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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-20354

PHOENIX HEALTHCARE CORPORATION
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(Exact name of registrant as specified in its charter)

DELAWARE 23-2596710
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation of organization)
4514 Travis Street, Suite 330
DALLAS, TEXAS 75205
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(Address of principal executive offices) (Zip Code)

214-599-9777
------------
(Registrant's telephone number, including area code)

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

NONE

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share

(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. _X_ YES ___ NO

As of March 20, 2000, the aggregate market value of the Registrant's Common
Stock held by non-affiliates was $15,917,337 based upon the closing price of
$.70 on March 20, 2000. As of March 20, 2000, there were 36,253,495 shares of
Common Stock issued and outstanding, 533,333 shares of Series A Senior
Convertible Preferred Stock issued and outstanding, and 100,000 shares of Series
B Preferred Stock issued and outstanding.

FORWARD LOOKING STATEMENTS

THIS FORM 10-KSB INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY. WHEN
USED HEREIN, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "EXPECT" AND
SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY'S MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT SIGNIFICANT
ASSUMPTIONS, RISKS AND SUBJECTIVE JUDGEMENTS BY THE COMPANY'S MANAGEMENT
CONCERNING ANTICIPATED RESULTS. THESE ASSUMPTIONS AND JUDGEMENTS MAY OR MAY NOT
PROVE TO BE CORRECT. MOREOVER SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS SPEAK ONLY AS TO THE DATE HEREOF.

TABLE OF CONTENTS

PAGE
----
Part I
Item 1. Business.................................................... 1
General Overview............................................ 1
Business Strategy........................................... 1
Corporate Developments/Significant Transactions............. 2
Discontinued Operations..................................... 2
Business Acquisition........................................ 2
Sources of Revenue.......................................... 3
Human Resources............................................. 3
Item 2. Properties.................................................. 3
Item 3. Legal Proceedings........................................... 3
Item 4. Submission of Matters to Vote of Security Holders........... 3
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................ 4
Market Information.......................................... 4
Dividends................................................... 4
Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations .......... 5
Effects of Inflation ....................................... 5
Results of Operations ...................................... 5
Liquidity and Capital Resources ............................ 6
Item 7. Financial Statements ....................................... 7
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure .................... 8
Part III
Item 9. Directors, and Executive Officers of the
Registrant Act ............................................ 8
Item 10. Executive Compensation...................................... 8
Item 11. Security Ownership of Certain Beneficial Owners
and Management............................................. 8
Item 12. Certain Relationships and Related Transactions.............. 8
Item 13. Exhibits and Reports on Form 8-K............................ 9

PART I

ITEM 1. BUSINESS

GENERAL OVERVIEW

BUSINESS BACKGROUND
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Phoenix Healthcare Corporation (formerly Iatros Health Network, Inc.) is a
Delaware corporation, incorporated in June 1988 (the "Company" or "Phoenix"),
which completed its initial public offering in April 1992. The Company's
historic business activities were concentrated in providing healthcare
management and ancillary services for the long-term care industry.

During the fourth quarter of 1998, Match, Inc., a private company controlled by
Ronald E. Lusk, acquired all of the outstanding shares of the Company's Series A
Senior Convertible Preferred Stock from the former holder of such stock. Former
management resigned making way for Mr. Lusk and a new management team to take
control of the Company, which change in control included the appointment of new
directors of the Company.

During 1999 and to date, new management initiatives have resulted in
discontinuing historical business operations and thereby positioning the Company
for a new strategic direction.

BUSINESS STRATEGY

In December 1999, Phoenix announced the strategic repositioning of the Company
through which it completed an exit from the under performing health care
services business and anticipates emerging as a provider of business solutions.
This new business strategy is designed to reposition Phoenix as a technology
company.

Effective December 15, 1999, Healthcare Information Technologies, Inc. ("HIT")
became a wholly owned subsidiary of Phoenix. HIT, located in Dallas, Texas, is a
technology based company that manages data, media and communications systems to
provide knowledge based interactive software applications via a web-centric
communications model operating in an applications service provider ("ASP")
environment.

The HIT acquisition represents the first step in the Company's strategy to
transform Phoenix into a knowledge-based interactive media and communications
company organized into three divisions.

The Knowledge Division will focus on delivery of business to business web
centric applications via broadband and wireless technologies in an ASP
environment. The focus of these applications is the transformation of data into
knowledge-based systems that facilitate real time decision making and improve
operating efficiencies. The first company in the knowledge division is HIT. HIT
expects to release MEDeTRACK, the first in a suite of modular applications, in
the second quarter of 2000. This web enabled application automates the ordering,
tracking and billing of medical supplies using patient-specific information for
healthcare providers and payers.

The Media Division will develop interactive programming and content designed to
exploit the convergence of radio, television and internet communications
technologies. The first company in the Media Division, Converged Media, is being
formed as a business to business media company that will provide an immediate
solution for businesses needing to take advantage of the convergence of radio,
television and internet delivery for high end-end results at a fraction of the
cost.

The Communications Division will focus on the development, deployment and
management of communications applications and technologies that facilitate the
distribution and operation of products and services provided by the Knowledge
and Media Divisions. The Communications Division will be responsible for
providing technical support for HIT and Converged Media and will manage the

development of broadband and wireless applications. The Communications Division
will also develop and acquire technologies and applications which provide
enhanced communications efficiencies.

These three divisions operate on a business model which manages the functions of
data, media and communications through three distinct levels of development. The
Company's mission is to fully develop all of its products through these three
levels to deliver knowledge-based applications via interactive media and
communications technologies.

Consistent with this new strategic direction, Phoenix will concentrate its
efforts on rapidly growing its technology initiatives to establish the Company
as a viable player in the development and marketing of software and
internet-based technologies and solutions for business and consumer
applications.

CORPORATE DEVELOPMENTS / SIGNIFICANT TRANSACTIONS

Among the corporate developments and significant transactions completed by the
Company during the year ended December 31, 1999 were initiatives to effect the
discontinuation of operations associated with providing healthcare management
and ancillary services for the long-term care industry. These transactions were
as follows:

DISCONTINUED OPERATIONS
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Effective August 10, 1999, the Company entered into an agreement with National
Health Investors, Inc. ("NHI"), its largest creditor, for the full release and
settlement of over $44 million of the Company's debt obligations and related
guarantees associated with nursing home operations located in New England. As
part of the settlement transaction, the Company formally assigned all of its
nursing home ownership and operating interests to NHI in exchange for the
settlement of the direct debt obligations to NHI of approximately $9.8 million
and thereby discontinued its associated operations represented by OHI
Corporation (d/b/a "Oasis Healthcare"). The resultant gain on debt
extinguishments of $970,399 is presented in the accompanying statement of
operations as a component of an extraordinary item.

Effective November 15, 1999, the Company discontinued operations associated with
Trinity Rehab, Inc. ("Trinity") and Southland Medical Supply, Inc. ("Southland")
which businesses were involved in providing rehabilitative and medical supply
services in the homecare market and to healthcare providers. Trinity and
Southland were acquired in the first and second quarters of 1999, respectively.

BUSINESS ACQUISITION
- - --------------------

On December 15, 1999, the Company consummated a transaction pursuant to which it
acquired all of the shares of the common stock of Healthcare Information
Technologies, Inc. ("HIT"). The purchase price of the HIT shares was 6,513,158
shares of the Company's common stock. Among the assets acquired through the HIT
acquisition are certain healthcare management system and software licensing
agreements for which the Company has secured exclusive interest.

SOURCES OF REVENUE

Historically, the Company has derived all of its revenue from providing
healthcare management and ancillary services to the long-term care industry.
Insofar as these operations were discontinued during 1999, the Company reports
no revenues from continuing operations for the year ended December 31, 1999.

