<PAGE>   1

                                    FORM 10-K
              ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
                OR 15(d) FOR THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the fiscal year ended   December 31, 1999
                          ------------------------------------------------------

                                       or

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

For the transition period from_________________________to_______________________

Commission file number        0-22319
                      ----------------------------------------------------------

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

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

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

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

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

     Title of each class registered               Name of each exchange on which
                                                               registered
                                                               None
     ------------------------------               ------------------------------

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

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

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

         As of February 29, 2000, 8,040,202 shares of common stock were
outstanding, and the aggregate market value of the common shares of Patient
Infosystems, Inc. held by non-affiliates was approximately $10 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders to be filed prior to April 30, 2000 are incorporated by reference
in Part III.

                                       1

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                                     PART I

Item 1. DESCRIPTION OF BUSINESS.

General
-------

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

         Patient Infosystems provides patient-centered health care information
systems and services to manage, collect and analyze information to improve
patient compliance with prescribed treatment protocols, to improve the process
of off-site patient management and to enhance patient and provider information.
The Company's technology platform integrates an advanced voice recognition
telephone system, high-speed data processing and analysis capability, and demand
publishing and information distribution capabilities and utilizes the Internet
and Internet technologies. The system utilizes trained telephone operators and
computerized interactive voice response technology and behavior modification
based treatment to communicate via telephone directly with the patient at home
in order to gather relevant patient data. This data is subsequently evaluated
and automatically transmitted via computer generated reports to health care
payors, providers and patients, with these reports being tailored to the
specific needs of each recipient. The Company markets its services to
pharmaceutical manufacturers, pharmacy benefit managers ("PBMs") and health care
payors, such as managed care organizations ("MCOs"), integrated delivery
networks ("IDNs") and insurance companies and health care providers, to collect
data outside of the physician office and institutional setting to enhance
compliance by patients with prescribed treatment protocols. The Company`s
systems may also be used to address the full spectrum of health care information
needs with respect to care quality, patient satisfaction and patient and
provider education.

         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 during 1997. However, during 1998 and 1999, the Company
devoted increased resources to the development of other applications of its
technology platform, including demand management, patient surveys, outcomes
analysis and Internet-based capabilities.

Recent Developments
-------------------

         Since January 2000, the Company has accepted the resignations of Neal
Westermeyer, Chief Operating Officer; John V. Crisan, Chief Financial Officer;
and Dr. David B. Nash, a member of the Company's Board of Directors. None of the
foregoing individuals cited any disputes with the Company and all such
individuals have indicated that their reasons for departing from the Company
were personal.

         As of the close of business on March 30, 2000, Donald A. Carlberg, the
Company's Chief Executive Officer and President, will resign his position with
the Company and Roger Chaufournier has been appointed by the Board of Directors
to serve as Chief Executive Officer and President.

Information Capture, Delivery and Analysis Technologies Utilizing the Internet
------------------------------------------------------------------------------

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

         The Company's system analyzes and prepares the captured data for
automatic delivery to the payor, provider and patient using the 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 utilizes the information received
during contacts with the patient to further customize the content of the report.
The data relevant to the separate report for health care providers is formatted
in a customized report to be automatically transmitted via mail, fax or on-line.

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         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 improvements in such regimens can
be developed.

Internet Capabilities
---------------------

         On February 26, 1999, the Company, through its newly formed,
wholly-owned subsidiary, Patient Infosytems Acquisition Corp., 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 between
patients and their 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 monitor, on a
cost-effective basis, patient 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 recognized medical and clinical experts, the
Company develops a disease-specific patient intervention and compliance program
that includes a template for the integration of each patient's history, current
medical status and treatment protocol. The panel identifies guidelines for
generally accepted treatment protocols and diagnostic interventions for
particular diseases and then uses these guidelines to determine what information
is to be gathered from the patient.

         Second, when a patient is enrolled, a patient history is obtained,
including the histories of the chronic illness, medications, and surgical
procedures as well as other information deemed relevant by the disease-specific
compliance program. This information is included in the Company's database for
each patient and is used to create customized reports for distribution to 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 disease management programs are further supported by the
Company's demand publishing technology. This technology enables 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. And on a routine basis, the Company will also provide summary
information to the patient's health care payor with respect to patient progress
and activity.

                                       3

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Patient Infosystems Products
----------------------------

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

         -  "CareSense" disease management and compliance programs
         -  "ForeQuest" patient survey programs
         -  "Nurse 411" demand management programs
         -  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 customers, as well as standardized
disease management programs for a variety of customers. Each of the Company's
customer agreements for its customized programs provide for development fees to
be paid to the Company upon the achievement of certain milestones. In addition,
the agreements for customized disease 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. The Company
enrolled its first patients in a disease management program in October 1996, and
has enrolled more than 390,000 patients in those programs through the end of
1999.

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

         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 2000, the Company has had approximately 14,500 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
2000, the Company has had approximately 9,200 patients participate in the
programs.

         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 2000, the Company has had approximately 5,200 patients
participate in these programs.

                                       4

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         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 2000, 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 2000, approximately 800 patients have
participated in this program.

         Pharmaceutical Support Programs

         An area of growth for the Company in 1999 was custom programs sold to
pharmaceutical companies that are intended to add value to their operations. 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 2000, approximately
23,000 patients have participated in these programs. The majority of the
Company's development revenues in 1999 were realized from these programs.

         Additional Disease Targets

         The Company has identified additional opportunities in large chronic
disease markets, including the treatment of chronic obstructive pulmonary
disease, cancer, osteoporosis, depression, 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.


"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. The Company is currently providing
demand management to approximately 156,000 enrollees for Kentucky Medicaid, CHA
HMO, Inc., Health Right and McClellan Air Force Base.

"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, SF-12; child
health questionnaire; patient satisfaction; asthma; diabetes; back pain;
depression; maternity; and the Pra Plus for elderly populations. Through
February 2000, approximately 345,000 patients have participated in these survey
programs.

                                       5

<PAGE>   6


Internet-based products and services

         The Company's Case Management Support System ("CMSS") is an
Internet-based software product that is intended to be 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 2000, 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 information gathered from patients
enrolled in its programs to serve two purposes. First, information regarding
treatment results, success of the compliance program and patient reaction to
differing treatments or compliance protocols may be used by the Company to
further improve each disease-specific compliance program. Second, this
information may be used by payors, pharmaceutical companies and health care
providers to assist in the development of improved treatment modalities. The
Company has developed analytical methodologies using database management and
information technologies. The Company intends to use these data analysis
technologies to predict the best treatment methodologies for patients.

         Clinical Studies

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

                                       6

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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 companies, medical service
companies, Pharmacy Benefits Managers, health care payors and employer groups.
The Company currently employs a sales and marketing staff of four persons to
market the Company's systems. In addition, the senior members of the Company's
management are actively engaged in marketing the Company's programs.

         The Company has conducted patient surveys and clinical studies designed
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
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 and diabetes programs.


Research and Development
------------------------

         Research and development expenses consist primarily of salaries and
related benefits and administrative costs allocated to the Company's research
and development personnel for development of certain components of its
integrated information capture and delivery system, as well as development of
the Company's standardized disease state management programs. Research and
development 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 continue to decrease in future periods, as the
Company continues to expand its operations.

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

                                       7

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                                  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.

History of Operating Losses
---------------------------

         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.
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. There can
be no assurance that the Company will achieve recurring revenue or profitability
on a consistent basis or at all.

         In October 1996 the Company began enrolling patients in its first
disease state 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 2000, an aggregate of approximately
550,000 persons have been enrolled in Company 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.

