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

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2006

                                       OR

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

       For the transition period from ________________ to ________________

                        Commission file number: 001-32361

                       METROPOLITAN HEALTH NETWORKS, INC.
             (Exact name of registrant as specified in its charter)

                Florida                                           65-0635748
    (State or other jurisdiction of                            (I.R.S. Employer
     incorporation or organization)                          Identification No.)

    250 Australian Avenue, Suite 400
          West Palm Beach, FL                                       33401
(Address of principal executive offices)                          (Zip Code)

                                 (561) 805-8500
              (Registrant's telephone number, including area code)

                                      None
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
    required to file such reports), and (2) has been subject to such filing
                       requirements for the past 90 days.

                                 Yes [X] No [_]

 Indicate by check mark whether the registrant is a large accelerated filer, an
 accelerated filer, or a non-accelerated filer. See definition of "accelerated
     filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

   Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]

Indicate by check mark whether the registrant is a shell company (as defined in
                        Rule 12b-2 of the Exchange Act).

                                 Yes [_] No [X]

  Indicate the number of shares outstanding of each of the issuer's classes of
                common stock, as of the latest practicable date.

                 Class                           Outstanding at October 31, 2006
---------------------------------------          -------------------------------
Common Stock, $.001 par value per share                   50,165,426 shares



                       Metropolitan Health Networks, Inc.

                                      Index

Part I.  FINANCIAL INFORMATION                                             Page

Item 1.  Condensed Consolidated Financial Statements (Unaudited):

           Condensed Consolidated Balance Sheets
           as of September 30, 2006 and December 31, 2005                     4

           Condensed Consolidated Statements of
           Operations for the Three and Nine Months Ended
               September 30, 2006 and 2005                                    5

           Condensed Consolidated Statements of
           Cash Flows for the Nine Months Ended
           September 30, 2006 and 2005                                        6

           Notes to Condensed Consolidated
           Financial Statements                                            7-18

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of
           Operations                                                     19-30

Item 3.  Quantitative and Qualitative Disclosures About Market Risk       30-31

Item 4.  Controls and Procedures                                             31

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings                                                 32

Item 1A.   Risk Factors                                                      32

Item 2.    Changes in Securities and Use of Proceeds                         32

Item 3.    Default Upon Senior Securities                                    32

Item 4.    Submission of Matters to a Vote of Security Holders               32

Item 5.    Other Information                                                 32

Item 6.    Exhibits                                                       32-33

SIGNATURES                                                                   34


                                       2


PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements














                                       3


               METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
================================================================================



                                                                            September 30, 2006    December 31, 2005
                                  ASSETS                                       (Unaudited)            (Audited)
                                                                            ------------------    ------------------
                                                                                            

CURRENT ASSETS
 Cash and equivalents                                                       $       19,304,497    $       15,572,862
 Short-term investments                                                              5,769,956                    --
 Accounts receivable, net of allowance                                               4,273,196             4,183,974
 Inventory                                                                             245,043               201,430
 Prepaid expenses                                                                    1,049,109               473,286
 Deferred income taxes                                                               3,400,000             3,500,000
 Other current assets                                                                  432,187               547,976
                                                                            ------------------    ------------------
  TOTAL CURRENT ASSETS                                                              34,473,988            24,479,528
PROPERTY AND EQUIPMENT, net                                                          2,070,079               899,998
INVESTMENTS                                                                            663,043               627,819
GOODWILL, net                                                                        1,992,133             1,992,133
DEFERRED INCOME TAXES                                                                2,644,800             4,493,000
OTHER ASSETS                                                                           645,925               622,628
                                                                            ------------------    ------------------
  TOTAL ASSETS                                                              $       42,489,968    $       33,115,106
                                                                            ==================    ==================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
 Accounts payable                                                           $        1,136,836    $          969,184
 Advance and unearned premiums                                                       1,298,153                    --
 Estimated medical expenses payable                                                  4,117,183               694,410
 Accrued payroll and payroll taxes                                                   1,480,696             1,459,098
 Accrued expenses                                                                      821,332               293,552
                                                                            ------------------    ------------------
  TOTAL CURRENT LIABILITIES                                                          8,854,200             3,416,244
                                                                            ------------------    ------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
 Preferred stock, par value $.001 per share; stated value $100 per share;
  10,000,000 shares authorized; 5,000 issued and outstanding                           500,000               500,000
 Common stock, par value $.001 per share; 80,000,000 shares authorized;
  50,132,526 and 49,851,526 issued and outstanding, respectively                        50,132                49,851
 Additional paid-in capital                                                         40,926,641            40,182,889
 Accumulated deficit                                                                (7,841,005)          (11,033,878)
                                                                            ------------------    ------------------
  TOTAL STOCKHOLDERS' EQUITY                                                        33,635,768            29,698,862
                                                                            ------------------    ------------------
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $       42,489,968    $       33,115,106
                                                                            ==================    ==================


  The accompanying notes are an integral part of these Condensed Consolidated
                             Financial Statements.


                                       4


               METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================



                                                      For the nine months               For the three months
                                                       ended September 30,               ended September 30,
                                                ------------------------------    ------------------------------
                                                     2006             2005             2006             2005
                                                 (Unaudited)      (Unaudited)      (Unaudited)      (Unaudited)
                                                -------------    -------------    -------------    -------------
                                                                                       

REVENUES, net                                   $ 172,487,485    $ 136,688,653    $  60,838,341    $  44,999,881
                                                                                                   -------------

OPERATING EXPENSES
 Direct medical costs                             144,945,205      114,903,124       49,647,785       37,570,720
 Other medical costs                                7,693,187        7,776,931        2,548,244        2,566,111
                                                -------------    -------------    -------------    -------------
    Total medical expenses                        152,638,392      122,680,055       52,196,029       40,136,831
 Administrative  payroll,  payroll  taxes and
   benefits                                         7,529,738        4,211,494        2,526,552        1,529,204
 Marketing and advertising                          2,199,019        1,433,189          203,166        1,277,000
 General and administrative                         5,698,587        4,039,209        2,149,350        1,299,863
                                                -------------    -------------    -------------    -------------
      TOTAL EXPENSES                              168,065,736      132,363,947       57,075,097       44,242,898
                                                -------------    -------------    -------------    -------------

OPERATING INCOME                                    4,421,749        4,324,706        3,763,244          756,983
                                                -------------    -------------    -------------    -------------

OTHER INCOME
 Interest income, net                                 717,930          263,246          305,792          126,196
 Other                                                  1,394          129,624              193               10
                                                -------------    -------------    -------------    -------------
      TOTAL OTHER INCOME                              719,324          392,870          305,985          126,206
                                                -------------    -------------    -------------    -------------

INCOME BEFORE INCOME TAXES                          5,141,073        4,717,576        4,069,229          883,189
INCOME TAXES                                       (1,948,200)      (1,790,696)      (1,537,200)        (343,696)
                                                -------------    -------------    -------------    -------------
NET INCOME                                      $   3,192,873    $   2,926,880    $   2,532,029    $     539,493
                                                =============    =============    =============    =============

NET EARNINGS PER SHARE:
 Basic                                          $        0.06    $        0.06    $        0.05    $        0.01
                                                =============    =============    =============    =============
 Diluted                                        $        0.06    $        0.06    $        0.05    $        0.01
                                                =============    =============    =============    =============


  The accompanying notes are an integral part of these Condensed Consolidated
                             Financial Statements.


                                       5


               METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================



                                                                      For the nine months ended September 30,
                                                                            2006                 2005
                                                                        ------------         ------------
                                                                                       

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                                             $  3,192,873         $  2,926,880
                                                                        ------------         ------------
 Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization                                            378,801              253,555
    Deferred income taxes                                                  1,948,200              711,000
    Stock-based compensation expense                                         545,983                   --
    Tax benefit on exercise of stock options                                      --            1,079,000
    Loss on sale of assets                                                       191                   --
    Amortization of securities issued for professional services               57,300               96,334
    Changes in operating assets and liabilities:
       Accounts receivable, net                                              (89,222)          (1,680,695)
       Inventory                                                             (43,613)              52,386
       Prepaid expenses                                                     (575,823)            (307,896)
       Other current assets                                                  115,790              195,959
       Other assets                                                          (25,381)            (334,981)
       Accounts payable                                                      167,653              213,199
       Advance and unearned premiums                                       1,298,153              424,476
       Estimated medical expenses payable                                  3,422,773                   --
       Accrued payroll                                                        21,598             (395,589)
       Accrued expenses                                                      527,779              868,786
                                                                        ------------         ------------
          Total adjustments                                                7,750,182            1,175,534
                                                                        ------------         ------------
             Net cash provided by operating activities                    10,943,055            4,102,414
                                                                        ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Short-term investments                                                   (5,769,955)           1,500,000
 Investments                                                                 (35,224)            (601,783)
 Redemption of restricted certificates of deposit                                 --            1,000,000
 Capital expenditures                                                     (1,546,991)            (255,684)
                                                                        ------------         ------------
             Net cash (used in)/provided by investing activities          (7,352,170)           1,642,533
                                                                        ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayments on notes payable                                                      --           (1,061,500)
 Repurchase of warrants                                                           --              (85,000)
 Proceeds from exercise of stock options and warrants                        140,750            1,285,257
 Net proceeds from issuance of common stock                                       --                   --
                                                                        ------------         ------------
             Net cash provided by financing activities                       140,750              138,757
                                                                        ------------         ------------

NET INCREASE IN CASH AND EQUIVALENTS                                       3,731,635            5,883,704
CASH AND EQUIVALENTS - BEGINNING                                          15,572,862           11,344,113
                                                                        ------------         ------------
CASH AND EQUIVALENTS - ENDING                                           $ 19,304,497         $ 17,227,817
                                                                        ============         ============


  The accompanying notes are an integral part of these Condensed Consolidated
                             Financial Statements.


                                       6


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

================================================================================
NOTE 1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States  of  America  for  interim  financial  information  and  with the
instructions  to  Form  10-Q.  Accordingly,  they  do  not  include  all  of the
information and footnotes required by accounting  principles  generally accepted
in the United  States of  America  for  complete  financial  statements.  In the
opinion  of  management,   all  adjustments  considered  necessary  for  a  fair
presentation  have been included and such  adjustments are of a normal recurring
nature. Operating results for the three and nine months ended September 30, 2006
are not necessarily  indicative of the results that may be expected for the year
ending December 31, 2006.

The audited  financial  statements at December 31, 2005,  which were included in
the Company's  Form 10-K filed on March 16, 2006,  should be read in conjunction
with these condensed consolidated financial statements.

Unless otherwise indicated or the context requires,  all references in this Form
10-Q to the  "Company"  refers to  Metropolitan  Health  Networks,  Inc. and its
consolidated subsidiaries.

SEGMENT REPORTING

The Company applies Financial Accounting Standards Boards ("FASB") Statement No.
131,  "Disclosure about Segments of an Enterprise and Related  Information." The
Company has  considered  its  operations  and has  determined  that, in 2005, it
operated,  and  continues  to operate in 2006,  in two  segments for purposes of
presenting financial information and evaluating performance,  a Provider Service
Network (managed care and direct medical services),  operated through its wholly
owned subsidiary, Metcare of Florida, Inc. (the "PSN"), and a Medicare Advantage
HMO,  operated  through its wholly owned subsidiary  Metcare Health Plans,  Inc.
(the "HMO").

As such, the accompanying  financial  statements present information in a format
that is  consistent  with  the  financial  information  used by  management  for
internal  use.  See  "Note  6.  Business  Segment  Information"  for  additional
information regarding the Company's business segments.

CASH AND EQUIVALENTS

The Company considers all highly liquid investments with original  maturities of
three  months or less to be cash  equivalents.  From time to time,  the  Company
maintains  cash  balances  with  financial  institutions  in excess of federally
insured limits.

SHORT-TERM INVESTMENTS

All investments  with original  maturities of greater than 90 days are accounted
for in accordance with Statement of Financial  Accounting Standards ("SFAS") No.
115,  "Accounting for Certain  Investments in Debt and Equity Securities." As of
September 30, 2006, the Company's short-term investments consisted of commercial
paper and certificates of deposit classified as  available-for-sale.  All income
generated  from these  short-term  investments  during the three and nine months
ended September 30, 2006 was recorded as interest income.

LONG-TERM INVESTMENTS

Long-term  investments,  which  consist  primarily of a  non-controlling  equity
interest in a non-assessable reciprocal insurance organization through which the
Company has  renewed  its  malpractice  insurance,  are  carried at cost.  If an
impairment  occurs that is not  considered  temporary,  the  investment  will be
written down to net realizable value.

INCOME TAXES

The Company  accounts  for income  taxes  pursuant  to  Statement  of  Financial
Accounting  Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires income taxes to be accounted for under the asset and liability  method.
Under this method,  deferred  income tax assets and  liabilities  are determined
based upon  differences  between the  financial  statement  carrying  amounts of
existing assets and liabilities and their respective tax bases using enacted tax
rates in effect for the year in which the  differences  are expected to reverse.
The effect on deferred  tax assets and  liabilities  of a change in tax rates is
recognized in earnings in the period that includes the enactment date.


