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, 2007

                                       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, 2007
- -----------------------------------------   -----------------------------------
 Common Stock, $.001 par value per share            51,188,660 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, 2007 and December 31, 2006                3

               Condensed Consolidated Statements of
               Income for the Nine Months and Three Months Ended
               September 30, 2007 and 2006                                   4

               Condensed Consolidated Statements of
               Cash Flows for the Nine Months  Ended
               September 30, 2007 and 2006                                   5

               Notes to Condensed Consolidated
               Financial Statements                                          6

Item 2.    Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations                                                      13

Item 3.    Quantitative and Qualitative Disclosures About Market Risk       31

Item 4.    Controls and Procedures                                          31

PART II.   OTHER INFORMATION                                                32

Item 1A    Risk Factors                                                     32

Item 6.    Exhibits                                                         32

SIGNATURES                                                                  34

                                       2


PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements



                                    METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
                                          CONDENSED CONSOLIDATED BALANCE SHEETS
==============================================================================================================================
                                       ASSETS                                          September 30, 2007    December 31, 2006
                                                                                          (unaudited)
                                                                                       ------------------    ------------------
                                                                                                      
CURRENT ASSETS
     Cash and equivalents, including $15.7 million in 2007 and $12.5 million in
       2006 stautorily limited to use by the HMO                                       $       34,375,327    $       23,110,042
     Accounts receivable, net of allowance of $93,000 in 2007 and $601,000 in 2006                673,576               674,709
     Due from Humana, net of allowance of $1.6 million in 2006                                  2,347,082             2,970,821
     Inventory, primarily medical supplies                                                        372,043               284,777
     Prepaid expenses                                                                             784,366               706,390
     Deferred income taxes                                                                      1,571,500             1,600,000
     Other current assets                                                                         713,698             1,118,099
                                                                                       ------------------    ------------------
                                                                TOTAL CURRENT ASSETS           40,837,592            30,464,838

Property and equipment, net                                                                     2,180,967             2,275,105
Investments                                                                                       688,997               688,997
Goodwill                                                                                        1,992,133             1,992,133
Deferred income taxes                                                                           3,885,000             5,767,000
Other assets                                                                                    1,626,253               652,960
                                                                                       ------------------    ------------------
                                                                        TOTAL ASSETS   $       51,210,942    $       41,841,033
                                                                                       ==================    ==================

                        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                                  $          858,891    $          887,174
     Accrued payroll and payroll taxes                                                          2,594,960             1,810,428
     Estimated medical expenses payable                                                         6,376,699             4,743,737
     Due to Centers for Medicare and Medicaid Services                                          4,509,845             2,702,825
     Accrued expenses                                                                           1,912,149               767,606
                                                                                       ------------------    ------------------
          TOTAL CURRENT LIABILITIES                                                            16,252,544            10,911,770

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;
         51,115,660 in 2007 and 50,268,964 in 2006 issued and outstanding                          51,116                50,269
     Additional paid-in capital                                                                42,561,565            41,453,311
     Accumulated deficit                                                                       (8,154,283)          (11,074,317)
                                                                                       ------------------    ------------------
                                                          TOTAL STOCKHOLDERS' EQUITY           34,958,398            30,929,263
                                                                                       ------------------    ------------------
                                          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $       51,210,942    $       41,841,033
                                                                                       ==================    ==================



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

                                       3




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

                                                             Nine Months Ended September 30,  Three Months Ended September 30,
                                                                 2007             2006             2007            2006
                                                              (unaudited)      (unaudited)     (unaudited)      (unaudited)
                                                             -------------    -------------   -------------    -------------
                                                                                                   
REVENUE                                                      $ 207,660,167    $ 172,486,412   $  69,622,067    $  60,838,341