Working Capital Shortfalls; Qualified Auditors' Opinion; Urgent Need for
------------------------------------------------------------------------
Working Capital
---------------

         The Company has never earned profits and has been dependent upon its
initial public offering and private placements of its equity securities, through
which the Company has raised over $20 million to date, to fund its working
capital requirements. The Company has incurred operating losses of not less than
$7.3 million during the year ended December 31, 1999 and had approximately
$400,000 in working capital at December 31, 1999. The Company has had to seek
private financing in order to continue its operations. Although the Company has
secured limited funds through a working capital credit line, it anticipates,
based on currently proposed plans and assumptions relating to its operations
that, with available resources, the Company's contemplated cash requirements
will be satisfied for no more than the first six months of calendar year 2000.
The Company is seeking additional capital. If it is unable to identify
additional sources of capital the Company could be required to curtail its
activities or 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
their uncertainty.


Failure to Satisfy Listing Requirements Under The Nasdaq National Market;
-------------------------------------------------------------------------
Potential Limited Trading Market; Possible Volatility of Stock Price; Potential
-------------------------------------------------------------------------------
Effects of "Penny Stock" Rules
------------------------------

         In order for the Company's Common Stock to continue to be quoted on The
Nasdaq National Market, it must have net tangible assets of at least $4 million.
As of December 31, 1999, the Company's net tangible assets were less than $4
million. Accordingly, the Company expects that its Common Stock may be delisted
from The Nasdaq National Market at any time. Nevertheless, the Company believes
that it will satisfy the continuing listing criteria can continue to be listed
on The Nasdaq Small Cap Market and if its shares are delisted from the Nasdaq
National Market, that its Common Stock may be listed for trading on the Nasdaq
Small Cap Market. No assurance can be given that the liquidity of the Common
Stock will not be adversely affected if it is traded on The Nasdaq Small Cap
Market ("Nasdaq"). In order to satisfy continued listed criteria on The Nasdaq
Small Cap Market, a company must have net tangible assets of at least $2
million.

         No assurance can be given that the Company's Common Stock will
maintain its listing on Nasdaq. If the failure to meet the maintenance criteria
results in the Company's Common Stock no longer being eligible for quotation on
Nasdaq, trading, if any, of the Common Stock would thereafter be conducted in
the non-Nasdaq over-the-counter market. As a result of such delisting, an
investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the Company's Common Stock. In addition,
if the Common Stock was to become delisted from trading on Nasdaq and the
trading price of the Common Stock was less than $5.00 per share, trading in the
Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and
impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage them from effecting transactions in the Common Stock, which could
severely limit the liquidity of the Common Stock and the ability to sell the
Common Stock in the secondary market.

         In the absence of an active trading market, purchasers of the Common
Stock may experience substantial difficulty in selling their shares. The trading
price of our Common Stock is expected to be subject to significant fluctuations
in response to variations in quarterly operating results, changes in analysts'
earnings estimates and other factors. In addition, the stock market is subject
to price and volume fluctuations that affect the market prices for companies and
that are often unrelated to operating performance.

Resignations of Certain Officers and a Director; New Management
---------------------------------------------------------------

         Since January 2000, the Company has accepted the resignations of Neal
Westermeyer, Chief Operating Officer; John V. Crisan, Chief Financial Officer;
and Dr. David B. Nash, a member of the Company's Board of Directors. None of the
foregoing individuals cited any disputes with the Company and all such
individuals indicated that their reasons for departing from the Company were
personal. As of the close of business on March 30, 2000, Donald A. Carlberg, the
Company's Chief Executive Officer and President, has resigned his position and
Roger Chaufournier has been appointed by the Board of Directors to serve as
Chief Executive Officer and President. In light of these resignations, the
Company has experienced a substantial change in management. It has appointed
Kent Tapper as its acting Chief Financial Officer and is actively seeking to
fill other management positions. 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.



                                       8

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Terminability of Agreements; Exclusivity Provisions
---------------------------------------------------

         The Company's current services agreements with its customers generally
may be terminated by those customers without cause upon notice of between 30 and
180 days. In addition, the Company has agreed not to engage or participate in
any project other than those under development for Bristol-Myers that involve
the development or implementation of a program similar to those developed for
Bristol-Myers for specified time periods (the "Exclusivity Periods"). In
general, at the completion of the Exclusivity Periods, Bristol-Myers has the
right to negotiate an exclusive arrangement for these disease state management
programs provided that a specified minimum number of patients have enrolled in
the programs or that it agrees to pay an exclusivity fee. Bristol-Myers has the
further right, in the event exclusive arrangements cannot be negotiated, to
match any bona fide offers made to the Company for disease state management
programs for these categories of patients for a period of time from the
conclusion of the Exclusivity Periods. These exclusivity provisions could
restrict the Company's ability to market its services to other customers. The
Company will charge its customers a per patient program fee; however, while
Bristol-Myers is required to enroll a minimum number of patients in the
congestive heart failure and weight enhancement programs, there are no such
requirements for any of the Company's other programs. 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 new services designed to link
patients, health care providers and payors in order to provide specialized
disease management services for targeted chronic diseases. 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.

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 state management system, will be dependent upon
the accuracy of information received from patients. The Company 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. 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 state 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.

                                       9

<PAGE>   10


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

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

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.

                                       10

<PAGE>   11

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 or nursing. There
can be no assurance, however, that the Company's operations will not be
challenged as constituting the unlicensed practice of medicine or nursing. If
such a challenge were made successfully in any state, the Company could be
subject to civil and criminal penalties under such state's law and could be
required to restructure its contractual arrangements in that state. Such results
or the inability to successfully restructure its contractual arrangements could
have a material adverse effect on the Company.

         The 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 may be adopted during 2000. 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

                                       11

<PAGE>   12

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
----------------------------------

         The Company's current contracts are concentrated in a small number of
customers, with several of the Company's most significant contracts being with
Bristol-Myers, Aetna U.S. HealthCare and Astra Zeneca. 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.

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 state 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 of its 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 44.5% 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 $10
million in the aggregate and per occurrence. There can be no

                                       12

<PAGE>   13

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.

Employees
---------

         As of February 29, 2000, the Company had 93 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 13,000 square feet of leased office space under an
operating lease that expires on December 31, 2000. The Company leases office
space for its Demand Management call center in Wayne, Pennsylvania in
approximately 2,047 square feet of leased office space under a lease agreement
that expires in May 2001. The Company also leases office space for its Internet
Technology Group in Paoli, Pennsylvania in approximately 5,000 square feet of
leased office space under a lease agreement that expires in August 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, 1999.

                                       13

<PAGE>   14


                                     PART II


Item 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS.

(a) Market Information

         The Company's common stock is traded on the NASDAQ National Market
System under the symbol "PATI". The following table sets forth, for the periods
indicated, the range of the high and low closing sale price for the Company's
Common Stock as reported on the NASDAQ National Market.

                                       HIGH              LOW
                                       ----              ---

       1998
       ----
       First Quarter                   $4.50             $2.63
       Second Quarter                  $5.00             $2.50
       Third Quarter                   $3.44             $1.81
       Fourth Quarter                  $1.88             $1.00

       1999
       ----
       First Quarter                   $2.81             $1.31
       Second Quarter                  $2.88             $2.13
       Third Quarter                   $3.00             $1.88
       Fourth Quarter                  $3.00             $1.38

(b) Holders

      The approximate record number of holders of the Company's common stock as
of February 29, 2000 is 80. However, the Company believes that there are in
excess of 750 beneficial holders of Common Stock of the Company.

(c) Dividends

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

                                       14

<PAGE>   15

Item 6. SELECTED FINANCIAL DATA.