                                       7


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

SFAS No. 109  requires a valuation  allowance  to reduce the deferred tax assets
reported  if,  based on the weight of the  evidence,  it is more likely than not
that some portion or all of the deferred tax assets will not be realized.  After
consideration of all the evidence, both positive and negative (including,  among
others,  projections of future taxable  income,  current year net operating loss
carryforward  utilization and the Company's  profitability in recent years), the
Company  determined that future  realization of its deferred tax assets was more
likely than not. In the event it is  determined  that it is more likely than not
that the Company  would not be able to realize  all or part of its net  deferred
tax assets in the future, an adjustment to record a deferred tax asset valuation
allowance would be charged to income in the period such  determination  would be
made. Changes in deferred tax assets are reflected in the "Income Taxes" expense
line of the Company's Condensed Consolidated Statements of Operations.

Due to the  availability of deferred tax assets during the three and nine months
ended  September 30, 2006, the Company has not recorded any amounts  payable for
U.S.  federal income taxes and does not expect any cash outlay to be required in
connection with the income tax provisions.

REVENUE RECOGNITION

The Company's  PSN is a party to two managed care  contracts  with Humana,  Inc.
(the "Humana  Agreements") and provides medical care to Humana's members through
wholly-owned  and  contracted   independent   medical  practices  and  providers
(collectively,  the "Affiliated Providers").  The PSN receives a monthly fee for
each patient that chooses one of the Affiliated  Providers as his or her primary
care physician in exchange for the PSN's  assumption of  responsibility  for the
provision of all necessary medical services to such patient,  even those medical
services not directly provided by one of the Affiliated Providers. Fees received
by the PSN under these Humana  Agreements are reported as revenues.  The cost of
both Affiliated Provider and non-Affiliated Provider services under these Humana
Agreements  are not included as a deduction to net revenues of the Company,  but
are  reported  as an  operating  expense.  Changes in  revenues  resulting  from
periodic  changes in risk  adjustment  scores are  recognized  when the  amounts
become  determinable and the collectibility is reasonably assured. In connection
with the Humana  Agreements,  the  Company is exposed to losses to the extent of
the PSN's share of  deficits,  if any, on its  Affiliated  Providers.  The PSN's
share of deficits is 100% for Medicare Part A in the Central Florida market, 50%
for Medicare Part A in the South Florida  market and 100% for Medicare Part B in
both the Central Florida and South Florida market.  Revenues generated under the
Humana Agreements accounted for approximately 85% and 98% of the Company's total
revenues for the quarters ended September 30, 2006 and 2005,  respectively,  and
approximately  88% and 99% of the Company's  total  revenues for the nine months
ended September 30, 2006 and 2005, respectively.

Humana may  immediately  terminate  either of the Humana  Agreements  and/or any
individual  physician  credentialed  under the Humana  Agreements,  upon written
notice,  (i) if the  PSN  and/or  any of  its  Affiliated  Provider's  continued
participation  may adversely affect the health,  safety or welfare of any Humana
member or bring  Humana  into  disrepute;  (ii) in the event of one of the PSN's
physician's death or incompetence;  (iii) if any of the PSN's physicians fail to
meet Humana's credentialing  criteria; (iv) in accordance with Humana's policies
and  procedures  as specified in Humana's  manual,  (v) if the PSN engages in or
acquiesces to any act of bankruptcy,  receivership or reorganization; or (vi) if
Humana loses its authority to do business in total or as to any limited  segment
or business (but only to that  segment).  The PSN and Humana may also  terminate
each of the Humana  Agreements upon 90 days' prior written notice (with a 60 day
opportunity to cure, if possible) in the event of the other's material breach of
the applicable Humana Agreement.

Failure to maintain the Humana  Agreements on favorable  terms,  for any reason,
would  adversely  affect the  Company's  results  of  operations  and  financial
condition.

The  Company  also  recognizes  non-Humana   fee-for-service  revenues,  net  of
contractual  allowances,  as medical  services  are  provided to patients by the
Company's wholly-owned medical practices. These services are typically billed to
patients,  Medicare,  Medicaid,  health maintenance  organizations and insurance
companies.  The Company provides an allowance for uncollectible  amounts and for
contractual  adjustments relating to the difference between standard charges and
agreed upon rates paid by certain third party payers.


                                       8


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Effective  July 1, 2005 the Company  obtained the requisite  Florida and federal
licenses,  approvals  and contract to begin  marketing,  enrolling and providing
services to Medicare  beneficiaries  through its own Medicare Advantage HMO. The
contract with the Centers for Medicare and Medicaid  Services  ("CMS") renews on
an annual  basis.  The HMO receives a monthly  premium for each  enrollee in its
plan and is responsible  for the provision of all covered  medical  services for
that enrollee.  Premium  revenues are recognized as income in the period members
are entitled to receive services, and are recorded net of retroactive membership
adjustments.  Retroactive  membership adjustments result from enrollment changes
not yet  processed  or not yet  reported by CMS.  Changes in  revenues  from CMS
resulting  from the  periodic  changes in risk  adjustment  scores for the HMO's
membership  are  recognized  when  the  amounts  become   determinable  and  the
collectibility is reasonably assured.

MARKETING AND ADVERTISING COSTS

Marketing  and  advertising  costs  are  expensed  as  incurred.  Marketing  and
advertising expense was approximately $203,000 and $1.3 million for the quarters
ended  September  30,  2006 and 2005,  respectively,  and $2.2  million and $1.4
million for the nine months ended September 30, 2006 and 2005, respectively.

USE OF ESTIMATES

Revenue, Expense and Receivables

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates and assumptions  that affect the amounts  reported in the accompanying
financial  statements.  The most significant area requiring estimates relates to
the PSN's  arrangements  with Humana.  Such  estimates are based on knowledge of
current events and anticipated  future events,  and accordingly,  actual results
may ultimately differ materially from those estimates.

With regard to virtually all of the revenues,  expenses and receivables  arising
from the Humana  Agreements,  the Company estimates the amounts it believes will
ultimately be realizable based in part upon estimates of claims incurred but not
reported ("IBNR") and estimates of retroactive adjustments or unsettled costs to
be applied by Humana. The IBNR estimates are made by Humana utilizing  actuarial
methods and are  continually  evaluated by  management of the Company based upon
its specific claims  experience.  It is reasonably  possible that some or all of
these  estimates  could  change  in the near  term by an  amount  that  could be
material to the financial statements.

From time to time,  Humana charges the PSN for certain medical  expenses,  which
the  Company  believes  are  erroneous  or  are  not  supported  by  the  Humana
Agreements.  Management's  estimate of recovery on these  contestations is based
upon its judgment and its  consideration of several factors including the nature
of the contestations, historical recovery rates and other qualitative factors.

During 2005, the Company  incurred  approximately  $4.0 million of medical costs
related to the  implantation  of certain  Implantable  Automatic  Defibrillators
("AICD's").  CMS directed that the costs of certain of these procedures that met
2005  eligibility  requirements  be paid by CMS,  rather than billed to Medicare
Advantage plans. The Company is working with Humana and the related providers to
secure   reimbursement   for  these   amounts,   and  estimated  a  recovery  of
approximately $2.2 million at December 31, 2005.  Approximately $379,000 of this
amount was collected  during the nine months ended September 30, 2006,  while an
additional  $500,000  was written  off during the second  quarter of 2006 due to
revised  guidance  issued by CMS in July 2006 regarding the costs payable by CMS
in connection  with these  procedures.  During the quarter  ended  September 30,
2006,  the  Company  recorded  an  additional   $500,000  reserve  against  this
receivable to reflect  management's  concerns  about the ultimate  collection of
these receivables.  Accordingly, related accounts receivable in the accompanying
consolidated balance sheets were $772,000 and $2.2 million at September 30, 2006
and  December  31,  2005,  respectively.  It is  reasonably  possible  that this
estimate  could  change in the near term by an amount  that could be material to
the financial statements.


                                       9


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Included in revenues  for the quarter and nine months ended  September  30, 2006
were estimated  amounts payable to the Company as a result of funding  increases
under the  Medicare  risk  adjustment  ("MRA")  program.  The purpose of the MRA
program is to use health  status  indicators to improve the accuracy of payments
and  establish  incentives  for plans to enroll and treat less healthy  Medicare
beneficiaries.  From 2000 to 2003, risk adjustment  payments  accounted for only
10% of the payment made by CMS to the Medicare health plans,  with the remaining
90% based on  demographic  factors.  In 2004 and 2005, the percentage of payment
attributable to risk adjustment was increased to 30% and 50%, respectively.  The
percentage of payment  attributable  to risk has increased to 75% in 2006,  with
the  100%  phase-in  of  risk-adjusted  payment  expected  in 2007.  We  accrued
approximately  $5.4  million  during the nine months  ended  September  30, 2006
related to  incremental  revenues  anticipated to be received as a result of the
MRA funding  increases.  $4.2  million has been  received  during the first nine
months of 2006.  Accounts  receivable in the accompanying  consolidated  balance
sheets at September  30, 2006  include  $1.2 million of accrued MRA  receivables
that we expect to be received during the fourth quarter of 2006 and in the first
quarter of 2007.  It is reasonably  possible that this estimate  could change in
the near term by an amount that could be material to the financial statements.

Non-Humana  fee-for-service  accounts  receivable,  aggregating to approximately
$1,155,000   and  $797,000  at  September   30,  2006  and  December  31,  2005,
respectively, relate principally to medical services provided on a non-capitated
basis, and are reduced by amounts  estimated to be uncollectible  (approximately
$798,000   and   $555,000  at   September   30,  2006  and  December  31,  2005,
respectively).  Management's estimate of uncollectible amounts is based upon its
analysis of historical collections and other qualitative factors,  however it is
possible the  Company's  estimate of  uncollectible  amounts could change in the
near term. In addition,  accounts  receivable at September 30, 2006 and December
31, 2005 includes approximately $519,000 and $159,000,  respectively, due to the
HMO from CMS and HMO  enrollees,  which is reduced by  amounts  estimated  to be
uncollectible at September 30, 2006 in the amount of $17,000.

With  regards to the HMO,  the cost of medical  benefits  is  recognized  in the
period in which  services are provided  and includes an IBNR  estimate  based on
management's  best  estimate  of  medical  benefits  payable.  Included  in this
estimate are loss adjustment  expenses of  approximately 3% of the IBNR balance.
It is reasonably  possible that some or all of these  estimates  could change in
the near term by an amount that could be material to the financial statements.

The HMO memberships'  average risk adjustment factor declined from December 2005
to June 2006 as a result of a large influx of new members in 2006.  This decline
resulted in decreased average member monthly premiums. The Company believes that
the actual average risk adjustment  factor for its population during this period
was higher and that an increase  will be reflected as claims and health data for
these new members are entered  into the CMS system,  which is expected to result
in retroactive  premium  adjustments.  The Company has estimated the retroactive
premium adjustment to be approximately $534,000 at September 30, 2006.

Accounting for Prescription Drug Benefits under Medicare Part D

On January 1, 2006, the HMO and the PSN,  through the Humana  Agreements,  began
covering  prescription  drug benefits in  accordance  with the  requirements  of
Medicare Part D, to the HMO's and PSN's Medicare Advantage members. The benefits
covered under Medicare Part D are in addition to the benefits covered by the HMO
and the PSN under Medicare Parts A and B.

In general,  pursuant to Medicare Part D, pharmacy benefits may vary in terms of
coverage levels and out-of-pocket  costs for beneficiary  premiums,  deductibles
and  co-insurance.  However,  all  Part D  plans  must  offer  either  "standard
coverage"  or  its  actuarial  equivalent  (with  out-of-pocket   threshold  and
deductible  amounts  that do not  exceed  those  of  standard  coverage).  These
"defined  standard" benefits represent the minimum level of benefits mandated by
Congress.  In addition to defined  standard  plans  offered by the HMO, the PSN,
through the Humana Agreements, offers certain prescription drug plans containing
benefits in excess of the standard coverage limits.

The payment the  Company's  HMO receives  monthly  from CMS for  coverage  under
Medicare Part D (the "CMS  Payment")  generally  represents the HMO's bid amount
for providing Part D insurance coverage.  The Company recognizes premium revenue
for the HMO's provision of this Part D insurance  coverage ratably over the term
of the CMS Agreement. However, the ultimate amount of the CMS Payment is subject
to 1) risk corridor  adjustments  and 2) subsidies  provided by CMS in order for
the HMO and CMS to share the risk  associated  with financing the ultimate costs
of the Medicare Part D benefit.


