective  September 14, 2000. The Company's  securities were immediately
eligible to trade on the OTC Bulletin Board.

     Inflation

     Inflation  did not have a significant  impact on the  Company's  operations
during  2001,  2000 or 1999.  The  Company  continues  to monitor  the impact of
inflation  in  order  to  minimize  its  effects  through  pricing   strategies,
productivity improvements and cost reductions.

     Recent Accounting Pronouncements

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in the Financial
Statements",  which  provides  guidance  on the  recognition,  presentation  and
disclosure of revenue in financial  statements files with the SEC. The Company's
adoption  of SAB No. 101  during  the fourth  quarter of 2000 did not impact the
Company's consolidated financial statements.

     During  the  first  quarter  of 2001,  the  Company  adopted  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting  for  Derivative
Instruments  and  Hedging  Activities.   The  Company  has  not  identified  any
derivatives  that  meet  criteria  for a  derivative  instrument  and  does  not
participate in any hedging  activities.  As a result,  management of the Company
concluded  that  there  was no  material  effect on the  Company's  consolidated
financial  statements  resulting from the adoption of SFAS No. 133 at January 1,
2001.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishment of Liabilities,"  which supercedes SFAS No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This standard is effective for transfers  occurring  after March 31, 2001,  with
certain disclosure requirements effective for the year ending December 31, 2000.
Management of the Company has concluded that there was no material effect on the
Company's  consolidated financial statements resulting from the adoption of SFAS
No. 140 at September 30, 2001.

     On June 29, 2001,  Statement of Financial  Accounting  Standards (SFAS) No.
141, "Business  Combinations" was issued by the Financial  Accounting  Standards
Board (FASB).  SFAS No. 141 requires  that the purchase  method of accounting be
used for all business  combinations  initiated after June 30, 2001. Goodwill and
certain intangible assets will remain on the balance sheet and not be amortized.
On an annual basis, and when there is a reason to suspect that their values have
diminished  or  impaired,  these  assets  must be  tested  for  impairment,  and
write-downs  may be necessary.  The Company adopted SFAS No. 141 on July 1, 2001
and concluded that there was no impact on its consolidated  financial statements
resulting from the adoption of SFAS No. 141 at July 1, 2001.

     On June 29, 2001, SFAS No. 142,  "Goodwill and Other Intangible Assets" was
issued by the FASB.  SFAS No. 142 changes the  accounting  for goodwill  from an
amortization  method to an impairment-only  approach.  Amortization of goodwill,
including  goodwill  recorded  in past  business  combinations,  will cease upon
adoption  of this  statement.  The  Company is required to adopt SFAS No. 142 on
January 1, 2002 and has not  determined  the impact,  if any, that this standard
will have on its consolidated financial statements.

     Statement of  Financial  Accounting  Standards("SFAS")  144  establishes  a
single  accounting  model for the  impairment or disposal of long-lived  assets,
including  discontinued  operations.  SFAS No.  144  superseded  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and APB Opinion No. 30,  "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently  Occurring Events and  Transactions." The provisions of
SFAS No. 144 are effective in fiscal years  beginning  after  December 15, 2001,
with early adoption permitted,  and in general are to be applied  prospectively.
The  Company  does  not  believe  the  adoption  of this  standard  will  have a
significant impact on the Company's consolidated financial position,  results of
operations or cash flows.

     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  that
may  be  made  to any  forward-looking  statements  to  reflect  anticipated  or
unanticipated  events  or  circumstances   occurring  after  the  date  of  such
statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to changes in interest rates,  primarily in its cash
transactions.  The  Company is exposed to changes in foreign  currency  exchange
rates through  receivables and expense  accruals of its Canadian  subsidiary.  A
discussion of the Company's  accounting  policies for financial  instruments  is
included in the Summary of Significant  Accounting  Policies in the Notes to the
Consolidated  Financial  Statements.  While the Company's current  international
operations  are  limited  to  Canada,  it does not  invest  its cash in  foreign
currency  instruments  nor does it maintain  cash in Canada except to facilitate
inter-country  transactions.  The  balances  the  Company  has in  cash  or cash
equivalents are generally  available without legal restrictions to fund ordinary
business operations.  The Company historically invested excess operating cash in
certificates  of  deposit  and U.S.  government  bonds and other  bonds that are
subject to changes in short-term  interest rates.  The Company  currently has no
such investments. The Company made no purchases of available-for-sale securities
in 2001 or 2000.

<PAGE>

Item 8. Financial Statements And Supplemental Data

<TABLE>
<CAPTION>
         Index to Financial Statements                            Page

<S>                                                               <C>
         Independent Auditors' Report                             29
         Consolidated Balance Sheets                              30
         Consolidated Statements of Operations                    31
         Consolidated Statements of Stockholders' Equity (Deficit)32
         Consolidated Statements of Cash Flows                    33
         Notes to Consolidated Financial Statements               34
</TABLE>

<PAGE>










INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
  of Patient InfoSystems, Inc.
Rochester, New York


We  have  audited  the  accompanying  consolidated  balance  sheets  of  Patient
InfoSystems,  Inc.  and  subsidiary  as of December  31, 2001 and 2000,  and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash flows for each of the three  years in the  period  ended  December  31,
2001. Our audits also included the financial  statement  schedule  listed in the
Index at Item 14. These financial  statements and financial  statement  schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  and  financial  statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of Patient  InfoSystems,  Inc. and
subsidiary  at December 31, 2001 and 2000,  and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 2001, in conformity with  accounting  principles  generally  accepted in the
United  States of  America.  Also,  in our  opinion,  such  financial  statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated   financial   statements,   the  Company's  recurring  losses  from
operations, negative working capital and stockholders' deficit raise substantial
doubt  about its  ability to continue  as a going  concern.  Management's  plans
concerning this matter are also described in Note 1. The consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



Deloitte & Touche LLP
Rochester, New York
March 19, 2002
(March 28, 2002 as to Note 3)

<PAGE>

<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
----------------------------------------------------------------------------------------------------------------


ASSETS                                                                                    2001           2000

CURRENT ASSETS:
<S>                                                                                 <C>            <C>
  Cash and cash equivalents                                                             $ 29,449       $ 28,231
  Accounts receivable (net of doubtful accounts allowance of $37,217 and $48,122)        273,791        411,436
  Prepaid expenses and other current assets                                               88,449        136,111
  Employee notes receivable                                                                 -            30,056
                                                                                    ----------------------------
        Total current assets                                                             391,689        605,834