In connection with strategic initiatives to further develop and implement its
information technology capabilities, the Company anticipates deriving its
primary source of revenue from a newly developing customer base. This target
market represents a wide array of service providers and customers utilizing the
Company's emerging software technology and service capabilities.

HUMAN RESOURCES

As of March 2000, the Company employs eight individuals representing its
executive management and administrative staff. This represents a material
reduction in both executive management and administrative staff as well as
having reduced the number of corporate employees associated with now
discontinued operations. There are no collective bargaining agreements existing
within the Company.

ITEM 2. PROPERTIES

In connection with discontinuing prior business operations, the Company has
divested of substantially all of its property interests. Nursing home property
interests were conveyed to third parties in settling secured creditor
obligations. Leasehold interests have been satisfied through termination of
associated lease arrangements, the assumption by other parties or otherwise
through the recovery of leased assets.

The Company continues to lease premises for its executive offices located in
Dallas, Texas. The lease agreement includes a monthly rate of $7,761, extending
to January 2003, and includes all building costs.

ITEM 3. LEGAL PROCEEDINGS

During 1999, the Company settled numerous legal proceedings that were pending
actions and disclosed in Form 10K for the year ended December 31, 1998.

The Company and its discontinued subsidiaries continue to have outstanding a
number of actions such as collection matters, landlord/ tenant disputes and
labor matters, as well as a number of threatened actions involving creditors,
vendors, customers, former employees and/or other third parties. The Company is
attempting to reach settlement in certain of these matters and continues to
defend itself in other matters. With respect to all actions that the Company is
not attempting to settle, management believes that the Company has valid
defenses to such actions.

During 1998, the Company entered into an agreement with a third party to assume
its rights to manage three nursing facilities representing 391 beds located in
the State of Massachusetts. The management arrangement applicable to the Company
contemplated conversion to a long-term lease position upon receipt by the
Company of the requisite regulatory approval for change in operators from the
State of Massachusetts. The Company abandoned its efforts to secure such
approval and, at the request of the property owner, allowed for the introduction
of the successor manager. The original agreements between the Company and
property owner involving these facilities contemplated certain financial
arrangements and the assumption of certain financial obligations which the
Company maintains were largely contingent upon its securing the long term
leasehold position for the facilities. This matter is currently in dispute with
the property owner with respect to alleged note obligations as well as other
claims for recovery. In July 1999, the property owner filed a complaint for
breach of contract seeking $1,800,000 in damages. In September 1999, the Company
filed both an answer denying these claims and also a cross-complaint for breach
of contract seeking damages in the amount of $810,000. This action is in the
discovery stage with no set trial date. The Company continues settlement
discussions with the property owner and does not believe that the outcome of
this matter will have an adverse material impact on its financial position or
results of operations.

Management believes that it has sufficiently reserved for these claims in its
financial statements at December 31, 1999. Given the financial constraints of
the Company, the Company may not be able to pay all the legal expenses and
associated costs necessary to defend itself or to respond to adverse judgments,
should they occur.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Nothing to report.

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

In September 1998, the Company was informed by The Nasdaq Stock Market, Inc.
("NASDAQ") that, effective with the close of business on September 25, 1998, the
Company's common stock would be de-listed from NASDAQ for the following reasons:
(1) the Company's common stock did not meet the $1.00 minimum bid price
requirement set forth in NASD Marketplace Rule 4310(c)(4), and (2) the Company
did not meet the net tangible assets/market capitalization/net income
requirements set forth in NASD Marketplace Rule 4310(c)(2). The Company's stock
is now quoted on the OTC Bulletin Board under the symbol "PHHC".

The following table sets forth the high and low sales price as determined from
NASDAQ and/or the OTC Bulletin Board for the Common Stock for the periods
indicated.

COMMON STOCK

FISCAL 2000 HIGH LOW
---- ---
First Quarter (through March 20, 2000) ....................... .98 .09
FISCAL 1999
First Quarter ................................................ .33 .14
Second Quarter ............................................... .30 .14
Third Quarter ................................................ .25 .13
Fourth Quarter ............................................... .14 .06
FISCAL 1998
First Quarter ................................................ .66 .31
Second Quarter ............................................... .44 .09
Third Quarter ................................................ .31 .31
Fourth Quarter ............................................... .31 .03

The high and low prices (based on the average bid and ask price) for the
Company's Common Stock as reported by NASDAQ and/or the OTC Bulletin Board and
rounded to the nearest penny are indicated above. These are inter-dealer prices
without retail mark-ups, mark-downs, or commissions and may not represent actual
transactions.

According to the Company's Stock Transfer Agent as of March 20, 2000, there were
approximately 5,274 holders of record of the Company's Common Stock.

DIVIDENDS

The payment by the Company of dividends, if any, rests within the discretion of
the Board of Directors and among other things, will depend upon the Company's
earnings, capital requirements and financial condition, as well as other
relevant factors. The Company has not paid cash dividends on its Common Stock to
date and does not anticipate doing so in the foreseeable future. It is the
present intention of management to utilize all available funds for working
capital of the Company. The holders of Series A Senior Convertible Preferred
Stock are entitled to receive out of funds legally available therefore, when and
if declared by the Company, dividends at the rate per annum of $.30 for each
outstanding share of Series A Senior Convertible Preferred Stock. Dividends
cumulate and accrue ratably from and after the date of issuance of the Series A
Senior Convertible Preferred Stock, for each day that shares of the Company's
Series A Senior Convertible Preferred Stock are outstanding. No such preferred
dividends have been declared. At December 31, 1999, dividends on the Series A
Senior Convertible Preferred Stock totaling $870,000 were in arrears. The Series
B Preferred Stock is non-voting and pays no dividends. The Company may not pay
dividends on any shares of its Common Stock at any such time that dividends due
on the Series A remain in arrears. The size of the Board

may be increased by 1 director, up to a maximum of 13 directors, each time the
cumulative dividends payable on the Series A Senior Convertible Preferred Stock
are in arrears in an amount equal to two (2) full quarterly dividend payments.
The holders of the Series A Senior Convertible Preferred Stock, voting
separately as a single class, are entitled to elect these additional directors.
The voting rights of the holders of the Series A Senior Convertible Preferred
Stock for these directors continue until all Cumulative Dividends have been paid
in full. Currently, the holders of the Series A Senior Convertible Preferred
Stock, voting separately as a single class, are entitled to increase the number
of directors comprising the Company's Board by 7 members.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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

RESULTS OF OPERATIONS
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During 1999, new management of the Company completed a strategic initiative to
exit its under-performing historical business activities engaged in providing
healthcare management and ancillary services to the long-term care industry.
Having divested of all previous business segments, the Company believes it is
more effectively positioned to pursue growth and development opportunities
contemplated by new management's business plan. This involves the Company
emerging, principally through growth by business acquisitions, in areas
involving information technology and related service capabilities. A critical
component of successfully implementing the new business plan will be the
Company's ability to secure sufficient capital to sustain its continuing
operating needs as well as to effectively manage the residual liabilities of now
discontinued operations.

For the year ended December 31, 1999, the Company reported a net loss of
$10,894,212 compared to a net loss of $11,919,706 for the year ended December
31,1998. These reported losses for 1999 and 1998 are largely attributed to the
operating losses resulting from now discontinued operations. The operating
losses reported from continuing operations of $2,778,389 and $965,913,
respectively, reflect the operating costs incurred for continuing operations
represented by general and administrative expenses.