                                       10


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

The CMS payment is subject to adjustment,  positive or negative,  based upon the
application of risk corridors that compare the  prescription  drug benefit costs
estimated by the HMO in making its bid to CMS (the "Estimated  Costs") to actual
incurred  prescription  drug benefit  costs (the "Actual  Costs").  For 2006 and
2007, in accordance  with federal  regulations,  the HMO will bear all gains and
losses that fall within 2.5% of its  Estimated  Costs.  To the extent the Actual
Costs  exceed the  Estimated  Costs by more than 2.5%,  CMS may make  additional
payments to the HMO.  Conversely,  to the extend the Estimated  Costs exceed the
Actual  Costs by more  than  2.5%,  the HMO may be  required  to refund to CMS a
portion of the CMS Payment.  Actual  Costs  subject to risk sharing with CMS are
limited  to the costs  that are,  or would  have  been,  incurred  under the CMS
"defined  standard"  benefit  plan . The Company  estimates  and  recognizes  an
adjustment to premium  revenues  from CMS related to the risk  corridor  payment
adjustment based upon pharmacy claims experience to date as if the CMS Agreement
were to end at the end of each reporting period. Accordingly, this estimate does
not take into consideration  projected future pharmacy claims experience.  It is
reasonably  possible  that  this  estimate  could  change in the near term by an
amount that could be material.

Certain subsidies represent  reimbursements from CMS for claims the HMO paid for
even though it is not  ultimately  required to bear the risk in connection  with
such claims.  These  include  federally  reinsured  claims where an HMO member's
actual drug spending reaches Part D's annual catastrophic  threshold and certain
deductible, coinsurance and co-payment amounts for low-income beneficiaries. The
Company accounts for these subsidies as current liabilities in its balance sheet
and as an operating  activity in its  statement of cash flows.  The Company does
not recognize premium revenue or claims expense for these subsidies.

The HMO recognizes pharmacy benefit costs as incurred.  It has subcontracted the
pharmacy claims administration to a third party pharmacy benefit manager.

With regards to the PSN, the Company  receives  Medicare Part D revenue pursuant
to the  applicable  percent of premium  provided  for in the Humana  Agreements.
Humana  does  not  provide  the  Company  with a  separate  accounting  for  the
incremental  amount  of the Part D premium  and  expense.  As with the HMO,  the
Company recognizes pharmacy benefit costs as such costs are incurred by the PSN.
With  regards to the  estimated  amount of any risk  corridor  adjustments,  the
Company  has relied  upon  estimates  provided  by Humana to the Company and has
recorded a downward  adjustment to premium revenue based on these estimates.  It
is reasonably  possible  that this estimate  could change in the near term by an
amount that could be material.

Deferred Tax Asset

The Company has recorded a deferred tax asset of  approximately  $6.0 million at
September  30,  2006.  Realization  of the  deferred  tax asset is  dependent on
generating sufficient taxable income in the future.  Management believes that it
is more likely  than not that it will have the  ability to realize the  recorded
deferred tax asset. The amount of the deferred tax asset  considered  realizable
could change in the near term if estimates of future taxable income are modified
and those changes could be material.

In the future,  if the Company  determines that it cannot, on a more likely than
not basis,  realize all or part of its  deferred  tax assets in the  future,  an
adjustment  to  establish  (or record an  increase  in) the  deferred  tax asset
valuation  allowance  would be  charged  to income in the  period in which  such
determination is made.

ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 2006 and December 31, 2005 were as follows:

                                      September 30, 2006   December 31, 2005
                                      ------------------   ------------------
Humana accounts receivable, net       $        3,414,000   $        3,782,000
Non-Humana accounts receivable, net              859,000              402,000
                                      ------------------   ------------------
Accounts receivable, net              $        4,273,000   $        4,184,000
                                      ==================   ==================


                                       11


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

EARNINGS PER SHARE

The  Company  applies  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings Per Share" ("SFAS 128") which requires  presentation of both basic net
income per share and diluted net income per share.  Basic  earnings per share is
computed using the weighted average number of common shares  outstanding  during
the period.  Diluted  earnings per share is computed using the weighted  average
number of common shares  outstanding  during the period adjusted for incremental
shares  attributed to  outstanding  options and warrants,  convertible  debt and
preferred stock convertible into shares of common stock.




                                                  For the nine months ended       For the three months ended
                                                         September 30,                  September 30,
                                                     2006            2005            2006            2005
                                                 ------------    ------------    ------------    ------------
                                                                                     
Net Income                                       $  3,193,000    $  2,927,000    $  2,532,000    $    539,000
Less:Preferred stock dividend                         (38,000)        (38,000)        (13,000)        (13,000)
                                                 ------------    ------------    ------------    ------------
Income available to common shareholders          $  3,155,000    $  2,889,000    $  2,519,000    $    526,000
                                                 ============    ============    ============    ============
Denominator:
Weighted average common shares outstanding         49,981,000      48,716,000      50,108,000      49,269,000
                                                 ============    ============    ============    ============
Basic earnings per common share                  $       0.06    $       0.06    $       0.05    $       0.01
                                                 ============    ============    ============    ============

Income available to common shareholders          $  3,155,000    $  2,889,000    $  2,532,000    $    526,000
                                                 ============    ============    ============    ============

Denominator:
Weighted average common shares outstanding         49,981,000      48,716,000      50,108,000      49,269,000
Common share equivalents of outstanding stock:
 Convertible perferred stock                               --              --         437,000              --
 Options and warrants                               1,402,000       2,789,000       1,494,000       1,879,000
                                                 ------------    ------------    ------------    ------------
Weighted average common shares outstanding         51,383,000      51,505,000      52,039,000      51,148,000
                                                 ============    ============    ============    ============
Diluted earnings per common share                $       0.06    $       0.06    $       0.05    $       0.01
                                                 ============    ============    ============    ============


NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 154,  Accounting Changes and Error Corrections,  was issued in May 2005
and replaces APB Opinion No. 20  (Accounting  Changes) and SFAS No. 3 (Reporting
Accounting  Changes  in Interim  Financial  Statements).  SFAS No. 154  requires
retrospective  application for voluntary changes in accounting principle in most
instances and is required to be applied to all accounting changes made in fiscal
years  beginning  after December 15, 2005.  The Company  adopted SFAS No. 154 on
January  1,  2006  and it  did  not  have a  material  impact  on the  Company's
consolidated financial condition or results of operations.

In July 2006,  the FASB  issued  FASB  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes-an Interpretation of FASB Statement 109", or FIN 48.
FIN 48  prescribes a  comprehensive  model for how a company  should  recognize,
measure,  present,  and disclose in its financial statements regarding uncertain
tax positions that the company has taken or expects to take on a tax return. FIN
48 also revises disclosure  requirements and introduces a prescriptive,  annual,
tabular roll-forward of the unrecognized tax benefits. FIN 48, which will become
effective for the Company beginning January 1, 2007,  requires the change in net
assets that  results  from the  application  of the new  accounting  model to be
reflected  as an  adjustment  to retained  earnings.  The Company  currently  is
evaluating the impact of adopting FIN 48.


                                       12


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,  which
defines fair value, establishes a framework for measuring fair value pursuant to
generally accepted  accounting  principles,  and expands  disclosures about fair
value  measurements.   SFAS  No.  157  does  not  require  any  new  fair  value
measurements,  but provides guidance on how to measure fair value by providing a
fair  value  hierarchy  used to  classify  the source of the  information.  This
statement is effective for fiscal years  beginning  after  November 15, 2007. We
are currently  assessing the potential  impact that the adoption of SFAS No. 157
will have on our financial statements.

In  September  2006,  the  Securities  and  Exchange   Commission  issued  Staff
Accounting  Bulletin  ("SAB")  108,  "Considering  the  Effects  of  Prior  Year
Misstatements   when   Qualifying   Misstatements   in  Current  Year  Financial
Statements." SAB 108 requires companies to quantify misstatements using both the
balance sheet (iron curtain) and income statement  (rollover)  approaches and to
evaluate  whether  either  approach  results  in  quantifying  an error  that is
material in light of relevant and  qualitative  factors.  The  requirements  are
effective for annual financial  statements covering the first fiscal year ending
after November 15, 2006. The Company has initially determined that the potential
financial  impact could range between $500,000 and $525,000 upon the adoption of
SAB 108.

================================================================================
NOTE 2.  DEBT
--------------------------------------------------------------------------------

On May 6, 2005 the  Company  executed  an  unsecured  commercial  line of credit
agreement with a bank,  which provided for borrowings and issuance of letters of
credit of up to $1.0 million.  The credit line expired on March 31, 2006 and was
automatically  renewed for an additional  one-year  period until March 31, 2007.
The  outstanding  balance,  if any, bears interest at the bank's prime rate. The
credit facility requires the Company to comply with certain financial covenants,
including a minimum liquidity  requirement of $2.0 million.  As of September 30,
2006, the availability under the line of credit secures a $1.0 million letter of
credit  that the  Company  has  caused to be issued  in favor of  Humana.  As of
September 30, 2006, the Company has not borrowed funds under the commercial line
of credit.

================================================================================
NOTE 3.  STOCK BASED COMPENSATION
--------------------------------------------------------------------------------

The  Company  has  three  stock  option  plans  that  are  administered  by  the
Compensation Committee of the Board of Directors. The 2001 Stock Option Plan and
the  Supplemental  Stock Option Plan have  1,049,110 and  1,345,400  outstanding
options  granted under the plans,  respectively,  as of September 30, 2006.  The
Company  does not intend to issue  additional  options  from  either plan in the
future.  The Omnibus Equity  Compensation Plan (the "Omnibus Plan") provides for
the grant of  non-qualified  or  incentive  stock  options and other stock based
awards to directors,  executives and key employees of the Company, as well as to
any other persons approved by the Compensation  Committee.  A total of 6,000,000
shares of  Metropolitan's  common stock are authorized for issuance pursuant the
Omnibus Plan. As of September 30, 2006,  options granted pursuant to the Omnibus
Plan to purchase  2,776,700  shares of the Company's  common stock are currently
outstanding.  Under the  Omnibus  Plan,  options  are granted at the fair market
value of the stock at the date of grant and expire no later than 10 years  after
the date of grant.  Options  granted under this Omnibus Plan generally vest over
periods up to four years.

Prior to January 1, 2006,  the  Company  followed  Accounting  Principles  Board
Opinion No. 25, ("APB No. 25"),  "Accounting for Stock Issued to Employees," and
related  Interpretations in accounting for its employee stock options. Under APB
No. 25, when the exercise price of the Company's  employee stock options equaled
or exceeded the market price of the  underlying  stock on the date of grant,  no
compensation  expense was  recognized.  For the  quarter  and nine months  ended
September 30, 2005, no stock-based employee  compensation expense was recognized
in the accompanying condensed consolidated statement of income.

Effective  January 1, 2006,  the  Company  adopted  SFAS No.  123(R)  ("SFAS No.
123(R)"),  "Share-Based Payment," which is a revision of SFAS No. 123, using the
modified  prospective  transition  method and therefore  has not restated  prior
periods' results. Under the transition method,  stock-based compensation expense
for the first  quarter of fiscal  2006  included  compensation  expense  for all
stock-based  compensation  awards  granted  prior to,  but not yet vested as of,
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provision of SFAS No. 123. Stock-based compensation expense for all
share-based  payment  awards  granted  after  January  1,  2006 is  based on the
grant-date  fair value  estimated in accordance  with the provisions of SFAS No.
123(R).  The Company  recognizes  these  compensation  costs net of an estimated
forfeiture  rate and  recognizes  the  compensation  costs for only those shares
expected  to vest.  The  Company  calculates  the fair value of  employee  stock
options using a Black-Scholes option pricing model at the time the stock options
are granted  and that  amount is  amortized  on a  straight-line  basis over the
vesting  period of the stock options,  which is generally up to four years.  The
Company estimated the forfeiture rate based on its historical experience.


                                       13


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

The fair value for employee  stock options  granted during the nine months ended
September 30, 2006 was calculated based on the following assumptions:  risk-free
interest rate from 4.80% to 4.99%;  dividend yield of 0%;  volatility  factor of
the  expected  market price of the  Company's  common stock of 50%; and expected
option  lives of two years.  The  expected  life of the  options is based on the
historical exercise behavior of the Company's employees. The expected volatility
factor  is  based  on the  historical  volatility  of the  market  price  of the
Company's  common stock.  The risk-free rate for periods within the  contractual
life of the option is based on the U.S.  Treasury  yield  curve in effect at the
time of grant.

As a result of adopting SFAS No. 123(R) on January 1, 2006,  for the quarter and
nine month periods ended September 30, 2006, the Company's  income before income
taxes was  approximately  $182,000 and  $546,000  lower,  respectively,  and net
income was lower by approximately $113,000 and $341,000,  respectively,  than if
it had continued to account for share-based  compensation  under APB No. 25. The
total income tax benefit  recognized  in the income  statement  for  share-based
compensation  was  approximately  $69,000 and  $205,000 for the quarter and nine
month periods ended September 30, 2006.