MEDICAL EXPENSE
  Medical claims expense                                       173,525,324      145,122,834      57,715,133       49,724,990
  Medical center costs                                           8,269,186        7,621,595       2,789,485        2,530,253
                                                             -------------    -------------   -------------    -------------
                                    Total Medical Expense      181,794,510      152,744,429      60,504,618       52,255,243
                                                             -------------    -------------   -------------    -------------
                                             GROSS PROFIT       25,865,657       19,741,983       9,117,449        8,583,098

OPERATING EXPENSES
  Payroll, payroll taxes and benefits                           10,100,668        7,566,110       3,357,216        2,536,125
  Marketing and advertising                                      2,609,517        2,216,865         577,815          203,403
  Restructuring expenses                                           583,000               --         583,000               --
  General and administrative                                     8,242,227        5,555,162       2,588,784        2,080,325
                                                             -------------    -------------   -------------    -------------
                                 Total Operating Expenses       21,535,412       15,338,137       7,106,815        4,819,853
                                                             -------------    -------------   -------------    -------------
                                         OPERATING INCOME        4,330,245        4,403,846       2,010,634        3,763,245

OTHER INCOME (EXPENSE):
  Interest income                                                1,083,978          731,915         376,732          305,792
  Other income (expense)                                           (20,754)           5,312          (3,533)             193
                                                             -------------    -------------   -------------    -------------
                             Total other income (expense)        1,063,224          737,227         373,199          305,985


                        INCOME  BEFORE INCOME TAX EXPENSE        5,393,469        5,141,073       2,383,833        4,069,230

INCOME TAX EXPENSE                                               2,037,000        1,948,200         786,600        1,537,200
                                                             -------------    -------------   -------------    -------------
                                               NET INCOME    $   3,356,469    $   3,192,873   $   1,597,233    $   2,532,030
                                                             =============    =============   =============    =============

NET EARNINGS PER COMMON SHARE:
  Basic                                                      $        0.07    $        0.06            0.03    $        0.05
                                                             =============    =============   =============    =============
  Diluted                                                    $        0.06   $         0.06   $        0.03    $        0.05
                                                             =============    =============   =============    =============




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

                                       4




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

                                                                   Nine Months Ended September 30,
                                                                        2007           2006
                                                                    (unaudited)    (unaudited)
                                                                   ------------    ------------
                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                         $  3,356,469    $  3,192,873
Adjustments to reconcile net income to net cash
  provided by/(used in) operating activities:

     Depreciation and amortization                                      645,835         378,801
     Loss on disposal of fixed assets                                    72,000
     Stock-based compensation expense                                   547,860         545,983
     Shares issued for director fees                                     65,032              --
     Excess tax benefits from share based compensation                 (245,000)             --
     Amortization of securities issued for professional services             --          57,300
     Deferred income taxes                                            1,718,500       1,948,200
     Other                                                                   --             191
     Changes in operating assets and liabilities:
       Accounts receivable                                              624,872         (89,222)
       Inventory                                                        (87,266)        (43,613)
       Prepaid expenses                                                 (77,976)       (575,823)
       Other current assets                                             397,328         115,790
       Other assets                                                      (4,716)        (25,381)
       Accounts payable                                                 (28,283)        167,653
       Accrued payroll and payroll taxes                                784,532          21,598
       Estimated medical expenses payable                             1,632,962       3,422,773
       Due to Centers for Medicare and Medicaid Services              1,807,020       1,298,153
       Accrued expenses                                                 769,542         527,779
                                                                   ------------    ------------
          Net cash provided by operating activities                  11,978,711      10,943,055