PROPERTY AND EQUIPMENT, net                                                              498,472        827,050

Debt issuance costs (net of accumulated amortization of $884,301 and $664,750)             8,934        192,750
Intangible assets (net of accumulated amortization of $299,685 and $156,113)             323,038        466,610
Other assets                                                                                   -        200,000
                                                                                    ----------------------------

TOTAL ASSETS                                                                         $ 1,222,133    $ 2,292,244
                                                                                    ----------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable                                                                     $ 111,018      $ 233,545
  Accrued salaries and wages                                                             176,618        176,158
  Accrued expenses                                                                       477,205        188,460
  Accrued Interest                                                                       282,530         50,101
  Borrowings from directors                                                            3,907,500      1,171,000
  Deferred revenue                                                                       123,140        161,961
                                                                                    ----------------------------
        Total current liabilities                                                      5,078,011      1,981,225

LINE OF CREDIT                                                                         2,500,000      2,500,000

COMMITMENTS  (Note 7)

STOCKHOLDERS' DEFICIT:
  Preferred stock - $.01 par value:  shares authorized: 5,000,000
    Series C, 9% cumulative, convertible;
      issued and outstanding: 2001 & 2000 - 100,000                                        1,000          1,000
  Common stock - $.01 par value:  shares - authorized:
    20,000,000; issued and outstanding:  2001 - 10,956,024
    2000 - 8,220,202                                                                     109,560         82,202
  Additional paid-in capital                                                          24,222,153     23,951,103
  Accumulated deficit                                                                (30,688,591)   (26,223,286)
                                                                                    ----------------------------
        Total stockholders' deficit                                                   (6,355,878)    (2,188,981)
                                                                                    ----------------------------


TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                          $ 1,222,133    $ 2,292,244
                                                                                    ----------------------------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------------------------

                                                     2001               2000               1999

<S>                                           <C>                <C>                <C>
REVENUES                                        $ 1,586,443        $ 2,139,262        $ 3,545,207
                                            ------------------------------------------------------

COSTS AND EXPENSES:
  Cost of revenue                                 2,420,151          3,906,010          5,219,562
  Sales and marketing                               813,975          1,425,990          2,809,554
  General and administrative                      2,028,804          2,329,585          1,916,003
  Research and development                          190,731            305,543            967,365
                                            ------------------------------------------------------
        Total costs and expenses
                                                  5,453,661          7,967,128         10,912,484
                                            ------------------------------------------------------

OPERATING LOSS                                  (3,867,218)        (5,827,866)        (7,367,277)

Other expense, net (includes interest
  expense of $410,063, $190,997 and
  $3,708 in 2001, 2000 and 1999
  respectively)                                   (598,087)          (211,340)          (250,897)
                                            ------------------------------------------------------

NET LOSS                                        (4,465,305)        (6,039,206)        (7,618,174)

CONVERTIBLE PREFERRED STOCK DIVIDENDS              (90,000)          (617,500)              -
                                            ------------------------------------------------------
NET LOSS ATTRIBUTABLE TO
 COMMON STOCKHOLDERS                          $ (4,555,305)      $ (6,656,706)      $ (7,618,174)

NET LOSS PER SHARE - BASIC
   AND DILUTED                                     $ (0.47)           $ (0.82)           $ (0.95)
                                            ======================================================
WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                             9,770,501          8,135,635          8,032,533
                                            ------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
-------------------------------------------------------------------------------------------------------------------------

                                                                                                                 Total
                                                                                   Additional
                                            Common Stock        Preferred Stock      Paid-in                Stockholders'
                                                                                               Accumulated
                                          Shares    Amount     Shares     Amount     Capital      Deficit       Equity
                                                                                                              (Deficit)
                                     ------------------------------------------------------------------------------------

<S>                                  <C>         <C>           <C>        <C>      <C>        <C>           <C>
Balance at January 1, 1999              8,020,042  $ 80,200       -          -    $21,561,094 $(12,015,906)  $ 9,625,388

Compensation expense related to
  issuance of  stock warrants and            -         -          -          -         15,248         -           15,248
options
Debt issuance costs in the form of
  stock warrants                                                                     382,500                     382,500

Exercise of stock options and warrants   20,160        202        -          -        11,499          -           11,701

Net loss for the year ended
      December 31, 1999                      -         -          -          -           -      (7,618,174)   (7,618,174)
                                     ------------------------------------------------------------------------------------


Balance at December 31, 1999          8,040,202      80,402       -          -     21,970,341  (19,634,080)    2,416,663

Compensation expense related to
  issuance of  stock warrants and          -           -          -          -          1,042         -            1,042
options
Debt issuance costs in the form
  of stock warrants                        -           -          -          -        475,000         -          475,000
Issuance of Series C Preferred Stock       -           -       100,000      1,000     999,000         -        1,000,000
Beneficial conversion feature of
  Series C Convertible Preferred Stock     -           -          -          -        550,000     (550,000)         -

Exercise of stock options               180,000       1,800       -          -         23,220         -           25,020

Dividends on
  Series C Convertible Preferred Stock     -           -          -          -        (67,500)        -          (67,500)

Net loss for the year ended
      December 31, 2000                    -           -          -          -           -      (6,039,206)   (6,039,206)
                                     ------------------------------------------------------------------------------------


Balance at December 31, 2000          8,220,202      82,202    100,000      1,000  23,951,103  (26,223,286)   (2,188,981)

Compensation expense related to
  issuance of  stock                  2,319,156      23,191       -          -        329,482         -          352,673
Debt issuance costs in the form
  stock warrants                           -           -          -          -         35,735         -           35,735
Exercise of stock warrants              416,666       4,167       -          -         (4,167)        -             -

Dividends on
  Series C Convertible Preferred Stock     -           -          -          -        (90,000)        -          (90,000)

Net loss for the year ended
      December 31, 2001                    -           -          -          -           -      (4,465,305)   (4,465,305)
                                     ------------------------------------------------------------------------------------


Balance at December 31, 2001         10,956,024  $ 109,560     100,000    $ 1,000  24,222,153 $(30,688,591) $ (6,355,878)
                                     ====================================================================================
</TABLE>

See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
-------------------------------------------------------------------------------------------------------------------------

                                                                                   2001           2000           1999

OPERATING :
<S>                                                                           <C>            <C>            <C>
  Net loss                                                                    $ (4,465,305)  $ (6,039,206)  $ (7,618,174)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                                695,369      1,222,153        503,341
      Loss on sale of property                                                       4,772         21,337           -
      Loss on investments                                                          200,000           -           250,000
      Compensation expense related to issuance
        of stock warrants and options                                              352,673          1,042         13,443
      Decrease in accounts receivable                                              137,645        238,843        670,347
      Decrease in prepaid expenses and other current assets                         77,718         35,897         17,914
      (Decrease) increase in accounts payable                                     (122,527)      (262,988)       192,097
      Increase (decrease) in accrued salaries and wages                                460        (14,074)       (87,699)
      Increase (decrease) in accrued expenses                                      198,745         98,426        (36,370)
      Increase in accrued interest                                                 232,429         49,868            233
      Decrease in deferred revenue                                                 (38,821)       (56,239)       (34,868)
                                                                            ---------------------------------------------