General and administrative expenses reported for 1999 and 1998 totaled
$2,649,299 and $1,090,948, respectively, and were associated with the Company's
executive management and related costs of corporate overhead. Significant
components for 1999 include $1,239,942 for legal, accounting and outside
professional services; $1,007,656 for salaries and related payroll expenses;
and, $401,701 attributable to other corporate expenses including insurance,
rent, office expenses and other. The outside professional costs incurred in 1999
were almost exclusively related to the cost of discontinuing prior subsidiary
operations and settling corporate liabilities associated with prior business
activities of the Company. Salaries and related payroll expenses include
$475,000 in accrued executive compensation that was paid in the form of common
stock issued in March 2000. Significant components of general and administrative
expenses for 1998 included $848,908 for executive salaries and related expenses;
$242,040 for insurance expense; and other corporate expenses.

Discontinued operations of the Company reported for 1999 and 1998 totaled net
losses of $9,274,247 and $11,573,340, respectively. In 1999, the Company
discontinued its New England based nursing home operations represented by OHI
Corporation (d/b/a "Oasis Healthcare") as well as its rehabilitative services
and medical supply operations represented by Trinity Rehab, Inc. ("Trinity") and
Southland Medical Supply, Inc. ("Southland"), respectively. In 1998, the Company
discontinued its ancillary service operations in Philadelphia, Pennsylvania
represented largely by IHN Durant Medical Supply and Pharmacy Services. Results
of operations previously reported for 1998 have been restated to reflect the
reclassification of discontinued operations effected in 1999.

For 1999, the total net loss from discontinued operations is comprised of a net
loss on settlement or disposition of accounts totaling $5,246,231 and a net loss
from related operations totaling $4,028,016. The principal components of net
loss on settlement or disposition of accounts include $3,345,380 associated with
Trinity operations; $75,988 associated with Southland operations; and, $606,648
associated with

accounts relating to prior period discontinued ancillary operations. As to
reported operating losses of discontinued operations, the principal components
include $1,306,566 resulting from Trinity operations; $2,263,165 resulting from
Southland operations; and $458,285 resulting from prior period discontinued
ancillary operations.

For 1998, the total net loss from discontinued operations totaling $11,573,340
relates to total losses reported by discontinued subsidiary operations. The
principal components of such losses include $7,661,545 relating to nursing home
operations and $3,911,795 relating to prior ancillary services business. This
includes other expenses-net of $5,785,940 and $4,294,978 associated with the
write-off of intangible assets and provision for doubtful notes and accounts
receivable for nursing home operations and prior ancillary services business,
respectively.

Extraordinary items reported for the years ended December 31, 1999 and 1998
totaled net gains of $1,158,424 and $619,547, respectively. For both years, the
net gains result from the extinguishment of debt obligations settled by the
Company at less than their recorded value. For 1999, a significant component of
extraordinary items includes a net gain of $970,399 associated with
discontinuation of nursing home operations represented by OHI Corporation (d/b/a
"Oasis Healthcare"). The Company was relieved of certain debt obligations to
National Health Investors, Inc. in connection with the assignment of its nursing
home and property interests to the senior creditor. In addition, the Company
realized a gain of $188,025 on the settlement with a prior ancillary services
business creditor whose claim was settled for stock. For 1998, a net gain was
realized on the settlement of various corporate and prior ancillary service
obligations totaling $619,547.

LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------

During 1999, the Company has been successful in discontinuing all prior business
segments that have historically generated significant operating losses.
Nonetheless, the Company continues to be burdened by material and residual
levels of net current liabilities of such discontinued operations. At December
31, 1999, the Company reports a negative working capital deficit of $16,835,394
and, as discussed in Note 2 to the audited financial statements, requires an
infusion of new capital in order to meet its short- term obligations. Moreover,
the Company, having discontinued all operations and sources of revenue, is
critically dependent upon developing new sources of revenue to provide working
capital. New management of the Company continues to work with creditors to
secure non-cash settlement of obligations or otherwise secure forbearance
arrangements with creditors while continuing to implement its growth strategy
and capitalization plan for the Company.

In light of the Company's current financial position, its inability to
independently meet its short-term corporate obligations, its need to further
capitalize continuing operations and its dependency on new revenue growth, its
viability as a going concern is uncertain. While the Company has experienced a
change in control beginning in the fourth quarter of 1998 together with an
infusion of limited working capital, there can be no assurance that new
management will be successful in its efforts to improve the Company's financial
position and operating performance.

At December 31, 1999 and 1998, the Company reports virtually no liquid assets
with which to sustain its working capital requirements of continuing operations.
The sole source of immediate cash for the Company is from the line of credit
agreement it has established with Match, Inc. This line of credit facility is
for an amount of up to $2 million and is reported outstanding at December 31,
1999 in the amount of $1,470,816, of which $160,795 is included in net current
liabilities of discontinued liabilities associated with Trinity. This loan
agreement is a demand note payable and accrues interest at approximately 10%.

Accounts payable and accrued expenses reported by the Company at December 31,
1999 and 1998 relates exclusively to corporate obligations of continuing
operations. Accrued expenses of $685,684 reported at December 31, 1999 include
$475,000 relating to accrued executive compensation. This represents a full year
of compensation for two executive officers of the Company who elected to receive
such compensation in the form of common stock during the first quarter of 2000.

During 1999 and 1998, the Company discontinued all business operations
associated with providing healthcare management and ancillary services. In 1999,
the Company discontinued its New England based nursing home operations
represented by OHI Corporation as well as its rehabilitative services and
medical supply operations represented by Trinity Rehab, Inc. ("Trinity") and
Southland Medical Supply, Inc. ("Southland"), respectively. In 1998, the Company
discontinued its ancillary service operations in Philadelphia, Pennsylvania
represented largely by IHN Durant Medical Supply and Pharmacy Services.

Earlier in 1999, the Company had acquired the businesses represented by Trinity
and Southland. These transactions were effected in accordance with the purchase
method of accounting and represented purchases of all of the capital stock of
the respective businesses. In the instance of Trinity, the purchase
consideration included the issuance of 100,000 shares of common stock of the
Company together with the issuance of a purchase note obligation approximating
$1.5 million. As to Southland, the purchase consideration was generally limited
to assumption of the existing liabilities of Southland at the date of purchase.

Net current liabilities of discontinued operations reported at December 31, 1999
and 1998 totaled $14,472,208 and $14,249,171, respectively. For 1999,
significant components include $2,834,530 relating to prior period ancillary
services; $5,965,960 associated with nursing home operations; $4,321,718
associated with Trinity operations; and, $1,350,000 associated with Southland
operations. For 1998, significant components of the net accounts of discontinued
operations include net long-term assets of $7,319,664 associated with the
Company's nursing home operations represented largely by property, plant and
equipment. Net current liabilities of discontinued operations is comprised of
$14,273,643 associated with the Company's nursing home operations net of current
assets of $24,472 associated with the Company's prior ancillary service
businesses.

In August 1999, the Company effected the discontinuation of its nursing home
operations business. This transaction was accomplished through the formal
assignment of all nursing home operating interests to the senior creditor in
full satisfaction of the Company's related debt obligations. This included
direct property debt obligations of approximately $9.8 million together with the
release of corporate debt guarantees associated with other nursing home
properties leased and managed by the Company in the aggregate amount
approximating $36 million. The residual net current liabilities of discontinued
operations associated with nursing home operations include $1,980,238 in loans
payable to bank and other and $3,985,722 in unsecured creditor liabilities. The
loans payable have been guaranteed by the Company.

In November 1999, the Company discontinued operations associated with Trinity
through the termination of its service relationships. The residual net current
liabilities of Trinity include loans in default of $2,352,747, other notes
payable of $1,660,795 and accounts payable and accrued expenses of $308,176. Of
the notes and loans payable, the Company has guaranteed approximately
$2,290,000.

