PATIENT INFOSYSTEMS INC, S-1/A, 1996-09-25

PATIENT INFOSYSTEMS INC
S-1/A, 1996-09-25
MISC HEALTH & ALLIED SERVICES, NEC

Previous: HYPERION TELECOMMUNICATIONS INC, S-1, 1996-09-25

Next: SNYDER COMMUNICATIONS INC, 424B1, 1996-09-25

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1996

REGISTRATION NO. 333-07643

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PATIENT INFOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8090 16-1476509
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>

46 PRINCE STREET
ROCHESTER, NEW YORK 14607
(716) 242-7200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

MR. DONALD A. CARLBERG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
46 PRINCE STREET
ROCHESTER, NEW YORK 14607
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
Jeffrey A. Baumel, Esq. Frederick W. Kanner, Esq.
Crummy, Del Deo, Dolan, Dewey Ballantine
Griffinger & Vecchione 1301 Avenue of the Americas
One Riverfront Plaza New York, New York 10019-6092
Newark, New Jersey 07102 (212) 259-8000
(201) 596-4500
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
- -------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 3,450,000 $11.00 $37,950,000 $13,087(3)
</TABLE>

(1) Includes 450,000 shares that may be purchased pursuant to the Underwriters'
over-allotment option.

(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act.

(3) A fee in the amount of $11,897 was previously paid.

----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PATIENT INFOSYSTEMS, INC.
CROSS-REFERENCE SHEET

REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Outside Front Cover Page

2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page; Outside
Back Cover Page

3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ The Company; Prospectus Summary;
Risk Factors

4. Use of Proceeds..................... Use of Proceeds

5. Determination of Offering Price..... Outside Front Cover Page; Risk
Factors; Underwriting

6. Dilution............................ Risk Factors; Dilution

7. Selling Security Holders............ Not Applicable

8. Plan of Distribution................ Outside Front Cover Page;
Underwriting

9. Description of Securities to be
Registered......................... Description of Capital Stock

10. Interests of Named Experts and
Counsel............................ Not Applicable

11. Information with Respect to the
Registrant.........................

<TABLE>
<C> <S><C> <C>
a. Description of Business... Prospectus Summary; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Note 1 of Notes
to Financial Statements
b. Description of Property... Business--Properties
c. Legal Proceedings......... Business--Legal Matters
d. Market Price of and
Dividends on Equity
Securities............... Outside Front Cover Page; Risk Factors;
Dividend Policy; Description of Capital
Stock
e. Financial Statements...... Financial Statements
f. Selected Financial Data... Prospectus Summary; Selected Financial
Data
g. Supplementary Financial
Information.............. Not Applicable
h. Management's Discussion
and Analysis of Financial
Condition and Results of
Operations............... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
--------------------------
<C> <S><C> <C>
i. Changes in and
Disagreements with
Accountants on Accounting
and Financial
Disclosure............... Not Applicable

j. Directors and Executive
Officers................. Management; Principal Stockholders

k. Executive Compensation.... Management

1. Security Ownership of
Certain Beneficial Owners
and Management........... Principal Stockholders

m. Certain Relationships and
Related Transactions..... Certain Transactions
</TABLE>

<TABLE>
<C> <S><C> <C>
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities.............. Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1996

PROSPECTUS

3,000,000 SHARES

PATIENT INFOSYSTEMS, INC.

COMMON STOCK
---------

All of the shares of Common Stock offered hereby are being sold by Patient
Infosystems, Inc. (the "Company").

Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for listing on the
Nasdaq National Market under the symbol "PATI."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting estimated expenses of $ payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise such option in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."

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

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.

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

SMITH BARNEY INC. NEEDHAM & COMPANY, INC.

, 1996
<PAGE>
[GRAPHICS TO COME]

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

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information. This Prospectus includes trade names and trademarks of companies
other than the Company.

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY PROSPECTIVE INVESTORS.

THE COMPANY

Patient Infosystems, Inc. (the "Company") provides patient-centered health
care information systems that proactively collect and analyze information to
improve patient compliance with prescribed treatments. The Company's technology
platform integrates treatment compliance algorithms with an advanced voice
recognition telephone system, high speed data processing and analysis capability
and demand publishing and information distribution capabilities. The system
communicates directly with the patient at home in order to elicit relevant
patient-specific data, evaluate the data and automatically transmit computer
generated reports to health care payors, providers and patients tailored to the
specific needs of each recipient.

The Company markets its services to pharmaceutical manufacturers, pharmacy
benefit managers and health care payors and providers to collect data not
obtained in a clinic setting and enhance compliance by patients with prescribed
treatments. The Company's disease state management programs are designed to
provide the following benefits: (i) for patients, improved communication with
health care resources, enhanced self-care skills, increased treatment adherence
resulting in improved quality of care and reduced inconvenience, risk and
expense associated with unscheduled physician interventions; (ii) for health
care providers, more information on patient progress, quicker identification of
hard-to-manage patients, enhanced ability to make timely treatment
modifications, triage capability and expanded information for development of
improved treatment protocols; and (iii) for payors and program sponsors,
cost-effective management of the disease risk, improved patient compliance and
outcomes and enhanced patient and provider satisfaction.

According to the Federal government, national health expenditures have
increased from $540 billion in 1988 (11.1% of gross national product ("GNP")) to
a projected $1 trillion in 1995 (15.7% of projected GNP). One way to achieve
significant savings in health care costs is to change the way that health care
is delivered to patients by focusing on quality and cost efficient clinical
outcomes. Since a substantial portion of most treatment regimens is
self-administered, patient compliance is critical to achieving quality outcomes.
Estimates vary from disease to disease, but generally indicate that between 30%
and 60% of all patients fail to take medications as prescribed. The consequences
of patient non-compliance with prescribed treatment plans represent a
significant portion of health care expenditures. One third-party study indicated
that patient non-compliance results in $100 billion in health care and lost
productivity costs annually. Costs associated with treating patients with
chronic diseases who fail to adhere to prescribed regimens have been
particularly difficult to control. When long-term treatments for chronic disease
have been prescribed, as many as 80% of all patients fail to carry out correctly
at least one element of the disease treatment regimen. Most health care
information systems in use today gather information in the hospital or at the
clinician's office and do not monitor adequately patient condition away from the
point of care. The Company believes that by coupling effective treatment
protocols with the ability to monitor patient condition and treatment regimen
compliance between physician interventions, health care providers and payors can
significantly enhance clinical outcomes while reducing costs.

The Company's strategy is to capitalize on its information technology
platform to become the leading provider of patient-centered health care
information programs. The key elements of this strategy are to: (i) introduce
information system programs for specific diseases on a customized basis for
client-specified disease targets and on a standardized basis for diseases
selected by the Company and marketed to multiple clients; (ii) implement
marketing and awareness programs to establish and demonstrate the expected
clinical benefits and cost-effectiveness of the Company's systems through
clinical studies, protocol development and research publications; (iii) analyze
collected outcomes data with advanced computational intelligence, including
neural networks, fuzzy logic and genetic algorithms, to develop improved
clinical protocols; (iv) develop or acquire additional technologies that enhance
its ability to gather information and interact with patients while the patient
is away from the health care provider; and (v) leverage the Company's technology
platform to develop additional applications, such as clinical trial data
compilation and analysis, patient surveys, clinical outcomes evaluation, demand
management and case management.

The Company was founded in February 1995, signed its first customer contract
in September 1995 and plans to enroll its first patients in its programs in
1996. Bristol-Myers Squibb Company, U.S. Pharmaceuticals Division and
Oncology/Immunology Division (collectively, "Bristol-Myers") has retained the
Company to provide customized disease state management systems for congestive
heart failure, cardiovascular disease, chronic pain and weight management. The
Bristol-Myers agreements call for development fees and per patient operational
fees. The Company has also entered into services agreements with American
HomePatient, Inc. ("American HomePatient") for a standardized program for
patients suffering from asthma, with Equifax Healthcare Administrative Services,
a division of Equifax, Inc. ("Equifax"), for standardized programs for patients
suffering from asthma and diabetes, and with Health Resources, Inc. ("Health
Resources") for standardized programs for patients suffering from asthma and
diabetes. Each of the Company's agreements for its standardized programs
provides for the Company to receive a per patient fee for services provided to
enrolled patients over the duration of the program.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock being offered..................................... 3,000,000 shares (1)
Common Stock outstanding after the offering.................... 10,404,000 shares (1)(2)
Use of proceeds................................................ For expansion of systems capabilities, for sales and
marketing activities and for working capital and
other general corporate purposes
Proposed Nasdaq National Market symbol......................... "PATI"
</TABLE>

RISK FACTORS

There are a number of risks that must be overcome for the Company's
integrated disease state management system to succeed, including achieving
market acceptance. See "Risk Factors."

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
FROM
FEBRUARY 22, 1995
(DATE OF FROM FEBRUARY 22,
INCORPORATION) 1995 (DATE OF
TO DECEMBER 31, SIX MONTH PERIOD ENDED INCORPORATION) TO
1995 JUNE 30, 1996 JUNE 30, 1996
----------------- FROM ----------------------- -------------------
FEBRUARY 22,
1995
(DATE OF
INCORPORATION)
TO
JUNE 30,
1995
----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 113,000 $ -- $ 465,416 $ 578,416
Total operating expenses....................... 1,255,661 271,662 1,765,992 3,021,653
----------------- ---------------- ----------- -------------------
Operating loss................................. (1,142,661) (271,662) (1,300,576) (2,443,237)
Interest income................................ 26,009 -- 20,669 46,678
----------------- ---------------- ----------- -------------------
Net loss....................................... $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
----------------- ---------------- ----------- -------------------
----------------- ---------------- ----------- -------------------
Net loss per common and
common share equivalents(3)................... $ (.14) $ (.03) $ (.15) $ (.29)
----------------- ---------------- ----------- -------------------
----------------- ---------------- ----------- -------------------
Weighted average common and common share
equivalents................................... 8,186,740 8,114,740 8,334,740 8,334,740
----------------- ---------------- ----------- -------------------
----------------- ---------------- ----------- -------------------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
ACTUAL AS ADJUSTED (4)
----------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................ $2,181,890 $29,481,890
Total assets............................................................... 3,792,485 31,092,485
Total liabilities.......................................................... 900,344 900,344
Deficit accumulated during the development stage........................... (2,396,559) (2,396,559)
Total stockholders' equity................................................. 2,892,141 30,192,141
</TABLE>

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

(1) Does not include 450,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."

(2) Based on the number of shares of Common Stock outstanding as of September
23, 1996. Includes 2,400,000 shares of Common Stock issuable upon conversion
in connection with this offering of all outstanding shares of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Stock") and
Series B Convertible Preferred Stock (the "Series B Preferred Stock" and,
collectively with the Series A Preferred Stock, the "Convertible Preferred
Stock"). Excludes (i) 1,104,000 shares of Common Stock issuable upon the
exercise of options outstanding under the Company's stock option plan at a
weighted average exercise price of $.55 per share, (ii) 155,503 shares of
Common Stock issuable upon the exercise of outstanding stock purchase
warrants at a weighted average exercise price of $.56 per share and (iii)
the issuance of additional shares of Common Stock upon an adjustment of the
conversion ratio for the Series B Preferred Stock if the shares of Common
Stock sold in this offering are sold at a price less than $10.00 per share.
See "Management--Stock Option Plan," "Description of Capital Stock" and Note
5 of Notes to Financial Statements.

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

(4) Gives effect to the conversion of all outstanding shares of Convertible
Preferred Stock into 2,400,000 shares of Common Stock in connection with
this offering and the sale of the shares of Common Stock offered hereby (at
an assumed public offering price of $10.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses) and
receipt of the estimated net proceeds therefrom.

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

UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OPTION TO PURCHASE FROM THE COMPANY UP TO 450,000
ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS, IF ANY, (II)
REFLECTS, UPON THE CLOSING OF THIS OFFERING, THE AUTOMATIC CONVERSION OF ALL
OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF 2,400,000
SHARES OF COMMON STOCK AND (III) DOES NOT GIVE EFFECT TO THE ISSUANCE OF
1,259,503 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF OUTSTANDING
OPTIONS AND WARRANTS OR THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UPON
AN ADJUSTMENT OF THE CONVERSION RATIO FOR THE SERIES B PREFERRED STOCK IF THE
SHARES OF COMMON STOCK SOLD IN THIS OFFERING ARE SOLD AT A PRICE LESS THAN
$10.00 PER SHARE. BECAUSE THE CONVERSION RATE OF THE SERIES B PREFERRED STOCK
WOULD BE ADJUSTED IF THE OFFERING PRICE OF THE SHARES OF COMMON STOCK IN THIS
OFFERING IS BELOW $10.00 PER SHARE, ALL CALCULATIONS INCLUDED IN THIS PROSPECTUS
BASED ON THE CONVERSION OF THE SERIES B PREFERRED STOCK ASSUME A PUBLIC OFFERING
PRICE OF $10.00 PER SHARE. IF THE PUBLIC OFFERING PRICE IS LOWER, A LARGER
NUMBER OF SHARES OF COMMON STOCK WOULD BE ISSUABLE UPON THE CONVERSION OF THE
SERIES B PREFERRED STOCK. SEE "CAPITALIZATION," "DILUTION," "MANAGEMENT--STOCK
OPTION PLAN," "DESCRIPTION OF CAPITAL STOCK," "UNDERWRITING" AND NOTES 4 AND 5
OF NOTES TO FINANCIAL STATEMENTS.

4
<PAGE>
THE COMPANY

The Company 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.

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In evaluating the Company and its business, prospective
investors should carefully consider the following risk factors. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below as well as those discussed elsewhere in this
Prospectus.

DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY; OPERATING LOSSES IN
EACH PERIOD OF OPERATION

The Company was formed on February 22, 1995, is in the development stage and
has a limited operating history from which to evaluate its performance. To date,
the Company has generated limited revenues and through June 30, 1996 had
incurred cumulative losses of $2,396,559, which losses are continuing. Although
the Company has completed the development of its integrated information capture
and delivery system, and the Company is developing several disease state
management programs for specific diseases, further development activities may be
necessary to implement these programs. The Company has not yet enrolled any
patients in any disease state management program. The Company anticipates that
its losses will continue at least until it has completed the development of
programs for several customers and has begun providing services to a substantial
number of patients for such customers. The Company may encounter problems and
delays in its research and development or sales and marketing efforts, and the
failure to address these problems and delays successfully could have a material
adverse effect on the Company's business prospects. The Company's prospects must
be considered in light of the numerous risks, expenses, delays and difficulties
frequently encountered in the establishment of a new business 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's development efforts will result in an ability
to provide any services that can be marketed or operated in a commercially
successful manner, or that any such services will be able to compete with other
services that might be in the market at the time that the Company's services are
made available. There can be no assurance that the Company will achieve
recurring revenue or profitability on a consistent basis or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements.