            Net cash used in operating activities                               (2,726,842)    (4,704,941)    (6,129,736)
                                                                            ---------------------------------------------

INVESTING:
  Property and equipment additions                                                  (9,240)       (16,404)      (433,598)
  Proceeds from sale of property and equipment                                         800         20,024           -
  Purchases of available-for-sale securities                                          -              -           (21,073)
  Maturities of available-for-sale securities                                         -              -         1,050,747
  Purchase of HealthDesk Assets                                                       -              -          (761,464)
  Decrease (increase) in other assets                                                 -            44,011        (44,011)
                                                                            ---------------------------------------------

          Net cash (used in) provided by investing activities                       (8,440)        47,631       (209,399)
                                                                            ---------------------------------------------

FINANCING:
  Proceeds from issuance of common and preferred stock                                -         1,025,020         11,701
  Borrowings from directors                                                      2,736,500      1,171,000           -
  Proceeds from line of credit                                                        -         2,000,000        500,000
                                                                            ---------------------------------------------

            Net cash provided by financing activities                            2,736,500      4,196,020        511,701
                                                                            ---------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                1,218       (461,290)    (5,827,434)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                      28,231        489,521      6,316,955
                                                                            ---------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                          $ 29,449       $ 28,231      $ 489,521
                                                                            ---------------------------------------------

Supplemental disclosures of cash flow information
   Cash paid for income taxes, net                                                    -              -          $ 36,361
                                                                            =============================================

Supplemental disclosures of non-cash information Fair value of stock purchase
  warrants issued in conjunction with
    guarantees by certain board members of borrowings on the line
    of credit                                                                     $ 35,735      $ 475,000      $ 382,500
                                                                            =============================================
Dividends declared on Series C Convertible Preferred Stock                        $ 90,000       $ 67,500           -
                                                                            =============================================
Value of beneficial conversion feature on Class C Convertible
   Preferred Stock recognized as a dividend                                           -         $ 550,000           -
                                                                            =============================================
</TABLE>

See notes to consolidated financial statements.

<PAGE>

PATIENT INFOSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Organization  - Patient  Infosystems,  Inc.  ("the  Company")  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.

     Going Concern - The  accompanying  consolidated  financial  statements have
     been prepared on a going concern basis,  which contemplates the realization
     of assets and the  satisfaction  of  liabilities  in the  normal  course of
     business. As shown in the accompanying  consolidated  financial statements,
     the Company  incurred a net loss for 2001 of  $4,465,305  and had  negative
     working capital of $4,686,322 and a stockholders'  deficit of $6,355,878 at
     December 31, 2001.  These  factors,  among  others,  may indicate  that the
     Company  will be unable to  continue as a going  concern  for a  reasonable
     period of time.

     The  consolidated  financial  statements  do not  include  any  adjustments
     relating to the  recoverability of assets and classification of liabilities
     that might be necessary should the Company be unable to continue as a going
     concern.  The Company's  continuation  as a going concern is dependant upon
     its ability to generate  sufficient cash flow to meet its  obligations,  to
     obtain  additional   financing  and,   ultimately,   to  attain  successful
     operations.

     In addition,  management is currently  assessing  the  Company's  operating
     structure for the purpose of reducing ongoing expenses,  increasing sources
     of  revenue  and is  negotiating  the  terms of  additional  debt or equity
     financing.   In  addition,   recent  successes  in  outcomes  from  disease
     management  programs are being  leveraged  in attempt to increase  revenues
     from sales.

     The consolidated  financial  statements include the accounts of the Company
     and its wholly owned subsidiary,  Patient Infosystems  Canada,  Inc., which
     ceased operations in January 2001.  Significant  intercompany  transactions
     and balances have been eliminated in consolidation.

     Use  of  Estimates  in  the  Preparation  of  Financial  Statements  -  The
     preparation  of  financial   statements  in  conformity   with   accounting
     principles  generally  accepted  in the United  States of America  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  primarily  of cash  and  cash  equivalents,  accounts  receivable,
     accounts payable, accrued expenses,  borrowings from directors and the line
     of credit.  The fair value of  instruments  is  determined  by reference to
     various market data and other valuation techniques, as appropriate.  Unless
     otherwise  disclosed,  the fair value of short-term  financial  instruments
     approximates  their  recorded  values due to the  short-term  nature of the
     instruments.

     Revenue  Recognition and Deferred Revenue - The Company's  principal source
     of  revenue to date has been from  contracts  with  various  pharmaceutical
     companies and managed care  organizations for the development and operation
     of disease  management  programs for chronic diseases,  disease  management
     programs and other health care information  system  applications.  Deferred
     revenue  represents  amounts  billed in advance  of  delivery  under  these
     contracts.

     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.

     Licenses - Revenue  derived from software  license fees is recognized  when
     the criteria  established by Statement of Position 97-2,  Software  Revenue
     Recognition,   is   satisfied.   License  fees   associated   with  hosting
     arrangements  (e.g.  arrangements that include the right of the customer to
     use the software stored on the Company's hardware),  are recognized ratably
     over the hosting period when such fees are fixed and determinable.  Hosting
     fees with payment terms  extending past one year are recognized as payments
     become due.

     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.

     The Company operates in only one business segment and its current contracts
     are concentrated in a small number of customers,  consequently, the loss of
     any one of its  customers  could  have a  material  adverse  effect  on the
     Company and its operations.  During the years ended December 31, 2001, 2000
     and 1999,  approximately  $955,931 (60%),  $1,030,139  (48%) and $1,200,841
     (34%) respectively, of the Company's revenues arose from contracts with two
     customers.  At December  31,  2001 and 2000, accounts  receivable  included
     balances of $210,829 and $164,920,  respectively, from contracts with these
     customers.

     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.

     The Company regularly  assesses all of its long lived assets for impairment
     and  recognizes a loss when the carrying value of an asset exceeds its fair
     value.  The Company  determined  that no impairment loss need be recognized
     for applicable assets in 2000, 1999 or 1998.

     Intangible Assets - Intangible  assets represent the intellectual  property
     (i.e.:  tradenames,  trademarks,  licenses and brand names)  acquired  from
     HealthDesk  Corporation  (see Note 8) which is being amortized over 4 years
     using the  straight-line  method. On April 1, 2000, the Company changed the
     useful life from 15 years to 4 years.