<TABLE>
<CAPTION>

                                                                                                                    PERIOD FROM
                                                                                                                    FEB. 22, 1995
                                                                YEAR ENDED DECEMBER 31,                            (INCEPTION) TO
                                           ----------------------------------------------------------------------    DECEMBER 31,
                                               1999              1998              1997              1996               1995
                                               ----              ----              ----              ----               ----
Statement of Operations Data:

<S>                                       <C>               <C>               <C>               <C>               <C>
Revenues                                   $  3,545,207      $  2,344,072      $  2,062,373      $    845,412      $    113,000
                                           ------------      ------------      ------------      ------------      ------------

Costs and Expenses:
  Cost of Sales                               5,614,128         4,011,710         2,574,214           748,322           111,870
  Sales and Marketing                         2,445,425         1,929,525         1,853,224           913,547           375,384
  General and Administrative                  1,885,566         1,490,210         1,244,287         1,760,760           678,498
  Research and Development                      967,365           298,686           489,115           310,552            89,909
                                           ------------      ------------      ------------      ------------      ------------

    Total Costs and Expenses                 10,912,484         7,730,131         6,160,840         3,733,181         1,255,661
                                           ------------      ------------      ------------      ------------      ------------

Operating Loss                               (7,367,277)       (5,386,059)       (4,098,467)       (2,887,769)       (1,142,661)

Other Income (Expenses)                        (250,897)          556,592           835,116            81,333            26,009
                                           ------------      ------------      ------------      ------------      ------------


Net Loss                                   $ (7,618,174)     $ (4,829,467)     $ (3,263,351)     $ (2,806,436)     $ (1,116,652)
                                           ============      ============      ============      ============      ============


Net Loss Per Share - Basic and Diluted     $      (0.95)     $      (0.60)     $      (0.41)     $      (0.44)     $      (0.18)
                                           ============      ============      ============      ============      ============

Weighted Average Common
  Common Shares Outstanding                   8,032,533         8,018,398         7,980,094         6,347,716         5,954,299
                                           ============      ============      ============      ============      ============


                                                                          YEAR ENDED DECEMBER 31,
                                           ------------------------------------------------------------------------------------
                                               1999              1998              1997              1996              1995
                                               ----              ----              ----              ----              ----
Balance Sheet Data:

Cash and Cash Equivalents                  $    489,521      $  6,316,955      $    779,317      $ 15,666,609      $  1,182,080
Working Capital                                 414,132         7,992,894        13,242,387        14,591,700           611,655
Total Assets                                  3,844,395        10,519,727        15,036,473        17,085,387         1,763,629
Long Term Obligations                           500,000                --                --                --                --
Total Liabilities                             1,427,732           894,339           587,728         1,631,650           598,464
Total Stockholders' Equity                    2,416,663         9,625,388        14,448,745        15,453,737         1,165,165


</TABLE>

                                       15
<PAGE>   16

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, 1999, 1998 and 1997, and its
financial condition at December 31, 1999. 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 state 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 state management program and began substantial patient contacts during
1998. The Company currently has patients enrolled in five of its
disease-specific programs. Through February 2000, an aggregate of over 550,000
persons have enrolled and participated in Company 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 addition, the Company has encountered resistance from
patients and other sources of information to the Company's systems.

         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;
and most importantly, promotion of a broader product line to enable clients to
enter the Company's disease management programs through a variety of channels.
The Company also markets two additional services, demand management services and
automated surveys (general health and disease-specific), both of which can
provide mechanisms for enrollment to the Company's disease management programs.
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 anorexia or cachexia
secondary to diagnosis of cancer or AIDS; (iv) patients suffering from chronic
pain, and (v) patients who are at increased risk of suffering from epilepsy. In
addition, the Company has entered into services agreements to operate its
disease management programs for patients suffering from asthma, diabetes and
hypertension. 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 development fees from customers for the development of a
disease-specific program. 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. 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 call for a fixed program operational fee to
be paid by the customer for each patient enrolled for a series of program
services as defined in the contract. The timing of customer payments for the
delivery of program services varies by contract. Revenues from program
operations are recognized ratably as the program services

                                       16

<PAGE>   17

are delivered. The amount of the per patient fee varies from program to program
depending upon the number of patient contacts required, the complexity of the
interventions and the detail of the reports generated. The Company has not
capitalized any costs related to the development of software for use in its
disease state management programs since all of such software has been developed
for internal use.

         Revenues from Operations, which includes fees received by the Company
for operating its programs, has increased substantially and has become the most
significant source of the Company's revenues. Furthermore, as enrollment in
Company operated disease management programs continues to increase and these
revenue sources have become the primary source of the Company's revenues. The
Company is continuing to devote significant marketing efforts to increasing the
number of disease and demand management 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 only 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.

         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.

         The Company began to provide other services to customers in the
healthcare industry during 1997, which included new applications of its
information capture and delivery system. These consisted of patient surveys,
health risk assessments, nursing support lines and marketing support functions.

         In February 1999, the Company, through its newly formed, 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.

         During 1999, as a result of its continuing losses, the Company felt the
pressure of severe working capital short falls. By the end of 1999, the
Company's available cash had been reduced to a level that threatened to severely
limit its operations. Although the Company established lines of credit in the
amount of $1.5 million in December 1999 and $1 million in March 2000, as
discussed below, the Company is continuing to incur losses and must identify
substantial additional capital to sustain its 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 their uncertainty.

         In December 1999, the Company established a credit facility with
Norwest Bank Iowa, National Association ("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 is due and
payable in a single payment on March 31, 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 Messrs. 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 intends to grant to
each of Messrs. 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.

                                       17

<PAGE>   18


RESULTS OF OPERATIONS
---------------------

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

         Revenues

         Revenues are comprised of revenues from operations fees, development
fees and licensing fees. Revenues increased 51% from $2,344,072 for the year
ended December 31, 1998 to $3,545,207 for the year ended December 31, 1999. A
summary of these revenues by category is as follows:

                     DECEMBER 31,    DECEMBER 31,
Revenues                1999            1998
--------                ----            ----

Operations Fees      $3,270,900     $1,385,720
Development Fees        227,307        689,157
Licensing Fees           47,000        269,195
                     ----------     ----------
Total Revenues       $3,545,207     $2,344,072
                     ==========     ==========

         Revenues from operations fees increased 136% from $1,385,720 for the
year ended December 31, 1998 to $3,270,900 for the year ended December 31, 1999.
Operations revenues are generated as the Company provides services to its
customers for their disease-specific programs. Operations revenues increased
significantly in 1999, as the Company continued to increase the membership
levels in the Company's disease management programs and demand management
programs.

         Revenues from development fees decreased 67% from $689,157 for the year
ended December 31, 1998 to $227,307 for the year ended December 31, 1999. The
Company received $689,157 in development revenues for the year ended December
31, 1998, related almost entirely to fees from Bristol-Myers ("BMS") for the
development of disease state management agreements. In 1999, the Company
received development revenues from a variety of other customers (including BMS)
related to other disease-specific programs. The Company has completed
substantially all services under these agreements and is currently receiving
revenues in connection with the development of only three 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 decreased 83% from $269,195 for the year
ended December 31, 1998 to $47,000 for the year ended December 31, 1999.
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 but
not limited to, the Company's Internet-based Case Management Support System
product line or its standardized asthma and diabetes programs. The Company had
licensing fees of $47,000 from the sale of its Internet-based products in 1999.

         The Company also provides other services to customers in the healthcare
industry that involve new applications of its information capture and delivery
system. These services include patient surveys, health risk assessments, patient
satisfaction surveys, physician education programs and marketing support
functions.


                                       18

<PAGE>   19


         Costs and Expenses

         Cost of sales include salaries and related benefits, services provided
by third parties, and other expenses associated with the development of the
Company's customized disease state management programs, as well as the operation
of each of its disease state management programs.

         Cost of sales increased 40% from $4,011,710 for the year ended December
31, 1998 to $5,614,128 for the year ended December 31, 1999. The increase in
these costs primarily reflects an increased level of program development and
operational activities, as well as the Company's creation of the capacity
necessary to handle anticipated increases in the number of individuals to whom
the Company provides services.

         Sales and marketing expenses increased 27% from $1,929,525 for the year
ended December 31, 1998 to $2,445,425 for the year ended December 31, 1999.
These costs consist primarily of salaries, related benefits and travel costs,
sales materials and other marketing related expenses. Increased spending in this
area is attributable to the Company's efforts to expand its sales and marketing
staff during the year ended December 31, 1999. It is anticipated that the
Company will continue to invest heavily in the sales and marketing process in
future periods, though at somewhat lower levels.