RELIANCE ON COMMERCIALLY UNTESTED TECHNOLOGY; UNCERTAINTY OF SYSTEM DEVELOPMENT
AND COMMERCIALIZATION

The Company has not yet tested its integrated information capture and
delivery system in commercial use, and no assurance can be given that
substantial additional programming and development efforts will not be necessary
to allow the Company to contact patients and to publish and process information
with the required speed and accuracy. The Company may be required to devote
considerable additional efforts and resources to enhance and refine its software
and hardware, and such efforts will remain subject to all of the risks inherent
in the development and commercialization of new products and services, including
unanticipated delays, expenses, additional technical problems or difficulties,
changes in customer preferences or needs, as well as the possible insufficiency
of funds which could result in abandonment or substantial change in the
development or commercialization of the Company's services. There can be no
assurance that the Company will be able to

5
<PAGE>
complete the development of its disease management programs or that it will be
able to develop the additional program enhancements needed to keep pace with
anticipated changes in customer preferences and needs. See
"Business--Information Capture, Delivery and Analysis Technologies."

TERMINABILITY OF AGREEMENTS; EXCLUSIVITY PROVISIONS

The Company's current services agreements with its customers 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. See "Business--Customer
Agreements."

SIGNIFICANT CUSTOMER CONCENTRATION

The Company's current contracts are concentrated in a small number of
customers, with five of the Company's ten contracts being with Bristol-Myers.
The Company expects that its sales of services will be concentrated in a small
number of customers for the foreseeable future. Consequently, the loss of any
one of its customers could have a material adverse effect on the Company and its
operations. There can be no assurance that customers will 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. See "Business--Customer
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 a new service designed to link patients, health
care providers and payors in order to provide specialized disease state
management for targeted chronic diseases. This is 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. The Company has entered into contracts with a very limited
number of customers and has not yet begun to provide services to these
customers. No conclusions can be made with respect to the market acceptance of
the Company's services based on this customer base. 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. See "Business--Sales and
Marketing."

6
<PAGE>
DEPENDENCE ON CUSTOMERS FOR MARKETING AND PATIENT ENROLLMENT

The Company has limited marketing experience and 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 health care
providers, 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 initial programs. The timing and extent of patient
enrollment is completely within the control of the Company's customers. 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. See
"Business--Customer Agreements."

UNPREDICTABILITY OF PATIENT BEHAVIOR MAY AFFECT SUCCESS OF PROGRAMS

The ability of the Company to monitor patient behavior and 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 and veracity 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. 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. See "Business-- Sales
and Marketing."

UNCERTAINTIES REGARDING ABILITY TO MANAGE RAPID GROWTH AND EXPANSION

The Company is retaining a program development and operating staff
sufficient to handle its current and anticipated business commitments, and
consequently is experiencing a period of rapid growth and expansion. Such growth
and expansion has placed and will continue to place a significant strain on the
Company's development, administrative personnel and other resources. The
Company's ability to manage such growth effectively will require the Company to
continue improving its operational, management and financial systems and
controls and to train, motivate and manage its employees. As a result, the
Company is subject to certain risks of expansion, including the risk that it
will be unable to retain the necessary personnel and acquire other resources
necessary to manage such growth adequately. In addition, to the extent that the
Company commences its expansion activities in anticipation of growth, it may
undertake significant financial commitments for which it will have
responsibility whether or not it enters into any additional services agreements
and regardless of the timing of payment for services. Accordingly, the Company
will likely have significant financial commitments without necessarily having
the revenues to offset such expenses. See "Use of Proceeds."

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

7
<PAGE>
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. See
"Business--Industry Overview."

RAPID TECHNOLOGICAL CHANGE AND OBSOLESCENCE

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. In addition, following this offering the Company will
maintain 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. See "Business--Information Capture, Delivery and
Analysis Technologies."

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

8
<PAGE>
business could be adversely affected by the failure to obtain required licenses
and governmental approvals, comply with applicable regulations or comply with
existing or future laws, rules or regulations or their interpretations.

POTENTIAL LIABILITY AND INSURANCE

The Company will provide information to health care providers and payors
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 $3
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 medical liability policy with coverage of $3 million in the
aggregate and per occurrence. There can be no assurance that the Company's
procedures for limiting liability have been or will be effective, that the
Company will not be subject to litigation that may adversely affect the
Company's results of operations, that appropriate insurance will be available to
it in the future at acceptable cost or at all or that any insurance maintained
by the Company will cover, as to scope or amount, any claims that may be made
against the Company.

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. In addition, as the Company commences commercial
activities and begins to initiate patient contacts, an increased burden will be
placed upon the Company's telecommunications equipment to process the large
number of incoming and outgoing telephone calls that will be placed every day.
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. See "Business--Information Capture, Delivery and
Analysis Technologies."

SUBSTANTIAL FLUCTUATION IN QUARTERLY OPERATING RESULTS

The Company's results of operations may fluctuate 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. Due to the foregoing factors, it is possible that the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

POSSIBLE NEED FOR ADDITIONAL FINANCING

The Company has been substantially dependent upon private placements of its
equity securities, through which the Company has raised $5.3 million to date, to
fund its research and development activities and working capital requirements.
In order to implement programs using the Company's integrated information
capture and delivery system, the Company will be required to devote substantial
additional assets to the development of technology, the construction of physical
facilities and the acquisition of telephone and computer equipment. The Company
will also be required to retain the services of employees in advance of
obtaining contracts to provide services. The Company anticipates, based on
currently proposed plans and assumptions relating to its operations (including
with respect to the timing of research and product development and the costs
associated with marketing and promotion of its system), that the proceeds of
this offering, together with available resources, will be sufficient to satisfy
the Company's contemplated cash requirements for at least 24 months following
the consummation of this offering. In the event that the Company's plans change,
or its assumptions change or prove to be inaccurate, the Company could be
required to seek additional financing or curtail its activities. The Company has
no current arrangements with respect to, or sources of, additional financing.
Any additional equity financing may involve substantial dilution to the

9
<PAGE>
interest of the Company's stockholders, and any debt financing could result in
operational or financial restrictions on the Company. There can be no assurance
that any additional financing will be available to the Company on acceptable
terms or at all. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

INTENSE 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. Many of the Company's competitors have significantly greater
financial, technical, product development and marketing resources than the
Company. Furthermore, other major information, pharmaceutical and health care
companies not presently offering disease state management or other health
information services may enter into the market in which the Company intends to
compete. With sufficient financial and other resources, many of these
competitors may provide services similar to those of the Company without
substantial barriers. The Company's potential competitors include specialty
health care information companies, health care information system and software
vendors, health care management organizations, pharmaceutical companies and
other service companies within the health care industry that have publicly
stated that they intend to be involved in providing comprehensive disease state
management or other health information services. The Company will also compete
against other companies that provide statistical and data management services,
including clinical trial services to pharmaceutical companies. Many potential
competitors have substantial installed customer bases in the health care
industry and the ability to fund significant product development and acquisition
efforts. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company. See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's continued success will depend upon its ability to retain
Donald A. Carlberg, its President and Chief Executive Officer, and a core group
of key officers and employees. The Company has entered into an employment
contract with Mr. Carlberg, expiring on March 1, 1997, but does not have
employment agreements or non-competition agreements with any other employees.
The Company maintains key man life insurance in the amount of $2 million on the
life of Mr. Carlberg and in the amount of $1 million on the life of Gregory D.
Brown, its Senior Vice President and Chief Financial Officer. The loss of
certain key employees or the Company's inability to attract and retain other
qualified employees could have an adverse impact on the Company's business.
Also, the Company's ability to transition from development stage to commercial
operations will depend upon, among other things, the successful recruiting of
highly skilled managerial and marketing personnel with experience in business
activities such as those contemplated by the Company. Competition for the type
of highly skilled individuals sought by the Company is intense. There can be no
assurance that the Company will be able to retain existing employees or that it
will be able to find, attract and retain skilled personnel on acceptable terms.
See "Management."

CONTROL OF THE COMPANY

Following this offering, the Company will be controlled by the executive
officers, directors and certain stockholders of the Company who will
beneficially own in the aggregate approximately 43% 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. See "Principal Stockholders."

MANAGEMENT'S DISCRETION WITH RESPECT TO USE OF PROCEEDS

The Company intends to use approximately $12 million of the net proceeds of
this offering for capital improvements and to expand telephone and computer
capabilities and approximately $5 million of the net proceeds for sales and
marketing. The balance of the net proceeds have not been designated for any
specific use. Rather, the Company intends to use the net proceeds primarily for
general corporate purposes, including working capital and potential acquisitions
of companies or technologies that complement or expand the Company's business.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. See "Use of Proceeds."

10
<PAGE>
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering or that the market price of the Common Stock
will not decline below the public offering price. The initial public offering
price of the Common Stock has been determined by negotiations between the
Company and the Representatives of the Underwriters. For a description of the
factors considered in determining the initial public offering price, see
"Underwriting." The market price of the Common Stock following this offering may
be highly volatile, as has been the case with the securities of other start-up
companies. In recent years, the stock market has experienced a high level of
price and volume volatility, and market prices for the stock of many companies
(particularly of small and emerging growth companies) have experienced wide
price fluctuations which have not necessarily been related to the operating
performance of such companies. These broad market fluctuations could have a
material adverse effect on the market price of the Common Stock.

IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS

The initial public offering price per share of the Common Stock will exceed
the net tangible book value per share of the Common Stock. Accordingly, the
purchasers of shares of Common Stock in this offering will experience immediate
dilution in net tangible book value per share of $7.10 (assuming a public
offering price of $10.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses). The Company has not paid any
dividends on its Common Stock and does not anticipate paying any dividends on
such stock in the foreseeable future. See "Dividend Policy" and "Dilution."

EFFECT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
10,404,000 shares of Common Stock (based on the number of shares of Common Stock
outstanding as of June 30, 1996). Of these shares, the 3,000,000 shares offered
hereby (3,450,000 shares if the Underwriters' over-allotment option is exercised
in full) will be eligible for immediate sale in the public market without
restriction unless they are held by affiliates of the Company. The 7,404,000
outstanding shares not sold in this offering will be "restricted securities"
within the meaning of Rule 144 ("Rule 144") promulgated under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available. Under current law, none of
these shares will be eligible for sale under Rule 144 until at least February
22, 1997, when 5,000,000 of these shares will be eligible for sale pursuant to
Rule 144, subject to the volume, manner of sale and other limitations thereof
and to the lock-up agreements with the Underwriters described below. The holders
of the 2,400,000 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock have demand and piggy-back registration rights with
respect to their shares commencing one year after the completion of this
offering. The holders of substantially all of the 7,404,000 shares of Common
Stock outstanding prior to this offering have agreed not to sell or otherwise
dispose of any such shares for at least 180 days after the date of this
Prospectus without the prior written consent of Smith Barney Inc. No predictions
can be made as to the effect, if any, that public sale of shares of Common
Stock, or the availability for sale of such shares, will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock in the public market, particularly by directors and officers
of the Company, or the perception that such sales could occur, could have an
adverse impact on the market price of the Common Stock and the Company's ability
to raise additional capital in the future. See "Shares Eligible for Future
Sale."

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's certificate of incorporation and bylaws
may inhibit changes in control of the Company not approved by the Company's
board of directors. The Company will also be afforded the protection of Section
203 of the Delaware General Corporation Law ("Delaware Law"), which could have
similar effects. These provisions could limit the price that investors might be
willing to pay in the future for shares of Common Stock, and consequently could
adversely affect the market for the Common Stock. See "Description of Capital
Stock."

11
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated expenses payable by the Company in connection with this offering, are
estimated to be approximately $27.3 million ($31.5 million if the Underwriters'
over-allotment option is exercised in full), assuming a public offering price of
$10.00 per share.

The Company intends to use approximately $12 million of the net proceeds of
this offering for capital improvements necessary for expansion of telephone and
computer capabilities, approximately $5 million of the net proceeds for sales
and marketing and the balance of the net proceeds for working capital and
general corporate purposes, potentially including acquisition of companies or
technologies that complement or expand the Company's business. The Company is
not a party to any purchase agreement or letter of intent with respect to any
acquisitions.

The actual amount of the net proceeds of this offering expended for each
purpose may vary significantly depending upon many factors, including the
progress of the Company's commercialization efforts, the success of the
Company's marketing efforts and the timing of the development of specific
programs for potential customers. Pending application of the net proceeds as
described above, the Company intends to invest the net proceeds of the offering
in short-term, interest bearing securities of investment grade or in short-term
bank deposits. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

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, commercialization and growth of its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements from time to time and such other factors as
the Board of Directors deems relevant. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect to the conversion of the Convertible
Preferred Stock into 2,400,000 shares of Common Stock in connection with this
offering, the sale of the shares of Common Stock offered hereby (assuming a
public offering price of $10.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses) and receipt of the
estimated net proceeds therefrom.

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Stockholders' equity:
Series A Convertible Preferred Stock, $0.01 par value; 1,800,000 shares
authorized, issued and outstanding, actual; and none issued or outstanding,
as adjusted................................................................ $ 18,000 $ --
Series B Convertible Preferred Stock, $0.01 par value, 600,000 shares
authorized, issued and outstanding, actual; and none issued or outstanding,
as adjusted................................................................ 6,000 --
Common Stock, $0.01 par value; 20,000,000 shares authorized; 5,004,000
shares issued and outstanding, actual; and 10,404,000 shares issued and
outstanding, as adjusted(1)................................................ 50,040 104,040
Additional paid-in capital.................................................. 5,214,660 32,484,660
Deficit accumulated during the development stage............................ (2,396,559) (2,396,559)
------------- -------------
Total stockholders' equity................................................ $ 2,892,141 $ 30,192,141
------------- -------------
------------- -------------
</TABLE>

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

(1) Excludes (i) 1,104,000 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's stock option plan at a weighted
average exercise price of $.55 per share, (ii) 155,503 shares of Common
Stock issuable upon the exercise of outstanding stock purchase warrants at a
weighted average exercise price of $.56 per share and (iii) the issuance of
additional shares of Common Stock upon an adjustment of the conversion ratio
for the Series B Preferred Stock if the shares of Common Stock sold in this
offering are offered at a price less than $10.00 per share. See
"Management--Stock Option Plan," "Description of Capital Stock" and Note 5
of Notes to Financial Statements."