CASH FLOWS FROM INVESTING ACTIVITIES:
     Short-term investments                                                  --      (5,769,955)
     Investments                                                             --         (35,224)
     Cash paid for physician practice acquisition                      (591,205)             --
     Capital expenditures                                              (616,624)     (1,546,991)
                                                                   ------------    ------------
          Net cash used in investing activities                      (1,207,829)     (7,352,170)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from exercise of stock options                            249,403         140,750
     Excess tax benefits from share based compensation                  245,000              --
                                                                   ------------    ------------
          Net cash provided by financing activities                     494,403         140,750
                                                                   ------------    ------------
NET INCREASE IN CASH AND EQUIVALENTS
                                                                     11,265,285       3,731,635
CASH AND EQUIVALENTS - beginning of period                           23,110,042      15,572,862
                                                                   ------------    ------------
CASH AND EQUIVALENTS - end of period                               $ 34,375,327    $ 19,304,497
                                                                   ============    ============
Supplemental Schedule of Non-Cash Financing Activities
    Issuance of note payable for physician practice
     acquisition                                                   $    375,000    $         --
                                                                   ============    ============




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

                                       5



                METROPOLITAN HEALTH NETWORKS, INC. & SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1     UNAUDITED INTERIM INFORMATION

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
Metropolitan   Health   Networks,   Inc.  and   subsidiaries   (referred  to  as
"Metropolitan,"  "the  Company,"  "we,"  "us," or "our")  have been  prepared in
accordance with accounting  principles  generally  accepted in the United States
for interim  financial  information  and with the  instructions to Form 10-Q and
Article  10 of  Regulation  S-X.  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,  or those
normally made in an Annual  Report on Form 10-K.  In the opinion of  management,
all adjustments  (consisting of normal recurring accruals)  considered necessary
for a fair presentation have been included. Operating results for the nine month
period and three month  period  ended  September  30,  2007 are not  necessarily
indicative  of the results  that may be reported  for the  remainder of the year
ending December 31, 2007 or future periods.

The preparation of our condensed consolidated financial statements in accordance
with accounting  principles  generally  accepted in the United States of America
requires us to make estimates and assumptions  that affect the amounts  reported
in the condensed  consolidated  financial statements and accompanying notes. The
areas  involving  the most  significant  use of estimates  are medical  expenses
payable,  premium revenue,  the impact of risk sharing provisions related to our
Medicare contracts and our contracts with Humana,  Inc.  ("Humana"),  amounts in
dispute with Humana, the future benefit of deferred tax assets and the valuation
and related  impairment  recognition of long-lived assets,  including  goodwill.
These estimates are based on knowledge of current events and anticipated  future
events.  We adjust  these  estimates  each  period as more  current  information
becomes  available.  The impact of any changes in  estimates  is included in the
determination  of  earnings  in the period in which the  estimate  is  adjusted.
Actual results may ultimately differ materially from those estimates.

For further information,  refer to the audited consolidated financial statements
and footnotes  thereto  included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2006. The  accompanying  December 31, 2006 condensed
consolidated  balance  sheet  has been  derived  from  these  audited  financial
statements.  These interim condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
to consolidated financial statements included in that report.

Certain  reclassifications  have been made to the 2006 income statement captions
to conform to the current period presentation.

NOTE 2     ORGANIZATION AND BUSINESS ACTIVITY

We  own  and  operate   provider  service  networks  through  our  wholly  owned
subsidiary,  Metcare of Florida,  Inc.  (the  "PSN").  We also  operate a health
maintenance  organization  (the  "HMO")  through  our wholly  owned  subsidiary,
METCARE Health Plans, Inc.

The PSN operates under two agreements (the "Humana Agreements") with Humana, one
of the largest  participants  in the  Medicare  Advantage  program in the United
States,  to  provide  medical  care to  Medicare  beneficiaries  enrolled  under
Humana's  health plans.  To deliver care,  we utilize our  wholly-owned  medical
practices and have also  contracted  directly or indirectly  through Humana with
third-party medical practices, service providers and hospitals (collectively the
"Affiliated Providers"). The PSN operates in South Florida and Central Florida.