In November 1999, the Company voluntarily surrendered the common stock of
Southland Medical Supply, Inc., ("Southland"), a wholly owned subsidiary, to
Match, Inc. as consideration in satisfaction of Southland's participation in the
line of credit note obligation in the amount of $145,258. This action was
contemplated by the Company in connection with efforts to discontinue operations
of Southland. In turn, Match, Inc. has proceeded with the liquidation of
residual assets represented by Southland's inventory, furniture, fixtures and
equipment. In the event such liquidation results in value exceeding Southland's
loan balance, the Company will be entitled to a corresponding reduction in loan
amounts due to Match, Inc.

ITEM 7. FINANCIAL STATEMENTS

The consolidated financial statements required to be filed pursuant to this Item
7 begin on Page F-1 of this report. Such consolidated financial statements are
hereby incorporated by reference into this Item 7. The Supplementary Data
requirement as set forth in Item 302 of Regulation S-K is inapplicable to the
Company.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Directors and executive officers of the Company at December 31, 1999, their
ages, their titles, their years of employment with the Company, and their
principal occupation for the last five years are as follows:

Ronald E. Lusk, 43, has served as the Chairman of the Board of Directors of the
Company since November 1998 and Chairman and Chief Executive Officer since
January 1, 1999. Mr. Lusk is also the President of Match, Inc., a holding
company (since 1998), President of Barrier, Inc., a holding company (since
1996), President of Citation Properties, Inc., an operator of nursing homes
(since 1994), and President of Westlake Management Company, an operator of
nursing homes (since 1992). Mr. Lusk is also a director of each of the above
companies. From March 1998 to February 1999 Mr. Lusk served as Chairman,
President and Chief Executive Officer of Hospital Staffing Services, Inc., a
home healthcare provider.

Robert L. Woodson, III, 51, has served as President and Chief Operating Officer
since January 1, 1999. Mr. Woodson was President and Chief Executive Officer
from November 1998 to January 1999. Prior to joining the Company, Mr. Woodson
was President of HFI Home Care Management LP, a company which acquires and
manages home health agencies, from 1994 through 1997, and Executive Vice
President and Secretary of HealthFirst, Inc., a company which manages home
health agencies, from 1992 through 1994. In March 2000, Mr. Woodson resigned as
an executive officer of the Company and continues to serve in the capacity as a
director.

Bart A. Houston, 40, was nominated by the Board of Directors to a serve as a
director of the Company and approved by the shareholders at the Annual Meeting
held in April 1999. Mr. Houston has been Vice President of the law firm of
Houston & Shahady, P.A. since 1986.

During 1999, Albert Sousa and Michael H. Seeliger resigned as executive officers
of the Company and Joe C. Williams resigned as a Director of the Company. The
terms of Joseph C. McCarron, Jr. and John D. Higgins as Directors of the Company
expired in April 1999. Effective on July 31, 1999, Mr. McCarron resigned as an
executive officer of the Company and continues to serve in a consulting
capacity.

ITEM 10. EXECUTIVE COMPENSATION INCORPORATED BY REFERENCE TO THE PROXY
STATEMENT

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

Incorporated by reference to the Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company is obligated under the terms of a line of credit agreement to Match,
Inc. outstanding in the amount of $1,470,816 at December 31, 1999. Ronald E.
Lusk, Chairman and Chief Executive Officer of the Company controls Match, Inc.
as its sole stockholder and President. The line of credit agreement with Match,
Inc. is available up to a limit of $2 million; bears interest at approximately
10%; is due on demand and as of December 31, 1999 is unsecured. This note
obligation includes accrued interest of $107,064 at December 31, 1999. To date,
there have been no interest payments made to Match, Inc.

In November 1999, the Company voluntarily surrendered the common stock of
Southland Medical Supply, Inc., ("Southland"), a wholly owned subsidiary, to
Match, Inc. as consideration in satisfaction of Southland's participation in the
line of credit note obligation in the amount of $145,258. This action was
contemplated by the Company in connection with efforts to discontinue operations
of Southland. In turn, Match, Inc. has proceeded with the liquidation of
residual assets represented by Southland's inventory, furniture, fixtures and
equipment. In the event such liquidation results in value exceeding the
Company's loan balance, the Company will be entitled to a corresponding
reduction in loan amounts due to Match, Inc.

Match, Inc. is the sole holder of all of the issued and outstanding Series A
Preferred Stock of the Company at December 31, 1999.

In August 1999, the Company issued 3,200,000 shares of common stock in
connection with converting a note obligation of Trinity Rehab, Inc., a wholly
owned subsidiary of the Company, to equity. The outstanding amount of this note
obligation upon conversion totaled approximately $800,000. Ronald E. Lusk,
Chairman and Chief Executive Officer of the Company held a one-third interest in
this note obligation and was the beneficiary of 1,066,667 shares of common stock
issued in connection with this transaction.

In December 1999, the Company consummated a transaction pursuant to which it
acquired all of the issued and outstanding capital stock of Healthcare
Information Technologies, Inc. ("HIT"). The purchase price of the HIT capital
stock was the issuance of 6,513,158 shares of the Company's common stock.
Immediately prior to the transaction, Ronald E. Lusk, Chairman and Chief
Executive Officer of the Company, owned ninety-five percent (95%) of the HIT
capital stock and served as sole director and President of HIT. Other than the
foregoing, there are no material relationships between HIT and the Company.

ITEM 13.

13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.

- - --------------------------------------------------------------------------------
*3.1 Amended and Restated Articles of Incorporation
- - --------------------------------------------------------------------------------
*3.2 By-Laws
- - --------------------------------------------------------------------------------
**10.1 Employee Stock Purchase Plan
- - --------------------------------------------------------------------------------
**10.2 1999 Stock Option Plan
- - --------------------------------------------------------------------------------
**10.3 1999 Share Award Plan
- - --------------------------------------------------------------------------------
**10.4 Ronald E. Lusk Employment Agreement
- - --------------------------------------------------------------------------------
+27 Financial Data Schedule
- - --------------------------------------------------------------------------------

* Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
(File No. 000-20354).

** Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-77731).

+ Filed with the Securities and Exchange Commission with this Form 10-KSB.

(b) Reports on Form 8-K.

The following reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1999 or thereafter:

On March 10, 2000, the Company filed a Form 8-K reporting the disposition
of Southland Medical Supply, Inc., OHI Corporation and Trinity Rehab, Inc. and
the acquisition of Healthcare Information Technologies, Inc.

PHOENIX HEALTHCARE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----
Report of Independent Certified Public Accountants.......................... F-1
Consolidated Balance Sheets................................................. F-2
Consolidated Statements of Operations....................................... F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit)........ F-4
Consolidated Statements of Cash Flows....................................... F-5
Notes to Consolidated Financial Statements.................................. F-6

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

THE BOARD OF DIRECTORS AND STOCKHOLDERS
PHOENIX HEALTHCARE CORPORATION
DALLAS, TEXAS

We have audited the accompanying consolidated balance sheets of Phoenix
Healthcare Corporation (formerly Iatros Health Network Inc.) as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Phoenix Healthcare
Corporation as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company experienced significant recurring
net losses, discontinued all of its prior business activities and is currently
in default on the payment of certain of its debt obligations. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
2. The accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

WEAVER & TIDWELL LLP

Dallas, Texas
March 29, 2000

F-1

PHOENIX HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998

1999 1998
----------- -----------

ASSETS

CURRENT ASSETS
Cash and cash equivalents ........................ $ 15,802 $
Deposits and other ............................... 8,904 6,189
----------- -----------
Total current assets ......................... 24,706 6,189