13
<PAGE>
DILUTION

The pro forma net tangible book value of the Company as of June 30, 1996 was
$2,892,141, or $.39 per share. Pro forma net tangible book value per share is
determined by dividing the net tangible book value of the Company (total assets
less intangible assets and total liabilities) by the number of shares
outstanding, after giving effect to the conversion of all outstanding shares of
Convertible Preferred Stock into 2,400,000 shares of Common Stock. Without
taking into account any changes in pro forma net tangible book value after June
30, 1996, other than to give effect to the sale of the shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $10.00 per
share and after deducting underwriting discounts and commissions and estimated
offering expenses), the net tangible book value of the Company as of June 30,
1996 would have been approximately $30,192,141, or $2.90 per share. This
represents an immediate increase in net tangible book value of $2.51 per share
to existing stockholders and an immediate dilution of $7.10 per share to new
stockholders. The following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 10.00
Pro forma net tangible book value per share
before the offering.............................................. $ .39
Increase per share attributable to the offering................... 2.51
---------

Pro forma net tangible book value per share
after the offering................................................. 2.90
---------

Dilution per share to new investors................................. $ 7.10
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1996
(giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock), the number of shares purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and new investors (based upon, in the case of new investors, an assumed public
offering price of $10.00 per share and before deduction of estimated
underwriting discounts and commissions and offering expenses).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 7,404,000 71.2% $ 5,300,400 15.0% $ 0.72
New investors................................... 3,000,000 28.8 30,000,000 85.0 10.00
------------ ----- ------------- -----
Total....................................... 10,404,000 100.0% $ 35,300,400 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>

The foregoing tables assume no exercise of options or warrants outstanding
as of June 30, 1996. At such date, there were outstanding (i) options to
purchase 1,104,000 shares of Common Stock at a weighted average exercise price
of $.55 per share and (ii) warrants to purchase 155,503 shares of Common Stock
at a weighted average exercise price of $.56 per share. Had the exercise of
options and warrants outstanding at June 30, 1996 been reflected in the
computation, the pro forma net tangible book value per share before the offering
would have been $.41, the net tangible book value per share after the offering
would have been $2.65, and the dilution per share to new investors would have
been $7.35. In addition, the conversion rate of the Series B Preferred Stock
will be adjusted if the offering price of the shares of Common Stock is less
than $10.00. The computations above assume that the public offering price is
$10.00 per share. If the initial public offering price is lower, the number of
shares of Common Stock outstanding after the offering would be higher than
10,404,000. See "Management--Stock Option Plan," "Description of Capital Stock"
and Note 5 of Notes to Financial Statements.

14
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data set forth below as of December 31, 1995 and June
30, 1996, and for the period from February 22, 1995 (date of incorporation) to
December 31, 1995, for the six month period ended June 30, 1996 and from the
date of incorporation to June 30, 1996 have been derived from the Company's
financial statements, which have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere in this Prospectus. The
selected financial data set forth below for the period from the date of
incorporation to June 30, 1995 has been derived from the Company's unaudited
financial statements, has been prepared by the Company on a basis consistent
with the Company's audited financial statements and in the opinion of management
of the Company reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information. The results
of operations for the six month period ended June 30, 1996 and for the period
from the date of incorporation to June 30, 1995 are not necessarily indicative
of results that may be expected for the full fiscal year or any future period.
The financial data for the Company should be read in conjunction with the
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
FROM FROM
FEBRUARY 22, FEBRUARY 22,
1995 1995
(DATE OF (DATE OF FROM FEBRUARY
INCORPORATION) INCORPORATION) 22, 1995 (DATE
TO TO SIX MONTH OF
DECEMBER 31, JUNE 30, PERIOD ENDED INCORPORATION)
1995 1995 JUNE 30, 1996 TO JUNE 30, 1996
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 113,000 $ -- $ 465,416 $ 578,416
Operating expenses:
Cost of sales........................ 111,870 -- 447,312 559,182
Sales and marketing.................. 375,384 100,374 389,756 765,140
General and administrative........... 678,498 128,383 902,188 1,580,686
Research and development expenses.... 89,909 42,905 26,736 116,645
---------------- ---------------- ----------------- ----------------
Total operating expenses........... 1,255,661 271,662 1,765,992 3,021,653
---------------- ---------------- ----------------- ----------------
Operating loss......................... (1,142,661) (271,662) (1,300,576) (2,443,237)
Interest income........................ 26,009 -- 20,669 46,678
---------------- ---------------- ----------------- ----------------
Net loss............................... $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
Net loss per common and common share
equivalents(1)........................ $ (.14) $ (.03) $ (.15) $ (.29)
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
Weighted average common and common
share equivalents(1).................. 8,186,740 8,114,740 8,344,740 8,344,740
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
------------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 611,655 $ 2,181,890
Total assets.............................................................. 1,763,629 3,792,485
Total liabilities......................................................... 598,464 900,344
Deficit accumulated during the development stage.......................... (1,116,652) (2,396,559)
Total stockholders' equity................................................ 1,165,165 2,892,141
</TABLE>

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

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

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Financial Statements of the Company and Notes thereto appearing elsewhere in
this Prospectus.

OVERVIEW

The Company was formed on February 22, 1995, is in the development stage and
has a limited operating history from which to evaluate its performance. Although
the Company has completed the development of its integrated information capture
and delivery system and is developing several disease state management programs
for specific diseases, further development activities may be necessary to
implement these programs. The Company has not yet enrolled any patients in any
disease state management program.

The Company has generated limited revenues to date and has recorded losses
since inception, totalling $2,396,559 through June 30, 1996, which losses are
continuing to date. The Company anticipates that its losses will continue at
least until it has completed the development of programs for several customers
and has begun providing services to a substantial number of patients for such
customers.

The Company has entered into services agreements with Bristol-Myers 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 and (iv) patients suffering
from high levels of chronic pain. In addition, the Company has entered into
services agreements with American HomePatient, Equifax and Health Resources to
operate a program for patients suffering from asthma and with Equifax and Health
Resources to operate a program for patients suffering from diabetes. These
contracts provide for, and the Company anticipates future contracts will provide
for, fees paid by its customers based upon the number of patients participating
in each of its programs, as well as initial program development fees from
customers for the development of a disease-specific program. The Company's
program development contracts typically require payment from the customer at the
time that the contract is executed, with additional payments made as certain
development milestones are met. Development contract revenue is recognized on a
percentage of completion basis, in accordance with the ratio of total
development cost incurred to the estimated total development costs for the
entire project. Losses, if any, related to program development will be
recognized in full as identified. The Company's program operation contracts call
for a fixed 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 varies by contract, but will typically occur in advance of the Company
providing associated services. Revenues from program operations will be
recognized ratably as the program services are delivered. The amount of the per
patient fee is expected to vary 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 expects that it will require a substantial number of patients to
participate in its programs in order to generate revenues sufficient to support
its operations. Accordingly, the Company will be dependent upon the activities
of its customers in marketing the programs to their patients and the patients of
payors.

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

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

16
<PAGE>
RESULTS OF OPERATIONS

The Company generated revenue of $113,000 during the period from inception
on February 22, 1995 to December 31, 1995, and $465,416 during the six months
ended June 30, 1996. During the period from inception to December 31, 1995,
$84,000 of revenue was derived from development fees with respect to disease
state management programs and $29,000 of revenue was derived from fees with
respect to the development and conduct of a patient satisfaction survey and a
patient focus group. During the six months ended June 30, 1996, $461,023 of
revenue was derived from development fees with respect to disease state
management programs and $4,393 of revenue was derived from fees with respect to
the development and conduct of a patient satisfaction survey and a patient focus
group. The increase in program development fees reflects the increase in the
level of development activities for the Company's customized programs. The
decrease in revenues from the development and conduct of a patient satisfaction
survey and a patient focus group is a result of the completion of that project.

Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the development of disease
state management programs and a patient satisfaction survey and assembly of a
patient focus group. Cost of sales was $111,870 from inception to December 31,
1995, and $447,312 for the six months ended June 30, 1996. The increase in these
costs reflects an increased level of program development activities.

Sales and marketing expenses from inception to December 31, 1995 were
$375,384, and were $389,756 for the six months ended June 30, 1996. These costs
consisted primarily of salaries, related benefits costs and travel costs. These
expenditures allowed the Company to undertake initial marketing efforts to
pharmaceutical companies, payors and other health care services organizations.
The increase in these costs from 1995 to 1996 reflects an increase in the size
of the Company's sales and marketing staff from two at December 31, 1995 to four
at June 30, 1996.

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 from inception to
December 31, 1995 were $678,498, and were $902,188 for the six months ended June
30, 1996. These expenditures allowed the Company to create a corporate
infrastructure to support anticipated program development and operating
activity. The increase in these costs from 1995 to 1996 was caused by an
increase in the Company's general level of business activity, and the addition
of required administrative support staff and services.

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 the integrated
information capture and delivery system and its integrated disease state
management system. Research and development expenses from inception to December
31, 1995 were $89,909, and were $26,736 for the six months ended June 30, 1996.
The decrease in these costs from 1995 to 1996 reflects the completion of
development of certain of the Company's communication and information systems
and technologies.

The Company had a net loss of $1,116,652 from inception to December 31,
1995, representing a loss of $.14 per share on a pro forma basis, and a net loss
of $1,279,907 for the six months ended June 30, 1996, representing a loss of
$.15 per share on a pro forma basis. See Note 1 of Notes to Financial
Statements.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1996, the Company had working capital of $2,181,890. Since its
inception the Company has funded its operations, working capital needs and
capital expenditures from private placements of its equity securities. The
initial capitalization of $500,000 took place in February 1995. The Company
received $1.8 million from the sale of additional equity securities in a private
placement during the third quarter of 1995, $1.6 million of which was received
in August 1995, and $200,000 of which was received in September 1995,

17
<PAGE>

and $3.0 million from the sale of additional equity securities in a private
placement during the second quarter of 1996, $2,825,000 of which was received in
May 1996 and $175,000 of which was received in June 1996.

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

The Company has been substantially dependent upon private placements of its
equity securities to fund its research and development activities and working
capital requirements. In order to implement programs using the Company's
integrated information capture and delivery system, the Company will be required
to devote substantial additional assets to the development of technology, the
construction of physical facilities and the acquisition of telephone and
computer equipment. The Company will also be required to retain the services of
employees in advance of obtaining contracts to provide services. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations (including with respect to the timing of research and product
development and the costs associated with marketing and promotion of its
system), that the proceeds of this offering, together with available resources,
will be sufficient to satisfy the Company's contemplated cash requirements for
at least twenty-four months following the consummation of this offering. In the
event that the Company's plans change or its assumptions change or prove to be
inaccurate, the Company could be required to seek additional financing or
curtail its activities. The Company has no current arrangements with respect to,
or sources of, additional financing. The Company may also deem it desirable to
acquire assets, technologies or other entities in complementary or related
fields, or for other projects which management believes to be in the Company's
best interest, and therefore may reapportion proceeds of this offering to such
acquisition or project.

18
<PAGE>
BUSINESS

GENERAL

Patient Infosystems, Inc. provides patient-centered health care information
systems that proactively collect and analyze information to improve patient
compliance with prescribed treatments. The Company's technology platform
integrates treatment compliance algorithms with an advanced voice recognition
telephone system, high speed data processing and analysis capability and demand
publishing and information distribution capabilities. The system communicates
directly with the patient at home in order to elicit relevant patient-specific
data, evaluate the data and automatically transmit computer generated reports to
health care payors, providers and patients tailored to the specific needs of
each recipient.

INDUSTRY OVERVIEW

Health care costs have increased significantly in the United States in
recent years despite substantial attempts to control costs by the government and
private payors. According to the Federal government, national health
expenditures have increased from $540 billion in 1988 (11.1% of gross national
product ("GNP")) to a projected $1 trillion in 1995 (15.7% of projected GNP).
Faced with rapidly rising health benefit costs, employers are aggressively
seeking methods through managed care techniques to reduce the volume and unit
cost of health care services. By 1992, approximately 55% of Americans with
employer-sponsored health insurance were enrolled in some type of managed care
plan. The Company believes that payors have achieved substantial health care
cost savings to date through reducing the unit pricing for and utilization of
products and services. One way to achieve significant additional savings is to
change the way that health care is delivered to patients by focusing on quality
and cost efficient clinical outcomes. In an effort to lower costs, payors and
providers have encouraged the shifting of the treatment of patients from the
institutional setting to the home. As a result, more and more patients
administer their own medications away from the provider's scrutiny. However, the
Company believes that to date only limited progress has been made in
implementing cost-effective methods to monitor patient compliance with their
prescribed treatments. Yet the failure to comply with treatment regimens results
in significant unnecessary costs to the health care system. The Company believes
that as cost containment strategies move the point of care out of an
institutional setting, payors will require information systems that gather data
and facilitate behavior modification in the home.

Once effective clinical treatment decisions are made, patients must comply
with the prescribed treatment regimen to achieve the desired outcome. Estimates
vary from disease to disease, but generally indicate that between 30% and 60% of
all patients fail to take medications as prescribed. The consequences of patient
non-compliance with prescribed treatment plans represent a significant portion
of health care expenditures. One third-party study indicated that patient
non-compliance results in $100 billion in health care and lost productivity
costs annually. Costs associated with treating patients with chronic diseases
who fail to adhere to prescribed treatment regimens have been particularly
difficult to control. When long-term treatments for chronic disease have been
prescribed, as many as 80% of all patients fail to carry out correctly at least
one element of the disease treatment regimen. In addition, a 1990 study
indicated that over 5% of hospital admissions are caused by outpatient
noncompliance. The Company believes that by coupling

19
<PAGE>
effective treatment protocols with the ability to monitor patient condition and
treatment regimen compliance between physician interventions, health care
providers and payors can significantly enhance clinical outcomes while reducing
costs.

Monitoring patients by telephone can be a cost effective strategy for
improving the treatment of chronic diseases. One third-party study, which
involved patient contact by nurses to determine treatment compliance and disease
progress, indicated that the use of telephone follow-up saved an estimated 28%
in health care delivery costs for elderly, ambulatory patients with chronic
diseases. In addition, patients who received follow-up telephone care had 20%
fewer clinic visits, 14% overall less medication utilization, 20% fewer hospital
days and 41% fewer intensive care unit days. Telephone patient monitoring
systems may be used with a broad range of chronic patient treatment programs for
disease state management and outcome evaluation and other health care
applications.