Effective as of August 1, 2007,  the PSN entered into a network  agreement  (the
"CarePlus  Agreement")  with CarePlus Health Plans,  Inc., a Medicare  Advantage
health  plan in  Florida.  CarePlus  is a  wholly-owned  subsidiary  of  Humana.
Pursuant to the CarePlus  Agreement,  the PSN will provide,  on a  non-exclusive
basis, healthcare services to Medicare beneficiaries in nine Florida counties.

Effective July 1, 2005, the HMO became licensed and entered into a contract with
the  Centers  for  Medicare  and  Medicaid  Services  ("CMS") to begin  offering
Medicare Advantage plans to Medicare beneficiaries in nine Florida counties. The
HMO began operating and marketing its "AdvantageCare" branded plan in July 2005.
Beginning  January  1,  2007,  the HMO began to offer  plans in 12  counties  in
Florida.  In July  2007,  the HMO was  approved  to begin  operating  in Collier
County,  Florida  commencing  January 1, 2008.  The HMO's  agreement with CMS is
generally renewable for a one-year term each December 31 unless CMS notifies the
HMO of its decision not to renew the agreement by May 1 of the contract year, or
the HMO notifies CMS of its decision not to renew by the first Monday in June of
the  contract  year.  Neither  we  nor  CMS  provided  the  other  party  with a
non-renewal notice.


                                       6


We manage the PSN and HMO as separate business segments.


NOTE 3     SIGNIFICANT ACCOUNTING POLICIES

On January 1, 2007, we adopted the provision of Financial  Accounting  Standards
Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes
("Interpretation No. 48"). Previously, we had accounted for tax contingencies in
accordance  with  Statement of Financial  Accounting  Standards  ("SFAS") No. 5,
Accounting  for  Contingencies.  As required  by  Interpretation  No. 48,  which
clarifies SFAS Statement No. 109,  Accounting for Income Taxes, we recognize the
financial  statement  benefit of a tax position only after  determining that the
relevant tax authority would more-likely-than-not sustain the position following
an audit.  We have  considered  the effects of the FASB Staff  Position  ("FSP")
amending  Interpretation  No.  48 and  have  considered  this  FSP as if it were
adopted at the  implementation  date of Interpretation No. 48. For tax positions
meeting  the  more-likely-than-not  threshold,  the  amount  recognized  in  the
financial  statements  is the  largest  benefit  that  has a  greater  than  50%
likelihood  of being  realized upon  ultimate  settlement  with the relevant tax
authority. As a result of the adoption of Interpretation No. 48, we derecognized
certain deferred tax assets totaling approximately $437,000, which was accounted
for as an addition to the  accumulated  deficit at January 1, 2007. In the third
quarter of 2007, we recognized  tax benefits of $120,000 upon the  expiration of
the statute of limitations applicable to the tax years during which the benefits
were generated.

We are subject to income taxes in the U.S. federal jurisdiction and the state of
Florida.  Tax regulations are subject to  interpretation of the related tax laws
and regulations and require significant judgment to apply. We have net operating
loss carry  forwards  related  to years  prior to 2003.  To the extent  such net
operating  losses are  utilized,  the years  from  which the loss  carryforwards
originate are open for  examination  by the relevant  taxing  authorities.  Upon
adoption of Interpretation No. 48, we evaluated our tax positions with regard to
these  years.  The statute of  limitations  for the federal and Florida 2004 tax
years will expire in the next twelve months.

The Internal Revenue Service is presently  examining our 2005 Federal income tax
return.  We do not expect to recognize a significant  change to the total amount
of unrecognized tax benefit as a result of the examination.

We recognize  interest related to unrecognized tax benefits in interest expense,
which is  included  in other  income  (expense)  in the  condensed  consolidated
statements  of income,  and  penalties  in  operating  expenses  for all periods
presented. No interest has been accrued in the third quarter of 2007 and $25,000
of interest has been accrued for the nine months ended  September  30, 2007.  No
penalties have been accrued in any period presented.

NOTE 4     RECENT ACCOUNTING PRONOUNCEMENTS

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, if any, that the adoption of SFAS
No. 157 will have on our financial statements.