         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 27% from
$1,490,210 for the year ended December 31, 1998 to $1,885,566 for the year ended
December 31, 1999. These expenditures were incurred to develop the corporate
infrastructure necessary to support anticipated program development and
operations growth. The increase in these costs was caused by an increase in the
Company's level of business activity and the addition of required administrative
personnel. 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 increased 224% from $298,686 for the year ended December
31, 1998 to $967,365 for the year ended December 31, 1999. The increase in
research and development expenses reflects the Company's acquisition of
Healthdesk in February 1999, which became the Company's Internet Technology
development group devoting most of its efforts to the development of the
Company's Internet-based software products.

         Other Income/Expense is comprised of interest income and losses on
investments. The net totals are as follows:

                                             DECEMBER 31   DECEMBER 31
                                                1999          1998
                                                ----          ----

                  Interest income            $ 166,164      $ 556,592
                  Losses on investment
                       Pati Canada            (167,063)            --
                       Pulse Group            (250,000)            --
                                             ---------      ---------

                  Total Income/(Expense)     $(250,897)     $ 556,592
                                             ---------      ---------

Interest income is generated primarily from cash balances and short-term money
market investments. Interest income decreased to $166,164 for the year ended
December 31, 1999 from $556,592 for the year ended December 31, 1998. The
decrease in interest income reflects the use by the Company of its available
cash and the reduction of proceeds that can earn interest.

                                       19

<PAGE>   20


Losses on investments are associated with two unrelated investments by the
Company: (1) Patient Infosystems Canada, Inc. ("Pati Canada") and (2) the Pulse
Group. At the end of 1998, the Company entered into a joint venture agreement
with MacLean Hunter Publishing Limited to market and sell, on an exclusive basis
in Canada, products and services developed by the Company and to jointly manage,
finance and operate the business entity Pati Canada. The venture was dedicated
to the development of a commercially viable business built around the sale,
marketing and service of the Company's products and services in Canada. The loss
of $167,063 reported for 1999 represents the Company's share of the loss
incurred by the venture. On October 1, 1999, the Company acquired 100% control
of the venture and the results of operations from that day forward are included
in the Company's consolidated financial statements. The Company's 1997
investment in the Pulse Group was deemed to be no longer realizable as of June
30, 1999, and the initial total investment of $250,000 was recorded as an
investment loss.

         The Company had a net loss of $7,618,174 for the year ended December
31, 1999, compared to $4,829,467 for the year ended December 31, 1998. This
represents a loss of $.95 per share for 1999 and $.60 for 1998.

                                       20

<PAGE>   21


YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         Revenues

         Revenues are comprised of revenues from operations fees, development
fees and licensing fees. Revenues increased 14% from $2,062,373 for the year
ended December 31, 1997 to $2,344,072 for the year ended December 31, 1998. A
summary of these revenues by category is as follows:

                     DECEMBER 31,   DECEMBER 31,
REVENUES                1998            1997
--------                ----            ----

Operations Fees      $1,385,720     $  735,841
Development Fees        689,157        826,532
Licensing Fees          269,195        500,000
                     ----------     ----------

Total Revenues       $2,344,072     $2,062,373
                     ==========     ==========

         Revenues from operations increased 88% from $735,841 for the year ended
December 31, 1997 to $1,385,720 for the year ended December 31, 1998. Operations
revenues are generated as the Company provides services to its customers for
their disease-specific programs. Operations revenues increased significantly in
1998, as the Company continues to increase the membership levels in the
Company's disease state management programs and primarily from the Company's
demand management programs. The demand management programs operate from the
Company's medical call center, which was established in May 1998, in Wayne,
Pennsylvania The medical call center is staffed by registered nurses on a
24-hour, 7-day a week schedule.

         Revenues from development fees decreased 17% from $826,532 for the year
ended December 31, 1997 to $689,157 for the year ended December 31, 1998. The
Company received $689,157 in development revenues for the year ended December
31, 1998, related almost entirely to fees from Bristol-Myers for the development
of disease state management agreements. The Company also received development
revenues from a small number of other customers related to other
disease-specific programs. Development revenues include clinical, technical and
operational design or modification of the Company's primary disease management
programs. Development revenue declined from the year ended December 31, 1997 to
December 31, 1998 because the Company reduced its development fees charged to
certain customers.

         Revenues from licensing fees decreased 46% from $500,000 for the year
ended December 31, 1997 to $269,195 for the year ended December 31, 1998.
Licensing revenue represents amounts that the Company charges its customers, on
a one-time fee basis, for the right to enroll patients in or the right to
license other entities certain of its programs, primarily but not limited to,
the Company's standardized asthma and diabetes programs. Licensing fees received
in 1998 included $99,750 from the sale of consumer healthcare software which are
Internet based products.

         The Company also provides other services to customers in the healthcare
industry which involve new applications of its information capture and delivery
system. These services include patient surveys, health risk assessments, patient
satisfaction surveys, physician education programs and marketing support
functions.

         Costs and Expenses

         Cost of sales include salaries and related benefits, services provided
by third parties, and other expenses associated with the development of the
Company's customized disease state management programs, as well as the operation
of each of its disease state management programs.

         Cost of sales increased 56% from $2,574,214 for the year ended December
31, 1997 to $4,011,710 for the year ended December 31, 1998. The increase in
these costs primarily reflected an increased level of program development and
operational activities, as well as the Company's creation of the capacity
necessary to handle anticipated increases in the number of individuals to whom
the Company provides services.

                                       21



<PAGE>   22

         Sales and marketing expenses increased 4% from $1,853,224 for the year
ended December 31, 1997 to $1,929,525 for the year ended December 31, 1998.
These costs consist primarily of salaries, related benefits and travel costs,
sales materials and other marketing related expenses. Spending in this area
remained relatively consistent with the prior year because the Company's sales
and marketing staff did not expand during the twelve month period ended December
31, 1998.

         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 20% from
$1,244,287 for the year ended December 31, 1997, to $1,490,210 for the year
ended December 31, 1998. These expenditures were incurred to develop the
corporate infrastructure necessary to support anticipated program development
and operations. The increase in these costs was caused by an increase in the
Company's level of business activity, and the addition of required
administrative personnel.

         Research and development expenses consist primarily of salaries and
related benefits and administrative costs allocated to the Company's research
and development personnel for development of certain components of its
integrated information capture and delivery system, as well as development of
the Company's standardized disease state management programs. Research and
development expenses decreased 39% from $489,115 for the year ended December 31,
1997 to $298,686 for the year ended December 31, 1998. The decrease in research
and development expenses reflects the Company's completion of the development of
its primary disease management programs.

         The Company generates net investment income primarily from cash
balances and investments. Investment income decreased to $556,592 for the year
ended December 31, 1998 from $835,116 for the year ended December 31, 1997. The
decrease in interest income reflects the use by the Company of its available
cash and the reduction of proceeds that can earn interest.

         The Company had a net loss of $4,829,467 for the year ended December
31, 1998 compared to $3,263,351 for the year ended December 31, 1997. This
represents a loss of $.60 per share for 1998 and $.41 for 1997.

         Liquidity and Capital Resources

         At December 31, 1999 the Company had working capital of $414,132, as
compared to working capital of $7,992,894 at December 31, 1998 which has
diminished further since such date. Since its inception the Company has
primarily funded its operations, working capital needs and capital expenditures
from the sale of equity securities. On December 19, 1996 the Company completed
an initial public offering of its common stock which generated net proceeds to
the Company of $14,082,048. On January 8, 1997, an additional 300,000 shares of
common stock were sold pursuant to an underwriters over-allotment provision,
which generated net proceeds to the Company of $2,232,000. Recognizing that the
Company's working capital was depleted, the Company commenced a private
placement of equity securities in October 1999 which was not completed. In
December 1999, the Company established a credit facility for $1,500,000
guaranteed by two of the Company's Board members. In March, 2000, the facility
was increased by an additional $1,000,000 also guaranteed by the same Board
members. In connection with the 1999 guarantees, the Board members were granted
warrants to purchase a total of 375,000 shares of Common Stock for $1.5625 per
share.