STRATEGY

The Company's strategy is to capitalize on its advanced information
technology platform to become the leading provider of patient-centered health
care information programs. The key elements of this strategy are to:

INTRODUCE INFORMATION SYSTEM PROGRAMS FOR SPECIFIC DISEASES. The
Company develops software systems and identifies treatment protocols to
assist in the management of specific chronic diseases. The Company designs
and markets these systems either on a customized basis, in which a client
targets a specific disease and funds development and implementation of the
system, or on a standardized basis, in which the Company selects the target
disease, develops the system internally and then markets the system to
multiple end-users. The Company markets its customized systems to
pharmaceutical and pharmacy benefits management companies interested in
sponsoring disease state management programs to provide their managed care
customers with a value-added service. The Company typically markets its
standardized systems to payors and health care providers interested in
reducing the overall cost of health care delivery. These programs are
designed to modify patient behavior in order to improve treatment and
outcomes and reduce costs associated with non-compliance.

IMPLEMENT PROGRAMS THAT DEMONSTRATE CLINICAL BENEFITS AND
COST-EFFECTIVENESS. The Company markets its services based on the expected
reduction of overall health care costs that it believes will result from
improved treatment compliance by a given patient population. The Company
intends to complement its marketing efforts by conducting or sponsoring
clinical studies and implementing other measures designed to establish and
document the clinical and cost benefits it believes will result from the
application of its integrated information capture and delivery system. The
Company intends to promote the benefits of its system through publication in
clinical journals and presentations at scientific conferences of the results
of these studies.

ANALYZE COLLECTED OUTCOMES DATA WITH ARTIFICIAL INTELLIGENCE SYSTEMS TO
DEVELOP IMPROVED CLINICAL PROTOCOLS. As the Company's network of patients
expands, so will its database of relevant information with respect to
patient behavior, treatment efficacy and disease progression. The Company
has designed its system to enable analysis of captured data through a
variety of computer technologies, including neural networks, fuzzy logic and
genetic algorithms, for use by providers, payors and pharmaceutical
companies. The Company intends to use this information to improve treatment
algorithms and compliance behavior in an effort to improve treatment, and
thereby maximize positive patient outcomes and reduce costs.

DEVELOP OR ACQUIRE ADDITIONAL INFORMATION CAPTURE AND DELIVERY
TECHNOLOGIES. The Company plans to develop or acquire additional
technologies that enhance its ability to gather information and interact
with patients while the patient is away from the health care provider. The
Company has developed a wireless two-way communication system to provide
constant, uninterrupted information, and is developing a CD-ROM-based
educational information system for patient use and a means of using the

20
<PAGE>
Internet to interact directly with particular patients. The Company believes
that these additional technologies will allow the Company to provide and
obtain more detailed information both as a supplement to or as a substitute
for telephone interactions and printed materials.

LEVERAGE TECHNOLOGY PLATFORM TO DEVELOP ADDITIONAL APPLICATIONS. The
Company intends to use its expertise in information management and database
technologies to develop additional programs and services, such as clinical
trial data compilation and analysis, patient surveys, clinical outcomes
evaluation, demand management and case management. By gaining access to
certain customers through the provision of one type of information service,
the Company will be well positioned to provide additional services. For
example, the Company believes that as it provides clinical trial information
for pharmaceutical companies in connection with specific products, it will
also be in a position to provide disease state management services in
connection with the use of such drugs.

INFORMATION CAPTURE, DELIVERY AND ANALYSIS TECHNOLOGIES

The Company's technology platform integrates treatment algorithms with an
advanced voice recognition telephone system, high speed data processing and
analysis capability and demand publishing and information distribution
capabilities. The system utilizes trained telephone operators and a computerized
interactive voice response to communicate via telephone directly with the
patient at home in order to elicit patient-specific and relevant data. To
minimize costly live operator interaction, the computer initiates each call,
which when answered is automatically transferred to a live operator and then
manually switched to a recorded speech application. Patients respond to the
recorded speech application by using their normal speaking voice, which is
designed to ensure a more accurate and reliable response 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 demand publishing. Demand
publishing technology enables the creation of highly individualized reports by
inserting stored graphic images customized for race, gender and age. These
reports are also customized to the individual patient's specific situation, and
the system utilizes the information received during contacts with the patient to
further customize the content of the report. The data relevant to the separate
report for health care providers is formatted in a customized report to be
automatically transmitted via mail, fax or on-line.

Each contact with a patient contributes to the establishment of a
longitudinal data base which can be analyzed to provide insights to 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.

THE INTEGRATED DISEASE STATE MANAGEMENT SYSTEM

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

Each of the Company's integrated disease state management programs is
designed to provide one or more of the following benefits:

FOR PATIENTS:

-Improved access to and communication with health care resources beyond
existing hospital care and office and in-home provider visits

-Enhanced self-care skills and knowledge in the area of the disease
covered by the program

-Increased treatment adherence, motivation and confidence in disease
self-management resulting in improved quality of life

21
<PAGE>
-Reduced inconvenience, risk and expense associated with unscheduled
office visits, emergency room interventions and hospitalizations

FOR HEALTH CARE PROVIDERS:

-More comprehensive information on patient progress

-Quicker identification of hard-to-manage patients

-Enhanced ability to make timely treatment modifications

-Better utilization of health care resources appropriate to patient needs

-Expanded information for development of improved treatment methods

FOR PAYORS AND PROGRAM SPONSORS:

-Cost-effective management of the disease risk

-Improved patient compliance

-Improved treatment outcomes

-Enhanced patient and provider satisfaction

To date, no patients have been enrolled in any of the Company's disease
state management programs, and there can be no assurance that the benefits
described above will be attained. See "Risk Factors."

The system has three primary components. First, using a panel of recognized
medical and clinical experts, the Company develops a disease-specific patient
intervention/compliance program that includes a template for the integration of
each patient's history, current medical status and treatment protocol. If the
program is being developed on a custom basis for a particular customer, the
program is developed in consultation with the customer's clinical staff and
consultants. Second, the Company establishes periodic telephone contacts with
each patient to monitor the patient's adherence to prescribed therapies as well
as the patient's treatment progress. Third, using the information obtained from
patient contacts and other available information regarding the patient and his
or her treatment, such as physician records and pharmacy information,
personalized reports are prepared, typically following each patient contact, for
evaluation by the patient, the patient's health care provider and, on a periodic
basis, payors.

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

PATIENT ENROLLMENT. When a patient is enrolled in one of the Company's
disease state management programs a patient history will be obtained, including
the histories of the chronic illness, medications, and

22
<PAGE>
surgical procedures as well as other information deemed relevant by the
disease-specific compliance program. This information will be included in the
Company's database for each patient and distinct customized reports will be
printed for distribution to each of the patient's health care provider and payor
as well as the patient. The patient report can include information on the
prescribed treatment of the patient's disease as well as the use of the program
and other social support services to improve compliance with the patient's
treatment regimen. In addition, the Company's on-demand publishing technology
provides personalized behavior modification and educational materials for the
patient. The health care provider report contains the relevant clinical and
behavioral information gathered from the patient.

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

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

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

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

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

23
<PAGE>
PATIENT INFOSYSTEMS PROGRAMS. The following table lists certain of the
disease state management programs currently under development by the Company, as
well as other diseases identified as good candidates for disease state
management programs:

<TABLE>
<CAPTION>
ANNUAL DIRECT PROGRAM
COSTS AVAILABILITY
AFFECTED U.S. ASSOCIATED WITH FOR PATIENT
DISEASE CATEGORY POPULATION (1) TREATMENT (1) CUSTOMERS (2) ENROLLMENT (3)
- ------------------------------------------- ------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
PROGRAMS UNDER DEVELOPMENT:
Secondary Cardiovascular Disease (4) (5) Bristol-Myers 4th Qtr. 1996
Congestive Heart Failure 4,700,000 $18 billion Bristol-Myers 4th Qtr. 1996
Diabetes 16,000,000 $45 billion Equifax; Health 4th Qtr. 1996
Resources
Asthma 12,000,000 $3 billion American 4th Qtr. 1996
HomePatient;
Equifax; Health
Resources
Chronic Pain Management Not available Not available Bristol-Myers 4th Qtr. 1996
Weight Management--Cancer and AIDS Not available Not available Bristol-Myers 4th Qtr. 1996
Patients
ADDITIONAL IDENTIFIED DISEASE TARGETS:
Cancer 8,000,000 $35 billion
Depression 11,000,000 $15 billion
AIDS 330,000 $33 billion
Chronic Obstructive Pulmonary Disease 14,000,000 Not available
Hypertension 50,000,000 $43 billion
Osteoporosis 24,000,000 $10 billion
Arthritis 37,000,000 $15 billion
</TABLE>

- ------------
(1) This information is estimated and based upon published industry data.

(2) See "Business--Customer Agreements" for a description of the agreements with
customers.

(3) Patient enrollment is dependent upon the identification and referral by the
Company's customers of patients to the Company's system. As a result,
initial patient enrollment dates may differ from the date that the program
is available for enrollment.

(4) The patient population falling within this program's guidelines is a subset
of the population with cardiovascular disease, which exceeds 60 million
individuals.

(5) The associated direct costs are a portion of the $129 billion of total
annual direct cost of cardiovascular disease.

SECONDARY CARDIOVASCULAR DISEASE. It is estimated by the American Heart
Association that in 1994, $151 billion was spent in the United States for the
treatment of cardiovascular disease. Cardiovascular disease is treated with a
combination of medications, as well as dietary, lifestyle and behavior
modifications. The treatment is on-going and requires a high level of patient
discipline. The Company has entered into a services agreement with Bristol-Myers
to develop, implement and operate a disease state management program relating to
the prevention of cardiovascular sequelae in patients who have recently
experienced certain cardiovascular illnesses or treatments such as angina,
cardiac bypass surgery or heart attack. The Company has developed a secondary
cardiovascular disease program and expects the program to be available for
patient enrollment during the fourth quarter of 1996.

24
<PAGE>

CONGESTIVE HEART FAILURE. Elderly patients with heart failure are at
increased risk for rehospitalization after discharge. Behavioral factors such as
noncompliance with medications and poor diet as well as social isolation may
contribute to the hospital admissions. The Company has entered into a services
agreement with Bristol-Myers to develop, implement and operate a disease state
management program to aid in the treatment of patients suffering from congestive
heart failure and expects the program to be available for patient enrollment
during the fourth quarter of 1996.

DIABETES. Diabetes is an incurable disease characterized by elevated blood
glucose levels. The American Diabetes Association estimates that there are over
16 million diabetics in the United States, at least 700,000 of whom are
undergoing insulin therapy. Insulin therapy involves daily sampling of blood
and, in many cases, regular injections of insulin. Currently, the direct medical
expense for treatment of all diabetics and diabetes-related conditions within
the United States is estimated to be over $10 billion annually. With proper
treatment, diabetes should not be life threatening; however, untreated or
improperly treated diabetes can lead to such complications as blindness, kidney
disease, nervous disorders, vascular disease and death. The Company is
developing a disease state management program for diabetic patients that it is
marketing to payors. Equifax and Health Resources have retained the Company to
provide this disease state management program for patients who are suffering
from diabetes and are enrolled in health care programs for which they provide
services. The Company expects that its disease state management programs for
diabetes patients would be available for patient enrollment during the fourth
quarter of 1996.

ASTHMA. Asthma affects 12 million people in the United States, with direct
costs related to the disease estimated at $3 billion annually and noncompliance
with pharmacological therapy being the leading cause of hospitalization among
asthmatics. With proper treatment, patient understanding of the treatment plan
and a high level of patient compliance, most asthmatics may control their
disease effectively, which should result in a decrease in the number of asthma
episodes and the cost of care. The Company is developing a disease state
management program for asthmatic patients that it is marketing to payors.
American HomePatient, Equifax and Health Resources have retained the Company to
provide these disease state management programs for patients who are suffering
from asthma and are enrolled in health care programs for which they provide
services. The Company expects that its disease state management program for
asthmatic patients will be available for patient enrollment during the fourth
quarter of 1996.

CHRONIC PAIN MANAGEMENT. Persons suffering from cancer are often treated
with medication to alleviate constant, severe pain. Bristol-Myers has retained
the Company to develop, implement and update a program to manage patients who
are experiencing intense levels of chronic pain. The Company is developing a
disease state management program for chronic pain management and expects the
program to be available for patient enrollment during the fourth quarter of
1996.

WEIGHT MANAGEMENT--CANCER AND AIDS PATIENTS. The inability to maintain
adequate weight levels is a serious problem for individuals afflicted with
cancer or AIDS. Bristol-Myers has retained the Company to develop and implement
a program to mange patients suffering from anorexia or cachexia secondary to a
diagnosis of cancer or AIDS. The Company is developing a disease state
management program for weight management and expects the program to be available
for patient enrollment during the fourth quarter of 1996.

OTHER APPLICATIONS OF THE INTEGRATED INFORMATION CAPTURE AND DELIVERY SYSTEM

OUTCOMES ANALYSIS. The Company intends to utilize information gathered from
patients enrolled in its programs to serve two purposes. First, the information
as to 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, the
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 methodologies for analyzing the data using database

25
<PAGE>
management and information technologies, including neural network systems, fuzzy
logic and genetic algorithms. The Company intends to use these data analysis
technologies to predict the best treatment methodologies for specific patients.

CLINICAL STUDIES. Many pharmaceutical companies and clinical research
organizations are seeking more economical, efficient and reliable methods for
compiling and analyzing clinical data in conducting Phase III and Phase IV
clinical studies. Furthermore, many drug development protocols, particularly as
they relate to efficacy, have begun to place emphasis upon 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 Phase III and Phase IV clinical studies. The Company believes that
its system can also assist pharmaceutical companies in studying and documenting
the efficacy of products that are already developed in order to provide ongoing
information to the FDA or for internal marketing use.

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

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

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

SALES AND MARKETING

The Company markets its integrated disease state management system to those
organizations within the health care industry that are involved in the treatment
of disease or payment of medical services to patients who require complex or
long-term medical therapies. These include five distinct groups: pharmaceutical
companies, medical service companies, pharmacy benefits managers, health care
payors, such as managed care organizations and insurance companies, and employer
groups. The Company employs a sales and marketing staff of eight persons to
market the Company's systems and has entered into consulting agreements for
sales and marketing services with one additional person not employed by the
Company. In addition, the senior members of the Company's management are
actively engaged in marketing the Company's programs.

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

CUSTOMER AGREEMENTS

The Company is developing disease state management programs in conjunction
with the following customers for the indicated disease states:

26
<PAGE>
BRISTOL-MYERS

The Company has entered into four services agreements (the "Service
Agreements") with Bristol-Myers relating to the development, implementation and
operation by the Company of disease state management programs for certain
specified diseases. The Service Agreements provide for development fees to be
paid by Bristol-Myers to the Company upon the achievement of certain milestones
related to the disease state management programs, including the performance of
pilot programs for each disease state management program. Bristol-Myers has also
agreed to pay the Company operational fees per enrolled patient, which fees for
certain programs vary with the length, complexity and frequency of patient
contact dictated by the respective program protocols.