SFAS No.  123(R)  requires the tax benefits  resulting  from tax  deductions  in
excess of the compensation  cost recognized for options (excess tax benefits) to
be  classified  as financing  cash flows.  For the quarter and nine months ended
September 30, 2006, the Company had net operating loss carryforwards and did not
recognize any tax benefits  resulting from the exercise of stock options because
the  related tax  deductions  would not have  resulted in a reduction  of income
taxes payable.  During the quarter and nine months ended September 30, 2006, the
Company  issued  26,000 and 221,000  shares of common stock  resulting  from the
exercise of stock options, respectively. Cash received from the option exercises
was  approximately  $1,000 and  $140,750  for the quarter and nine months  ended
September 30, 2006.

The following table  illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
for the quarter and nine months ended  September 30, 2005.  For purposes of this
pro forma disclosure, the fair value of these options were estimated at the date
of grant using a  Black-Scholes  option  pricing  model  based on the  following
assumptions for the quarter and nine months ended September 30, 2005:  risk-free
interest rate from 2.82% to 4.24%;  dividend yield of 0%;  volatility  factor of
the  expected  market price of the  Company's  common stock of 50%; and expected
option  lives  ranging  from one to four and  one-half  years,  depending on the
vesting  provisions of each option. The expected life of the options is based on
the  historical  exercise  behavior of the  Company's  employees.  The  expected
volatility  factor is based on the historical  volatility of the market price of
the  Company's   common  stock.  The  risk-free  rate  for  periods  within  the
contractual  life of the  option is based on the U.S.  Treasury  yield  curve in
effect at the time of grant. The Company's pro forma information follows:



                                                Nine months ended    Three months ended
                                               September 30, 2005    September 30, 2005
                                               -------------------   -------------------
                                                               
Net income, as reported                        $         2,927,000   $           539,000
Less:Total stock-based employee compensation
 expense determined under SFAS No. 123
 for all awards, net of related tax                       (714,000)             (227,000)
                                               -------------------   -------------------

Pro forma net income                           $         2,213,000   $           312,000
                                               ===================   ===================

Earnings per share:
 Basic, as reported                            $              0.06   $              0.01
                                               ===================   ===================
 Basic, pro forma                              $              0.05   $              0.01
                                               ===================   ===================
 Diluted, as reported                          $              0.06   $              0.01
                                               ===================   ===================
 Diluted, pro forma                            $              0.04   $              0.01
                                               ===================   ===================



                                       14


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Stock  option  activity as of  September  30,  2006 and changes  during the nine
months ended September 30, 2006 were as follows:

                                                                   Aggregate
                                  Number of     Weighted Average   Intrinsic
                                   Options       Exercise Price      Value
                                  ----------    ----------------   ----------
Balance, December 31, 2005         6,385,810    $           1.63
Granted                               50,000    $           2.08
Exercised and returned              (221,000)   $           0.75
Forfeited and expired             (1,043,600)   $           2.68
                                  ----------
Balance, September 30, 2006        5,171,210    $           1.47   $4,727,303
                                  ==========

Exercisable, September 30, 2006    3,041,537    $           1.17   $3,918,525
                                  ==========

The  weighted-average  grant-date  fair value of options granted during the nine
months ended September 30, 2006 and 2005 was $0.65 and $0.93, respectively.  The
aggregate  intrinsic  value in the  table  above  represents  the  total  pretax
intrinsic value (the difference between the Company's closing stock price on the
last  trading day of the first  quarter of fiscal 2006 and the  exercise  price,
multiplied by the number of in-the-money  options) that would have been received
by the  option  holders  had all  option  holders  exercised  their  options  on
September  30,  2006.  This amount will change based on the fair market value of
the Company's  stock.  Total intrinsic  value of options  exercised for the nine
months  ended  September  30,  2006  and  2005 was  approximately  $414,000  and
$2,866,000, respectively. Total fair value of options vested for the nine months
ended  September  30,  2006 and 2005 was  approximately  $87,000  and  $101,000,
respectively.

As of September 30, 2006, there was $650,965 of total unrecognized  compensation
cost related to  non-vested  stock  options,  which is expected to be recognized
over a weighted-average period of 1.09 years.

The following table summarizes  information about stock options  outstanding and
exercisable at September 30, 2006:



                          Options Outstanding                             Options Exercisable
                          -------------------                             -------------------

                                Weighted      Weighted Average                  Weighted      Weighted Average
                 Number of      Average          Remaining       Number of      Average          Remaining
Exercise Price    Options    Exercise Price   Contractual Life    Options    Exercise Price   Contractual Life
--------------   ---------   --------------   ----------------   ---------   --------------   ----------------
                                                                            
$0.35 - $1.00    2,114,510   $         0.53               2.26   2,064,510   $         0.52               2.18
$1.14 - $1.98    2,319,900   $         1.81               7.86     727,452   $         1.77               7.28
$2.05 - $2.69      586,800   $         2.27               8.51      99,575   $         2.61               5.94
$4.00 - $6.50      150,000   $         6.17               0.60     150,000   $         6.17               0.60
                 ---------                                       ---------
                 5,171,210   $         1.47               5.43   3,041,537   $         1.17               3.45
                 =========                                       =========


Non-vested  stock option awards as of September 30, 2006 and changes  during the
nine months ended September 30, 2006 were as follows:

                                               Weighted Average
                                 Number of        Grant-Date
                                   Shares         Fair Value
                                 ----------    ----------------
Non-vested, December 31, 2005     2,337,782    $           0.94
Granted                              50,000    $           0.65
Vested                             (137,075)   $           0.63
Forfeited and expired              (121,034)   $           1.13
                                 ----------
Non-vested, September 30, 2006    2,129,673    $           0.94
                                 ==========


                                       15


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Non-vested  restricted  stock awards as of September 30, 2006 and changes during
the nine months ended September 30, 2006 were as follows:

                                           Weighted Average
                              Restricted      Grant-Date
                                Shares        Fair Value
                              ----------   -----------------
Balance, December 31, 2005            --   $              --
Granted                           60,000   $            2.08
Vested                                --   $              --
Forfeited and expired                 --   $              --
                              ----------
Balance, September 30, 2006       60,000   $            2.08
                              ==========

In the quarter and nine months ended September 30, 2006, the Company  recognized
approximately $31,000 and $57,000,  respectively,  of compensation costs related
to  non-vested  restricted  stock awards.  As of September  30, 2006,  there was
approximately  $67,000  of  total  unrecognized  compensation  cost  related  to
non-vested  restricted  stock awards,  which is expected to be recognized over a
weighted-average period of 0.56 years.

================================================================================
NOTE 4.  STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

The  Company  issued  221,000  shares of  common  stock in  connection  with the
exercise of stock options during the first nine months of 2006. In addition,  an
aggregate  of 60,000  shares of  restricted  common stock were issued to two new
members of the Company's Board of Directors upon their  appointment to the Board
of Directors in the second quarter of 2006.

================================================================================
NOTE 5.  COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

LITIGATION

The  Company  is party to  certain  claims  arising  in the  ordinary  course of
business.  Management believes that the outcome of these matters will not have a
material  adverse effect on the financial  position or the results of operations
of the Company.

================================================================================
NOTE 6.  BUSINESS SEGMENT INFORMATION
--------------------------------------------------------------------------------

In 2006,  the Company is operating  in two  segments for purposes of  presenting
financial information and evaluating  performance,  the PSN and the HMO. The HMO
commenced operations effective July 1, 2005.




NINE MONTHS ENDED SEPTEMBER 30, 2006                                       PSN            HMO            Total
--------------------------------------------------------------------   ------------   ------------    ------------
                                                                                             
Revenues from external customers                                       $152,628,000   $ 19,859,000    $172,487,000
Segment gain (loss) before allocated overhead                            16,150,000     (6,218,000)      9,932,000
Allocated corporate overhead                                              2,732,000      2,059,000       4,791,000
Segment gain (loss) after allocated overhead and before income taxes     13,418,000     (8,277,000)      5,141,000
Segment assets                                                           22,973,000     16,685,000      39,658,000
Goodwill                                                                  1,992,000              0       1,992,000



                                       16


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NINE MONTHS ENDED SEPTEMBER 30, 2005                                       PSN            HMO            Total
--------------------------------------------------------------------   ------------   ------------    ------------
                                                                                             
Revenues from external customers                                       $136,218,000   $    471,000    $136,689,000
Segment gain (loss) before allocated overhead                            12,244,000     (4,086,000)      8,158,000
Allocated corporate overhead                                              2,377,000      1,063,000       3,440,000
Segment gain (loss) after allocated overhead and before income taxes      9,867,000     (5,149,000)      4,718,000
Segment assets                                                           24,888,000      4,567,000      29,455,000
Goodwill                                                                  1,992,000              0       1,992,000





THREE MONTHS ENDED SEPTEMBER 30, 2006                                      PSN            HMO            Total
--------------------------------------------------------------------   ------------   ------------    ------------
                                                                                             
Revenues from external customers                                       $ 52,316,000   $  8,522,000    $ 60,838,000
Segment gain (loss) before allocated overhead                             7,659,000     (2,049,000)      5,610,000
Allocated corporate overhead                                                914,000        627,000       1,541,000
Segment gain (loss) after allocated overhead and before income taxes      6,745,000     (2,676,000)      4,069,000





THREE MONTHS ENDED SEPTEMBER 30, 2005                                      PSN            HMO            Total
--------------------------------------------------------------------   ------------   ------------    ------------
                                                                                             
Revenues from external customers                                       $ 44,529,000   $    471,000    $ 45,000,000
Segment gain (loss) before allocated overhead                             4,241,000     (2,354,000)      1,887,000
Allocated corporate overhead                                                558,000        446,000       1,004,000
Segment gain (loss) after allocated overhead and before income taxes      3,683,000     (2,800,000)        883,000


================================================================================
NOTE 7.  SUBSEQUENT EVENTS
--------------------------------------------------------------------------------

On November 11, 2006,  management and the Audit & Finance Committee of the Board
of Directors of the Company concluded that the unaudited  consolidated financial
statements  included in the Company's  Quarterly  Reports on Form 10-Q as of and
for the  quarters  ended  March 31, 2006 and June 30, 2006 should be restated to
reflect a  correction  of such  financial  statements  related to the  Company's
over-recording of revenues generated by the PSN during such quarters.

More  specifically,  the  Company  determined  that  it  over-recorded  revenues
generated by the PSN by approximately  $666,000 during each of the first quarter
and second quarter of 2006.  During 2005, the majority of Humana,  Inc.  members
serviced by the PSN in the PSN's  Daytona  market were required to pay a monthly
premium of $15 to Humana, Inc. (the "Monthly  Premium").  As part of its monthly
capitation payments from Humana, Inc., the Company was paid approximately $12 of
the Monthly  Premium per member.  Commencing  in January  2006, as a result of a
change in health plan  benefits,  the  Monthly  Premium  was  eliminated  in the
Daytona market.  However,  the data the Company received from Humana,  Inc. from
January 2006 until July 2006 regarding the revenues the Company were entitled to
receive  from  Humana,  Inc.,  inadvertently  continued  to reflect  the Monthly
Premium  and,  accordingly,  the  Company  was  over-paid  by Humana,  Inc.  and
over-recorded its net revenues and accounts receivable by approximately $666,000
in the first quarter of 2006 and the second quarter of 2006.

Accordingly,  the Company's financial  statements contained within its Quarterly
Report on Form 10-Q for each of the  quarters  ended March 31, 2006 and June 30,
2006 should not be relied upon.

On November 14, 2006, the Company:

o     restated its previously issued financial  statements for the first quarter
      of 2006 by  amending  its  Quarterly  Report on Form  10-Q for the  fiscal
      quarter ended March 31, 2006; and

o     restated its previously issued financial statements for the second quarter
      of 2006 by  amending  its  Quarterly  Report on Form  10-Q for the  fiscal
      quarter ended June 30, 2006.


                                       17


               METROPOLITAM HEALTH NETWORKS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Management  and the Audit & Finance  Committee  discussed  these issues with the
Company's independent registered public accounting firm, Grant Thornton, LLP.

                                       18


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE  FOLLOWING  DISCUSSION  SHOULD BE READ IN  CONJUNCTION  WITH THE OUR  ANNUAL
REPORT  ON FORM  10-K FOR THE  YEAR  ENDED  DECEMBER  31,  2005,  AS WELL AS THE
FINANCIAL STATEMENTS AND NOTES THERETO.