         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 in recent months, to the extent
that revenues do not increase substantially, the Company's losses will continue
and its available capital will diminish further. The Company will be required to
seek additional capital immediately or cease its operations. The Company has no
identified source of additional capital and no assurance can be given that
additional capital will be available on terms that will be satisfactory to the
Company. As a result of the above, the Independent Auditor's 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 their uncertainty.


         Capital expenditures during 1999 were $433,598, as compared to
expenditures of $594,663 during 1998 and $394,161 during 1997. The expenditures
during these periods represented the purchase of the significant technology
platform components of the integrated information capture and delivery system as
well as purchases required to support the Company's growing employee base.

                                       22

<PAGE>   23
         Inflation

         Inflation did not have a significant impact on the Company's costs
during 1999, 1998 or 1997. 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 June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activity, which is
required to be adopted by the Company in 2001. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges of underlying transactions must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Management has not yet determined the effect SFAS No. 133 will have, if any, on
the Company's consolidated financial position, results of operations or cash
flows.

         Year 2000 Issues

The Company suffered no ill effects from Year 2000 related technological issues
or otherwise.

         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 does not believe it is exposed to changes in
foreign currency exchange rates because it does not currently invest in foreign
currency instruments. 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 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 regularly invests 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. Accordingly, the Company
believes that the market risk arising from its holding of these financial
instruments is minimal. The Company made purchases of available-for-sale
securities of $21,073 in 1999 and $7,826,910 in 1998.

                                       23

<PAGE>   24
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA




         Index to Financial Statements                               Page
         -----------------------------                               ----

         Independent Auditors' Report                                25
         Consolidated Balance Sheets                                 26
         Consolidated Statements of Operations                       27
         Consolidated Statements of Stockholders' Equity             28
         Consolidated Statements of Cash Flows                       29
         Notes to Consolidated Financial Statements                  30











                                       24
<PAGE>   25










                          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, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 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 10 to
the consolidated financial statements, the Company's recurring losses from
operations raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning this matter are also described in Note
10. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.



Deloitte & Touche LLP
Rochester, New York
January 28, 2000
(March 21, 2000 as to Note 11)




                                       25
<PAGE>   26


PATIENT INFOSYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

ASSETS                                                                            1999                 1998

<S>                                                                          <C>                  <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                  $    489,521         $  6,316,955
  Available-for-sale securities                                                         -            1,029,674
  Accounts receivable (net of doubtful accounts allowance of $50,000)             650,279            1,320,626
  Prepaid expenses and other current assets                                       126,613              219,978
  Employee notes receivable                                                        75,451                    -
                                                                            ----------------------------------
        Total current assets                                                    1,341,864            8,887,233

PROPERTY AND EQUIPMENT, net                                                     1,291,351            1,182,494

Debt Issuance Costs                                                               382,500                    -
Intangible Assets (net of accumulated amortization of $38,055)                    584,669
Other Assets                                                                      244,011              450,000
                                                                            ----------------------------------

TOTAL ASSETS                                                                 $  3,844,395         $ 10,519,727
                                                                            ----------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                           $    496,533         $    304,436
  Accrued salaries and wages                                                      190,232              277,931
  Accrued expenses                                                                 22,767               58,904
  Deferred revenue                                                                218,200              253,068
                                                                            ----------------------------------
        Total current liabilities                                                 927,732              894,339

LONG TERM DEBT                                                                    500,000                    -

COMMITMENTS  (Note 8)

STOCKHOLDERS' EQUITY:
  Common stock - $.01 par value:  shares - authorized:
    20,000,000; issued and outstanding:  1999 - 8,040,202
    1998 - 8,020,042                                                               80,402               80,200
  Additional paid-in capital                                                   21,968,536           21,561,094
  Accumulated other comprehensive income                                            1,805                    -
  Accumulated deficit                                                         (19,634,080)         (12,015,906)
                                                                            ----------------------------------
        Total stockholders' equity                                              2,416,663            9,625,388
                                                                            ----------------------------------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $  3,844,395         $ 10,519,727
                                                                            ==================================
</TABLE>


See notes to consolidated financial statements.




                                       26
<PAGE>   27


PATIENT INFOSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                             1999                 1998                 1997

<S>                                     <C>                  <C>                  <C>
REVENUES                                $  3,545,207         $  2,344,072         $  2,062,373
                                      --------------------------------------------------------

COSTS AND EXPENSES:
  Cost of revenue                          5,614,128            4,011,710            2,574,214
  Sales and marketing                      2,445,425            1,929,525            1,853,224
  General and administrative               1,885,566            1,490,210            1,244,287
  Research and development                   967,365              298,686              489,115
                                      --------------------------------------------------------

        Total costs and expenses          10,912,484            7,730,131            6,160,840
                                      --------------------------------------------------------
OPERATING LOSS                            (7,367,277)          (5,386,059)          (4,098,467)

Other income (expense)                      (250,897)             556,592              835,116
                                      --------------------------------------------------------


NET LOSS                                $ (7,618,174)        $ (4,829,467)        $ (3,263,351)
                                      --------------------------------------------------------
NET LOSS PER SHARE - BASIC
   AND DILUTED                          $       (.95)        $       (.60)        $       (.41)
                                      --------------------------------------------------------
WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                      8,032,533            8,018,398            7,980,094
                                      --------------------------------------------------------
</TABLE>



See notes to consolidated financial statements.




                                       27
<PAGE>   28
PATIENT INFOSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                Additional Accum'd Other                  Total        Total
                                               Common Stock      Paid-in   Comprehensive Accumulated Stockholders' Comprehensive
                                             Shares     Amount   Capital      Income       Deficit      Equity         Loss

<S>                                       <C>         <C>      <C>            <C>     <C>            <C>            <C>
Balances, January 1, 1997                 7,653,202   $ 76,532 $19,300,293    $    -   $(3,923,088)  $15,453,737

Sale of common stock at $8.00
per share in January 1997
(net of issuance costs
of $168,000)                                300,000      3,000   2,229,000          -            -     2,232,000

Compensation expense related
to issuance of stock warrants                     -          -       8,283          -            -         8,283

Exercise of stock options                    58,320        583      12,433          -            -        13,016

Unrealized gain on investments
available-for-sale                                -          -           -      5,060            -         5,060    $     5,060

Net loss for the year end
      December 31, 1997                           -          -           -          -   (3,263,351)   (3,263,351)    (3,263,351)
                                         ---------------------------------------------------------------------------------------

                                                                                                                    $(3,258,291)
                                                                                                                    ============

Balances, December 31, 1997               8,011,522     80,115  21,550,009      5,060   (7,186,439)   14,448,745

Compensation expense related
to issuance of stock warrants                     -          -       7,388          -            -         7,388

Exercise of stock options                     8,520         85       3,697          -            -         3,782

Unrealized loss on investments
available-for-sale                                -          -           -     (5,060)           -        (5,060)   $    (5,060)

Net loss for the year end
      December 31, 1998                           -          -           -          -   (4,829,467)   (4,829,467)    (4,829,467)
                                         ---------------------------------------------------------------------------------------

                                                                                                                   $ (4,834,527)
                                                                                                                   =============

Balances, December 31, 1998               8,020,042     80,200  21,561,094          -  (12,015,906)    9,625,388

Compensation expense related to
issuance of  stock warrants and options           -          -      13,443          -            -        13,443
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

Foreign currency translation adjustment           -          -           -      1,805            -         1,805    $     1,805

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

                                                                                                                    $(7,616,369)
                                                                                                                    ============
Balances, December 31, 1999               8,040,202   $ 80,402 $21,968,536    $1,805  $(19,634,080)  $2,416,663
                                         ========================================================================
</TABLE>

See notes to consolidated financial statements.