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

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

CONGESTIVE HEART FAILURE. The Company is a party to a Service Agreement
with Bristol-Myers dated February 1, 1996, to develop, implement and update a
program for patients suffering from congestive heart failure.

CARDIOVASCULAR DISEASE. The Company is party to a Service Agreement dated
September 18, 1995 with Bristol-Myers to develop, implement and update a program
in the English and Spanish languages for patients with cardiovascular disease
who have recently experienced moderate to severe angina, cardiac bypass surgery,
percutaneous transluminal coronary angioplasty or myocardial infarction.

CHRONIC PAIN. The Company is a party to a Service Agreement dated March 30,
1996 with Bristol-Myers to develop, implement and update a program for patients
who are experiencing intense levels of chronic pain. The initial phase of this
program is expected to be a thirty day trial monitoring cancer patients located
at the M.D. Anderson Cancer Center. A second phase of this program is expected
to consist of a twelve week trial monitoring cancer patients at numerous sites.
The final phase of this program will be the implementation of a program for use
in conjunction with products that Bristol-Myers may market in this area. Upon
the earlier of the commencement of the development of the final phase of the
program or December 31, 1996, Bristol-Myers may extend the Exclusivity Period
relating to the chronic pain management program for successive one-year periods
by agreeing to pay the Company a fee in the event that the program operational
fees paid to the Company by Bristol-Myers during the year fall below certain
levels.

27
<PAGE>
WEIGHT MANAGEMENT. The ability to prevent loss of body weight in certain
diseases is a significant quality of life concern. The Company is a party to a
Service Agreement, dated April 24, 1996, with Bristol-Myers to develop,
implement and update a program for patients suffering from anorexia or cachexia
secondary to a diagnosis of cancer or AIDS. The Company has agreed to conduct a
pilot program in this area, which is required to be initiated by November 1996.

PATIENT SATISFACTION SURVEY. The Company is also developing a patient
satisfaction survey and a general medication compliance program pursuant to a
services agreement with Bristol-Myers dated October 16, 1995. The patient
satisfaction survey is designed to measure a patient's satisfaction with the
services provided by their payor, and the general medication compliance
program's goal is to improve compliance with guidelines for using prescribed
pharmaceutical products. The services agreement calls for the payment to the
Company of program development fees as well as fees related to its providing
services to enrolled patients throughout the terms of the program protocols set
forth in the agreement. The Company and Bristol-Myers have agreed to indemnify
each other for losses arising from willful or negligent acts, omissions or
breaches of the services agreement by the indemnifying party. The services
agreement is terminable without cause by either party with 30 days' notice.

EQUIFAX

The Company is a party to a services agreement dated June 21, 1996 with
Equifax to implement and update a program for patients suffering from asthma.
The agreement provides for the Company to receive a per patient fee for services
provided to enrolled patients over the duration of the program. The agreement
may be terminated by either party with 30 days' notice.

The Company is also a party to a services agreement dated July 28, 1996 with
Equifax to implement and update a program for patients suffering from diabetes.
The agreement provides for the Company to receive a per patient fee for services
provided to enrolled patients over the duration of the program. The agreement
may be terminated by either party upon 30 days' notice.

AMERICAN HOMEPATIENT

The Company is a party to a services agreement dated June 24, 1996 with
American HomePatient to implement and update a program for patients suffering
from asthma. The agreement provides for the Company to receive a per patient fee
for services provided to enrolled patients over the duration of the program. In
addition, the Company is entitled to receive a joint marketing fee from American
HomePatient payable in stages over a 24 month period if American HomePatient is
successful in marketing the program with three health care payors. The agreement
may be terminated by either party upon 30 days' prior written notice.

HEALTH RESOURCES, INC.

The Company is a party to a services agreement dated September 13, 1996 with
Health Resources to implement and update a program for patients suffering from
asthma. The agreement provides for the Company to receive a per patient fee for
services provided to enrolled patients over the duration of the program. This
agreement may be terminated by either party upon 180 days' notice.

The Company is also a party to a services agreement dated September 13, 1996
with Health Resources to implement and update a program for patients suffering
from diabetes. The agreement provides for the Company to receive a per patient
fee for services provided to enrolled patients during the duration of the
program. This agreement may be terminated by either party upon 180 days' notice.

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 will compete 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

28
<PAGE>
disease state management or other health care information services may enter the
markets in which the Company intends to compete. In addition, with sufficient
financial and other resources, many of these competitors may provide services
similar to those of the Company without substantial barriers. The Company does
not possess any patents with respect to its integrated information capture and
delivery system, and although it has filed a provisional patent application with
respect to certain aspects of its integrated information capture and delivery
system and its integrated disease state management system, there can be no
assurance that this application will result in the issuance of a patent, or if
issued, that a patent would provide the Company with any competitive advantage.

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

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

QUALITY CONTROL AND SECURITY
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
will include random monitoring of telephone calls, patient surveys to confirm
patient participation and effectiveness of the particular program, and
supervisory reviews of telephone agents.

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

29
<PAGE>
financial arrangements that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. Possible sanctions for violation of these restrictions
include civil and criminal penalties. Further, criminal violations may result in
mandatory exclusions of up to five years and additional permissive exclusions
from participation in Medicare and Medicaid programs.

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

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

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

EMPLOYEES

As of September 23, 1996, the Company had 35 employees.

PROPERTIES
The Company's executive and corporate offices are located in Rochester, New
York in approximately 7,200 square feet of leased office space, under a lease
that expires on September 30, 1999.

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

30
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the Company's
directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Dr. Derace Schaffer.................................. 48 Chairman of the Board
Donald A. Carlberg................................... 44 Director, President and Chief Executive Officer
Gregory D. Brown..................................... 34 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
James D. Turner...................................... 36 Senior Vice President, Sales and Marketing
Kent A. Tapper....................................... 40 Vice President, Systems Engineering
Giancarla C. Miele................................... 52 Vice President, Operations
Dr. David B. Nash.................................... 40 Executive Vice President, Medical Affairs
Dr. Alvin I. Mushlin................................. 54 Senior Medical Advisor
John Pappajohn....................................... 67 Director
Dr. Barbara J. McNeil................................ 53 Director
Dr. Carl F. Kohrt.................................... 53 Director
</TABLE>

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

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

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

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

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

31
<PAGE>
Giancarla C. Miele has been Vice President, Operations, of the Company since
October 1995. From 1994 to 1995, Ms. Miele was Director of Operations for
Integrated Medical Delivery Corporation, a medical management firm. From 1992 to
1994, Ms. Miele was the Administrator of Cancer Care, Inc., an MSO in the
metropolitan Washington, D.C. region. From 1989 to 1992, Ms. Miele served as
Senior Consultant to CMA, a medical services consulting firm.

Dr. David B. Nash has been Executive Vice President, Medical Affairs of the
Company since April 1996. Dr. Nash is Director of Health Policy and Clinical
Outcomes at Thomas Jefferson University Hospital and Associate Professor of
Medicine at Jefferson Medical College. Dr. Nash is the recipient of the 1995
Clifton Latiolias Prize in Managed Care from the American Managed Care Pharmacy
Association. He also serves as a scientific advisory board member of iSTAT Corp.
Dr. Nash provides his services to the Company on a part-time consulting basis.

Dr. Alvin I. Mushlin has been Senior Medical Advisor of the Company since
April 1996. Dr. Mushlin is a Professor of Community and Preventative Medicine at
the University of Rochester, where he has served in various capacities since
1976. He is a member of the National Councils of the Society for General
Internal Medicine and the Society for Medical Decision Making and has served on
the Health Care Technology Study Section of the Agency for Health Care Policy
and Research. Dr. Mushlin provides his services to the Company on a part-time
consulting basis.

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

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

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

32
<PAGE>
DIRECTOR COMPENSATION

At present no separate cash compensation or fees are payable to directors of
the Company, other than reimbursement of expenses incurred in connection with
attending meetings. The Company expects, however, that new non-employee
directors not otherwise affiliated with the Company or its stockholders will be
paid in a manner and at a level consistent with industry practice.

On May 20, 1995, the Company granted options to acquire 50,000 shares of
Common Stock at an exercise price of $0.10 per share to Dr. Barbara McNeil, a
director of the Company. On August 25, 1995, the Company granted options to
acquire 50,000 shares of Common Stock to John Pappajohn, a director of the
Company, and options to acquire 50,000 shares of Common Stock to Dr. Derace
Schaffer, Chairman of the Board of Directors of the Company, with both of these
issuances having an exercise price of $0.50 per share. On April 8, 1996, the
Company granted options to acquire 50,000 shares of Common Stock at an exercise
price of $1.50 per share to Dr. Carl Kohrt, a director of the Company.

EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------ AWARDS SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) UNDERLYING OPTIONS (#)
- -------------------------------------------------------- --------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
Donald A. Carlberg, President and Chief Executive
Officer................................................ 1995(1) $ 96,417 $ 15,000 300,000
</TABLE>

- ------------
(1) Reflects compensation paid from February 22, 1995 (inception) through
December 31, 1995.

Messrs. Carlberg, Brown, Turner, Tapper and Ms. Miele are currently
compensated at annual rates of $150,000, $110,000, $110,000, $100,000 and
$100,000, respectively.

The following table sets forth certain information regarding options granted
to the Chief Executive Officer and other executive officers of the Company
during the period from inception on February 22, 1995 through December 31, 1995.

OPTION GRANTS IN 1995

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL YEAR $/SHARE DATE 5% ($) 10% ($)
- -------------------------------------- -------------- ---------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Carlberg.................... 250,000 27.3% $ .10 3/1/05 $ 15,722 $ 39,844
Donald A. Carlberg.................... 50,000 5.5 .50 8/25/05 15,722 39,844
Gregory D. Brown...................... 100,000 10.9 .10 5/1/05 6,289 15,937
Gregory D. Brown...................... 25,000 2.7 .50 8/25/05 7,861 19,922
Kent A. Tapper........................ 50,000 5.5 .10 7/24/05 3,144 7,969
Giancarla C. Miele.................... 50,000 5.5 .75 10/9/05 23,583 59,766
</TABLE>

- ------------
(1) 50,000 of Mr. Carlberg's options vested as of the date of the option grant.
The remainder of his options and all other options will become exercisable
at the rate of 20% per year from the date of grant and have

33
<PAGE>
ten- year terms as long as the optionee's employment with the Company
continues. The exercise price of each option is equal to the fair market
value of the underlying Common Stock on the date of the grant, as determined
by the Board of Directors.

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

No stock options were exercised by the Chief Executive Officer or other
executive officers of the Company during the period from inception on February
22, 1995 through December 31, 1995. The following table sets forth certain
information regarding unexercised options held by the Chief Executive Officer
and other executive officers of the Company at December 31, 1995.

AGGREGATED OPTION EXERCISES THROUGH DECEMBER 31, 1995 AND
DECEMBER 31, 1995 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995
AT DECEMBER 31, 1995 (#) ($)(1)
----------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Donald A. Carlberg..................................... 50,000/250,000 $57,500/$267,500
Gregory D. Brown....................................... 0/125,000 0/133,750
Kent A. Tapper......................................... 0/50,000 0/57,000
Giancarla C. Miele..................................... 0/50,000 0/25,000
</TABLE>

- ------------
(1) Calculated based upon $1.25 estimated fair market value of the underlying
securities as of December 31, 1995.

STOCK OPTION PLAN

The Company's Stock Option Plan (the "Plan") was originally adopted by the
Board of Directors and stockholders in June 1995. Up to 1,500,000 shares of
Common Stock have been authorized and reserved for issuance under the Plan.
Under the Plan, options may be granted in the form of incentive stock options
("ISOs") or non-qualified stock options ("NQOs") from time to time to salaried
employees, officers, directors and consultants of the Company, as determined by
the Compensation Committee of the Board of Directors. The Compensation Committee
determines the terms and conditions of options granted under the Plan, including
the exercise price. The Plan provides that the Committee must establish an
exercise price for ISOs that is not less than the fair market value per share at
the date of the grant. However, if ISOs are granted to persons owning more than
10% of the voting stock of the Company, the Plan provides that the exercise
price must not be less than 110% of the fair market value per share at the date
of the grant. The Plan also provides for a non-employee director to be entitled
to receive a one-time grant of a NQO to purchase 50,000 shares at an exercise
price equal to fair market value per share on the date of their initial election
to the Company's Board of Directors. Such NQO is exercisable only during the
non-employee director's term and automatically expires on the date such
director's service terminates. Each option, whether an ISO or NQO, must expire
within ten years of the date of the grant.

There are currently outstanding 1,104,000 options outstanding which have
been granted under the Plan, 580,000 of which have an exercise price of $0.10
per share, 175,000 of which have an exercise price of $.50 per share, 65,000 of
which have an exercise price of $.75 per share, 79,500 of which have an exercise
price of $1.25 per share and 204,500 of which have an exercise price of $1.50
per share. Of these options, 50,000 were

34
<PAGE>
granted as of March 1, 1995 to Mr. Carlberg and vested immediately. The
remainder of Mr. Carlberg's options and all other options granted under the plan
vest as to 20% of the option grant on the first anniversary of the grant, and
20% on each subsequent anniversary.

EMPLOYMENT AGREEMENT

The Company has entered into an employment agreement with Mr. Carlberg as
its President and Chief Executive Officer dated March 1, 1995, which has a term
of one year and is automatically renewed for successive one-year periods unless
either party receives written notice from the other party of such party's
intention not to renew within 60 days of the agreement's expiration date. The
agreement calls for Mr. Carlberg to receive a base salary of $125,000 per year,
which was increased to $150,000 per year in September 1996, and a bonus of
$25,000 on March 1, 1996 which was paid to Mr. Carlberg. Upon execution of the
agreement, Mr. Carlberg received a $15,000 signing bonus and an option to
purchase up to 250,000 shares of Common Stock of the Company at an exercise
price of $.10 per share. The option has a ten-year term, vests over five years
and was 20% vested upon grant. The remainder of the option vests at a rate of
20% per year, and the option is therefore fully exercisable after the first five
years of employment. Mr. Carlberg is eligible for any discretionary bonuses and
additional option grants in amounts to be determined by the Company's Board of
Directors based upon the performance of the Company and Mr. Carlberg. The
agreement prohibits Mr. Carlberg from engaging in any business activity
involving the measurement of clinical outcomes for patients with acute or
chronic diseases, or the measurement of patient compliance with prescribed
treatments for acute or chronic diseases within one year of the termination of
his employment with the Company.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Bylaws provide for mandatory indemnification rights, subject
to limited exceptions, to any officer or director of the Company who, by reason
of the fact that he or she is or was an officer or director of the Company, is
involved in a legal proceeding of any nature. In addition, the Restated
Certificate of Incorporation contains provisions limiting the personal liability
of directors to the Company or its shareholders for monetary damages arising
from certain acts or omissions in the director's capacity as a director.