PROPERTY AND EQUIPMENT, net ........................ 92,102 200,000

OTHER ASSETS

Intangible assets, net ........................... 400,000
Net long-term assets of
discontinued operations ........................ 7,319,664

----------- -----------
TOTAL ASSETS ....................................... $ 516,808 $ 7,525,853
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Notes payable - related party .................... $ 1,310,021 $
Notes payable - other ............................ 179,014
Accounts payable ................................. 392,177 400,000
Accrued expenses and other current liabilities ... 685,694 200,000
Net liabilities of discontinued operations ....... 14,472,208 14,249,171
----------- -----------
Total current liabilities ...................... 16,860,100 15,028,185

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $.001, 5,000,000
shares authorized:
Series A, 533,333 shares issued
and outstanding ............................ 533 533
Series B, 100,000 shares issued
and outstanding ............................ 100 100
Common Stock, $.001 par value,
50,000,000 shares
authorized; 36,253,495 and 20,969,958
issued or issuable and outstanding
in 1999 and 1998, respectively ............. 36,253 20,970
Additional Paid-In Capital ....................... 38,097,836 36,059,867
Accumulated Deficit .............................. (54,478,014) (43,583,802)
----------- -----------
(16,343,292) (7,502,332)

----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) ................................. $ 516,808 $ 7,525,853
=========== ===========

The accompanying notes are an integral part
of these consolidated financial statements.

F-2

PHOENIX HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998

1999 1998
------------ ------------

Operating expenses:
General and administrative ..................... $ 2,649,299 $ 1,090,948

------------ ------------
Loss from continuing operations before
other income (expense), discontinued
operations and extraordinary item .............. (2,649,299) (1,090,948)

Other income (expense)
Interest, net .................................. (103,243) 125,035
Depreciation ................................... (25,847) --
------------ ------------
(129,090) 125,035
------------ ------------
Loss from continuing operations before
discontinued operations and
extraordinary item ............................. (2,778,389) (965,913)

Discontinued operations:
Net loss on settlement and disposition
of discontinued accounts ..................... (5,246,231) --
Net loss from operations ....................... (4,028,016) (11,573,340)
------------ ------------
(9,274,247) (11,573,340)
------------ ------------

Loss from operations before extraordinary item ... (12,052,636) (12,539,253)

Extraordinary item:
Net gain on extinguishment of
debt obligations ............................. 1,158,424 619,547

------------ ------------
Net Loss ......................................... $(10,894,212) $(11,919,706)
============ ============
Basic and diluted loss per share:
Continuing operations .......................... $ (0.12) $ (0.06)
Discontinued operations ........................ (0.38) (0.55)
Extraordinary item ............................. 0.04 .03
------------ ------------
Loss per Common Share ............................ $ (0.46) $ (0.58)
============ ============

Weighted Average Common Shares ................... 24,258,453 20,948,862
============ ============

The accompanying notes are an integral part
of these consolidated financial statements.

F-3

PHOENIX HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999 AND 1998

ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ------ ------ ---------- ----------- -----

Balance, December 31, 1997 633,333 $633 20,869,958 $20,870 $36,059,867 $(31,664,096) $4,417,274

Issuance of common stock in connection with
the exercise of warrants -- -- 100,000 100 -- -- 100

Net Loss -- -- -- -- -- (11,919,706) (11,919,706)
-----------------------------------------------------------------------------------

Balance, December 31, 1998 633,333 633 20,969,958 20,970 36,059,867 (43,583,802) (7,502,332)

Issuance of common stock in connection with
the purchase acquisition of Trinity Rehab, Inc. -- 100,000 100 25,860 -- 25,960

Issuance of common stock in connection
with the conversion of debt obligations -- 3,200,000 3,200 796,800 -- 800,000

Issuance of common stock in settlement of
corporate creditor obligations -- 1,285,000 1,285 173,174 -- 174,459

Issuance of common stock in connection
with settling corporate litigation matters -- 2,150,000 2,150 299,215 -- 301,365

Issuance of common stock in connection
with the purchase acquisition of
Healthcare Information Technologies, Inc. -- 6,513,158 6,513 393,487 -- 400,000

Issuance of common stock in connection with
executive compensation -- 2,035,379 2,035 349,433 -- 351,468

Net Loss -- -- -- -- (10,894,212) (10,894,212)
-----------------------------------------------------------------------------------
Balance, December 31, 1999 633,333 $633 36,253,495 $36,253 $38,097,836 $(54,478,014) $(16,343,292)
===================================================================================

The accompanying notes are an integral part
of these consolidated financial statements.

F-4

PHOENIX HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998

1999 1998
------------ ------------
OPERATING ACTIVITIES
Net loss ....................................... $(10,894,212) $(11,919,706)
Adjustments to reconcile net loss to
net cash provided (utilized) by
operating activities:
Depreciation and amortization ................ 237,123 762,789
Provision for doubtful accounts
receivable ................................. 512,520 530,540
Provision for notes, loans and
deposits receivable and write-off
of fixed assets ............................ -- 6,829,301
Write-off of intangible assets ............... -- 3,251,617
Extraordinary gain on settlement
of liabilities ............................. (1,158,424) (619,547)
Common stock isued for services rendered ..... 351,468 --
Changes in:
Accounts receivable .......................... 2,657,896 2,502,378
Inventory .................................... 8,779 193,543
Prepaid expenses and other ................... (2,715) 726,141
Accounts payable and accrued expenses ........ 2,338,860 (920,632)
------------ ------------
Net cash provided (utilized) by
operating activities ......................... (5,948,705) 1,336,424

INVESTING ACTIVITIES
Purchase of property and equipment ............. (117,949) (229,567)
Loans to third parties ......................... -- (434,000)
Organization costs ............................. -- (295,000)
------------ ------------
Net cash utilized by investing activities ...... (117,949) (958,567)

FINANCING ACTIVITIES

Proceeds from issuance of long-term debt ....... -- 422,224
Short-term borrowings, net ..................... 5,803,092 (583,539)
Payments of long-term debt ..................... -- (127,874)
------------ ------------
Net cash provided (utilized)
by financing activities ...................... 5,803,092 (289,189)

INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . ......................... (263,562) 88,668
Cash and cash equivalents, beginning of year ... 279,364 190,696
------------ ------------
Cash and cash equivalents, end of year ......... $ 15,802 $ 279,364
============ ============

The accompanying notes are an integral part
of these consolidated financial statements

F-5

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements is as
follows:

BUSINESS

Phoenix Healthcare Corporation (formerly Iatros Health Network, Inc.) is a
Delaware Corporation organized in June 1988. Phoenix Healthcare Corporation (the
"Company" or "Phoenix") has historically been engaged in providing healthcare
management and ancillary services to the long-term care industry. During 1999,
the Company discontinued all operations associated with such businesses. New
management of the Company has undertaken to implement a strategic business plan
to reposition Phoenix as an information technology company.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Phoenix Healthcare
Corporation and its wholly-owned subsidiaries. All inter-company transactions
and accounts have been eliminated.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

The Company maintains cash accounts, which at times may exceed federally insured
limits. The Company has not experienced any losses from maintaining cash
accounts in excess of federally insured limits. Management believes that the
Company does not have significant credit risk related to its cash accounts.

Cash and cash equivalents of $279,364 at December 31, 1998, is included in net
liabilities of discontinued operations.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. The cost of property and equipment is
depreciated over the estimated useful lives of the respective assets using
primarily the straight-line method. Normal maintenance and repair costs are
charged against income. Major expenditures for renewals and betterments, which
extend useful lives, are capitalized. When property and equipment is sold or
otherwise disposed of, the asset gain or loss is included in operations.
Property and equipment is principally comprised of office furniture, fixtures
and equipment having useful lives ranging from three to seven years for purposes
of computing depreciation. Accumulated depreciation was $25,847 at December 31,
1999.