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Sections of this Quarterly  Report contain  statements that are  forward-looking
statements  within the meaning of Section 27A of the Securities Act of 1933 (the
"Securities  Act") and Section 21E of the  Securities  Exchange Act of 1934 (the
"Exchange Act"), and we intend that such  forward-looking  statements be subject
to the safe harbors created  thereby.  Statements in this Report  containing the
words  "estimate,"  "project,"   "anticipate,"  "expect,"  "intend,"  "believe,"
"will,"  "could,"  "should,"  "may," and  similar  expressions  may be deemed to
create  forward-looking  statements.  Accordingly,  such  statements,  including
without limitation, those relating to our future business, prospects,  revenues,
working capital,  liquidity,  capital needs, interest costs and income, wherever
they may appear in this  document  or in other  statements  attributable  to us,
involve  estimates,  assumptions  and  uncertainties  which could  cause  actual
results  to  differ  materially  from  those  expressed  in the  forward-looking
statements.   Specifically,   this  Quarterly  Report  contains  forward-looking
statements, including the following:

      o     the PSN's  ability to renew the Humana  Agreements  and maintain the
            Humana Agreements on favorable terms;

      o     our ability to adequately  predict and control medical  expenses and
            to make  reasonable  estimates  and maintain  adequate  accruals for
            incurred but not reported, or IBNR, claims; and

      o     the HMO's ability to renew,  maintain or to  successfully  rebid for
            its agreement with CMS.

The forward-looking  statements reflect our current view about future events and
are subject to risks, uncertainties and assumptions.  We wish to caution readers
that certain  important factors may have affected and could in the future affect
our actual results and could cause actual results to differ  significantly  from
those  expressed  in any  forward-looking  statement.  The  following  important
factors  could  prevent us from  achieving  our goals and cause the  assumptions
underlying  the  forward-looking  statements  and the  actual  results to differ
materially  from  those  expressed  in  or  implied  by  those   forward-looking
statements:

      o     reductions in government funding of Medicare programs;

      o     disruptions in the PSN's, the HMO's or Humana's  healthcare provider
            networks;

      o     failure  to  receive  claims  processing,   billing  services,  data
            collection and other information on a timely basis from Humana;

      o     future legislation and changes in governmental regulations;

      o     increased operating costs;

      o     the impact of Medicare Risk  Adjustments  on payments we receive for
            our managed care operations;

      o     loss of significant contracts;

      o     general economic and business conditions;

      o     increased competition;

      o     the relative health of our patients;

      o     changes in  estimates  and  judgments  associated  with our critical
            accounting policies;


                                       19


      o     federal and state investigations;

      o     our  ability to  successfully  recruit  and  retain  key  management
            personnel and qualified medical professionals; and

      o     impairment charges that could be required in future periods.

Additional  information  concerning  these and other risks and  uncertainties is
contained  in our filings  with the  Securities  and  Exchange  Commission  (the
"Commission"),  including  the sections  entitled  "Risk  Factors" in our Annual
Report on Form  10-K for the year  ended  December  31,  2005 and our  Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006.

Forward-looking  statements  should not be relied upon as a prediction of actual
results.  Subject to any  continuing  obligations  under  applicable  law or any
relevant  listing rules,  we expressly  disclaim any obligation to  disseminate,
after the date of this  Quarterly  Report on Form 10-Q, any updates or revisions
to any such forward-looking  statements to reflect any change in expectations or
events, conditions or circumstances on which any such statements are based.

On November 14, 2006, the Company filed  amendments to its Quarterly  Reports on
Form 10-Q as of and for the  quarters  ended March 31, 2006 and June 30, 2006 to
restate the financial  statements included therein. See "Note 7 to the Condensed
Consolidated  Financial  Statements" of each of the quarterly reports referenced
herein for further information.

BACKGROUND

Through our  provider  service  network  ("the PSN") and our health  maintenance
organization ("the HMO"), we currently provide  healthcare  benefits to Medicare
beneficiaries in Florida. As of September 30, 2006, the PSN and the HMO provided
healthcare  benefits  to  approximately  25,900  and  3,500  Medicare  Advantage
beneficiaries, respectively (collectively, the "Participating Members").

Substantially  all of our  revenues  are  directly or  indirectly  derived  from
reimbursements  generated by Medicare  Advantage health plans. As a result,  our
revenue  and  profitability  are  dependent  on  government  funding  levels for
Medicare Advantage programs.

Provider Service Network

Pursuant to two  contracts  with Humana,  Inc.  (the "Humana  Agreements"),  the
nation's  second  largest   participant  in  the  Medicare   Advantage   program
("Humana"),  the PSN provides, on a non-exclusive basis,  healthcare services to
Medicare  beneficiaries in Flagler and Volusia Counties ("Central  Florida") and
Palm Beach,  Broward and Miami-Dade  Counties ("South Florida") who have elected
to receive benefits from Humana's Medicare  Advantage Plans. As of September 30,
2006, the Humana Agreements covered approximately 19,400 Humana Plan Members (as
defined  below) in  Central  Florida  and 6,500  Humana  Plan  Members  in South
Florida.

The  PSN  is  comprised  both  of  medical  practices  owned  by us as  well  as
independently  owned medical practices and providers with whom it has contracted
("IPs"). We currently own and operate eight primary care physician practices and
a medical oncology physician practice. We also contract with twenty-nine primary
care IPs.  Through  the  Humana  Agreements,  the PSN has  established  referral
relationships  with a large number of specialist  physicians,  ancillary service
providers and hospitals throughout South Florida and Central Florida.

Humana  directly  contracts with the Centers for Medicare and Medicaid  Services
("CMS") and is paid a monthly  premium  payment for each  member  ("Humana  Plan
Member") enrolled in Humana's Medicare Advantage Plan. The monthly amount varies
by patient,  county,  age and severity of health status.  Pursuant to the Humana
Agreements,  the PSN provides or arranges for the  provision of covered  medical
services to each Humana Plan Member who selects one of our affiliated  providers
as his or her primary  care  physician  (a "Humana  Participating  Member").  In
return for the provision of these medical services, the PSN receives from Humana
a monthly fee, also known as a "capitated  fee",  for each Humana  Participating
Member.  The fee rates are  established  by the  contracts  between  the PSN and
Humana and comprise a vast majority of the monthly  premiums  received by Humana
from CMS with respect to Humana Participating Members.


                                       20


The PSN assumes  the full  financial  responsibility  for the  provision  of all
Medicare-covered  medical care to Humana Participating Members,  including those
medical  services that the PSN does not itself provide.  To the extent the costs
of providing such medical care are less than the related premiums  received from
Humana, the PSN generates an operating profit.  Conversely, if the medical costs
exceed the fees received from Humana, the PSN experiences an operating loss.

The vast majority of the PSN's revenues come from the Humana  Agreements.  We do
receive  additional  revenue for  providing  primary care services to non-Humana
Plan  Members on a  fee-for-service  basis in the medical  practices  we own and
operate.

For the three and nine months ended  September 30, 2006,  approximately  85% and
88%,  respectively,  of  our  revenue  was  generated  pursuant  to  the  Humana
Agreements.  The Humana  Agreements have one-year terms and renew  automatically
each December 31 for additional  one-year  terms unless  terminated for cause or
upon 180 days  prior  notice.  Failure to  maintain  the  Humana  Agreements  on
favorable terms would  adversely  affect our results of operations and financial
condition.

Health Maintenance Organization

Effective July 1, 2005, the HMO became licensed as a Medicare  Advantage HMO and
entered  into a  contract  with  CMS (the  "CMS  Agreement")  to begin  offering
Medicare Advantage plans to Medicare beneficiaries in six Florida counties which
include the cities of Fort Pierce,  Port St. Lucie,  Fort Myers,  Port Charlotte
and Sarasota. The HMO has been marketing its "AdvantageCare"  branded plan since
July 2005.  The HMO is seeking to expand its HMO and as of  September  30, 2006,
the total number of enrollees in its plan was approximately 3,500.

In addition to growth within  existing  service areas,  the HMO is expanding its
business into new  geographic  areas.  However,  we do not intend to provide HMO
services in the geographic  markets with respect to which the PSN has a contract
with Humana.  We view our HMO  business as an  extension  of our  existing  core
competencies.

The HMO's revenues are generated by premiums  consisting of monthly payments per
member that are  established  by the CMS  Agreement.  The HMO recorded its first
revenues in the third quarter of fiscal 2005.

The Humana  Agreements and the CMS Agreement are risk agreements under which the
PSN and the HMO, respectively, receive monthly payments per Participating Member
at a rate  established  by the  agreements,  also  called a  capitated  fee.  In
accordance with the  agreements,  the total monthly payment is a function of the
number of Participating  Members,  regardless of the actual  utilization rate of
covered services.

To the  extent  that  the  Participating  Members  require  more  care  than  is
anticipated,  aggregate  capitation rates may be insufficient to cover the costs
associated  with the treatment of such members.  If medical  expenses exceed our
estimates,  except in very limited circumstances,  we will be unable to increase
the premiums we receive under these contracts during the then-current terms.

Relatively  small changes in our ratio of medical  expense to revenue can create
significant  changes  in our  financial  results.  Accordingly,  the  failure to
adequately predict and control medical expenses and to make reasonable estimates
and maintain adequate accruals for incurred but not reported,  or IBNR,  claims,
may have a  material  adverse  effect on our  financial  condition,  results  of
operations and/or cash flows.

Although we have operated as a risk  provider  since 1997, we have only operated
the HMO since July 1, 2005. While the HMO's business has continued to grow, such
growth has continued to require capital.  In the nine months ended September 30,
2006, the HMO's business  generated a $6.2 million segment loss before allocated
overhead and income taxes.  We project that in fiscal 2006,  the HMO's  business
will generate a loss of $8 million to $10 million before allocated  overhead and
income  taxes.  The amount of the loss will be determined by a number of factors
including  membership,  medical utilization and related costs, and our decisions
related to  expansion  and  growth  efforts.  We are still not in a position  to
meaningfully  estimate when, if ever, the HMO's business will become  profitable
and/or  generate  cash  from  operations  and we may be  required  to  fund  the
development and expansion of the HMO business,  including any associated losses,
for an extended  period of time.  Nonetheless,  we anticipate  that the on-going
development  efforts,  reserve  requirements  and operating  costs for our still
developing  HMO business can be funded by our current  resources  and  projected
cash flows from operations until at least September 30, 2007.


                                       21


To  successfully  operate  the HMO,  we  believe  we will have to  continue  our
development of the following  capabilities,  among others:  sales and marketing,
customer service and regulatory  compliance.  No assurances can be given that we
will be  successful  in  operating  this  segment of our  business  despite  our
allocation  of a substantial  amount of resources  for this purpose.  If the HMO
does not develop as  anticipated  or planned,  we may have to devote  additional
managerial and/or capital resources to the HMO, which could limit our ability to
manage and/or grow the PSN. There can be no assurances  that, if for any reason,
we elect to discontinue the HMO business  and/or seek to sell such business,  we
will be able to fully  recoup our  expenditures  to date with respect to the HMO
business.

CRITICAL ACCOUNTING POLICIES

Our  significant  accounting  policies are  described in Note 1 of the "Notes to
Condensed  Consolidated  Financial  Statements"  included in this Form 10-Q.  We
believe our most  critical  accounting  policies  include the policies set forth
below.

USE OF ESTIMATES

Revenue, Expense and Receivables

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates and assumptions  that affect the amounts  reported in the accompanying
financial  statements.  The most significant area requiring estimates relates to
the PSN's  arrangements  with Humana.  Such  estimates are based on knowledge of
current events and anticipated  future events,  and accordingly,  actual results
may ultimately differ materially from those estimates.

With regard to virtually all of the revenues,  expenses and receivables  arising
from the Humana  Agreements,  the Company estimates the amounts it believes will
ultimately be realizable based in part upon estimates of claims incurred but not
reported ("IBNR") and estimates of retroactive adjustments or unsettled costs to
be applied by Humana. The IBNR estimates are made by Humana utilizing  actuarial
methods and are  continually  evaluated by  management of the Company based upon
its specific claims  experience.  It is reasonably  possible that some or all of
these  estimates  could  change  in the near  term by an  amount  that  could be
material to the financial statements.

From time to time,  Humana charges the PSN for certain medical  expenses,  which
the  Company  believes  are  erroneous  or  are  not  supported  by  the  Humana
Agreements.  Management's  estimate of recovery on these  contestations is based
upon its judgment and its  consideration of several factors including the nature
of the contestations, historical recovery rates and other qualitative factors.

During 2005, the Company  incurred  approximately  $4.0 million of medical costs
related to the  implantation  of certain  Implantable  Automatic  Defibrillators
("AICD's").  CMS directed that the costs of certain of these procedures that met
2005  eligibility  requirements  be paid by CMS,  rather than billed to Medicare
Advantage plans. The Company is working with Humana and the related providers to
secure   reimbursement   for  these   amounts,   and  estimated  a  recovery  of
approximately $2.2 million at December 31, 2005.  Approximately $379,000 of this
amount was collected  during the nine months ended September 30, 2006,  while an
additional $500,000 was written off in the second quarter of 2006 due to revised
guidance  issued  by CMS in July 2006  regarding  the  costs  payable  by CMS in
connection with these  procedures.  During the quarter ended September 30, 2006,
the Company  recorded an additional  $500,000 reserve against this receivable to
reflect   management's   concerns   about  the  ultimate   collection  of  these
receivables.  Accordingly,  related  accounts  receivable  in  the  accompanying
consolidated balance sheets were $772,000 and $2.2 million at September 30, 2006
and  December  31,  2005,  respectively.  It is  reasonably  possible  that this
estimate  could  change in the near term by an amount  that could be material to
the financial statements.