CERTAIN TRANSACTIONS

The Company was initially capitalized on February 22, 1995 through the sale
of 5,000,000 shares of its Common Stock for $.10 per share. Included among the
participants in that transaction were Dr. Derace Schaffer, Chairman of the
Board, who purchased 2,300,000 shares, Dr. Schaffer's spouse who purchased
200,000 shares, John Pappajohn, a director, who purchased 752,500 shares, a sole
proprietorship owned by Mr. Pappajohn which purchased 500,000 shares. Mr.
Pappajohn's spouse, who purchased 500,000 shares, and a sole proprietorship
owned by Mr. Pappajohn's spouse which purchased 500,000 shares.

In August and September of 1995 the Company sold 1,800,000 shares of its
Series A Preferred Stock in a private placement for $1.00 per share. Included
among the participants in that transaction were Gregory D. Brown, Sr. Vice
President, Chief Financial Officer, Secretary and Treasurer, who purchased
10,000 shares, and Mr. Pappajohn who purchased 10,000 shares.

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

35
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 23, 1996 (giving effect to the
conversion of all outstanding shares of Convertible Preferred Stock into
2,400,000 shares of Common Stock) and as adjusted to reflect the sale of the
shares offered hereby (i) by each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) by each of the Company's
directors and its chief executive officer and (iii) by all directors and
executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OWNED
SHARES -----------------------------
BENEFICIALLY BEFORE THE AFTER
NAME (1) OWNED OFFERING THE OFFERING
- ---------------------------------------------------------------------------- ----------- ------------- --------------
<S> <C> <C> <C>
Derace L. Schaffer (2)...................................................... 2,370,000 32.0% 22.8%
John Pappajohn (3).......................................................... 1,984,000 26.8 19.1
Edgewater Private Equity Fund II, L.P. ..................................... 1,200,000 16.2 11.5
666 Grand Avenue, Suite 200
Des Moines, IA 50309
Donald A. Carlberg (4)...................................................... 100,000 1.3 1.0
Gregory D. Brown (5)........................................................ 33,000 * *
James D. Turner............................................................. -- -- --
Kent A. Tapper (6).......................................................... 10,000 * *
Giancarla C. Miele (7)...................................................... 10,000 * *
David B. Nash (8)........................................................... -- -- --
Alvin I. Mushlin (9)........................................................ -- -- --
Barbara J. McNeil (6)....................................................... 10,000 * *
Carl F. Kohrt (10).......................................................... -- -- --
All directors and executive officers as a
group (11 persons) (11).................................................... 4,517,000 59.6 42.7
</TABLE>

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

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

(2) Includes 400,000 shares held by Dr. Schaffer's minor children. Includes
options to purchase 10,000 shares which are either currently exercisable or
which become exercisable within 60 days of the date of this Prospectus.
Does not include 40,000 shares subject to outstanding options which are not
exercisable within 60 days of the date of this Prospectus.

(3) Includes 500,000 shares held by Halkis, Ltd., a sole proprietorship owned
by Mr. Pappajohn, 500,000 shares held by Thebes, Ltd., a sole
proprietorship owned by Mr. Pappajohn's spouse, and 500,000 shares held
directly by Mr. Pappajohn's spouse. Mr. Pappajohn disclaims beneficial
ownership of the shares owned by Thebes, Ltd. and by his spouse. Includes
options to purchase 10,000 shares which are either currently exercisable or
which become exercisable within 60 days of the date of this Prospectus.
Does not include 40,000 shares subject to outstanding options which are not
exercisable within 60 days of the date of this Prospectus.

(4) Represents options to purchase 100,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 225,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.

36
<PAGE>

(5) Includes options to purchase 25,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 115,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.

(6) Includes options to purchase 10,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 40,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.

(7) Includes options to purchase 10,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 90,000 shares subject to outstanding options
which are not exercisable within 60 days of the date of this Prospectus.

(8) Does not include 20,000 shares subject to outstanding warrants which are
not exercisable within 60 days of the date of this Prospectus.

(9) Does not include 10,000 shares subject to outstanding warrants which are
not exercisable within 60 days of the date of this Prospectus.

(10) Does not include 50,000 shares subject to outstanding options which are
not exercisable within 60 days of the date of this Prospectus.

(11) Includes options to purchase 175,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this
Prospectus. Does not include 670,000 shares subject to outstanding options
and warrants which are not exercisable within 60 days of the date of this
Prospectus.

DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK

The Company's Certificate of Incorporation authorizes the issuance of
25,000,000 shares of capital stock, divided into 20,000,000 shares of Common
Stock, $0.01 par value per share, and 5,000,000 shares of Preferred Stock, $0.01
par value per share, in one or more series with such terms as the Board of
Directors may determine. As of the date hereof, there are 5,004,000 shares of
outstanding Common Stock held by fifty-nine record holders, 1,800,000 shares of
Series A Preferred Stock outstanding held by twenty record holders and 600,000
shares of Series B Preferred Stock outstanding held by twenty-six record
holders. Pursuant to the Company's Certificate of Incorporation, all outstanding
shares of Convertible Preferred Stock will automatically convert into 2,400,000
shares of Common Stock as of the closing of this offering assuming an initial
public offering price of at least $10.00 per share. The terms of the Series B
Preferred Stock provide for a conversion rate adjustment that depends upon the
pricing of this offering. If the initial public offering price is lower than
$10.00 per share, the Conversion Rate shall be adjusted so that at the time of
conversion the aggregate market value of the Common Stock into which the Series
B Preferred Stock is converted will equal $10.00 multiplied by the number of
shares of Series B Preferred Stock converted. Such adjustment would result in a
larger number of shares of Common Stock being issuable upon conversion of the
Series B Preferred Stock. For example, if the initial public offering price were
$9.00 per share, an additional 66,666 shares of Common Stock will be issuable
upon the conversion of the Series B Preferred Stock.

The following is a brief summary of the terms of the various classifications
of capital stock giving pro forma effect to the automatic conversion of Series A
Preferred Stock and Series B Preferred Stock into shares of Common Stock at the
closing of this offering.

COMMON STOCK
No shares of Common Stock are entitled to preference over any other share,
and each share is equal to any other share in all respects. Holders of Common
Stock are entitled to one vote per share held of record at each meeting of
stockholders. Subject to the preferences that may be applicable to any
outstanding Preferred Stock, the holders of the Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See

37
<PAGE>
"Dividend Policy." In any distribution of capital assets, whether voluntary or
involuntary, holders of Common Stock are entitled to receive pro rata the assets
remaining after creditors have been paid in full and holders of Preferred Stock
have received their preferential distribution. Holders of the Common Stock have
no pre-emptive or conversion rights or other subscription rights. The
outstanding shares of Common Stock and those issuable upon conversion of the
Series A Preferred Stock and the Series B Preferred Stock will be, when issued,
duly authorized, validly issued, fully paid and non assessable.

PREFERRED STOCK
The Board of Directors is authorized to issue without stockholder approval
5,000,000 shares of Preferred Stock in one or more series and to determine and
alter all rights, preferences and privileges and qualifications, limitations and
restrictions thereof, including with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of stock, voting rights and other terms.

REGISTRATION RIGHTS

Holders owning fifty percent or more of the aggregate of the shares of
Common Stock into which any shares of the Series A Preferred Stock have been or
can be converted or the Series B Preferred Stock have been or can be converted
have the right on one occasion at any time commencing twelve months from the
date of the initial public offering of the Common Stock of the Company, but not
later than October 31, 2000 or May 31, 2001, respectively, to require the
Company to prepare and file a Registration Statement under the Securities Act
covering such shares of Common Stock, and the Company, at its expense, will use
its best efforts to cause such registration statement to become effective as
soon as possible.

In addition, the holders of Series A Preferred Stock and Series B Preferred
Stock are each entitled, subject to the approval of the underwriter, to two
"piggyback" registrations at the Company's expense as part of a registration by
the Company of its shares of Common Stock at any time commencing twelve months
from the date of the Initial Public Stock Offering, but not later than October
31, 2000 and May 31, 2001, respectively. Holders of Series A Preferred Stock and
Series B Preferred Stock are each granted the right on up to two occasions at
the participating holder's expense, and prior to October 31, 2000 and May 31,
2001, respectively, to have their shares registered on Form S-3 if such is
available for use by the Company and such holder or holders. The registration
rights are subject to a number of terms and conditions, including but not
limited to requirements as to minimum offering size and reaching satisfactory
underwriting terms.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability for (i) any
breach of their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the director derived an
improper personal benefit.

The Company's Bylaws provide that the Company shall indemnify its officers,
directors, employees and other agents to the extent permitted by Delaware law.
The Company's Bylaws also permit it to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the Bylaws would permit
indemnification.

TRANSFER AGENT AND REGISTRAR

The Company has appointed American Stock Transfer and Trust Company as its
transfer agent and registrar for the Company's Common Stock.

38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 10,404,000 shares of
Common Stock outstanding (based upon the number of shares outstanding as of
September 23, 1996 and without taking into account the additional shares of
Common Stock that would be issuable upon conversion of the Series B Preferred
Stock if the initial public offering price is lower than $10.00 per share). The
3,000,000 shares sold in this offering (3,450,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restriction under the Securities Act, except for any such shares held at any
time by an "affiliate" of the Company, as such term is defined under Rule 144
promulgated under the Securities Act.

The remaining 7,404,000 shares (the "Restricted Shares") were issued and
sold by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. In general, under Rule 144, as
currently in effect, a person, including an "affiliate" as that term is defined
in Rule 144, who has held "restricted" shares for a period of at least two years
from the later of the date such shares were acquired from the Company or the
date such shares were acquired from an affiliate, is entitled to sell, within
any three-month period, a number of restricted shares that does not exceed the
greater of one percent (1%) of the then outstanding shares of Common Stock or
the average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are subject to certain manner of sale limitations,
notice requirements and the availability of current public information about the
Company. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has held restricted shares for a period of at least three years from the
later of the date such shares were acquired from the Company and the date they
were acquired from an affiliate is entitled to sell such shares at any time
under Rule 144 without regard to the limitations described above.

The holders of substantially all of the outstanding shares of Common Stock
have agreed pursuant to certain agreements (the "Lock-up Agreements") that they
will not sell or otherwise dispose of any shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Smith Barney Inc.

Of the 7,404,000 Restricted Shares, 5,000,000 Restricted Shares will become
eligible for sale in February 1997, subject to compliance with the volume and
other limitations of Rule 144. In addition, 1,800,000 Restricted Shares will
become eligible for sale in August and September 1997 and 600,000 Restricted
Shares will become eligible for sale during May and June 1998, all subject to
compliance with the volume and other limitations of Rule 144.

Rule 701 ("Rule 701") under the Securities Act provides an exemption from
the registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans or written
contracts of a company not subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act (the "Exchange Act"). Securities issued
pursuant to Rule 701 are defined as restricted securities for purposes of Rule
144. However, 90 days after the issuer becomes subject to the reporting
provisions of the Exchange Act, the Rule 144 resale restrictions, except for the
broker's transaction requirement, do not apply to shares acquired pursuant to
Rule 701 by non-Affiliates. Affiliates are subject to all Rule 144 restrictions
after this 90-day period, but without the Rule 144 holding period requirement.
If all the requirements of Rule 701 are met, upon expiration of the Lock-up
Agreements, an aggregate of 319,300 shares of Common Stock issued upon the
exercise of options granted and issuable on exercise of currently outstanding
options will become eligible for sale pursuant to such rule (subject to
applicable Rule 144 restrictions), substantially all of which shares are subject
to the Lock-up Agreements.

The Securities and Exchange Commission has proposed amendments to Rule 144
and Rule 144(k) that would permit resales of Restricted Shares under Rule 144
after a one-year, rather than a two-year holding period, subject to compliance
with the other provisions of Rule 144, and would permit resale of Restricted
Shares by non-Affiliates under Rule 144(k) after a two-year, rather than a
three-year, holding period. Assuming adoption of such amendments, approximately
6,800,000 of the Restricted Shares will be eligible

39
<PAGE>
for sale in the public market immediately after this offering pursuant to Rule
144 (subject to compliance with the volume and other limitations of Rule 144),
substantially all of which shares are subject to the Lock-up Agreements.

The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices and the
Company's ability to raise additional capital in the future.

40
<PAGE>
UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc.....................................................................................
Needham & Company, Inc...............................................................................

----------
Total............................................................................................ 3,000,000
----------
----------
</TABLE>

The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc. and Needham & Company, Inc. are
acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed by the Underwriters. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 450,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

41
<PAGE>
The Company, its officers and directors and certain other stockholders,
holding in the aggregate substantially all of the Company's currently
outstanding equity securities, have agreed that, for a period of 180 days after
the date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock except, in the case of the Company, in certain
limited circumstances.

At the Company's request, the Representatives have agreed to reserve up to
150,000 shares of Common Stock for sale at the public offering price to Company
employees and other persons having certain business relationships with the
Company. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase such reserved shares. Any reserved
shares not purchased will be offered by the Underwriters to the general public
on the same basis as the other shares offered hereby.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. The factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present earnings and
the trend of such earnings, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the offering and the market prices and earnings
of similar securities of comparable companies at the time of the offering.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Crummy, Del Deo, Dolan, Griffinger &
Vecchione, Newark, New Jersey. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.

EXPERTS

The financial statements of the Company as of December 31, 1995 and June 30,
1996 and for the period from February 22, 1995 (date of incorporation) to
December 31, 1995, the six month period ended June 30, 1996, and the period from
February 22, 1995 (date of incorporation) to June 30, 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act a Registration Statement with respect to
the Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference, but such statements are complete in all material
respects for the purposes herein made. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549; at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and at its New York Regional Office, Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.