INTANGIBLE ASSETS

The Company evaluates the carrying value of its long-lived assets and
identifiable intangibles when events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. The review includes
an assessment of industry factors, contract retentions, cash flow projections
and other factors the Company believes are relevant. Intangible assets reported
by the Company currently include capitalized license rights representing the
costs of acquiring software and related intellectual property rights. Such costs
are being amortized over future periods during which the Company anticipates
deriving income from the related assets. The period over which such costs are
being amortized generally does not exceed fifteen years.

INCOME TAXES

The Company employs the asset and liability method in accounting for income
taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on temporary differences between the financial
reporting and tax bases of assets and liabilities and net operating loss
carryforwards, and are measured using enacted tax rates and laws that are
expected to be in effect when the differences are reversed.

F-6

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

EARNINGS PER SHARE

The Company adopted Statement of Financial Accounting Standard No. 128 "Earnings
per Share" ("SFAS 128") in 1997.

Basic earnings per share are based upon the weighted average number of common
shares outstanding during the period.

Diluted earnings per share is based upon the weighted average number of common
shares outstanding during the period plus the number of incremental shares of
common stock contingently issuable upon exercise of stock options and warrants.

NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income", Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
and Statement of Financial Accounting Standards No. 132 "Employers Disclosures
About Pensions and Other Post Retirement Benefits" in 1998. Adoption of these
statements had no material effects on the Company's financial position, results
of operations or cash flows.

USE OF ESTIMATES

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 dates of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from these estimates.

RECLASSIFICATIONS

Certain reclassifications, particularly related to the presentation of
discontinued operations, have been made to 1998 to conform with the 1999
presentation.

NOTE 2: GOING CONCERN

For the year ended December 31, 1999, the Company reported a net loss of
$10,894,212. This is largely attributable to recent net operating losses and the
resultant losses on disposal associated with now discontinued operations
totaling $9,274,247. Recent operating losses reported by the Company through
December 31, 1999 coupled with the burden of prior period corporate obligations
have exhausted the Company's capital resources and had a material adverse effect
on short term liquidity and the Company's ability to satisfy its obligations. At
December 31, 1999, the Company reports a working capital deficit of $16,835,394
compared with a working capital deficit of $15,021,996 at December 31, 1998. The
Company requires an infusion of new capital, an increased business base and a
higher level of profitability to meet its short-term obligations.

During the fourth quarter of 1998, the Company experienced a change of control,
which included the introduction of new executive management. New management
plans have included pro-active dealings with the Company's financial and
creditor issues while implementing a growth plan for the future. During 1999,
the Company discontinued all of its existing business associated with providing
healthcare management and ancillary services to the long-term care industry.
Having repositioned the Company for implementing its strategic business plan,
new management now intends to aggressively exploit prospects in pursuit of
business acquisitions and related development opportunities in the area of
information technology.

F-7

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 2: GOING CONCERN (CONTINUED)

In light of the Company's current financial position, its inability to
independently meet its short-term corporate obligations, its need to further
capitalize existing operations and its dependency on revenue growth to support
continuing operations, its viability as a going concern is uncertain. While the
Company has experienced a change in control together with an infusion of limited
new working capital, there can be no assurance that new management's efforts to
re-direct and re-capitalize the Company will be successful.

NOTE 3: SIGNIFICANT TRANSACTIONS

On December 15, 1999, the Company consummated a transaction pursuant to which it
acquired all of the common stock of Healthcare Information Technologies, Inc.
("HIT"), representing all of the issued and outstanding shares of HIT. The
purchase price paid for HIT was the issuance of 6,513,158 shares of the
Company's common stock, which approximated the historical cost basis of the HIT
shares acquired. HIT, based in Dallas, Texas, is a technology based company that
provides information technologies to healthcare providers. The transaction has
been accounted for similar to a pooling of interests. HIT had no significant
operating activity in 1999 or 1998 other than the acquisition of certain
software licenses. Immediately prior to the transaction, Ronald E. Lusk,
Chairman and Chief Executive Officer of the Company, owned ninety-five percent
(95%) of the common stock of HIT.

NOTE 4: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

No interest or income taxes were paid in 1999 and 1998 for continuing
operations.

The Company paid $416,855 and $1,353,314 in cash for interest attributable to
discontinued operations during 1999 and 1998, respectively.

In 1999, the Company conveyed $8,789,601 in long-term assets to a creditor in
satisfaction of $9,760,000 in notes payable.

During 1998, notes payable were settled for $619,547 less than their recorded
amount. In addition, during 1999, accounts payable were settled for $188,025
less than their recorded amount.

During 1999 and 1998, $550,816 and $82,717 of accrued interest was added to
notes payable.

During 1999, the Company issued 3,435,000 shares of common stock to satisfy
$501,784 in trade accounts payable from discontinued operations; 2,035,379
shares of common stock in-lieu of executive compensation in the amount of
$351,468; 3,200,000 shares of common stock to convert $800,000 in notes payable
to equity; 6,513,158 shares of common stock for the acquisition of all of the
outstanding shares of Health Information Technologies, Inc. at a cost of
$400,000; and 100,000 shares of common stock in connection with the purchase
acquisition of Trinity Rehab, Inc. at a cost of $25,690

During 1998, the Company issued $1,475,000 in debt to acquire a note receivable
which was subsequently determined to be impaired and fully charged to
operations.

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" , requires that the Company disclose estimated
fair values of financial instruments.

F-8

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Cash and cash equivalents, deposits and other current assets, notes and accounts
payable, accrued expenses and other current liabilities and net liabilities of
discontinued operations are carried at amounts that approximate their fair
values because of the short-term maturity of these instruments.

NOTE 6: INCOME TAXES

The effective income tax rate differs each year from the statutory Federal
income tax rate due to graduated Federal income tax rates, state income taxes,
utilization and valuation of net operating loss carryforwards, certain
permanently non-deductible charges to net income and certain temporary
differences between the financial and income tax bases. The reconciliation of
these differences follows:

1999 1998
---- ----
Federal Income Tax Rate (34)% (34)%
State Taxes, Net of Federal Benefit (3.5)% (3.5)%
Effect of Net Operating Losses 37.5% 37.5%
---------- ----------
0% 0%
========== ==========

Deferred income taxes arise primarily as a result of a difference between the
financial and tax basis of reporting principally for differences in the bases of
receivables, property and equipment, other assets, accrued liabilities and net
operating loss carry forwards.

Deferred tax assets at December 31, 1999 and 1998 are comprised of the
following:

1999 1998
------------ ------------
Deferred tax assets
Tax benefit of net operating loss
carryforwards ...................... $ 17,236,000 $ 16,777,000
Allowance for doubtful accounts .... -- 101,000
Accrued liabilities ................ -- 95,000
------------ ------------
Total deferred tax assets .......... 17,236,000 16,973,000
Less valuation allowance ........... (17,236,000) (16,973,000)
------------ ------------
Net deferred tax assets ............ $ -- $ --
============ ============

During 1999, the deferred tax asset valuation allowance increased by $459,000
and during 1998, the valuation allowance increased by $10,232,000.

At December 31, 1999, the Company has available net operating loss carryforwards
for Federal income tax purposes of approximately $46,000,000, which can be
offset against future earnings of the Company. These net operating losses expire
from 2008 through 2013, and are subject to annual limitations.

NOTE 7: NOTES PAYABLE - RELATED PARTY AND OTHER

Notes payable totaling $1,470,816 (including $160,795 classified with
discontinued operations) at December 31, 1999 represents the Company's
outstanding line of credit obligation to Match, Inc., a company wholly-owned by
Ronald E. Lusk, Chairman and Chief Executive Officer of the Company. Amounts
reported for 1998 represent various corporate obligations, which have since been
settled or otherwise satisfied.