     Debt  Issuance  Costs  - Debt  issuance  costs  are  amortized,  using  the
     straight-line method over the term of the line of credit.

     Research and Development - Research and  development  costs are expensed as
     incurred.

     Income Taxes - 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 - The  calculations  for the basic and diluted  loss per
     share were based on loss available to common  stockholders of $(4,555,305),
     $(6,656,706)  and  $(7,618,174)  and a  weighted  average  number of common
     shares  outstanding  of  9,770,501,  8,135,635  and 8,032,533 for the years
     ended December 31, 2001,  2000 and 1999  respectively.  The  computation of
     fully  diluted  loss per  share  for  2001,  2000 and 1999 did not  include
     2,037,540,  2,126,880 and 1,318,880  shares of common stock,  respectively,
     which consist of  outstanding  convertible  preferred  shares,  options and
     warrants  because the effect would be  antidilutive  due to the net loss in
     those years.

     Retirement  Plan - The Company has a retirement  plan that 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 2001, 2000 and 1999.

     Statement of Financial  Accounting  Standards ("SFAS") No. 133 - On January
     1, 2001, the Company adopted  Statement of Financial  Accounting  Standards
     ("SFAS")  No.  133,  Accounting  for  Derivative  Instruments  and  Hedging
     Activities. The Company did not identify any derivatives that meet criteria
     for a  derivative  instrument  and  does  not  participate  in any  hedging
     activities.  As a result,  there was no  material  effect on the  Company's
     consolidated  financial  statements resulting from the adoption of SFAS No.
     133 in 2001.

     Statement of Financial  Accounting  Standards ("SFAS") No. 142 -On June 29,
     2001, SFAS No. 142,  "Goodwill and Other  Intangible  Assets" was issued by
     the  FASB.  SFAS No.  142  changes  the  accounting  for  goodwill  from an
     amortization  method  to  an  impairment-only  approach.   Amortization  of
     goodwill,  including goodwill recorded in past business combinations,  will
     cease upon  adoption  of this  statement.  The Company is required to adopt
     SFAS No. 142 on January 1, 2002 and has not determined the impact,  if any,
     that this standard will have on its consolidated financial statements.

     Statement of  Financial  Accounting  Standards("SFAS")  144  establishes  a
     single  accounting  model for the  impairment  or  disposal  of  long-lived
     assets, including discontinued operations. SFAS No. 144 superseded SFAS No.
     121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to Be Disposed Of", and APB Opinion No. 30,  "Reporting  the Results
     of  Operations  -  Reporting  the  Effects  of  Disposal  of a Segment of a
     Business, and Extraordinary,  Unusual and Infrequently Occurring Events and
     Transactions." The provisions of SFAS No. 144 are effective in fiscal years
     beginning  after December 15, 2001, with early adoption  permitted,  and in
     general are to be applied  prospectively.  The Company does not believe the
     adoption of this standard  will have a significant  impact on the Company's
     consolidated financial position, results of operations or cash flows.

     Reclassifications  - Certain prior years amounts have been  reclassified to
     conform with 2001 presentations.


2.   PROPERTY AND EQUIPMENT

     Property and equipment are summarized as follows at December 31:


<TABLE>
<CAPTION>
                                                         2001               2000

<S>                                                    <C>                <C>
           Computer software                           $ 663,887          $ 663,353
           Computer equipment                          1,160,978          1,156,264
           Telephone equipment                           362,887            362,887
           Leasehold improvements                         41,504             41,504
           Office furniture and equipment                354,329            354,329
                                                 ----------------------------------
                                                       2,583,585          2,578,337

           Less accumulated depreciation               2,085,113          1,751,287
                                                 ----------------------------------
           Property and equipment, net                 $ 498,472          $ 827,050
                                                 ==================================
</TABLE>

3.   Debt

     Line of  Credit  - In  December  1999,  the  Company  established  a credit
     facility for $1,500,000  guaranteed by Derace  Schaffer and John Pappajohn,
     two directors of the Company.  In consideration for their  guarantees,  the
     Company granted to Dr. Schaffer and Mr.  Pappajohn  warrants to purchase an
     aggregate of 375,000 shares of common stock for $1.5625 per share. In March
     2000, the facility was increased by $1,000,000 under substantially the same
     terms and also  guaranteed by the same Board  members  resulting in a total
     amount due of  $2,500,000  as of  December  31,  2001 and 2000.  Additional
     warrants to purchase an  aggregate  of 250,000  shares of Common  Stock for
     $2.325 per share,  were granted to Dr. Schaffer and Mr. Pappajohn for their
     guarantee of this additional line of credit. The fair value of the warrants
     are included in the debt issuance  costs in the  accompanying  consolidated
     balance sheets. The value ascribed to the warrants granted in 1999 and 2000
     were  calculated  based on the  application  of the  Black  Scholes  option
     pricing model which incorporates current stock price,  expected stock price
     volatility, expected interest rates, and the expected holding period of the
     warrant.

     On March 28, 2001, the Company  entered into an Amended and Restated Credit
     Agreement with Wells Fargo Bank Iowa,  N.A., which extended the term of the
     Company's  credit facility to March 31, 2002 under  substantially  the same
     terms.  Dr.  Schaffer  and Mr.  Pappajohn  guaranteed  this  extension.  In
     consideration for their guarantees,  the Company re-priced 625,000 warrants
     previously  granted in connection with prior guarantees to $0.05 per share,
     effective  April 1, 2001.  The fair value of these  re-priced  warrants was
     $35,735,  which was recorded as a debt  issuance  cost and a  corresponding
     increase to  additional  paid-in  capital.  The fair value of the re-priced
     warrants was determined using the Black Scholes method.

     On March, 28 2002 this line of credit was amended and is due and payable on
     March 31, 2003. Accordingly, the amount outstanding at December 31, 2001 is
     reported as a long-term liability in the accompanying  consolidated balance
     sheets.  Interest  is due and payable at note  maturity at a floating  rate
     based upon  LIBOR  plus 1.75%  (effective  rate at  December  31,  2001 was
     3.65375%).  There is a  commitment  fee of 0.25% per  annum on the  average
     daily unused  amount of the line of credit to be paid  quarterly in arrears
     beginning June 30, 2002. The line of credit is secured by substantially all
     of the Company's assets.

     Borrowings from directors - In 2001, the Company  borrowed  $2,736,500 from
     Mr.   Pappajohn,   bringing  the  total  borrowed  from  Mr.  Pappajohn  to
     $3,560,000.  Proceeds  from these loans were used to support the  Company's
     operations.  The interest on these loans is 9.5% per year.  The Company has
     borrowed an additional $416,000 from Mr. Pappajohn subsequent to January 1,
     2002.