42
<PAGE>
PATIENT INFOSYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report.............................................................................. F-2
Balance Sheets as of December 31, 1995, June 30, 1996 and June 30, 1996 pro forma (unaudited)............ F-3
Statements of Operations for the period from February 22, 1995 (date of incorporation) to December 31,
1995, for the period from February 22, 1995 (date of incorporation) to June 30, 1995 (unaudited), for
the six month period ended June 30, 1996 and for the period from February 22, 1995 (date of
incorporation) to June 30, 1996......................................................................... F-4
Statements of Stockholders' Equity for the period from February 22, 1995 (date of incorporation) to June
30, 1996................................................................................................ F-5
Statements of Cash Flows for the period from February 22, 1995 (date of incorporation) to December 31,
1995, for the period from February 22, 1995 (date of incorporation) to June 30, 1995 (unaudited), for
the six month period ended June 30, 1996 and for the period from February 22, 1995 (date of
incorporation) to June 30, 1996......................................................................... F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Patient Infosystems, Inc.:

We have audited the accompanying balance sheets of Patient Infosystems, Inc.
(formerly Disease State Management, Inc.) (a development stage enterprise) as of
December 31, 1995 and June 30, 1996 and the related statements of operations,
stockholders' equity, and cash flows for the period from February 22, 1995 (date
of incorporation) to December 31, 1995, for the six month period ended June 30,
1996 and for the period from February 22, 1995 (date of incorporation) to June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Patient Infosystems, Inc. as of December 31,
1995 and June 30, 1996, and the results of its operations and its cash flows for
the period from February 22, 1995 (date of incorporation) to December 31, 1995,
for the six month period ended June 30, 1996 and for the period from February
22, 1995 (date of incorporation) to June 30, 1996, in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

Rochester, New York
July 16, 1996

F-2
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS
JUNE 30, 1996
DECEMBER 31, 1995 JUNE 30, 1996 PRO FORMA
----------------- -------------- --------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 1,182,080 $ 2,904,799 $ 2,904,799
Accounts receivable............................. 4,055 72,262 72,262
Prepaid expenses and other current assets....... 23,984 105,173 105,173
----------------- -------------- --------------
Total current assets........................ 1,210,119 3,082,234 3,082,234
Property and Equipment, net....................... 553,510 710,251 710,251
----------------- -------------- --------------
Total Assets...................................... $ 1,763,629 $ 3,792,485 $ 3,792,485
----------------- -------------- --------------
----------------- -------------- --------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................ $ 362,769 $ 148,668 $ 148,668
Accrued salaries and wages...................... 48,259 176,157 176,157
Accrued expenses................................ 19,381 74,170 74,170
Accrued loss on development contract............ -- 46,923 46,923
Deferred revenue................................ 168,055 454,426 454,426
----------------- -------------- --------------
Total current liabilities................... 598,464 900,344 900,344
----------------- -------------- --------------

Commitments and Contingencies (Note 6)
Stockholders' Equity:
Preferred stock--$.01 par value; authorized
5,000,000 shares:
Series A Convertible Preferred Stock;
1,800,000 shares authorized, issued and
outstanding (liquidation preference
$1,800,000).................................. 18,000 18,000 --
Series B Convertible Preferred Stock; 600,000
shares authorized, issued and outstanding
(liquidation preference $3,000,000).......... -- 6,000 --
Common stock--$.01 par value; authorized
20,000,000 shares; 5,004,000 shares issued and
outstanding (7,404,000 shares pro forma)....... 50,040 50,040 74,040
Additional paid-in capital...................... 2,213,777 5,214,660 5,214,660
Deficit accumulated during the development
stage.......................................... (1,116,652) (2,396,559) (2,396,559)
----------------- -------------- --------------
Total stockholders' equity.................. 1,165,165 2,892,141 2,892,141
----------------- -------------- --------------
Total Liabilities and Stockholders' Equity........ $ 1,763,629 $ 3,792,485 $ 3,792,485
----------------- -------------- --------------
----------------- -------------- --------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

F-3
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995 SIX MONTH
(DATE OF INCORPORATION) PERIOD ENDED
TO DECEMBER 31, 1995 JUNE 30, 1996
------------------------------ -------------------
PERIOD FROM
FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1995
------------------------------
(UNAUDITED)
Revenues................................ $ 113,000 $ -- $ 465,416
<S> <C> <C> <C>
----------- ----------- -------------------
Costs and Expenses:
Cost of sales......................... 111,870 -- 447,312
Sales and marketing................... 375,384 100,374 389,756
General and administrative............ 678,498 128,383 902,188
Research and development.............. 89,909 42,905 26,736
----------- ----------- -------------------
Total costs and expenses............ 1,255,661 271,662 1,765,992
----------- ----------- -------------------
Operating Loss.......................... (1,142,661) (271,662) (1,300,576)
Interest Income......................... 26,009 -- 20,669
----------- ----------- -------------------
Net Loss................................ $(1,116,652) $ (271,662) $ (1,279,907)
----------- ----------- -------------------
----------- ----------- -------------------
Net Loss Per Common and Common Share
Equivalents............................ $ (.14) $ (.03) $ )(.15
----------- ----------- -------------------
----------- ----------- -------------------
Weighted Average Common and Common Share
Equivalents............................ 8,186,740 8,114,740 8,344,740
----------- ----------- -------------------
----------- ----------- -------------------

<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1996
------------------------------

Revenues................................ $ 578,416
<S> <C>
-----------
Costs and Expenses:
Cost of sales......................... 559,182
Sales and marketing................... 765,140
General and administrative............ 1,580,686
Research and development.............. 116,645
-----------
Total costs and expenses............ 3,021,653
-----------
Operating Loss.......................... (2,443,237)
Interest Income......................... 46,678
-----------
Net Loss................................ $(2,396,559)
-----------
-----------
Net Loss Per Common and Common Share
Equivalents............................ $ (.29)
-----------
-----------
Weighted Average Common and Common Share
Equivalents............................ 8,344,740
-----------
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

F-4
<PAGE>

PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 22, 1995 (DATE OF INCORPORATION)
TO JUNE 30, 1996

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- ------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
--------- -------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock, substantially all of
which was issued on February 22, 1995 at
$0.10 per share............................. -- $ -- 5,004,000 $50,040 $ 450,360 $ --
Sale of Series A convertible preferred stock
at $1.00 per share in August and September
1995 (net of issuance costs of $18,583)..... 1,800,000 18,000 -- -- 1,763,417 --
Net loss for the period from date of
incorporation to December 31, 1995.......... -- -- -- -- -- (1,116,652)
--------- -------- --------- -------- ----------- ------------
Balances, December 31, 1995.................. 1,800,000 18,000 5,004,000 50,040 2,213,777 (1,116,652)
Sale of Series B convertible preferred stock
at $5.00 per share in May and June 1996 (net
of issuance costs of $3,250)................ 600,000 6,000 -- -- 2,990,750 --
Issuance of stock warrants................... -- -- -- -- 10,133 --
Net loss for the period January 1, 1996 to
June 30, 1996............................... -- -- -- -- -- (1,279,907)
--------- -------- --------- -------- ----------- ------------
Balances, June 30, 1996...................... 2,400,000 24,000 5,004,000 50,040 5,214,660 (2,396,559)
Conversion of Series A and B convertible
preferred stock to common stock -- pro forma
(unaudited)................................. (2,400,000) (24,000) 2,400,000 24,000 -- --
Balances, June 30, 1996 -- pro forma
(unaudited)................................. -- $ -- 7,404,000 $74,040 $5,214,660 $(2,396,559)
--------- -------- --------- -------- ----------- ------------
--------- -------- --------- -------- ----------- ------------

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Sale of common stock, substantially all of
which was issued on February 22, 1995 at
$0.10 per share............................. $ 500,400
Sale of Series A convertible preferred stock
at $1.00 per share in August and September
1995 (net of issuance costs of $18,583)..... 1,781,417
Net loss for the period from date of
incorporation to December 31, 1995.......... (1,116,652)
-------------
Balances, December 31, 1995.................. 1,165,165
Sale of Series B convertible preferred stock
at $5.00 per share in May and June 1996 (net
of issuance costs of $3,250)................ 2,996,750
Issuance of stock warrants................... 10,133
Net loss for the period January 1, 1996 to
June 30, 1996............................... (1,279,907)
-------------
Balances, June 30, 1996...................... 2,892,141
Conversion of Series A and B convertible
preferred stock to common stock -- pro forma
(unaudited)................................. --
Balances, June 30, 1996 -- pro forma
(unaudited)................................. $ 2,892,141
-------------
-------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

F-5
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995 SIX MONTH
(DATE OF INCORPORATION) PERIOD ENDED
TO DECEMBER 31, 1995 JUNE 30, 1996
------------------------------ -------------------
PERIOD FROM
FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1995
------------------------------
(UNAUDITED)
Operating Activities:
<S> <C> <C> <C>
Net loss.............................. $(1,116,652) $ (271,662) $(1,279,907)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 26,473 3,781 82,437
Compensation expense related to
issuance of stock warrants......... -- -- 10,133
Increase in accounts receivable..... (4,055) -- (68,207)
Increase in prepaid expenses and
other current assets............... (23,984) (7,030) (81,189)
Increase (decrease) in accounts
payable............................ 362,769 13,449 (214,101)
Increase in accrued salaries and
wages.............................. 48,259 -- 127,898
Increase in accrued expenses........ 19,381 20,647 54,789
Increase in deferred revenue........ 168,055 -- 286,371
Increase in accrued loss on
development contract............... -- -- 46,923
--------------- ------------ -------------------
Net cash used in operating
activities....................... (519,754) (240,815) (1,034,853)
--------------- ------------ -------------------
Investing Activity:
Property and equipment additions...... (579,983) (75,627) (239,178)
--------------- ------------ -------------------
Financing Activity:
Proceeds from issuance of common and
preferred stock, net................. 2,281,817 500,000 2,996,750
--------------- ------------ -------------------
Increase in Cash and Cash Equivalents... 1,182,080 183,558 1,722,719
Cash and Cash Equivalents at Beginning
of Period.............................. -- -- 1,182,080
--------------- ------------ -------------------
Cash and Cash Equivalents at End of
Period................................. $ 1,182,080 $ 183,558 $2,904,799
--------------- ------------ -------------------
--------------- ------------ -------------------

PERIOD FROM FEBRUARY 22, 1995
(DATE OF INCORPORATION)
TO JUNE 30, 1996
------------------------------

Operating Activities:
<S> <C>
Net loss.............................. $(2,396,559)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 108,910
Compensation expense related to
issuance of stock warrants......... 10,133
Increase in accounts receivable..... (72,262)
Increase in prepaid expenses and
other current assets............... (105,173)
Increase (decrease) in accounts
payable............................ 148,668
Increase in accrued salaries and
wages.............................. 176,157
Increase in accrued expenses........ 74,170
Increase in deferred revenue........ 454,426
Increase in accrued loss on
development contract............... 46,923
---------------
Net cash used in operating
activities....................... (1,554,607)
---------------
Investing Activity:
Property and equipment additions...... (819,161)
---------------
Financing Activity:
Proceeds from issuance of common and
preferred stock, net................. 5,278,567
---------------
Increase in Cash and Cash Equivalents... 2,904,799
Cash and Cash Equivalents at Beginning
of Period.............................. --
---------------
Cash and Cash Equivalents at End of
Period................................. $ 2,904,799
---------------
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

F-6
<PAGE>

PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995 AND FOR
THE SIX MONTH PERIOD ENDED JUNE 30, 1996

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DEVELOPMENT STAGE ACTIVITIES

The Company was incorporated in Delaware on February 22, 1995 under the name
DSMI Corp., changed its name to Disease State Management, Inc. on October 13,
1995, and on June 28, 1996 changed its name to Patient Infosystems, Inc. The
Company has selected December 31 as the close of its fiscal year.

Through June 30, 1996 the Company's development activities have consisted
primarily of efforts to raise funds, develop the first application of its
information capture and delivery system (which is a system that proactively
collects and analyzes information relevant to patients in specific disease
categories to improve patient compliance with prescribed regimens), and market
its disease management programs for specific diseases. Successful completion of
the Company's program development, and ultimately the attainment of profitable
operations, is dependent upon future events, including obtaining adequate
financing to fund its research and development activities and achieving market
acceptance of its products.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to fairly present the results of
operations and cash flows for the period from February 22, 1995 (date of
incorporation) to June 30, 1995. All such adjustments are of a normal recurring
nature.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of current assets and current
liabilities which are carried at cost, which approximates fair market value.

REVENUE RECOGNITION AND DEFERRED REVENUE

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

Development Contracts

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

F-7
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Program Operations

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

CASH EQUIVALENTS

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 accounts receivable. The Company
places its cash with high credit-quality institutions. At times such amounts may
be in excess of FDIC insurance limits.

The Company's current contracts are concentrated in a small number of
customers, with five of the Company's ten contracts being with one customer.
During the six month period ended June 30, 1996 and the period from February 22,
1995 (date of inception) to December 31, 1995, approximately $455,000 (98%) and
$84,000 (74%), respectively, of the Company's revenues arose from contracts with
one customer. At June 30, 1996 and December 31, 1995, accounts receivable
included balances of $52,000 and $-0-, respectively, from contracts with that
customer. The loss of any one of its customers could have a material adverse
effect on the Company and its operations.

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.

RESEARCH AND DEVELOPMENT

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

INCOME TAXES

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

NET LOSS PER SHARE

Net loss per share is based on the weighted average number of common and
common share equivalents outstanding during the period using the Treasury Stock
method. Common share equivalents include Series A and B Convertible Preferred
Stock, common stock options and common stock warrants. For purposes of this
calculation, all common shares issued and stock options and warrants granted by
the Company at a price less than the estimated initial public offering price
during the twelve months preceding the offering date (using the treasury stock
method until shares are issued and an assumed public offering price of $10 per
share) have been included in the calculation of common and common share
equivalents outstanding.

F-8
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

UNAUDITED PRO FORMA INFORMATION

The Company is preparing for an initial public offering of its common stock
which, upon completion, would result in the conversion of the outstanding shares
of the Company's preferred stock into shares of its common stock (see Note 4).
The unaudited pro forma balance sheet information is presented as if such
conversion had occurred as of June 30, 1996.

NEW ACCOUNTING STANDARD

In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that long-lived
assets and certain indentifiable intangibles to be held and used be reported at
the lower of carrying amount or fair value. Assets to be disposed of and assets
not expected to provide any future service potential to the Company are recorded
at the lower of carrying amount or fair value less cost to sell. The adoption of
SFAS No. 121 did not have a material effect on the Company's financial position
or results of operations.

2. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1995 1996
----------- -----------

<S> <C> <C>
Computer software................................. $137,153 $181,927
Computer equipment................................ 242,393 371,240
Telephone equipment............................... 120,233 124,996
Leasehold improvements............................ 12,200 23,454
Office furniture and equipment.................... 68,004 117,544
----------- -----------
579,983 819,161
Less accumulated depreciation and amortization.... 26,473 108,910
----------- -----------
Property and equipment, net....................... $553,510 $710,251
----------- -----------
----------- -----------
</TABLE>

3. INCOME TAXES

The Company has not recorded any income tax expense during the period from
incorporation to June 30, 1996 because of operating losses incurred since
incorporation.