The line of credit agreement with Match, Inc. is available up to a limit of $2
million; bears interest at approximately 10%; is due on demand; and is
unsecured.

F-9

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 8: DISCONTINUED OPERATIONS

Net current and long term accounts of discontinued operations at December 31,
1999 and 1998, are detailed as follows:

DECEMBER 31, 1999 PRIOR NURSING TRINITY SOUTHLAND TOTAL
- - ----------------- ANCILLARIES OPERATIONS REHAB MEDICAL ACCOUNTS
----------- ----------- ----------- ----------- ------------

Accounts payable and accrued expenses $ (870,516) $(3,985,722) $ (308,176) $ -- $ (5,164,414)
Judgment creditor obligations (1,964,014) -- -- -- (1,964,014)
Loans in default -- (1,980,238) (2,352,747) -- (4,332,985)
Other notes payable -- -- (1,660,795) (1,350,000) (3,010,795)
---------------------------------------------------------------------------------
Total net current liabilities $(2,834,530) $(5,965,960) $(4,321,718) $(1,350,000) $(14,472,208)
================================================================================

DECEMBER 31, 1998 PRIOR NURSING TOTAL
- - ----------------- ANCILLARIES OPERATIONS ACCOUNTS
----------- ----------- -----------

Net property, plant and equipment $ -- $ 8,192,222 $ 8,192,222
Other long term assets -- 823,942 823,942
Long-term debt -- (1,696,500) (1,696,500)
---------------------------------------------
Total net long term assets $ -- $ 7,319,664 $ 7,319,664
=============================================

DECEMBER 31, 1998 PRIOR NURSING TOTAL
- - ----------------- ANCILLARIES OPERATIONS ACCOUNTS
----------- ----------- -----------
Cash $ -- $ 279,364 $ 279,364
Accounts receivable and other 616,040 1,863,155 2,479,195
Accounts payable and
accrued expenses (591,568) (3,240,745) (3,832,313)
Long-term debt in default -- (8,300,000) (8,300,000)
Other notes payable and debt obligations -- (4,875,417) (4,875,417)
---------------------------------------------
Total net current assets (liabilities) $ 24,472 $(14,273,643) $(14,249,171)
=============================================

F-10

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 8: DISCONTINUED OPERATIONS (CONTINUED)

Net losses from discontinued operations reported for the periods ended December
1999 and 1998, are detailed as follows:

YEAR ENDED DECEMBER 31, 1999 PRIOR NURSING TRINITY SOUTHLAND TOTAL
- - --------------------------- ANCILLARIES OPERATIONS REHAB MEDICAL ACCOUNTS
----------- ----------- ----------- ----------- ------------

Revenues $ -- $11,412,276 $ 3,312,567 $ 7,104,814 $ 21,829,657
Operating expenses (512,519) (10,232,275) (4,429,062) (7,887,899) (23,061,755)
Property and capital related -- (1,125,767) (190,071) (1,480,080) (2,795,918)
---------------------------------------------------------------------------------
Net (Loss) $ (512,519) $ 54,234 $(1,306,566) $(2,263,165) $ (4,028,016)
================================================================================

YEAR ENDED DECEMBER 31, 1998 PRIOR NURSING TOTAL
- - ---------------------------- ANCILLARIES OPERATIONS ACCOUNTS
----------- ----------- -----------

Revenues $ 7,526,597 $19,611,430 $27,138,027
Operating expenses (6,817,481) (17,977,923) (24,795,404)
Property and capital related (325,933) (3,509,112) (3,835,045)
Other-net (4,294,978) (5,785,940) (10,080,918)
---------------------------------------------
Net (Loss) $(3,911,795) $(7,661,545) $(11,573,340)
=============================================

Other-net charges to discontinued operations for the year ended December 31,
1998 were largely attributed to the write-off of intangible assets and provision
for doubtful notes and accounts receivable associated with prior ancillaries and
nursing operations.

NOTE 9: RELATED PARTY TRANSACTIONS

The Company is obligated under the terms of a line of credit agreement to Match,
Inc. in the amount of $1,470,816 at December 31, 1999. Ronald E. Lusk, Chairman
and Chief Executive Officer of the Company controls Match, Inc. as its sole
stockholder and President. The line of credit agreement with Match, Inc. is
available up to a limit of $2 million; bears interest at approximately 10%; is
due on demand and as of December 31, 1999 is unsecured. This note obligation
includes accrued interest of $107,064 at December 31, 1999. To date, there have
been no interest payments made to Match, Inc.

In November 1999, the Company voluntarily surrendered the common stock of
Southland Medical Supply, Inc., ("Southland"), a wholly owned subsidiary, to
Match, Inc. as consideration in satisfaction of Southland's participation in the
line of credit note obligation in the amount of $145,258. This action was
contemplated by the Company in connection with efforts to discontinue operations
of Southland. In turn, Match, Inc. has proceeded with the liquidation of
residual assets represented by Southland's inventory, furniture, fixtures and
equipment. In the event such liquidation results in value exceeding the
Company's loan balance, the Company will be entitled to a corresponding
reduction in loan amounts due to Match, Inc.

Match, Inc. is the sole holder of all of the issued and outstanding Series A
Preferred Stock of the Company at December 31, 1999.

F-11

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)

NOTE 10: LOSS PER SHARE

The following is a reconciliation of the numerators and denominators used in
computing loss per share (basic and diluted) from continuing operations:

1999 1998
------------ ------------
Net Loss ......................................... $(10,894,212) $(11,919,706)
Preferred stock dividends ........................ (160,000) (160,000)
------------ ------------
Loss to common shareholders (numerator) .......... $(11,054,212) $(12,079,706)
============ ============
Weighted-average number of shares of
common stock (denominator) ..................... 24,258,453 20,948,862
============ ============

Potential dilutive securities (1999 and 1998-stock options, stock warrants and
convertible preferred stock) have not been considered since the Company reported
a net loss from continuing operations and, accordingly, their effects would be
anti-dilutive.

NOTE 11: PREFERRED STOCK

On July 25, 1994, the Company sold 533,333 shares of 8% cumulative Series A
Senior Convertible Preferred Stock including voting rights, cumulative dividends
at $.30 per annum for each share and conversion rights to common stock at the
conversion price of $3.75 per share before reduction by an anti-dilution
provision for certain shares of common stock issued by the Company. At December
31, 1999, the 533,333 shares of Series A Senior Convertible Preferred Stock was
convertible into 972,507 shares of common stock. The liquidation preference of
each Senior Preferred Convertible share is $3.75 per share plus unpaid
dividends, which amounts to $2,870,000 at December 31, 1999. The Company had the
option, prior to July 1, 1996, to pay the preferred stock dividends by issuance
of Common stock in lieu of cash. The Company did not exercise their option. At
December 31, 1999, dividends in arrears yet not declared by the Company on the
8% Cumulative Series A Senior Convertible Preferred Stock totaled $870,000.

The Series B Preferred Stock is nonvoting and does not pay dividends. The
liquidation preference of each share is $1.00 per share.

NOTE 12: STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS

1999 STOCK OPTION PLAN

On February 18, 1999, the Board of Directors adopted and the shareholders
subsequently approved the 1999 Company Stock Option Plan (Plan), which provides
for the granting of incentive and non-qualified stock options to officers and
key employees. Currently, a maximum of options to purchase 3,000,000 shares may
be issued under the Plan. Options are granted on terms determined by the Board
of Directors. Incentive Stock Options must be granted with an exercise price
equal to at least 100% of the fair market value of the stock at the grant date.
Non-qualified stock options must be granted with an exercise price equal to at
least 80% of the fair market value of the stock at the grant date. The Plan
terminates December 31, 2008.