                                       22


Included in revenues  for the quarter and nine months ended  September  30, 2006
were estimated  amounts payable to the Company as a result of funding  increases
under the  Medicare  risk  adjustment  ("MRA")  program.  The purpose of the MRA
program is to use health  status  indicators to improve the accuracy of payments
and  establish  incentives  for plans to enroll and treat less healthy  Medicare
beneficiaries.  From 2000 to 2003, risk adjustment  payments  accounted for only
10% of the payment made by CMS to the Medicare health plans,  with the remaining
90% based on  demographic  factors.  In 2004 and 2005, the percentage of payment
attributable to risk adjustment was increased to 30% and 50%, respectively.  The
percentage of payment  attributable  to risk has increased to 75% in 2006,  with
the  100%  phase-in  of  risk-adjusted  payment  expected  in 2007.  We  accrued
approximately  $5.4  million  during the nine months  ended  September  30, 2006
related to  incremental  revenues  anticipated to be received as a result of the
MRA funding  increases.  $4.2  million has been  received  during the first nine
months of 2006.  Accounts  receivable in the accompanying  consolidated  balance
sheets at September  30, 2006  include  $1.2 million of accrued MRA  receivables
that we expect to be received during the fourth quarter of 2006 and in the first
quarter of 2007.  It is reasonably  possible that this estimate  could change in
the near term by an amount that could be material to the financial statements.

Non-Humana  fee-for-service  accounts  receivable,  aggregating to approximately
$1,155,000   and  $797,000  at  September   30,  2006  and  December  31,  2005,
respectively, relate principally to medical services provided on a non-capitated
basis, and are reduced by amounts  estimated to be uncollectible  (approximately
$798,000   and   $555,000  at   September   30,  2006  and  December  31,  2005,
respectively).  Management's estimate of uncollectible amounts is based upon its
analysis of historical collections and other qualitative factors,  however it is
possible the  Company's  estimate of  uncollectible  amounts could change in the
near term. In addition,  accounts  receivable at September 30, 2006 and December
31, 2005 includes approximately $519,000 and $159,000,  respectively, due to the
HMO from CMS and HMO  enrollees,  which is reduced by  amounts  estimated  to be
uncollectible at September 30, 2006 in the amount of $17,000.

With  regards to the HMO,  the cost of medical  benefits  is  recognized  in the
period in which  services are provided  and includes an IBNR  estimate  based on
management's  best  estimate  of  medical  benefits  payable.  It is  reasonably
possible that some or all of these estimates could change in the near term by an
amount that could be material to the financial statements.

The HMO memberships'  average risk adjustment factor declined from December 2005
to June 2006 as a result of a large influx of new members in 2006.  This decline
resulted in decreased average member monthly premiums. The Company believes that
the actual average risk adjustment  factor for its population during this period
was higher and that an increase  will be reflected as claims and health data for
these new members are entered  into the CMS system,  which is expected to result
in retroactive  premium  adjustments.  The Company has estimated the retroactive
premium adjustment to be approximately $534,000 at September 30, 2006.

Accounting for Prescription Drug Benefits under Medicare Part D

On January 1, 2006, the HMO and the PSN,  through the Humana  Agreements,  began
covering  prescription  drug benefits in  accordance  with the  requirements  of
Medicare Part D, to the HMO's and PSN's Medicare Advantage members. The benefits
covered under Medicare Part D are in addition to the benefits covered by the HMO
and the PSN under Medicare Parts A and B.

In general,  pursuant to Medicare Part D, pharmacy benefits may vary in terms of
coverage levels and out-of-pocket  costs for beneficiary  premiums,  deductibles
and  co-insurance.  However,  all  Part D  plans  must  offer  either  "standard
coverage"  or  its  actuarial  equivalent  (with  out-of-pocket   threshold  and
deductible  amounts  that do not  exceed  those  of  standard  coverage).  These
"defined  standard" benefits represent the minimum level of benefits mandated by
Congress.  In addition to defined  standard  plans  offered by the HMO, the PSN,
through the Humana Agreements, offers certain prescription drug plans containing
benefits in excess of the standard coverage limits.

The payment the  Company's  HMO receives  monthly  from CMS for  coverage  under
Medicare Part D (the "CMS  Payment")  generally  represents the HMO's bid amount
for providing Part D insurance coverage.  The Company recognizes premium revenue
for the HMO's provision of this Part D insurance  coverage ratably over the term
of the CMS Agreement. However, the ultimate amount of the CMS Payment is subject
to 1) risk corridor  adjustments  and 2) subsidies  provided by CMS in order for
the HMO and CMS to share the risk  associated  with financing the ultimate costs
of the Medicare Part D benefit.

The CMS payment is subject to adjustment,  positive or negative,  based upon the
application of risk corridors that compare the  prescription  drug benefit costs
estimated by the HMO in making its bid to CMS (the "Estimated  Costs") to actual
incurred  prescription  drug benefit  costs (the "Actual  Costs").  For 2006 and
2007, in accordance  with federal  regulations,  the HMO will bear all gains and
losses that fall within 2.5% of its  Estimated  Costs.  To the extent the Actual
Costs  exceed the  Estimated  Costs by more than 2.5%,  CMS may make  additional
payments to the HMO.  Conversely,  to the extend the Estimated  Costs exceed the
Actual  Costs by more  than  2.5%,  the HMO may be  required  to refund to CMS a
portion of the CMS Payment.  Actual  Costs  subject to risk sharing with CMS are
limited  to the costs  that are,  or would  have  been,  incurred  under the CMS
"defined  standard"  benefit  plan.  The Company  estimates  and  recognizes  an
adjustment to premium  revenues  from CMS related to the risk  corridor  payment
adjustment based upon pharmacy claims experience to date as if the CMS Agreement
were to end at the end of each reporting period. Accordingly, this estimate does
not take into consideration  projected future pharmacy claims experience.  It is
reasonably  possible  that  this  estimate  could  change in the near term by an
amount that could be material.


                                       23


Certain subsidies represent  reimbursements from CMS for claims the HMO paid for
even though it is not  ultimately  required to bear the risk in connection  with
such claims.  These include  federally  reinsured claims where a MetHMO member's
actual drug spending reaches Part D's annual catastrophic  threshold and certain
deductible, coinsurance and co-payment amounts for low-income beneficiaries. The
Company accounts for these subsidies as current liabilities in its balance sheet
and as an operating  activity in its  statement of cash flows.  The Company does
not recognize premium revenue or claims expense for these subsidies.

The HMO recognizes pharmacy benefit costs as incurred.  It has subcontracted the
pharmacy claims administration to a third party pharmacy benefit manager.

With regards to the PSN, the Company  receives  Medicare Part D revenue pursuant
to the  applicable  percent of premium  provided  for in the Humana  Agreements.
Humana  does  not  provide  the  Company  with a  separate  accounting  for  the
incremental  amount  of the Part D premium  and  expense.  As with the HMO,  the
Company recognizes pharmacy benefit costs as such costs are incurred by the PSN.
With  regards to the  estimated  amount of any risk  corridor  adjustments,  the
Company  has relied  upon  estimates  provided  by Humana to the Company and has
recorded a downward  adjustment to premium revenue based on these estimates.  It
is reasonably  possible  that this estimate  could change in the near term by an
amount that could be material.

Deferred Tax Asset

The Company has recorded a deferred tax asset of  approximately  $6.0 million at
September  30,  2006.  Realization  of the  deferred  tax asset is  dependent on
generating  sufficient  taxable income in the future. The amount of the deferred
tax asset  considered  realizable  could change in the near term if estimates of
future taxable income are modified and those changes could be material.

In the future,  if the Company  determines that it cannot, on a more likely than
not basis,  realize all or part of its  deferred  tax assets in the  future,  an
adjustment  to  establish  (or record an  increase  in) the  deferred  tax asset
valuation  allowance  would be  charged  to income in the  period in which  such
determination is made.

Stock-Based Compensation Expense

Effective  January 1, 2006,  the Company  adopted SFAS 123(R) using the modified
prospective  transition  method.  SFAS 123(R)  requires the Company to recognize
compensation costs related to share-based payment transactions with employees in
its financial  statements.  SFAS 123(R)  requires the Company to calculate  this
cost based on the grant date fair  value of the  equity  instrument.  Consistent
with its prior  disclosures under SFAS 123, the Company elected to calculate the
fair value of its employee stock options using the Black-Scholes  option pricing
model.  Based  on the  Black-Scholes  model  and its  assumptions,  the  Company
recognized  stock-based employee compensation expense of approximately  $182,000
and  $546,000  for the  quarter  and  nine  months  ended  September  30,  2006,
respectively (See "Notes to Condensed  Consolidated  Financial Statements," Note
3.").

SFAS 123(R) does not require the use of any particular  option  valuation model.
Because the Company's stock options have characteristics significantly different
from traded options and because changes in the subjective input  assumptions can
materially  affect the fair value estimate,  it is possible that existing models
may not  necessarily  provide  a  reliable  measure  of the  fair  value  of the
Company's employee stock options.  It selected the Black-Scholes  model based on
prior experience with it, its wide use by issuers comparable to the Company, and
the  Company's  review of  alternate  option  valuation  models.  Based on these
factors,  the Company believes that the Black-Scholes  model and the assumptions
it made in  applying it provide a  reasonable  estimate of the fair value of its
employee stock options.

The effect of applying the fair value method of accounting  for stock options on
reported  net income for any period might not be  representative  of the effects
for future periods because  outstanding  options typically vest over a period of
several years and additional awards may be made in future periods.

RESULTS OF OPERATIONS


                                       24


We recognized Revenues, net of $60.8 million for the quarter ended September 30,
2006 compared to $45 million in quarter ended September 30, 2005, an increase of
$15.8 million, or 35.2%. Net income for the quarter ended September 30, 2006 was
$2.5 million compared to $539,000 for the quarter ended September 30, 2005.

For the nine months ended  September 30, 2006, we  recognized  Revenues,  net of
$172.5 million  compared to $136.7  million for the nine months ended  September
30, 2005, an increase of $35.8million,  or 26.2%. Net income for the nine months
ended September 30, 2006 was $3.2 million  compared to $2.9 million for the nine
months ended September 30, 2005.

Net Earnings Per Share, Basic was $.05 and $.01 for the quarters ended September
30, 2006 and 2005, respectively. The weighted average shares outstanding for the
quarter  increased  from  49,269,000  at  September  30, 2005 to  50,108,000  at
September 30, 2006.

For the nine months ended  September 30, 2006 and 2005,  Net Earnings Per Share,
Basic was $.06 and $.06,  respectively.  The weighted average shares outstanding
for the nine-month  period  increased  from  48,716,000 at September 30, 2005 to
49,981,000 at September 30, 2006.

In both 2005 and 2006, we operated in two financial reporting segments,  the PSN
business and the Medicare Advantage HMO business,  which began enrolling members
effective July 1, 2005. The PSN reported a Segment gain (loss) before  allocated
overhead of $7.7 million and $16.1 million for the quarter and nine months ended
September 30, 2006, respectively, compared to $4.2 million and $12.2 million for
the quarter and nine months  ended  September  30, 2005,  respectively.  The HMO
incurred a Segment  loss  before  allocated  overhead  of $2.0  million and $6.2
million for the quarter and nine months ended  September  30, 2006,  compared to
$2.4 million and $4.1  million for the quarter and nine months  ended  September
30, 2005, respectively.

MEMBERSHIP

The PSN

As of September 2006, the PSN was providing healthcare services to approximately
25,900 Humana  Participating  Members as compared to approximately 26,700 Humana
Participating  Members  in  September  2005,  a decrease  of 800  members or 3%.
Effective  October 1, 2005, we discontinued  our  contractual  obligation with a
number of our South Florida physician  practices due to non-compliance  with our
policies and procedures. These centers accounted for approximately 700 members.

Humana  Participating  Member  months,  which is defined as the aggregate of the
PSN's Humana Plan membership for each month during the fiscal quarter, decreased
to  approximately  77,500 for third quarter 2006 from  approximately  79,900 for
third quarter 2005. Humana Participating Member months for the nine months ended
September  30,  2006 were  approximately  232,500 as compared to 239,200 for the
nine months ended  September  30, 2005,  a decrease of 6,700 member  months.  As
discussed above, we discontinued our contractual obligation with a number of our
South Florida physician  practices due to  non-compliance  with our policies and
procedures in 2005.  These  centers  accounted  for  approximately  6,500 member
months for the nine months ended September 30, 2005.

The HMO

The HMO  commenced  operations in July 2005.  As of September  2006,  there were
approximately 3,500  Participating  Members enrolled in the HMO, compared to 500
in September  2005.  The HMO's  Participating  Member  months was  approximately
10,300 and 24,700 for the quarter and nine months ended  September 30, 2006. The
HMO's  marketing  efforts  during the first nine  months of 2006 have  generated
approximately 2,100 net additional members.

COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005

REVENUES

Revenues,  net for the quarter ended September 30, 2006 increased $15.8 million,
or 35.2%, over the quarter ended September 30, 2005, from $45.0 million to $60.8
million.


                                       25


The PSN

Our most significant revenue component during both the third quarter of 2005 and
the third  quarter of 2006 was the  premium  revenue  generated  pursuant to the
Humana  Agreements  (the "Humana Related  Revenue").  The Humana Related Revenue
increased  from $44.3  million in the third  quarter of 2005 to $52.0 million in
the third quarter of 2006, an increase of  approximately  $7.7 million or 17.3%.
Included  in  revenue  during  this  period  was  $763,000  of  MRA  retroactive
adjustments  related  to prior  years.  Average  per  member  per month  revenue
increased  approximately  $671 in the third  quarter of 2006 compared to $554 in
the third quarter of 2005. The increased per member per month premium  accounted
for a total revenue increase of  approximately  $9.3 million which was partially
offset  by the 2,400  decrease  in Humana  Participating  Member  months or $1.6
million.

The HMO

Revenues for the HMO, which began  enrolling  members in July 2005,  amounted to
$8.5 million for the third quarter of 2006 as compared to $471,000 for the third
quarter of 2005. Average per member per month premiums amounted to approximately
$825 in the third quarter of 2006.

OPERATING EXPENSES

Total Medical Expenses

Total medical expenses  represent the total costs of providing  patient care and
are comprised of two components, direct medical costs and other medical costs.

Direct  medical  costs  include  the  costs  of  medical  services  provided  to
Participating   Members  by  providers  other  than  our  affiliated   providers
("Non-Affiliated  Providers").  Approximately  95% of our Total medical expenses
are  attributable to the costs of medical  services  provided by  Non-Affiliated
Providers.  Other medical costs include costs  associated with the operations of
our wholly owned physician  practices and oncology center including salaries and
benefits, supplies, malpractice insurance and office related expenses.

Total medical  expenses totaled $52.2 million and $40.1 million for the quarters
ended  September  30, 2006 and 2005,  respectively.  The ratio of the  Company's
Total medical expense as a percentage of Revenue,  ("MER"), improved to 85.8% in
the third quarter of 2006 from 89.2% in the third quarter of 2005.

The PSN's MER improved to 83.8% in the quarter ended September 30, 2006 compared
to 89.3% in the year earlier  period.  A number of factors  contributed  to this
improvement,  including,  but not limited to, improved utilization trends, prior
year MRA adjustments  included in revenues during the period and the termination
of certain South Florida  medical  practices in October  2005,  which  practices
generated an average MER of greater than 100%.

The HMO's MER was 98.3% for the third  quarter  of 2006.  Due to its  relatively
small membership,  our HMO's operations are volatile from a medical  utilization
standpoint.  We expect that the volatility will decline as membership  grows and
anticipate that the HMO's MER will decrease in future periods.

Administrative Payroll, Payroll Taxes and Benefits

Administrative payroll,  payroll taxes and benefits include salaries and related
costs  for  our  executive  and  administrative  staff.  For the  quarter  ended
September 30, 2006, administrative payroll, payroll taxes and benefits were $2.5
million,  compared to $1.5  million for the quarter  ended  September  30, 2005.
Costs  associated  with the HMO  accounted  for the $300,000 of the  incremental
increases in expenses. In addition, we incurred $200,000 of stock option related
non-cash  expenses and  $130,000 in  incremental  bonus and 401(k)  contribution
accruals.  The HMO had 55  employees  at  September  30,  2006  compared in 26 a
September 30, 2005. The PSN's and corporate administrative headcount totaled 131
employees at September  30, 2006,  an increase of 9 as compared to September 30,
2005.

Marketing and Advertising

Marketing  and  advertising  expense for the third quarter of 2006 was $203,000,
compared to expenses of $1.3  million in the third  quarter of 2005.  During the
third quarter of 2005, we were  conducting an open  enrollment and launching our
HMO . The Medicare  industry  entered its first lock-in period effective May 15,
2006. During this lock-in period,  which continues until November 15, 2006, most
people are not eligible to join or switch  Medicare  Advantage  plans.  The next
open enrollment  period begins November 15, 2006 and will extend until March 30,
2006.  Based on the limited ability to enroll  members,  our marketing and sales
efforts and expenditures decreased in the quarter ended September 30, 2006.


                                       26


General and Administrative

General and  administrative  expenses for the third  quarter of 2006 amounted to
$2.1  million,  an  increase  of  $849,000  over  the  third  quarter  of  2005.
Approximately  $500,000 of the increase is attributable to expenses  incurred in
connection with the HMO, including  $250,000 for claims processing,  $100,000 of
incremental  stoploss insurance  premiums,  and $100,000 in legal and accounting
fees.

OTHER INCOME AND EXPENSE

Total other income for the third quarter of 2006 totaled $305,000 as compared to
$126,000 in the third quarter of 2005,  primarily  the result of increased  cash
balances and higher interest rates.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND SEPTEMBER 30, 2005

REVENUES

Revenues,  net for the nine months  ended  September  30, 2006  increased  $35.8
million,  or 26.2%,  over the nine months ended  September 30, 2005, from $136.7
million to $172.5 million.

The PSN

Our most  significant  revenue  component  during  both the nine  months  ending
September 30, 2005 and the nine months ending  September 30, 2006 was the Humana
Related Revenue. The Humana Related Revenue increased from $135.1 million in the
nine months ended  September 30, 2005 to $151.6 million in the nine months ended
September  30,  2006,  an  increase  of  approximately  $16.5  million or 12.2%.
Included  in revenue  during  this  period was $4.2  million of MRA  retroactive
adjustments  related to prior  years.  Average per member per month  revenue was
approximately  $652 in the nine months ended September 30, 2006 compared to $565
in the nine months ended  September 30, 2005. The increased per member per month
premium  accounted for a total revenue increase of  approximately  $20.8 million
which was partially offset by the 6,700 decrease in Humana  Participating Member
months or $4.3 million.

The HMO

Revenues for the HMO, which began  enrolling  members in July 2005,  amounted to
$19.9  million  for the nine  months  ending  September  30, 2006 as compared to
$471,000 for the nine months ended  September  30, 2005.  Average per member per
month premiums amounted to approximately $806 in the nine months ended September
30, 2006.

OPERATING EXPENSES

Total Medical Expenses

Total medical expenses  represent the total costs of providing  patient care and
are comprised of two components, direct medical costs and other medical costs.

Direct  medical  costs  include  the  costs  of  medical  services  provided  to
Participating   Members  by  providers  other  than  our  affiliated   providers
("Non-Affiliated  Providers").  Approximately  95% of total medical expenses are
attributable  to the  costs  of  medical  services  provided  by  Non-Affiliated
Providers.  Other medical costs include costs  associated with the operations of
our wholly owned physician  practices and oncology center including salaries and
benefits, supplies, malpractice insurance and office related expenses.


                                       27


Total medical  expenses  totaled  $152.6 million and $122.7 million for the nine
months  ended  September  30, 2006 and 2005,  respectively.  Our MER improved to
88.5% in the nine months ended  September 30, 2006 compared to 89.8% in the nine
months ending September 30, 2005.

The PSN's MER  improved to 87.8% in the nine  months  ended  September  30, 2006
compared to 89.8% in the nine  months  ended  September  30,  2005.  A number of
factors  contributed  to the decrease  including,  among other things,  improved
utilization trends,  prior year MRA adjustments  included in revenues during the
period and the termination of certain South Florida medical practices in October
2005, which practices generated an average MER of greater than 100%.

The HMO's MER was 94.1% for the nine months ended September 30, 2006. Due to its
relatively  small  membership,  our HMO's operations are volatile from a medical
utilization standpoint. We expect that the volatility will decline as membership
grows and anticipate that the HMO's MER will decrease in future periods.

Administrative Payroll, Payroll Taxes and Benefits

Administrative payroll,  payroll taxes and benefits include salaries and related
costs for our  executive  and  administrative  staff.  For the nine months ended
September 30, 2006, administrative payroll, payroll taxes and benefits were $7.5
million,  compared to $4.2 million for the nine months ended September 30, 2005.
Costs  associated with the HMO accounted for the $1.4 million of the incremental
increases in expenses. In addition, we incurred $546,000 of stock option related
non-cash  expenses and  $390,000 in  incremental  bonus and 401(k)  contribution
accruals.  The HMO  had 55  employees  at  September  30,  2006  compared  to 26
September 30, 2005. The PSN's and corporate administrative headcount totaled 131
employees at September 30, 2006, an increase of 9 since September 30, 2005.

Marketing and Advertising

Marketing and  advertising  expense for the nine months ended September 30, 2006
was $2.2 million,  compared to expenses of $1.4 million in the nine months ended
September  30, 2005.  We operated our HMO for the full first nine months of 2006
during  which time we  incurred  marketing  and  advertising  expenses.  The HMO
commenced  operations  in July 2005 and we incurred  significant  marketing  and
advertising expenses only in the third quarter of the year.

The Medicare  industry  entered its first lock-in period  effective May 15, 2006
that extends to November 15, 2006 during which period most people with  Medicare
cannot join or switch Medicare  Advantage plans. The next open enrollment period
begins November 15, 2006 and will extend to March 30, 2007. Based on the limited
ability to enroll  members,  our marketing  and sales  efforts and  expenditures
decreased in the quarter ended September 30, 2006.

General and Administrative

General and administrative expenses for the nine months ended September 30, 2006
amounted to $5.7 million,  an increase of $1.7 million over the third quarter of
2005. Approximately $1.1 million of the increase is attributable to the expenses
incurred in connection with the HMO,  including  $560,000 for claims processing,
$175,000 of incremental  stoploss insurance premiums,  and $100,000 in legal and
accounting fees.

OTHER INCOME AND EXPENSE

Total other income in the nine months ended September 30, 2006 totaled  $719,000
as compared to $393,000 in the nine months ended  September 30, 2005,  primarily
the result of increased cash balances and higher interest rates.

LIQUIDITY AND CAPITAL RESOURCES

Total Cash and  equivalents  and  Short-term  investments  at September 30, 2006
totaled  approximately  $25.1 million compared to approximately $15.6 million at
December  31,  2005.  As of  September  30,  2006,  $9.6 million of our Cash and
equivalents and Short-term investments were in accounts established for the HMO.
While  available to fund ongoing  operations for the HMO, these balances are not
otherwise  available for non-HMO  operations or other general corporate uses. As
of September 30, 2006, we had a working capital surplus of  approximately  $25.6
million, compared to a surplus of approximately $21.1 million as of December 31,
2005, an increase of $4.5 million.


                                       28


Our  Total  stockholder  equity  increased   approximately  $3.9  million,  from
approximately  $29.7 million at December 31, 2005 to approximately $33.6 million
at September 30, 2006.

At September 30, 2006, we had no outstanding debt.

Net cash provided by operating  activities  for the nine months ended  September
30, 2006 was  approximately  $10.9  million.  The  largest  sources of cash from
operating activities were:

      o     $3.4 million in cash generated from an increase in estimated medical
            expenses payable;

      o     $3.2 million of cash generated from net income;

      o     $1.9 million in cash  generated  from a decrease in deferred  income
            taxed;

      o     $1.3  million  of cash  generated  by an  increase  in  advance  and
            unearned premiums;

      o     $546,000  of  cash   generated  from  an  increase  in  stock  based
            compensation expense;

      o     $527,000 of cash generated from an increase in accrued expenses;

      o     $379,000 of cash generated from depreciation and amortization;

      o     $168,000 of cash generated by an increase in accounts payable; and

      o     $116,000 of cash generated by a decrease in other current assets.

These sources of cash were partially offset by the following uses of cash:

      o     $576,000 increase in prepaid expenses; and

      o     $89,000 increase in accounts receivable.

Net cash used in investing  activities  for the nine months ended  September 30,
2006 was  approximately  $7.3  million.  The Company  purchased  $5.8 million of
short-term  investments and incurred $1.6 million in capital expenditures during
the first nine months of 2006.

The Company's financing  activities for the nine months ended September 30, 2006
provided  approximately  $141,000  of cash in  connection  with the  issuance of
common stock upon the exercise of outstanding options.

During 2005, we incurred  approximately $4.0 million of medical costs related to
the implantation of certain Implantable Automatic Defibrillators ("AICD's"). CMS
directed that the costs of certain of these procedures that met 2005 eligibility
requirements be paid by CMS, rather than billed to Medicare  Advantage plans. We
are working with Humana and the related  providers to secure  reimbursement  for
these  amounts,  and  estimated  a recovery  of  approximately  $2.2  million at
December 31, 2005.  Approximately  $379,000 of this amount was collected  during
the nine months ended  September  30,  2006,  while an  additional  $500,000 was
written off in the second quarter of 2006 due to revised  guidance issued by CMS
regarding  the costs  payable by CMS in  connection  with these  procedures.  An
additional  reserve of $500,000 was recorded during the quarter ending September
30, 2006  reflecting  our concerns  regarding  the ultimate  collection of these
recoveries and the timing of the collections.