As of June 30, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $2,400,000 which are available to
offset future Federal taxable income. These carryforwards expire in 2010. No tax
benefit relating to the net operating loss carryforwards has been reflected in
the financial statements due to the uncertainty regarding the utilization of any
such benefit, and a valuation allowance has been recognized to offset any
deferred tax asset related to this item. Future benefit may occur to the extent
taxable income is earned prior to the expiration of the carryforward period.

Section 382 of the Internal Revenue Code imposes certain limitations on the
use of net operating loss carryforwards in cases of a change in ownership of a
corporation, as defined in the Code. These provisions place an annual limitation
on the amount of pre-change losses that can be used to offset post-change
taxable income, with any unused limitation amounts and losses carrying forward.
The limitation is computed by

F-9
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995

3. INCOME TAXES (CONTINUED)

multiplying the Federal long-term tax exempt rate (currently approximately 5.8%)
by the fair value of the corporation immediately prior to the change in control.
It is not anticipated that a change in control, as defined, will occur as a
result of the current proposed offering.

4. PREFERRED STOCK

The Company has 5,000,000 shares of authorized preferred stock and has the
ability to issue different series with different rights and preferences. A
summary of the rights and preferences related to the Series A and B Convertible
Preferred Stock is as follows:

The holders of Series A and B Convertible Preferred Stock have the right to
convert their shares into shares of Common Stock at the rate of one share of
Common Stock for each share of Series A and B Convertible Preferred Stock.
The conversion ratio for the holders of Series A Convertible Preferred Stock
will be adjusted in the event that the Company, in the future, sells shares
of its Common Stock for less than $1.00 per share. In addition, the
conversion ratio for the holders of Series B Convertible Preferred Stock
will be adjusted in the event that the Company sells shares of its common
stock for less than $10.00 per share in an initial public offering.

Each share of Series A and B Convertible Preferred Stock will be
automatically converted into shares of Common Stock at the then effective
conversion rate immediately upon the closing of an underwritten public stock
offering which meets certain requirements. It is anticipated that at the
mid-range ($10.00) of the current proposed offering these requirements will
be met and the automatic conversion will occur at the above ratio.

The holders of Series A and B Convertible Preferred Stock and the holders of
Common Stock vote together as a single class, with each share of Series A
and B Convertible Preferred Stock entitled to the number of votes equal to
the number of shares of Common Stock into which it is convertible. They also
have certain liquidation preferences in the event of a liquidation,
dissolution or winding up of the Company, and the right to participate in
dividends to the extent that they are declared on the Company's Common
Stock.

5. STOCK OPTIONS AND WARRANTS

The Company has an Employee Stock Option Plan (the "Stock Option Plan") for
the benefit of certain employees, non-employee directors, and key advisors. The
Company has adopted the disclosures-only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option plan,
as it relates to employees. Had compensation cost for the Company's stock option
plan been determined based on the fair

F-10
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995

5. STOCK OPTIONS AND WARRANTS (CONTINUED)

value at the date of grant for awards consistent with the provisions of SFAS
123, the Company's net loss and net loss per common and common share equivalent
would have been increased to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 22, 1995 PERIOD FROM
(DATE OF FEBRUARY 22, 1995
INCORPORATION) SIX MONTH (DATE OF
TO DECEMBER 31, PERIOD ENDED INCORPORATION)
1995 JUNE 30, 1996 TO JUNE 30, 1996
--------------------- PERIOD FROM ------------- ---------------------
FEBRUARY 22, 1995
(DATE OF
INCORPORATION)
TO JUNE 30, 1995
---------------------
(UNAUDITED)

<S> <C> <C> <C> <C>
Net loss--as reported......... $ (1,116,652) $ (271,662) $ (1,279,907) $ (2,396,559)
Net loss--pro forma........... $ (1,125,428) $ (274,584) $ (1,296,878) $ (2,422,306)
Net loss per common and common
share equivalent--as
reported..................... $ (.14) $ (.03) $ (.15) $ (.29)
Net loss per common and common
share equivalent--pro
forma........................ $ (.14) $ (.03) $ (.15) $ (.29)
</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 rate
of 7% and expected lives of 7 years. The Stock Option Plan provides for
1,500,000 shares of common stock to be reserved for future issuance.

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 be not less than the estimated fair market value of the
common stock at the date the option is granted. The terms of the grants shall be
fixed by the Committee, with no term lasting longer than ten years. The ability
to exercise such options shall be determined by the Committee as the options are
granted. All of the outstanding options vest at the rate of 20% per year with
the exception of 50,000 options which were vested as of the date of grant.

F-11
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995

5. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock option activity follows:

<TABLE>
<CAPTION>
OPTION
OUTSTANDING PRICE PER
OPTIONS SHARE
------------ ---------------
<S> <C> <C>
Options granted during the period from incorporation to December 31, 1995
(weighted average fair value of $.09)................................... 915,000 $.10 - .75
Non-vested options forfeited by holders during the period from
incorporation to December 31, 1995...................................... (91,000) $.10 - .75
Options exercised during the period from incorporation to December 31,
1995.................................................................... (4,000) $.10
------------
Options outstanding at December 31, 1995................................. 820,000 $.10 - .75
Options granted during the six month period ended June 30, 1996 (weighted
average fair value of $.54)............................................. 296,000 $1.25 - $1.50
Non-vested options forfeited by holders during the six month period ended
June 30, 1996........................................................... (12,000) $1.25 - $1.50
------------
Options outstanding at June 30, 1996..................................... 1,104,000 $.10 - 1.50
------------
------------
Options exercisable at June 30, 1996..................................... 145,500
------------
------------
Options available for grant at June 30, 1996............................. 396,000
------------
------------
</TABLE>

The following table summarizes information concerning currently outstanding
and exercisable options:

<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
- ---------------------------------------------------- ----------- --------------- ----------- ----------- -------------

The Company also has outstanding stock purchase warrants entitling the
holders to purchase a total of 155,503 shares of common stock at $.10 - 1.50 per
share (weighted average exercise price of $.56). 42,003 of these warrants are
currently vested, with the remaining 113,500 warrants vesting at 20% per year.
The Company has recorded compensation cost of $10,133 for the six month period
ended June 30, 1996 in connection with the issuance of these warrants.

F-12
<PAGE>
PATIENT INFOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995

6. COMMITMENTS AND CONTINGENCIES

The Company leases office space for its main operating facility under an
operating lease agreement expiring in September 1999, which is cancelable in
September 1998 at the option of the Company. Rental expense from this lease for
the six month period ended June 30, 1996 and the period from incorporation to
December 31, 1995 was $30,119 and $40,375, respectively.

Future minimum lease payments under this lease, assuming the cancellation
option is exercised, are summarized as follows:

F-13
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 5
Risk Factors................................... 5
Use of Proceeds................................ 12
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 19
Management..................................... 31
Certain Transactions........................... 35
Principal Stockholders......................... 36
Description of Capital Stock................... 37
Shares Eligible for Future Sale................ 39
Underwriting................................... 41
Legal Matters.................................. 42
Experts........................................ 42
Additional Information......................... 42
Index to Financial Statements.................. F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTION.

3,000,000 SHARES

PATIENT INFOSYSTEMS, INC.

COMMON STOCK

------

PROSPECTUS

, 1996

---------

SMITH BARNEY INC.

NEEDHAM & COMPANY, INC.

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock, par
value $.01 per share, offered hereby.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 13,087
NASD Filing Fee........................................................... $ 4,295
NASDAQ Listing Fee........................................................ $
Blue Sky Fees and Expenses................................................ $ *
Legal Fees and Expenses................................................... $ *
Accounting Fees........................................................... $ *
Printing and Engraving Costs.............................................. $ *
Transfer Agent Fees....................................................... $ *
Miscellaneous Expenses.................................................... $ *
---------
TOTAL................................................................. $ 600,000
---------
---------
</TABLE>

- ------------
* To be included by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation contains a provision
eliminating or limiting director liability to the Registrant and its
stockholders for monetary damages arising from acts or omissions in the
director's capacity as director. The provision does not, however, eliminate or
limit the personal liability of a director (i) for any breach of such director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) under the Delaware statutory provision making
directors personally liable, under a negligence standard, for unlawful dividends
or unlawful stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the Registrant protection against
awards of monetary damages resulting from breaches of their duty of care (except
as indicated above). As a result of this provision, the ability of the
Registrant or a stockholder thereof to successfully prosecute an action against
a director for breach of his duty of care is limited. However, the provision
does not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Securities
and Exchange Commission has taken the position that the provision will have no
effect on claims arising under the Federal securities laws.

In addition, the Registrant's Certificate of Incorporation and Bylaws
provide for mandatory indemnification rights, subject to limited exceptions, to
any director or officer of the Registrant who by reason of the fact that he or
she is a director or officer of the Registrant, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee or agent in advance of the
final deposition of such proceeding in accordance with the applicable provisions
of Delaware General Corporation Law.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.

<TABLE>
<CAPTION>
AGGREGATE
NATURE OF TRANSACTION OFFERING PRICE PER
AND DATE CLASS OF PURCHASERS SECURITIES SOLD PRICE SHARE
- ------------------------ -------------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Initial Capitalization Three Accredited 5,000,000 Common $ 500,000 $0.10
February 1995 Investors Stock
Private Placement August Nineteen Accredited 1,800,000 Series $1,800,000 $1.00
and September 1995 Investors A Preferred Stock
Warrant Issuances 1995 Two Consultants 108,000 Common (No sale) $0.10 - $0.50
Stock Exercise
price
Option grants 1995 Sixteen Key 915,000 Common (No sale) $0.10 - $0.75
Employees Stock Exercise
price
Exercise of Stock One Key Employee 4,000 Common $ 400,000 $0.10
Options December 1995 Stock
Option grants 1996 Twenty-Four Key 296,000 Common (No sale) $1.25-$1.50
Employees Stock Exercise
price
Warrant Issuances April Four Consultants 49,500 Common (No sale) $1.50
1996 Stock Exercise
Price
Private Placement May Twenty-five 600,000 Series B $3,000,000 $5.00
and June 1996 Accredited Investors Preferred Stock
</TABLE>

The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
1.1* Underwriting Agreement
3.1+ Certificate of Incorporation, as amended.
3.2+ Certificates of Designation
3.3+ By-Laws
5.1* Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1+ Employment Agreement with Donald A. Carlberg
10.2+ Stock Option Plan
10.3+ Forms of Stock Option Agreement
10.4**+ Services Agreement dated September 18, 1995 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.5**+ Services Agreement dated February 1, 1996 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.6**+ Services Agreement dated March 30, 1996 between the Company and Bristol-Myers
Squibb Oncology, a division of Bristol-Myers Squibb Company
10.7**+ Services Agreement dated April 23, 1996 between the Company and Bristol-Myers
Squibb Oncology/Immunology, a division of Bristol-Myers Squibb Company
10.8**+ Services Agreement dated October 16, 1995 between the Company and Bristol-Myers
Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb Company
10.9**+ Services Agreement dated June 24, 1996 between the Company and American
HomePatient, Inc.
</TABLE>

II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<C> <S>
10.10**+ Services Agreement dated June 21, 1996 between the Company and Equifax Healthcare
Administrative Services, a division of Equifax, Inc.
10.11* Services Agreement dated July 28, 1996 between the Company and Equifax Healthcare
Administrative Services, a division of Equifax, Inc.
10.12* Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Asthma)
10.13* Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Diabetes)
11.1* Statement Re: Computation of Per Share Earnings
23.1* Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
23.2* Consent of Deloitte & Touche LLP
24.1 Power of Attorney (Page II-5)
</TABLE>

- ------------
* To be filed by amendment.
** Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.

+ Previously filed.

(B) FINANCIAL STATEMENT SCHEDULES

None

ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

The undersigned Registrant further undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be bona fide offering thereof.

II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 25, 1996.

PATIENT INFOSYSTEMS, INC.

By:

________________________________________
Donald A. Carlberg,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------ ------------------------------------ ------------------------------------

<C> <S> <C>
President, Chief Executive Officer
---------------------------- and Director (Principal Executive September 25, 1996
Donald A. Carlberg Officer)

* Senior Vice President and Chief
---------------------------- Financial Officer (Principal September 25, 1996
Gregory D. Brown Financial and Accounting Officer)

*
---------------------------- Chairman of the Board and Director September 25, 1996
Derace L. Schaffer

*
---------------------------- Director September 25, 1996
John Pappajohn

*
---------------------------- Director September 25, 1996
Barbara J. McNeil

*
---------------------------- Director September 25, 1996
Carl F. Kohrt

---------------------------
Donald A. Carlberg,
Attorney-in-Fact
</TABLE>

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1* Underwriting Agreement
3.1+ Certificate of Incorporation, as amended.
3.2+ Certificates of Designation
3.3+ By-Laws
5.1* Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1+ Employment Agreement with Donald A. Carlberg
10.2+ Stock Option Plan
10.3+ Forms of Stock Option Agreement
10.4**+ Services Agreement dated September 18, 1995 between the Company and Bristol-
Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers Squibb
Company
10.5**+ Services Agreement dated February 1, 1996 between the Company and
Bristol-Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers
Squibb Company
10.6**+ Services Agreement dated March 30, 1996 between the Company and Bristol-Myers
Squibb Oncology, a division of Bristol-Myers Squibb Company
10.7**+ Services Agreement dated April 23, 1996 between the Company and Bristol-Myers
Squibb Oncology/Immunology, a division of Bristol-Myers Squibb Company
10.8**+ Services Agreement dated October 16, 1995 between the Company and
Bristol-Myers Squibb U.S. Pharmaceuticals, a division of Bristol-Myers
Squibb Company
10.9**+ Services Agreement dated June 24, 1996 between the Company and American
HomePatient, Inc.
10.10**+ Services Agreement dated June 21, 1996 between the Company and Equifax
Healthcare Administrative Services, a division of Equifax, Inc.
10.11* Services Agreement dated July 28, 1996 between the Company and Equifax
Healthcare Administrative Services, a division of Equifax, Inc.
10.12* Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Asthma)
10.13* Services Agreement dated September 13, 1996 between the Company and Health
Resources, Inc. (Diabetes)
11.1* Statement Re: Computation of Per Share Earnings
23.1* Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
23.2* Consent of Deloitte & Touche LLP
24.1 Power of Attorney (Page II-5)
</TABLE>

- ------------
* To be filed by amendment.

** Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 under the
Securities Act.

+ Previously filed.