                                       28
<PAGE>   29





PATIENT INFOSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                     1999              1998             1997
                                                                                     ----              ----             ----

<S>                                                                              <C>              <C>                <C>
OPERATING :
  Net loss                                                                       $ (7,618,174)    $ (4,829,467)      (3,263,351)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                                   503,341          366,474          293,763
      Loss on sale of property                                                              -            1,350            2,171
      Loss on investments                                                             250,000                -                -
      Amortization of premiums and discounts on available-for-sale securities               -         (142,054)        (209,832)
      Compensation expense related to issuance of stock warrants and options           13,443            7,388            8,283
      Decrease (Increase) in accounts receivable                                      670,347         (907,670)         (26,741)
      Decrease (increase) in prepaid expenses and other current assets                 93,365          185,529         (234,980)
      Increase in employee notes receivable                                           (75,451)               -                -
      Increase (decrease) in accounts payable                                         192,097          214,762         (107,000)
      (Decrease) increase in accrued salaries and wages                               (87,699)         (42,341)         193,243
      (Decrease) in accrued expenses                                                  (36,137)         (20,332)        (132,221)
      Increase (decrease) in deferred revenue                                         (34,868)         185,519         (515,234)
      (Decrease) in accrued loss on development contracts                                   -          (30,997)         (36,142)
                                                                                -----------------------------------------------

            Net cash used in operating activities                                  (6,129,736)      (5,011,839)      (4,028,041)
                                                                                -----------------------------------------------

INVESTING:
  Property and equipment additions                                                   (433,598)        (594,663)        (394,161)
  Proceeds from sale of property                                                            -            3,310            1,299
  Purchases of available-for-sale securities                                          (21,073)      (7,826,910)     (18,121,444)
  Maturities of available-for-sale securities                                       1,050,747       19,166,565        6,104,000
  Purchase of HealthDesk Assets                                                      (761,463)               -                -
  Increase in other assets                                                            (44,012)        (202,607)        (247,393)
                                                                                -----------------------------------------------

          Net cash (used in) provided by investing activities                        (209,399)      10,545,695      (12,657,699)
                                                                                -----------------------------------------------

FINANCING:
  Proceeds from issuance of common stock, net                                          11,701            3,782        2,245,016
  Proceeds from line of credit                                                        500,000                -                -
  (Decrease)  in accrued initial public offering costs                                      -                -         (446,568)
                                                                                -----------------------------------------------

            Net cash provided by financing activities                                 511,701            3,782        1,798,448
                                                                                -----------------------------------------------

NET (DECREASE) INCREASE IN CASH AND CASH  EQUIVALENTS                              (5,827,434)       5,537,638      (14,887,292)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                      6,316,955          779,317       15,666,609
                                                                                -----------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                         $    489,521     $  6,316,955     $    779,317
                                                                                -----------------------------------------------

Supplemental disclosures of cash flow information
   Cash paid (received) for income taxes, net                                    $     36,361     $     43,701     $     (9,509)
                                                                                -----------------------------------------------
</TABLE>

See notes to consolidated financial statements.



SUPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES:

      The Company issued 375,000 stock purchase warrants with a fair value of
      $382,500 in conjunction with the guarantee by certain Board members of
       the Company's line of credit.




                                       29
<PAGE>   30


PATIENT INFOSYSTEMS, INC.


NOTES TO consolidated FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

1.   BUSINESS AND 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. The
     Company was incorporated in Delaware on February 22, 1995 under the name
     DSMI Corp., changed its name to Disease State Management, Inc. on October
     13, 1995, and on June 28, 1996 changed its name to Patient Infosystems,
     Inc.

     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiary, Patient Infosystems Canada, Inc. (see Note
     9). 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 generally accepted
     accounting principles requires management to make estimates and assumptions
     that affect the reported amounts of assets and liabilities and disclosure
     of contingent assets and liabilities at the date of the financial
     statements and the reported amounts of revenues and expenses during the
     reporting period. Actual amounts could differ from those estimates.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
     consist of cash and cash equivalents, available-for-sale securities and the
     line of credit. The carrying values of cash and cash equivalents,
     available-for-sale securities and the line of credit approximate fair
     value.

     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 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.




                                       30
<PAGE>   31


     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, 1999, 1998
     and 1997, approximately $1,075,430 (30%) and $755,000 (32%), and $925,800
     (45%) respectively, of the Company's revenues arose from contracts with one
     customer. At December 31, 1999 and 1998, accounts receivable included
     balances of $292,183 and $736,650, respectively, from contracts with that
     customer.

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

     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 1999, 1998 or 1997.

     INTANGIBLE ASSETS - Intangible assets represent the intellectual property
     (i.e.: tradenames, trademarks, licenses and brandnames) acquired from
     HealthDesk Corporation (see Note 9) which are being amortized over 15 years
     using the straight-line method..

     DEBT ISSUANCE COSTS - Debt issuance costs will be amortized, using the
     straight-line method over the term of the line of credit starting January
     1, 2000.

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

     INCOME TAXES - 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 carry
     forwards.

     NET LOSS PER SHARE - The calculations for the basic and diluted loss per
     share were based on loss available to common stockholders of $(7,618,174),
     $(4,829,467) and $(3,263,351) and a weighted average number of common
     shares outstanding of 8,032,533, 8,018,398 and 7,980,094 for the years
     ended December 31, 1999, 1998 and 1997 respectively. Options to purchase
     shares of common stock were outstanding but not included in the computation
     of diluted loss per share in 1999, 1998 and 1997 because the effect would
     be antidilutive due to the net loss in those years.

     RETIREMENT PLAN - The Company has a retirement plan which qualifies under
     Section 401(k) of the Internal Revenue Code. This retirement plan allows
     eligible employees to contribute 1% to 15% of their income on a pretax
     basis to the plan. The Company's annual contribution to the plan is at the
     discretion of the Board of Directors. The Company made no contributions to
     this plan in 1999, 1998 and 1997.

     ACCUMULATED OTHER COMPREHENSIVE INCOME - Comprehensive income is defined as
     the change in equity of a business enterprise during a period from
     transactions and other events and circumstances from nonowner sources.
     Items considered comprehensive income include foreign currency items,
     minimum pension liability adjustments and unrealized gains and losses on
     certain investments in debt and equity securities. The Company's components
     of comprehensive income include net loss, foreign currency translation
     adjustments and, for years prior to 1999, unrealized gains and losses on
     investments.

     STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 133 - In June
     1998, the Financial Accounting Standards Board issued SFAS No. 133,
     Accounting for Derivative Instruments and Hedging Activity, which is
     required to be adopted by the Company in 2001. The Statement will require
     the Company to recognize all derivatives on the balance sheet at fair
     value. Derivatives that are not hedges of underlying transactions must be
     adjusted to fair value through income. If the derivative is a hedge,
     depending on the nature of the hedge, changes in the fair value of
     derivatives will either be offset against the change in fair value of the
     hedged assets, liabilities or firm commitments through earnings or
     recognized in other comprehensive income until the hedged item is
     recognized in earnings. The ineffective portion of a derivative's change in
     fair value will be immediately recognized in earnings. Management has not
     yet determined the effect SFAS No. 133 will have, if any, on the Company's
     consolidated financial position, results of operations or cash flows.

     RECLASSIFICATIONS - Certain 1998 and 1997 amounts have been reclassified to
     conform with 1999 presentations.