SFAS No.  159,  The  Fair  Value  Option  for  Financial  Assets  and  Financial
Liabilities, Including an amendment of FASB Statement No. 115 issued in February
2007, allows entities to voluntarily choose to measure many financial assets and
financial  liabilities at fair value through  earnings.  Upon initial  adoption,
SFAS No. 159 provides  entities  with a one-time  chance to elect the fair value
option for existing  eligible items. The effect of the first measurement to fair
value is reported as a  cumulative-effect  adjustment to the opening  balance of
retained earnings in the year SFAS No. 159 is adopted. SFAS No. 159 is effective
as of the  beginning of fiscal years  starting  after  November 15, 2007. We are
currently  assessing the potential impact, if any, that the adoption of SFAS No.
159 will have on our financial statements.


                                       7


NOTE 5     REVENUE

Our Medicare  premium revenue is adjusted  periodically to give effect to a risk
component. Risk adjustment uses health status indicators to improve the accuracy
of payments and establish  incentives for plans to enroll and treat less healthy
Medicare  beneficiaries.  Under the risk  adjustment  methodology,  managed care
plans must capture, collect, and submit diagnosis code information to CMS. After
reviewing the respective submissions, CMS generally adjusts the premium payments
to Medicare  plans at the beginning and middle of the calendar year and performs
a final settlement in the subsequent year.

In June 2007, the HMO was notified of a 2007 mid-year  retroactive Medicare Risk
Adjustment  ("MRA") increase from CMS based on the increased medical risk scores
of the HMO's  customer  base.  This increase was made  effective  July 1 and was
retroactively  applied  to all  premiums  paid in the first  half of 2007.  As a
result of this increase,  the HMO realized additional revenue of $781,000 in the
2007 second  quarter.  Premiums  for the balance of 2007 are being paid based on
the new medical risk scores. Included in the HMO's revenue for the third quarter
of  2006  was a risk  score  adjustment  for the  first  six  months  of 2006 of
$534,000.

In July 2007,  we received the final MRA increase for 2006  premiums paid by CMS
to the HMO of  $575,000.  This  amount  is  $340,000  higher  than our  recorded
estimate at December 31, 2006 of $235,000.  The $340,000 was recorded in revenue
in the second quarter of 2007.

In the third quarter of 2006,  the PSN realized  revenue of $763,000 as a result
of the mid-year MRA increase for 2006. The mid-year MRA increase for the PSN for
2007 was recognized during the first half of 2007.

NOTE 6     MEDICAL EXPENSE

Total  medical  expense for both the PSN and HMO is  recognized in the period in
which  services are provided  and  includes an estimate of our  obligations  for
medical  services that have been provided to our customers but for which we have
either not yet received or processed claims,  and for liabilities for physician,
hospital  and other  medical  expense  disputes.  We  estimate  liabilities  for
physician, hospital and other medical expense disputes based upon an analysis of
potential  outcomes,   assuming  a  combination  of  litigation  and  settlement
strategies.  We  develop  our  estimated  medical  claims  payable  by  using an
actuarial process that is consistently applied. The actuarial process and models
develop a range of estimated  medical claims payable and we record to the amount
in the range that is our best estimate of the ultimate liability.

Each  period,  we  re-examine  previously  established  medical  claims  payable
estimates  based on actual  claim  submissions  and other  changes  in facts and
circumstances.  As the liability estimate recorded in prior periods becomes more
exact, we adjust the amount of our liability estimate, and include the change in
medical  expense  in the  period in which  the  change  is  identified.  In each
reporting  period,  our operating results include the effects of more completely
developed medical expense payable estimates  associated with previously reported
periods.  While we believe our estimated medical expenses payable is adequate to
cover  future  claims  payments  required,  such  estimates  are based on claims
experience  to date and various  assumptions.  Therefore,  the actual  liability
could differ materially from the amount recorded.