     The Company has not borrowed any  additional  amounts from Dr.  Schaffer in
     2001. The total borrowed from Dr. Schaffer is $347,500. Proceeds from these
     loans were used to support the Company's  operations.  The interest on this
     loan is 9.5% per year.

     The loans from Mr.  Pappajohn and Dr.  Schaffer are demand notes that total
     $3,907,500  as of  December  31,  2001 and are secured by the assets of the
     Company.

     On June 6,  2001,  the  Company  issued  a total  of  2,319,156  shares  of
     unregistered common stock to Mr. Pappajohn and Dr. Schaffer as compensation
     for their  continued  financial  support of the Company.  Based upon recent
     trading of the Company's common stock at the time of issuance,  the Company
     assigned a fair market value of $0.15 per share or a total of $347,873,  to
     these  unregistered  shares  and  recognized  this  amount as an  operating
     expense during the year ended December 31, 2001.

4.   INCOME TAXES

     Income tax expense for the years ended  December  31,  2001,  2000 and 1999
     were: $0, $13,422 and $36,361, respectively.  These amounts represent state
     and local income taxes only and are included in general and  administrative
     expenses in the accompanying consolidated statements of operations.

     Income tax expense for the years ended  December 31 differed  from the U.S.
     federal income tax rate of 34% as a result of the following:


<TABLE>
<CAPTION>
                                                                  2001             2000             1999

<S>                                                         <C>              <C>              <C>
     Computed "expected" tax benefit                        $ (1,518,203)    $ (2,050,624)    $ (2,577,816)

     Change in the valuation allowance
         for deferred tax assets                               1,795,000        2,435,000        3,148,000

     State and local income taxes at statutory rates,
         net of federal income tax benefit                      (267,918)        (372,069)        (450,360)

     Other, net                                                   (8,879)           1,115          (83,463)
                                                            ------------------------------------------------
                                                                $   -            $ 13,422         $ 36,361
                                                            ------------------------------------------------
</TABLE>

<PAGE>

     The tax  effects of  temporary  differences  that give rise to  significant
     portions  of the  deferred  income  tax  assets  and  deferred  income  tax
     liabilities at December 31, are presented below.

<TABLE>
<CAPTION>
     Deferred income tax assets:                            2001             2000

     Accounts receivable, principally due
<S>                                                    <C>              <C>
       to allowance for doubtful accounts                 $ 15,000         $ 19,000
     Deferred revenue                                       49,000           64,000
     Compensation                                           31,000           30,000
     Net operating loss carryforwards                   11,975,000       10,220,000
     Tax credit carryforwards                               75,000           75,000
     Other                                                  37,000           12,000
                                                      ------------------------------
          Total gross deferred income tax assets        12,182,000       10,420,000

          Less valuation allowance                     (12,089,000)     (10,294,000)
                                                      ------------------------------

          Net deferred income tax assets                    93,000          126,000
                                                      ------------------------------
     Deferred income tax liabilities:

     Property and equipment, principally due to
       differences in depreciation and amortization        (68,000)         (91,000)
     Other                                                 (25,000)         (35,000)
                                                      ------------------------------
          Total gross deferred income tax liability        (93,000)        (126,000)
                                                      ------------------------------
          Net deferred income taxes                       $   -            $   -
                                                      ------------------------------
</TABLE>

     Management of the Company has evaluated the available evidence about future
     taxable  income and other  possible  sources of realization of deferred tax
     assets. The valuation  allowance reduces deferred tax assets to zero, which
     represents  management's  best  estimate of the amount of such deferred tax
     assets that more likely than not will be realized.

     At December 31, 2001 the Company has net operating loss  carryforwards  for
     federal  income  tax  purposes  of  approximately  $29,983,000,  which  are
     available to offset future federal taxable  income,  if any, which begin to
     expire in 2010. The Company also has  investment  tax credit  carryforwards
     for  federal  income  tax  purposes  of  approximately  $75,000,  which are
     available to reduce future  federal  income taxes,  if any,  which begin to
     expire in 2010.

5.   PREFERRED STOCK

     On March 31,  2000,  the Company  completed a private  placement of 100,000
     shares of newly issued Series C 9% Cumulative  Convertible  Preferred Stock
     ("Series C"),  raising  $1,000,000 in total  proceeds.  These shares can be
     converted at any time by the holder into Common Stock at a rate of 8 shares
     of Common Stock to 1 share of Series C Preferred Stock. Each Series C share
     has voting rights equivalent to 8 shares of Common Stock (800,000 shares).

     The fair market value of the Company's Common Stock at the time of issuance
     of Series C Stock was  $1.9375 per share.  The Series C Preferred  Stock is
     convertible  as a price equal to $1.25 per share of Common Stock  resulting
     in a discount,  or beneficial conversion feature, of $0.6875 per share. The
     incremental  fair  value of  $550,000  for the  100,000  shares of Series C
     Preferred  issued is  deemed  to be the  equivalent  of a  preferred  stock
     dividend.  The Company recorded the deemed dividend at the date of issuance
     by  offsetting  charges  and  credits  to  additional  paid-in  capital  of
     $550,000,  without any effect on total  stockholders'  equity. In addition,
     the Company has accrued $157,500 in dividend expense,  which was payable to
     the Series C stockholders on March 31, 2002.

6.   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 SFAS No. 123,
     "Accounting for Stock-Based  Compensation".  No compensation  cost has been
     recognized  for the Stock Option Plan as it relates to employees  since the
     exercise price of the options on the date of grant approximated fair market
     value.  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 share  would  have  been  increased  to the pro forma  amounts
     indicated below:


<TABLE>
<CAPTION>
                                                 2001                 2000                 1999

     Net loss attributable to common
<S>                                        <C>                  <C>                  <C>
     shareholders - as reported            $ (4,555,305)        $ (6,656,706)        $ (7,618,174)

     Net loss - pro forma                  $ (4,992,091)        $ (6,929,601)        $ (7,921,103)

     Net loss per share - basic
       and diluted - as reported                $ (0.47)             $ (0.82)             $ (0.95)

     Net loss per share - basic
       and diluted - pro forma                  $ (0.51)             $ (0.85)             $ (0.99)
</TABLE>

     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
     rates of 4.71% for the year ended  December  31,  2001,  5.28% for the year
     ended  December 31, 2000 and 5.89% for year ended  December 31, 1999 and an
     expected life of 7 years. The Company has used a volatility  factor of 1.24
     for the year ended December 31, 2001,  1.33 for the year ended December 31,
     2000 and .74 for year ended  December 31,  1999.  For purposes of pro forma
     disclosure, the estimated fair value of each option is amortized to expense
     over that option's vesting period.