                                       31
<PAGE>   32



2.   AVAILABLE -FOR-SALE SECURITIES

     The following is a summary of available-for-sale securities at December 31:

                                            1999          1998

     Certificates of Deposit               $   -      $1,029,674
                                           ---------------------


3.   PROPERTY AND EQUIPMENT

     Property and equipment are summarized as follows at December 31:

                                                  1999                1998

     Computer software                       $   661,473          $ 545,467
     Computer equipment                        1,164,596            795,996
     Telephone equipment                         358,306            301,172
     Leasehold improvements                       43,979             43,979
     Office furniture and equipment              395,789            363,387
                                             ------------------------------
                                               2,624,143          2,050,001

     Less accumulated depreciation             1,332,792            867,507
                                             ------------------------------

     Property and equipment, net             $ 1,291,351        $ 1,182,494
                                             ------------------------------


4.   LINE OF CREDIT

     On December 23, 1999, the Company signed a $1,500,000 Revolving Note and
     Credit Agreement with Norwest Bank, Iowa. The note is guaranteed by two of
     the Company's board members and is due and payable on March 31, 2001.
     Interest is due and payable monthly at a floating rate of based upon LIBOR
     plus 1.75% (effective rate at December 31, 1999 was 8.5%). The line of
     credit is secured by substantially all of the Company's assets. As of
     December 31, 1999, the Company had borrowed $500,000 under the Agreement.
     The Company expects to fully utilize the entire credit line during the
     first quarter of calendar year 2000.

     In connection with the guarantees described above, the Board of Directors
     have approved the issuance of 187,500 warrants to each of the guarantors.
     These warrants will vest immediately and have an exercise price of $1.5625
     per share.


                                       32
<PAGE>   33

5.   INCOME TAXES

     Income tax expense (benefit) for the years ended December 31, 1999, 1998
     and 1997 were: $36,361, $43,701, and $(9,509), respectively. These amounts
     represent state and local income taxes only and are included in General and
     administrative expenses.

     Income tax expense (benefit) 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>
                                                             1999            1998            1997

<S>                                                      <C>             <C>             <C>
     Computed "expected" tax expense                     $(2,577,816)    $(1,627,160)    $(1,109,539)

     Change in the valuation allowance
         for deferred tax assets                           3,148,000       1,974,000       1,088,000

     State and local income taxes at statutory rates,
         net of federal income tax benefit                  (450,360)       (284,275)       (194,408)

     Other, net                                              (83,463)        (18,864)        206,438
                                                         --------------------------------------------

                                                         $    36,361     $    43,701     $    (9,509)
                                                         --------------------------------------------
</TABLE>


     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:                           1999            1998

<S>                                                          <C>             <C>
     Accounts receivable, principally due
       to allowance for doubtful accounts              $    20,000     $    20,000
     Deferred revenue                                      129,000         101,000
     Compensation                                           41,000          89,000
     Net operating loss carryforwards                    7,710,000       4,569,000
     Tax credit carryforwards                               75,000          59,000
     Other                                                   4,000          20,000
                                                       -----------     -----------
          Total gross deferred income tax assets         7,979,000       4,858,000

          Less valuation allowance                      (7,859,000)     (4,711,000)
                                                       -----------     -----------

          Net deferred income tax assets                   120,000         147,000
                                                       -----------     -----------

     Deferred income tax liabilities:

     Property and equipment, principally due to
     differences in depreciation and amortization          (81,000)        (69,000)
     Other                                                 (39,000)        (78,000)
                                                       -----------     -----------
          Total gross deferred income tax liability       (120,000)       (147,000)
                                                       -----------     -----------

          Net deferred income taxes                    $         -     $         -
                                                       ===========================
</TABLE>



     At December 31, 1999 the Company has net operating loss carryforwards for
     federal income tax purposes of approximately $19,274,000, which are
     available to offset future federal taxable income, if any, through 2019.
     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, through 2019.



                                       33
<PAGE>   34

6.   PUBLIC OFFERING OF COMMON STOCK

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

7.   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>
                                          1999             1998            1997
                                          ----             ----            ----
<S>                                  <C>               <C>             <C>
      Net loss - as reported         $(7,618,174)      $(4,829,467)    $(3,263,351)

      Net loss - pro forma           $(7,921,103)      $(4,949,320)    $(3,406,973)


      Net loss per share - basic
        and diluted - as reported    $     (0.95)      $     (0.60)    $     (0.41)


      Net loss per share - basic
        and diluted - pro forma      $     (0.99)      $     (0.62)    $     (0.43)
</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 5.89% for year ended December 31, 1999, 5.32% for year ended
     December 31, 1998, and 5.98% for the year ended December 31, 1997 and an
     expected life of 7 years. For the options granted after July 1, 1996, the
     Company has used a volatility factor of .74 for year ended December 31,
     1999, .94 for year ended December 31, 1998, and .53 for year ended December
     31, 1997. For purposes of pro forma disclosure, the estimated fair value of
     each option is amortized to expense over that option's vesting period.




                                       34
<PAGE>   35


     The Stock Option Plan authorizes 1,680,000 shares of common stock to be
     issued. Stock options granted under the Stock Option Plan may be of two
     types: (1) incentive stock options and (2) nonqualified stock options. The
     option price of such grants shall be determined by a Committee of the Board
     of Directors (the "Committee"), but shall not be less than the estimated
     fair market value of the common stock at the date the option is granted.
     The 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. All of the
     outstanding options vest at the rate of 20% per year with the exception of
     (a) 76,000 options that were vested as of the date of grant and (b) 260,000
     options which vest over 3 years.

     A summary of stock option activity follows:

<TABLE>
<CAPTION>
                                                                   OUTSTANDING  WEIGHTED-AVERAGE
                                                                     OPTIONS     EXERCISE PRICE

<S>                                                                 <C>              <C>
      Options outstanding at January 1, 1997                          891,960        $2.34

      Options granted during the year ended December 31, 1997
        (weighted average fair value of $5.16)                        307,000        $4.39

      Options forfeited by holders during the year
        ended December 31, 1997                                      (342,580)       $4.83

      Options exercised during the year ended December 31, 1997       (58,320)       $0.22
                                                                  -----------

      Options outstanding at December 31, 1997                        798,060        $2.21

      Options granted during the year ended December 31, 1998
        (weighted average fair value of $1.38)                        399,200        $1.38

      Options forfeited by holders during the year
        ended December 31, 1998                                      (320,820)       $3.15

      Options exercised during the year ended December 31, 1998        (8,520)       $0.44
                                                                  -----------

      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 exercisable at December 31, 1999                        462,684        $0.70
                                                                  ===========

      Options available for grant at December 31, 1999                293,560
                                                                  ===========
</TABLE>




                                       35
<PAGE>   36


     The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:


<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>
       $.14 - $.99             360,000              5.43            $ .31              295,200        $ 0.30

      $1.00 - $1.99            607,760              8.07            $1.44              167,484        $ 1.40

      $2.00 - $2.75            336,000              9.44            $2.46                   -
                             ----------                                               -------

                             1,303,760                                                462,684
                             ----------                                               -------
</TABLE>


     The Company also has outstanding stock purchase warrants entitling the
     holders to purchase a total of 15,120 shares of common stock at a price of
     $2.13 per share (weighted average exercise price). At December 31, 1999,
     9,360 of these warrants are currently vested, with the remaining 5,760
     warrants vesting at 20% per year. The Company has recorded compensation
     costs in connection with the issuance of these warrants for the years ended
     December 31, 1999, 1998 and 1997 in the amount of $8,233, $7,388 and $8,283
     respectively.

8.   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, 1999, 1998 and 1997 was $302,194, $210,375 and $154,907
     respectively.

     At December 31, 1999, future minimum lease payments under these leases are
     summarized as follows:


     2000                              $ 300,213
     2001                                 87,428
     2002                                 41,453
                                       ---------
                                       $ 429,094
                                       =========



                                       36
<PAGE>   37

9.   ACQUISITIONS

     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 principle consideration paid for the transaction
     was $761,463. The results of operations of HealthDesk Corporation for the
     full year of 1999 are not material to the Company's consolidated financial
     statements.

     The following unaudited pro forma results of operations for the year ended
     December 31, 1998 have been prepared as if an acquisition of HealthDesk
     Corporation had occurred as of the beginning of 1998:

                                                 Pro Forma
                                                 Combined
                                             ------------------
     Revenues                                   $ 2,400,530
     Net loss                                    (6,948,179)
                                             ------------------
     Net loss per share - basic and diluted     $     (0.87)
                                             ==================


     The pro forma combined results do not purport to be indicative of results
     that would have occurred had the asset acquisition been in effect for the
     period presented, nor do they purport to be indicative of the results that
     will be obtained in the future.