F-12

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 12: STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS (CONTINUED)

During 1999, the Company granted to key employees incentive stock options to
purchase 1,330,000 shares of common stock. Options to purchase 600,000 shares
were rescinded during 1999. The remaining 780,000 shares were issued at a grant
price of $.28 per share. One third of the stock options become exercisable
February, 2000, 2001, and 2002, provided the respective employee is employed on
the anniversary date.

EMPLOYEE STOCK PURCHASE PLAN

During 1999, the Company adopted an employee stock purchase plan available to
all employees. Stock is offered under the plan semi-annually and an employee may
subscribe to up to $25,000 worth of stock in any calendar year. The purchase
price of shares under the plan is 85% of the lower of the fair market value of
the common stock at the beginning and ending dates of the offering period. No
shares have been offered under the employee stock purchase plan.

PRIOR STOCK OPTION PLAN

The Company has a Stock Option Plan (the Plan), which provides for the granting
of incentive and nonqualified stock options and stock appreciation rights to
certain officers, directors, key employees and consultants. Currently, a maximum
of 750,000 shares of Common Stock may be issued under the Plan. Stock Options
are granted at a price not less than 100% of the fair market value of the Common
Stock at the date of grant and must be exercised within 10 years from the date
of grant, with certain restrictions. Nonqualified Stock Options will be granted
on terms determined by the Board of Directors. During 1998, 400,000 option
shares, that were outstanding at December 31, 1997, expired.

COMMON STOCK PURCHASE WARRANTS

In addition to options granted under its Stock Option Plan, the Company has
issued Common Stock Purchase Warrants to the public and underwriter in
connection with its initial public offering and to officers, directors and
employees as compensation for past and future services, all of which are outside
of the Stock Option Plan.

NON-REDEEMABLE COMMON STOCK PURCHASE WARRANTS

During 1994, the Company privately issued Non-Redeemable Common Stock Purchase
Warrants for 1,600,000 shares of the Company's Common Stock. Of these, 1,100,000
Non-Redeemable Common Stock Purchase Warrants expired on July 25, 1999. The
remaining 500,000 warrants with an exercise price of $1.50 expire July 25, 2004.

PRIVATE WARRANTS

Transactions involving private warrants are summarized as follows:

WARRANTS
WEIGHTED WEIGHTED
AVERAGE PRICE AVERAGE PRICE
--------------------- ---------------------
1999 PER SHARE 1998 PER SHARE
--------- --------- --------- ---------

Outstanding January 1 ........ 2,878,848 $1.17 3,396,110 $1.77
Granted .................... -- -- 589,150 .62
Exercised .................. -- -- (100,000) --
Expired/Cancelled .......... (100,000) (2.00) (1,006,412) (2.97)
--------- ---------

Outstanding December 31 ...... 2,778,848 $1.15 2,878,848 $1.17
========= =========

Exercisable December 31 ...... 2,672,184 $1.15 2,772,184 $1.17

The warrants outstanding on December 31, 1999 expire from 2000 through 2007.

F-13

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 12: STOCK OPTION PLAN AND COMMON STOCK PURCHASE WARRANTS (CONTINUED)

Under Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting
for Stock-Based Compensation," the Company is permitted to continue accounting
for the issuance of stock options and warrants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, which does not require recognition of
compensation expense for option and warrant grants unless the exercise price is
less than the market price on the date of grant. As a result, the Company has
recognized no compensation cost for stock options and warrants for 1999 or 1998.
If the Company had recognized compensation cost for the "fair value" of option
grants under the provisions of SFAS No. 123, the pro forma financial results for
1999 and 1998 would have differed from the actual results as follows:

1999 1998
------------ ------------

Net income (loss)
As reported .................... $(10,194,212) $(11,919,706)
Proforma ....................... (10,246,212) $(12,291,273)
Basic earnings (loss) per share
As reported .................... $(.46) $(.58)
Proforma ....................... $(.46) $(.59)

The per share weighted average fair value of the stock options and warrants
granted during 1999 and 1998 was $.28 and $.38, respectively. The fair value was
estimated at the date of grant using the Modified Black-Scholes Stock Option
Pricing Model with the following assumptions: risk free interest rates of
approximately 6.5% - 1999; 6% - 1998; expected volatility of 171%, and expected
lives of 1-10 years, and no expected dividends.

Under SFAS 123, the fair value of stock options issued in any given year is
expensed as compensation over the vesting period, which for substantially all of
the Company's options and warrants is three to ten years; therefore, the pro
forma net income (loss) and basic earnings (loss) per share do not reflect the
total compensation cost for options and warrants granted in the respective years
and are not indicative of future amounts.

NOTE 13: RETIREMENT SAVINGS PLAN

The Company has a savings plan available to substantially all employees, under
Section 401(k) of the Internal Revenue Code. The Company's contributions to this
plan are discretionary. Employee contributions are generally limited to 10% of
their compensation subject to Internal Revenue Code limitations. The Company
made no contributions to this plan during the two-year period ended December 31,
1999.

NOTE 14: COMMITMENTS AND CONTINGENCIES

On January 1, 1999, in connection with the change in corporate control, the
Company entered into employment agreements with four executive officers to
succeed prior management. During 1999, two of these executives resigned and the
Company issued 285,379 shares of common stock to such individuals in full
satisfaction of the associated employment agreement commitments. Of the two
remaining executives, employment agreements, each for a period of five years,
include aggregate annual base compensation of $475,000 to be paid in the form of
stock, cash or a combination thereof. At December, 31, 1999, executive
compensation totaling $475,000 remained accrued. In March 2000, the Company
authorized the issuance of 3,172,126 shares of the Company's common stock in
satisfaction of this obligation. Change in control agreements providing, among
other things, termination entitlements of up to two and one-half times base
compensation were also entered into with the new executive officers.

F-14

PHOENIX HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998

NOTE 14: COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company is a defendant in certain lawsuits involving third-party creditors
whose claims arise from transactions, which occurred under prior management.
Management believes that it has sufficiently reserved for these claims in its
financial statements at December 31, 1999. Management does not believe that the
outcome of these matters will have a material adverse affect on the Company's
financial position, results of operations or cash flows.

In addition to the foregoing, the Company and its subsidiaries have outstanding
a number of other routine actions, as well as a number of threatened actions
involving their respective creditors, vendors, customers, former employees
and/or other third parties. Some of them are in the process of being settled,
and the remainder of them are being vigorously defended. Management does not
believe that the outcome of these matters will have a material adverse affect on
the Company's financial position, results of operations or cash flows.

The Company is obligated under the terms of an operating lease for its executive
and administrative offices located Dallas, Texas. The lease agreement, which
term extends to January 2003, requires a monthly lease payment of $7,761, and
includes all building costs. Lease expense incurred and relating to this
agreement for the year ended December 31, 1999 totaled $85,371.

In March 2000, the Company authorized the issuance of 7,400,000 shares of common
stock in connection with the appointment of a new Executive Vice President of
the Company who will also serve in the capacity of President of Healthcare
Information Technologies, Inc., the recently acquired and wholly owned
subsidiary of the Company. The Company is committed to enter into an employment
agreement with this executive effective January 1, 2000 for a period of five
years with an annual compensation level of $240,000. The employment contract
terms are expected to be substantially similar to those used for other Company
executives.

In March 2000, the Company accepted the resignation of its Chief Operating
Officer who will continue to serve on the Company's Board of Directors. The
Company approved the conversion of a $150,000 promissory note into 454,545
shares of the Company's common stock in full satisfaction of such note
obligation.

F-15