<PAGE>

     The Stock  Option Plan  authorizes  1,680,000  shares of common stock to be
     issued.  On May 2, 2000, the Company filed a Form S-8  registering  all the
     Stock Option Plan shares. 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  Committee  shall fix the terms of the grants  with no option
     term lasting  longer than ten years.  The ability to exercise  such options
     shall  be  determined  by the  Committee  when  the  options  are  granted.
     Generally,  outstanding  options  vest at the rate of 20% per year.  During
     2001,  some grants had a portion of the options vest  immediately  with the
     balance of the options vesting at a rate of 20% per year.

     A summary of stock option activity follows:


<TABLE>
<CAPTION>
                                                                    Outstanding    Weighted-Average
                                                                      Options       Exercise Price

<S>                                                                  <C>                <C>
     Options outstanding at December 31, 1998                          867,920          $ 0.91

     Options granted during the year ended December 31, 1999
       (weighted average fair value of $2.05)                          695,100          $ 2.05

     Options forfeited by holders during the year
       ended December 31, 1999                                        (246,300)         $ 1.65

     Options exercised during the year ended December 31, 1999         (12,960)         $ 0.14
                                                                    -----------
     Options outstanding at December 31, 1999                        1,303,760          $ 1.39

     Options granted during the year ended December 31, 2000
       (weighted average fair value of $1.44)                          387,000          $ 1.44

     Options forfeited by holders during the year
       ended December 31, 2000                                        (808,880)         $ 1.78

     Options exercised during the year ended December 31, 2000        (180,000)         $ 0.14
                                                                    -----------
     Options outstanding at December 31, 2000                          701,880          $ 1.28

     Options granted during the year ended December 31, 2001
       (weighted average fair value of $0.18)                          536,500          $ 0.19

     Options forfeited by holders during the year
       ended December 31, 2001                                         (40,840)         $ 1.83

     Options exercised during the year ended December 31, 2001            -
                                                                    -----------
     Options outstanding at December 31, 2001                        1,197,540          $ 0.77
                                                                    -----------
     Options exercisable at December 31, 2001                          663,300          $ 0.57
                                                                    -----------
     Options available for grant at December 31, 2001                  219,780
                                                                    -----------
</TABLE>

<PAGE>

     The following  table  summarizes  information  concerning  outstanding  and
     exercisable options at December 31, 2001:


<TABLE>
<CAPTION>
                                   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

<S>     <C>               <C>              <C>         <C>           <C>            <C>
         $.14 - $.99       827,500         7.13         $ .28        519,000        $ 0.27

        $1.00 - $1.99      148,940         6.06        $ 1.48         94,900        $ 1.41

        $2.00 - $2.75      221,100         6.86        $ 2.11         49,400        $ 2.16
                         -----------                               ----------
                          1,197,540                                  663,300
                         ===========                               ==========
</TABLE>

     The Company also has  outstanding  stock  purchase  warrants  entitling the
     holders to purchase a total of 40,000  shares of common stock at a price of
     $0.1875 per share (weighted  average exercise price). At December 31, 2001,
     all of these warrants are currently vested.

7.   COMMITMENTS

     The  Company  leases  office  space  for  its  operating  facilities  under
     operating  lease  agreements  that expire at varying dates  through  August
     2002.  Rent  expense  under  these  operating  leases  for the years  ended
     December  31,  2001,  2000 and 1999 was  $136,045,  $189,648  and  $302,194
     respectively.

     At December 31, 2001,  future  minimum lease payments under these leases is
     $47,731

8.   ACQUISITION

     On February 28, 1999, the Company,  through its newly formed,  wholly-owned
     subsidiary,  Patient Infosystems  Acquisition Corp., acquired substantially
     all the assets of HealthDesk  Corporation,  a consumer  healthcare software
     company  primarily  engaged in the  business of  designing  and  developing
     Internet-based products in the healthcare,  wellness and disease management
     industries.  The acquired assets include inventory,  intellectual property,
     hardware and  software.  The  consideration  paid for the  transaction  was
     $761,463 in cash.  The  acquisition  was  accounted  for using the purchase
     method of accounting.  The purchase  price was allocated  based on the fair
     value of the assets  purchased.  The results of  operations  of  HealthDesk
     Corporation  for the full year of 1999 are not  material  to the  Company's
     consolidated financial statements.

9.   QUARTERLY RESULTS (UNAUDITED)

     The following is a summary of the unaudited  interim  results of operations
     by quarter:


<TABLE>
<CAPTION>
                                                        First          Second           Third          Fourth
     ----------------------------------------------------------------------------------------------------------
     Year ended December 31, 2001:
<S>                                                  <C>             <C>             <C>              <C>
     Revenues                                         $ 400,027       $ 357,967       $ 353,612      $ 474,837
     Gross margin                                      (307,265)       (255,450)       (223,288)       (47,705)
     Net loss                                        (1,215,893)     (1,337,559)     (1,221,361)      (690,492)
     Net loss attributable to common shareholders    (1,238,393)     (1,360,059)     (1,243,861)      (712,992)
     Net loss per common share                            (0.15)          (0.15)          (0.11)         (0.06)
     Year ended December 31, 2000:
     Revenues                                         $ 600,580       $ 598,740       $ 433,550      $ 506,392
     Gross margin                                      (565,482)       (444,784)       (460,572)      (295,910)
     Net loss                                        (1,634,906)     (1,628,371)     (1,510,767)    (1,265,162)
     Net loss attributable to common shareholders    (2,184,906)     (1,650,871)     (1,533,267)    (1,287,662)
     Net loss per common share                            (0.27)          (0.20)          (0.19)         (0.16)
</TABLE>

<PAGE>

                                    PART III


Item 10. Directors and Executive Officers of the Registrant.

     Incorporated  by reference to the Company's  Proxy Statement for its Annual
Meeting of Stockholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the year ended December 31, 2001.

Item 11. Executive Compensation.

Director Compensation

     Incorporated  by  reference to the  Company's  Proxy  Statement  for Annual
Meeting of Stockholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the year ended December 31, 2001.

Executive Compensation

     Incorporated  by  reference to the  Company's  Proxy  Statement  for Annual
Meeting of Stockholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the year ended December 31, 2001.

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

     Incorporated  by  reference to the  Company's  Proxy  Statement  for Annual
Meeting of Stockholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the year ended December 31, 2001.