     On November 12, 1998, the Company entered into a joint venture agreement
     with MacLean Hunter Publishing Limited to market and sell, on an exclusive
     basis in Canada, products and services developed by the Company and to
     jointly manage, finance and operate the business entity Patient Infosystems
     Canada, Inc. ("PATI-CN"), which is dedicated to the development of a
     commercially viable business built around the sale, marketing and service
     of the Company's products and services.

     On October 1, 1999, the Company entered into a "Share Purchase Agreement"
     with Rogers Publishing Limited ("ROGERS", formerly called Maclean Hunter
     Publishing Limited) to purchase ROGERS' 50% share in PATI-CN for the sum of
     $1.00 Canadian funds. Additionally, ROGERS reimbursed PATI-CN $41,149
     Canadian funds for expenses charged to PATI-CN by ROGERS prior to October
     1, 1999. As of October 1, 1999, PATI-CN became a wholly-owned subsidiary of
     the Company. The results of operations of PATI-CN for the full year of 1998
     and 1999 are not material to the Company's consolidated financial
     statements.

10.  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 an
     operating loss for 1999 of $7,367,277 and had an accumulated deficit of
     $19,634,080 at December 31, 1999. 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 and,
     ultimately, to attain profitability. 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.


                                       37
<PAGE>   38

11.  SUBSEQUENT EVENT

     On March 21, 2000, the Company secured an additional $1,000,000 line of
     credit under substantially the same terms as those described in Note 4.
     Management anticipates that additional warrants for purchase of common
     stock will be issued to the guarantors of this additional line of credit on
     a proportional basis.

12.  QUARTERLY RESULTS (UNAUDITED)

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

<TABLE>
<CAPTION>
                                          FIRST          SECOND         THIRD           FOURTH
     --------------------------------------------------------------------------------------------

<S>                                   <C>             <C>             <C>             <C>
     Year ended December 31, 1999:
     Revenues                         $   833,812     $ 1,002,943     $   875,964     $   832,488
     Gross margin                        (616,114)       (351,730)       (571,905)       (529,172)
     Net loss                          (1,713,727)     (2,042,886)     (1,882,535)     (1,979,026)
     Net loss per common share              (0.21)          (0.25)          (0.23)          (0.26)


     Year ended December 31, 1998:
     Revenues                         $   290,354     $   874,119     $   465,181     $   714,418
     Gross margin                        (422,384)         (4,670)       (555,355)       (685,229)
     Net loss                          (1,055,038)       (680,017)     (1,348,843)     (1,745,569)
     Net loss per common share              (0.13)          (0.08)          (0.17)          (0.22)
</TABLE>

     The quarterly gross margins for 1998 differ from those previously reported
     in the Company's Form 10Q's as a result of certain reclassifications from
     sales and marketing and general and administrative expenses to cost of
     revenue. These reclassifications were made to conform to 1999
     presentations.






                                       38
<PAGE>   39



                                    PART III


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

                  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 fiscal year ended December 31,
1999.

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 fiscal year ended December 31,
1999.

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 fiscal year ended December 31,
1999.

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 fiscal year ended December 31,
1999.

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 fiscal year ended December 31,
1999.

                                     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, 1999.

(c)      Exhibits:

Exhibit #         Description of Exhibits
---------         -----------------------

(3)      Articles of Incorporation and By-Laws:

         Certificate of Incorporation
         ----------------------------


                                       39
<PAGE>   40

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

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

(10)     MATERIAL CONTRACTS:

 10.2    PATIENT INFOSYSTEMS, INC. STOCK OPTION PLAN, incorporated herein by
         reference from Exhibit 10.2 on Form S-1 Registration Statement of the
         Company, filed with the Commission on December 17, 1996.

 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.

 10.27   SUBLEASE AGREEMENT dated as of March 30, 1998 between the Company and
         Medecision, Incorporated. Incorporated herein by reference from Exhibit
         10.27 on Form 10-K 1998 Annual


                                       40
<PAGE>   41

         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.

 10.31   LEASE AGREEMENT dated as of July 2, 1999 between the Company and Cadena
         Properties Limited.

 10.32   LEASE AGREEMENT dated as of August 1, 1999 between the Company and
         Michele M. Hoey and John E. Hoey.

 10.33   REVOLVING NOTE dated as of December 23, 1999 between the Company and
         Norwest Bank Iowa, National Association.

 10.34   CREDIT AGREEMENT dated as of December 23, 1999 between the Company and
         Norwest Bank Iowa, National Association.

 10.35   SECURITY AGREEMENT dated as of December 23, 1999 between the Company
         and Norwest Bank Iowa, National Association.

 10.36   ARBITRATION AGREEMENT dated as of December 23, 1999 between the Company
         and Norwest Bank Iowa, National Association.

 10.37   FINANCING STATEMENT executed by the Company and Norwest Bank Iowa,
         National Association.

 10.38   FIRST AMENDMENT TO CREDIT AGREEMENT dated as of March 21, 2000 between
         the Company and Norwest Bank Iowa, National Association.

 10.39   NOTE MODIFICATION AGREEMENT dated as of March 21, 2000 between the
         Company and Norwest Bank Iowa, National Association.


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


                                       41
<PAGE>   42

SCHEDULE II
                            PATIENT INFOSYSTEMS, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>

                                             BALANCE AT                                           BALANCE AT
                                             BEGINNING                                               END OF
                                              OF YEAR          ADDITIONS       DEDUCTIONS             YEAR
<S>                              <C>         <C>               <C>               <C>               <C>
Allowance for Doubtful Accounts:
                                 1999        $   50,000        $        -        $        -        $   50,000
                                 1998        $        -        $   50,000        $        -        $   50,000
                                 1997        $        -        $        -        $        -        $        -

Deferred Tax Assets Valuation
Allowance:
                                 1999        $4,711,000        $3,121,000        $   48,000        $7,784,000
                                 1998        $2,414,000        $2,297,000        $        -        $4,711,000
                                 1997        $1,326,000        $1,088,000        $        -        $2,414,000

Accumulated Amortization
of Intangible Assets:
                                 1999        $        -        $   38,055        $        -        $   38,055
                                 1998        $        -        $        -        $        -        $        -
                                 1997        $        -        $        -        $        -        $        -

Accumulated Amortization
of Computer Software
                                 1999        $  315,151        $  139,465        $        -        $  454,616
                                 1998        $  183,354        $  131,797        $        -        $  315,151
                                 1997        $   72,466        $  110,888        $        -        $  183,354
</TABLE>




                                       42
<PAGE>   43




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


PATIENT INFOSYSTEMS, INC.

By:   /s/ Donald A. Carlberg                                    March 30, 2000
      ----------------------                                    --------------
      Donald A. Carlberg                                        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/ Donald A. Carlberg                                      March 30, 2000
    ---------------------------------------                     --------------
    Donald A. Carlberg                                          Date
    Director, President and Chief Executive Officer
    (Principal Executive Officer)

By: /s/ Kent A. Tapper                                          March 30, 2000
    ---------------------------------------                     --------------
    Kent A. Tapper                                              Date
    Vice President Financial Planning
    (Principal Financial and Accounting Officer)

By: /s/ Derace L. Schaffer, M.D.                                March 30, 2000
    ---------------------------------------                     --------------
    Derace L. Schaffer, M.D.                                    Date
    Chairman of the Board


By: /s/ John Pappajohn                                          March 30, 2000
    ---------------------------------------                     --------------
    John Pappajohn                                              Date
    Director


By: /s/ Barbara J. McNeil, M.D., Ph.D.                          March 30, 2000
    ---------------------------------------                     --------------
    Barbara J. McNeil, M.D., Ph.D.                              Date
    Director


By: /s/ Carl F. Kohrt, Ph.D.                                    March 30, 2000
    ---------------------------------------                     --------------
    Carl F. Kohrt, Ph.D.                                        Date
    Director



                                       44