On May 6, 2005 the  Company  executed  an  unsecured  commercial  line of credit
agreement with a bank,  which provided for borrowings and issuance of letters of
credit of up to $1.0 million.  The credit line expired on March 31, 2006 and was
automatically   renewed  for  a  one-year  period  until  March  31,  2007.  The
outstanding balance, if any, bears interest at the bank's prime rate. The credit
facility  requires  the  Company to comply  with  certain  financial  covenants,
including a minimum liquidity  requirement of $2.0 million.  As of September 30,
2006, the availability under the line of credit secures a $1.0 million letter of
credit  that the  Company  has  caused to be issued  in favor of  Humana.  As of
September  30, 2006,  the Company has not borrowed  funds under this  commercial
line of credit.

Although we have operated as a risk  provider  since 1997, we have only operated
the HMO since July 1, 2005. While the HMO's business has continued to grow, such
growth has continued to require capital.  In the nine months ended September 30,
2006, The HMO's business  generated a $6.2 million segment loss before allocated
overhead and income taxes.  We project that in fiscal 2006,  the HMO's  business
will generate a loss of $8 million to $10 million before allocated  overhead and
income  taxes.  The amount of the loss will be determined by a number of factors
including  membership,  medical utilization and related costs, and our decisions
related to  expansion  and  growth  efforts.  We are still not in a position  to
meaningfully  estimate when, if ever, the HMO's business will become  profitable
and/or generate cash from operations and may be required to fund the development
and  expansion of the HMO  business,  including any  associated  losses,  for an
extended  period  of  time.   Nonetheless,   we  anticipate  that  the  on-going
development  efforts,  reserve  requirements  and operating  costs for our still
developing  HMO business can be funded by our current  resources  and  projected
cash flows from operations until at least September 30, 2007.


                                       29


To  successfully  operate  the HMO,  we  believe  we will have to  continue  our
development of the following  capabilities,  among others:  sales and marketing,
customer service and regulatory  compliance.  No assurances can be given that we
will be  successful  in  operating  this  segment of our  business  despite  our
allocation  of a substantial  amount of resources  for this purpose.  If The HMO
does not develop as  anticipated  or planned,  we may have to devote  additional
managerial and/or capital resources to the HMO, which could limit our ability to
manage and/or grow The PSN. There can be no assurances  that, if for any reason,
we elect to discontinue the HMO business  and/or seek to sell such business,  we
will be able to fully  recoup our  expenditures  to date with respect to the HMO
business.

In 2004, we adopted an investment  policy with respect to the  investment of our
Cash and equivalents.  The investment policy goal is to obtain the highest yield
possible while  investing only in highly rated  instruments or investments  with
nominal risk of loss of principal.  The  investment  policy sets forth a list of
"Permitted  Investments"  and provides that the Chief  Financial  Officer or the
Chief  Executive  Officer  must  approve any  exceptions  to the policy.  We had
approximately  $5.8 million of short-term  investments  as of September 30, 2006
compared to none at December 31, 2005.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any Off-Balance  Sheet  Arrangements  that have or are
reasonably likely to have a current or future effect on the Company's  financial
condition,  changes in financial  condition,  revenues or  expenses,  results of
operations,  liquidity,  capital  expenditures  or  capital  resources  that are
material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market  risk  generally  represents  the risk of loss that may  result  from the
potential change in value of a financial  instrument as a result of fluctuations
in interest rates and market prices. At September 30, 2006, the Company had only
commercial paper,  certificates of deposit and cash equivalents invested in high
grade,  short-term and long-term securities,  which are not typically subject to
material  market  risk.  The  Company  has  established  policies  and  internal
processes related to the management of market risks, which it uses in the normal
course of its business operations.

Interest Rate Risk

The Company believes a change in interest rates would not have a material impact
on its financial condition, future results of operations or cash flows.

Intangible Asset Risk

The Company has a  substantial  amount of intangible  assets.  It is required to
perform goodwill impairment tests whenever events or circumstances indicate that
the carrying value may not be recoverable from estimated future cash flows. As a
result  of  its  periodic  evaluations,  the  Company  may  determine  that  the
intangible  asset  values need to be written  down to their fair  values,  which
could result in material charges that could be adverse to its operating  results
and financial position.  Although at September 30, 2006 the Company believes its
intangible  assets were  recoverable,  changes in the  economy,  the business in
which it operates and its own relative  performance could change the assumptions
used to evaluate  intangible  asset  recoverability.  The Company  continues  to
monitor those  assumptions and their effect on the estimated  recoverability  of
its intangible assets.

Equity Price Risk

The Company does not own any equity investments, other than in its subsidiaries.
As a result, it does not currently have any direct equity price risk.


                                       30


Commodity Price Risk

The  Company  does  not  enter  into  contracts  for  the  purchase  or  sale of
commodities.  As a result, it does not currently have any direct commodity price
risk.

ITEM 4. CONTROLS AND PROCEDURES

Our Chief  Executive  Officer,  who is also serving as Interim  Chief  Financial
Officer, participated in an evaluation by our management of the effectiveness of
our disclosure  controls and procedures as of the end of our fiscal quarter that
ended on September 30, 2006. Based on his participation in that evaluation,  our
CEO concluded that our disclosure  controls and procedures  were effective as of
September 30, 2006 to ensure that the  information  included in the reports that
we file or submit under the  Securities  Exchange  Act is  recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
forms  and  that  such  information  is  accumulated  and  communicated  to  our
management,  including our Chief Executive  Officer,  as  appropriate,  to allow
timely decisions regarding required disclosure. As described in detail in Note 7
to our condensed  consolidated  financial  statements,  we have amended our Form
10-Qs as of and for the  quarterly  periods  ended  March 30,  2006 and June 30,
2006.  Our  management,  including  our CEO,  has  re-evaluated  our  disclosure
controls and  procedures  as of the end of the period  covered by this Report to
determine  whether such  restatement  changes  their prior  conclusion,  and has
determined  that it does not change their  conclusion  that as of September  30,
2006, our disclosure  controls and procedures  were effective to ensure that the
information  included in the reports that we file or submit under the Securities
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods  specified in the SEC's rules and forms.  Our CEO has concluded  that he
does not believe that the internal  control  deficiency  constitutes  a material
weakness due to, among other things:

      o     The remote likelihood that the significant deficiency will result in
            a material  misstatement  not being  prevented  or  detected  in the
            future.  (Humana,  Inc.'s  member  premium  revenue  program  in the
            Daytona market was discontinued in 2006); and

      o     Various  qualitative  factors,   including  Humana,   Inc.'s  vested
            interest  in not  paying  us  premiums  that  Humana,  Inc.  has not
            received from its members.

During the third  quarter  of 2006,  we  announced  the  departure  of our Chief
Financial  Officer.  The Chief  Financial  Officer  is an  integral  part of our
internal control  structure over financial  reporting.  During the third quarter
financial  reporting process,  our CEO was appointed Interim CFO and assumed the
responsibilities  of the CFO related to the  internal  controls  over  financial
reporting.  We have appointed a new CFO and anticipate that he will commence his
employment in November  2006.  Other than the departure of the former CFO, there
have been no  significant  changes made in our internal  controls over financial
reporting  that  occurred  during the last fiscal  quarter that have  materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.


                                       31


PART II   OTHER INFORMATION

ITEM 1. SUMMARY OF LEGAL PROCEEDINGS

      The  Company  is a party to  various  legal  proceedings  which are either
      immaterial  in amount  to the  Company  and its  subsidiaries  or  involve
      ordinary routine litigation  incidental to the business of the Company and
      its subsidiaries.  There are no material pending legal proceedings,  other
      than routine litigation  incidental to the business of the Company and its
      subsidiaries,  to which the Company or any of its  subsidiaries is a party
      of or  which  any  property  of the  Company  or its  subsidiaries  is the
      subject.

ITEM 1A. RISK FACTORS

      There  have  been no  material  changes  in our risk  factors  from  those
      disclosed  in our  Annual  Report on Form 10-K for the  fiscal  year ended
      December 31, 2005 other than as set forth below:

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      NONE

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

      NONE

ITEM 5. OTHER INFORMATION

      NONE

ITEM 6. EXHIBITS

3.1   Articles of Incorporation, as amended (1)

3.2   Amended and Restated Bylaws (2)

10.1  Physician Practice  Management  Participation  Agreement,  dated August 2,
      2001, between Metropolitan of Florida, Inc. and Humana, Inc. (3)

10.2  Letter of Agreement, dated February 2003, between Metropolitan of Florida,
      Inc. and Humana, Inc. (4)

10.3  Physician  Practice  Management  Participation  Agreement,  dated December
      1,1998, between Metcare of Florida, Inc. and Humana, Inc. (9)

10.4  Supplemental Stock Option Plan (5)

10.5  Omnibus Equity Compensation Plan (6)

10.6  Amended and Restated Employment Agreement between Metropolitan and Michael
      M. Earley dated January 3, 2005 (8)

10.7  Amended and Restated Employment  Agreement between  Metropolitan and David
      S. Gartner dated January 3, 2005 (8)

10.8  Amended and Restated Employment Agreement between Metropolitan and Roberto
      L. Palenzuela dated January 3, 2005 (8)

10.9  Amended and Restated Employment  Agreement between  Metropolitan and Debra
      A. Finnel dated January 3, 2005 (8)

10.10 Employment Agreement between Metcare of Florida, Inc. and Jose A. Guethon,
      M.D. (9)

10.11 Form of Option Award Agreement for Option Grants to Directors  pursuant to
      the Omnibus Compensation Plan (9)

10.12 Form of Option Award Agreement for Option Grants to Key Employees pursuant
      to the Omnibus Compensation Plan (9)

10.13 Form of Option Award Agreement for Option Grants to Employees  pursuant to
      the Omnibus Compensation Plan (9)


                                       32


10.14 Agreement  between  Metcare of Florida,  Inc. and the Centers for Medicare
      and Medicaid Services (10)

10.15 Code of Business Conduct and Ethics (9)

10.16 Employment Agreement between Metropolitan and Robert J. Sabo (11)

31.1  Certification  of the Chief Executive  Officer and Interim Chief Financial
      Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1  Certification  of the Chief Executive  Officer and Interim Chief Financial
      Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

----------------------------
* filed herewith
**furnished herewith

(1)   Incorporated by reference to Metropolitan's Registration Statement on Form
      8-A12B filed with the Commission on November 19, 2004 (No. 001-32361).

(2)   Incorporated  by reference to  Metropolitan's  Current  Report on Form 8-K
      filed with the Commission on September 30, 2004.

(3)   Incorporated  by reference  to  Metropolitan's  Amendment to  Registration
      Statement on Form SB-2/A filed with the  Commission on August 2, 2001 (No.
      333-61566).  Portions  of  this  document  were  omitted  and  were  filed
      separately  with the SEC on or about August 2, 2001  pursuant to a request
      for confidential treatment.

(4)   Incorporated by reference to Metropolitan's Amendment to Annual Report for
      the fiscal year ended  December  31,  2003 on Form  10-K/A  filed with the
      Commission  on July 28, 2004.  Portions of this document have been omitted
      and were filed  separately  with the SEC on July 28,  2004  pursuant  to a
      request for confidential treatment.

(5)   Incorporated by reference to Metropolitan's Amendment to Annual Report for
      the fiscal year ended  December  31,  2003 on Form  10-K/A  filed with the
      Commission on July 28, 2004.

(6)   Incorporated by reference to Metropolitan's Registration Statement on Form
      S-8 filed with the Commission on February 24, 2005 (No. 333-122976).

(7)   Incorporated by reference to the Company's  Annual Report on Form 10-K for
      the fiscal year ended  December 31, 2003, as filed with the  Commission on
      March 22, 2004.

(8)   Incorporated by reference to the Company's  Annual Report on Form 10-K for
      the fiscal year ended  December 31, 2004, as filed with the  Commission on
      March 22, 2005.

(9)   Incorporated by reference to the Company's  Annual Report on Form 10-K for
      the fiscal year ended  December 31, 2005, as filed with the  Commission on
      March 16, 2006.

(10)  Incorporated by reference to the Company's  Quarterly  Report on Form 10-Q
      for the fiscal  quarter ended March 31, 2006, as filed with the Commission
      on May 15, 2006.

(11)  Incorporated  by reference  to the  Company's  Current  Report on Form 8-K
      filed with the Commission on October 20, 2006.


                                       33


SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
Undersigned thereunto duly authorized.

                                           METROPOLITAN HEALTH NETWORKS, INC.
Registrant

Date:  November 14, 2006                   /s/ Michael M. Earley
                                           ---------------------

                                           Michael M. Earley
                                           Chairman, Chief Executive Officer and
                                           Interim Chief Financial Officer


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