Item 13. Certain Relationships and Related Transactions

     Incorporated  by  reference to the  Company's  Proxy  Statement  for Annual
Meeting of Stockholders to be filed with the Securities and Exchange  Commission
within 120 days after the close of the year ended December 31, 2001.

                                    PART IV

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

(a)  (1)  Financial Statements:

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

     (2)  Financial Statement Schedules:

     Schedule II Valuation and Qualifying Accounts

     All other financial  statements  schedules are omitted because they are not
     applicable  or the  required  information  is  shown  in  the  consolidated
     financial statements.

(b)      Reports on Form 8 - K:

     No  reports on Form 8-K were  filed  during the fourth  quarter of the year
     ended December 31, 2001.



<PAGE>


(c)  Exhibits:

Exhibit # Description of Exhibits

(3)  Articles of Incorporation and By-Laws:

3.1  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.

3.3  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.

(4)  Instruments defining the rights of holders, incl. Indentures:

4.1  Patient   Infosystems,   Inc.   Amended  and  Restated  Stock  Option  Plan
     Incorporated  herein by reference from Exhibit 4.1 on Form S-8 Registration
     Statement of the Company, filed with the Commission on May 2, 2000.

4.4  Certificate   of   Designations,    Powers,   Preferences   and   Relative,
     Participating,  Optional or Other Special Rights,  and the  Qualifications,
     Limitations Thereof of the Series C Preferred Stock of Patient InfoSystems,
     Inc. -  Incorporated  herein by reference  from Exhibit  10.44 on Form 10-K
     2000 Annual  Report of the Company,  filed with the  Commission on April 1,
     2001.

(10) Material contracts:

10.15    Asset Purchase Agreement dated as of September 29, 1998 among Patient
         Infosystems Acquisition Corp., the Company and HealthDesk Corporation.
         Incorporated herein by reference from Exhibit 10.15 on Form 10-K 1998
         Annual Report of the Company, filed with the Commission on April 13,
         1999.

10.16    Amendment to Asset Purchase Agreement dated as of December 1, 1998
         among Patient Infosystems Acquisition Corp., the Company and HealthDesk
         Corporation. Incorporated herein by reference from Exhibit 10.16 on
         Form 10-K 1998 Annual Report of the Company, filed with the Commission
         on April 13, 1999.

10.17    Second Amendment to Asset Purchase Agreement dated as of February 1,
         1999 among Patient Infosystems Acquisition Corp., the Company and
         HealthDesk Corporation. Incorporated herein by reference from Exhibit
         10.17 on Form 10-K 1998 Annual Report of the Company, filed with the
         Commission on April 13, 1999.

10.19    Consulting Agreement dated as of March 8, 1999 between the Company and
         John V. Crisan. Incorporated herein by reference from Exhibit 10.19 on
         Form 10-K 1998 Annual Report of the Company, filed with the Commission
         on April 13, 1999.

10.20    Lease Agreement dated as of February 22, 1995 between the Company and
         Conifer Prince Street Associates. Incorporated herein by reference from
         Exhibit 10.20 on Form 10-K 1998 Annual Report of the Company, filed
         with the Commission on April 13, 1999.

10.21    First Addendum to Lease Agreement dated as of August 22, 1995 between
         the Company and Conifer Prince Street Associates. Incorporated herein
         by reference from Exhibit 10.21 on Form 10-K 1998 Annual Report of the
         Company, filed with the Commission on April 13, 1999.

10.22    Second Addendum to Lease Agreement dated as of November 17, 1995
         between the Company and Conifer Prince Street Associates. Incorporated
         herein by reference from Exhibit 10.22 on Form 10-K 1998 Annual Report
         of the Company, filed with the Commission on April 13, 1999.

10.23    Third Addendum to Lease Agreement dated as of March 28, 1996 between
         the Company and Conifer Prince Street Associates. Incorporated herein
         by reference from Exhibit 10.23 on Form 10-K 1998 Annual Report of the
         Company, filed with the Commission on April 13, 1999.

10.24    Fourth Addendum to Lease Agreement dated as of October 29, 1996 between
         the Company and Conifer Prince Street Associates.  Incorporated  herein
         by reference from Exhibit 10.24 on Form 10-K 1998 Annual Report  of the
         Company, filed with the Commission on April 13, 1999.

10.25    Fifth Addendum to Lease Agreement dated as of November 30, 1996 between
         the Company and Conifer Prince Street Associates. Incorporated herein
         by reference from Exhibit 10.25 on Form 10-K 1998 Annual Report of the
         Company, filed with the Commission on April 13, 1999.

10.26    Sixth Addendum to Lease Agreement dated as of November 24, 1997 between
         the Company and Conifer Prince Street Associates. Incorporated herein
         by reference from Exhibit 10.26 on Form 10-K 1998 Annual Report of the
         Company, filed with the Commission on April 13, 1999.

10.30    Seventh Addendum to Lease Agreement dated as of June 16, 1999 between
         the Company and Conifer Prince Street Associates. Incorporated herein
         by reference from Exhibit 10.30 on Form 10-K 1999 Annual Report of the
         Company, filed with the Commission on March 31, 2000.

10.31    Lease Agreement dated as of July 2, 1999 between the Company and Cadena
         Properties Limited. Incorporated herein by reference from Exhibit 10.31
         on Form 10-K 1999 Annual Report of the Company, filed with the
         Commission on March 31, 2000.

10.32    Lease Agreement dated as of August 1, 1999 between the Company and
         Michele M. Hoey and John E. Hoey. Incorporated herein by reference from
         Exhibit 10.32 on Form 10-K 1999 Annual Report of the Company, filed
         with the Commission on March 31, 2000.

10.33    Revolving Note dated as of December 23, 1999 between the Company and
         Norwest Bank Iowa, National Association. Incorporated herein by
         reference from Exhibit 10.33 on Form 10-K 1999 Annual Report of the
         Company, filed with the Commission on March 31, 2000.

10.34    Credit Agreement dated as of December 23, 1999 between the Company and
         Norwest Bank Iowa, National Association. Incorporated herein by
         reference from Exhibit 10.34 on Form 10-K 1999 Annual Report of the
         Company, filed with the Commission on March 31, 2000.

10.35    Security Agreement dated as of December 23, 1999 between the Company
         and Norwest Bank Iowa, National Association. Incorporated herein by
         reference from Exhibit 10.35 on Form 10-K 1999 Annual Report of the
         Company, filed with the Commission on March 31, 2000.

10.36    Arbitration Agreement dated as of December 23, 1999 between the Company
         and Norwest Bank Iowa, National Association. Incorporated herein by
         reference from Exhibit 10.36 on Form 10-K 1999 Annual Report of the
         Company, filed with the Commission on March 31, 2000.

10.37    Financing Statement executed by the Company and Norwest Bank Iowa,
         National Association. Incorporated herein by reference from Exhibit
         10.37 on Form 10-K 1999 Annual Report of the Company, filed with the
         Commission on March 31, 2000.

10.38    First Amendment to Credit Agreement dated as of March 21, 2000 between
         the Company and Norwest Bank Iowa, National Association. Incorporated
         herein by reference from Exhibit 10.38 on Form 10-K 1999 Annual Report
         of the Company, filed with the Commission on March 31, 2000.

10.39    Note Modification Agreement dated as of March 21, 2000 between the
         Company and Norwest Bank Iowa, National Association. Incorporated
         herein by reference from Exhibit 10.39 on Form 10-K 1999 Annual Report
         of the Company, filed with the Commission on March 31, 2000.

10.41    Form of Subscription Agreement - Dated on or about March 31, 2000
         between the Company and John Pappajohn, Derace Schaffer, Gerald Kirke
         and Michael Richards for Series C 9% Cumulative Convertible Preferred
         Stock. Incorporated herein by reference from Exhibit 10.41 on Form 10-K
         2000 Annual Report of the Company, filed with the Commission on April
         1, 2001.

10.42    Form of Registration Rights Agreement - Dated on or about March 31,
         2000 between the Company and John Pappajohn, Derace Schaffer, Gerald
         Kirke and Michael Richards for Series C 9% Cumulative Convertible
         Preferred Stock. Incorporated herein by reference from Exhibit 10.42 on
         Form 10-K 2000 Annual Report of the Company, filed with the Commission
         on April 1, 2001.

10.43    Eighth  Addendum  to Lease  Agreement  dated as of December 8, 2000
         between  the Company and Conifer  Prince  Street Associates.
         Incorporated  herein by  reference  from Exhibit  10.43 on Form 10-K
         2000 Annual  Report of the Company, filed with the Commission on
         April 1, 2001.

10.44    Termination of Lease Agreement - Dated of January 24, 2001 between the
         Company and Michele M. Hoey and John E. Hoey. Incorporated herein by
         reference from Exhibit 10.44 on Form 10-K 2000 Annual Report of the
         Company, filed with the Commission on April 1, 2001.

10.45    Amended and Restated Credit Agreement - dated as of March 28, 2001
         between the Company and Wells Fargo Bank Iowa, National Association.
         Incorporated herein by reference from Exhibit 10.45 on Form 10-K 2000
         Annual Report of the Company, filed with the Commission on April 1,
         2001.

10.46    Revolving Note - dated as of March 28, 2001 between the Company and
         Wells Fargo Bank Iowa, National Association. Incorporated herein by
         reference from Exhibit 10.46 on Form 10-K 2000 Annual Report of the
         Company, filed with the Commission on April 1, 2001.

10.47    Form of Promissory  Notes payable to Dr. Schaffer and Mr.  Pappajohn.
         Incorporated  herein by reference from Exhibit 10.47 on Form 10-K 2000
         Annual Report of the Company, filed with the Commission on
         April 1, 2001.

10.48    Form of Security Agreements with Dr. Schaffer and Mr. Pappajohn.
         Incorporated herein by reference from Exhibit 10.48 on Form 10-K 2000
         Annual Report of the Company, filed with the Commission on
         April 1, 2001.

10.49    Ninth Addendum to Lease Agreement dated as of January 7, 2002  between
         the  Company and Conifer Prince Street Associates.

10.50    Letter of Agreement dated as of March 27, 2002 between the Company,
         John Pappajohn and Derace Schaffer.

10.51    Second  Amended and Restated  Credit  Agreement - dated as of
         March 28, 2002 between the Company and Wells Fargo Bank Iowa, National
         Association.

10.52    Revolving Note - dated as of March 28, 2002 between the Company and
         Wells Fargo Bank Iowa, National Association.

10.53    Security Agreement - dated as of March 28, 2002 between the Company and
         Wells Fargo Bank Iowa, National Association.


(21)              Subsidiaries

<TABLE>
<CAPTION>
                                         EXHIBIT 21
                                        Subsidiaries

Name                                        Jurisdiction            Trade Name of Organization
---------------------------------      -----------------------      --------------------------------

<S>                                       <C>                       <C>
PATI Acquisition Corp.                        Delaware              PATI Acquisition Corp.

Patient Infosystems Canada, Inc.          Ontario, Canada           Patient Infosystems Canada, Inc.
</TABLE>


<PAGE>


(23)     Consents of experts and counsel

23.4     Consent of Deloitte & Touche LLP - Consent dated April 8, 2002, to
         incorporate by reference the 2001 consolidated financial statements and
         notes thereto into the Form S-8 registration for the employee stock
         option plan filed with the Commission on May 2, 2000.

Schedule II
<TABLE>
<CAPTION>
                                                       Patient InfoSystems, Inc.
                                                   Valuation and Qualifying Accounts
                                          For the Years Ended December 31, 2001, 2000 and 1999

                                           Balance at                                         Balance at
                                           Beginning                                            End of
                                            of Year         Additions        Deductions          Year
Allowance for Doubtful Accounts:
<S>                               <C>   <C>              <C>                   <C>           <C>
                                  2001      $ 48,122        $ 15,447           $ 26,352          $ 37,217
                                  2000      $ 50,000        $ 92,852           $ 94,730          $ 48,122
                                  1999      $ 50,000            -                  -             $ 50,000

Deferred Tax Assets Valuation
  Allowance:
                                  2001  $ 10,294,000     $ 1,795,000               -         $ 12,089,000
                                  2000   $ 7,859,000     $ 2,435,000               -         $ 10,294,000
                                  1999   $ 4,711,000     $ 3,148,000               -          $ 7,859,000
</TABLE>

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.

<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/ Roger L. Chaufournier                      April 8, 2002
        --------------------------------------------------  -------------
         Roger L. Chaufournier                              Date
         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/ Roger L. Chaufournier                       April 8, 2002
        --------------------------------------------------   -------------
         Roger L. Chaufournier                               Date
         Director, President and Chief Executive Officer
         (Principal Executive Officer)

By:          /s/ Kent A. Tapper                              April 8, 2002
        --------------------------------------------------   -------------
         Kent A. Tapper                                      Date
         Vice President Financial Planning
         (Principal Financial and Accounting Officer)

By:          /s/ Derace L. Schaffer, M.D.                    April 8, 2002
        --------------------------------------------------   -------------
         Derace L. Schaffer, M.D.                            Date
         Chairman of the Board


By:          /s/ John Pappajohn                              April 8, 2002
        --------------------------------------------------   -------------
         John Pappajohn                                      Date
         Director