At September  30,  2007,  we  determined  that the range for  estimated  medical
expenses  payable for the PSN was between $13.4 million and $14.5 million and we
recorded a liability at the mid-range of $13.9 million.  This amount is included
within the due from Humana in the accompanying  condensed  consolidated  balance
sheets.

At September 30, 2007, we estimated that the range for estimated  medical claims
payable for the HMO was between  $6.4 million and $7.4 million and we recorded a
liability of $6.4 million. Based on historical results, we believe that, for the
HMO, the low end of the range  continues to be the best estimate of the ultimate
liability.

NOTE 7     DRUG COSTS


Through the Medicare Drug, or Part D, program the PSN,  through Humana,  and the
HMO receive  premiums from CMS to cover the cost of certain  prescription  drugs
utilized by our  customers.  Under the Part D program,  if a plan's  margins are
outside of a prescribed  corridor,  a portion of the  difference  is  ultimately
refunded back to CMS.  Similarly,  if the plan generates  costs in excess of the
premiums, a portion of the loss is charged back to CMS. Throughout the year, for
both our HMO and PSN we estimate the amounts to be received  from or refunded to
CMS in connection with the Part D program final settlement.  Since these amounts
represent  additional premium or premium that is to be returned,  any adjustment
is recorded as an increase or decrease to revenue.  The final settlement for the
Part D program occurs in the subsequent year.


                                       8


In October  2007,  CMS notified  the HMO that the HMO must refund  approximately
$2.7 million back to CMS for excess Part D premium payments in 2006. At December
31, 2006, the HMO had accrued  approximately  $2.7 million for this refund.  The
monies will be recouped by CMS in the fourth  quarter of 2007.  At September 30,
2007, we have accrued a liability of $1.8 million for the estimated  2007 Part D
liability.  These amounts are shown as due to CMS in the accompanying  condensed
consolidated balance sheets.

At June 30, 2007, we estimated the PSN would have no liability for excess Part D
payments related to 2007 premiums.  At September 30, 2007, based on year to date
drug  costs and  utilization  patterns  and  changes  in  actuarial  assumptions
underlying  future drug costs  projections,  we determined  that a liability for
Part D premium  payments in excess of drug costs of  approximately  $3.0 million
should be  recorded,  of which  approximately  $2 million  relates  to  premiums
received in prior  quarters.  This amount is included  within Due From Humana in
the accompanying condensed consolidated balance sheet.  Accordingly,  we reduced
revenue  in the third  quarter  and  accrued a  liability  for $3.0  million  at
September 30, 2007.  We anticipate  that this change in the Part D estimate will
also reduce the PSN's revenue in the fourth quarter of 2007 by  approximately $1
million.

At December 31, 2006,  the PSN had recorded a liability for the  estimated  2006
Part D settlement. Based upon CMS' final determination in October 2007 of Part D
costs incurred by the PSN in 2006, we recorded  additional  revenue in the third
quarter of 2007 of approximately $1.0 million,  representing the amount by which
our 2006 year-end estimated Part D refund liability exceeded the final amount.

NOTE 8     RESTRUCTURING EXPENSES AND SEPARATION

As part of our continuing efforts to enhance our profitability, in July 2007, we
implemented a restructuring  plan designed to reduce costs and improve operating
efficiencies.  The  restructuring  plan,  completed  by the end of August  2007,
resulted in the closure of two of the HMO's  office  locations,  one PSN medical
practice (the "PSN Practice"), and a workforce reduction involving 16 employees.
In   connection   with  this  plan,  we  recorded   approximately   $583,000  of
restructuring  costs during the third  quarter of 2007  including  approximately
$147,000 for severance  payments,  approximately  $364,000 for continuing  lease
obligations on closed locations and  approximately  $72,000 for the write-off of
certain leasehold improvements and equipment.  During the third quarter of 2007,
we made cash payments related to the  restructuring  of $191,000.  The severance
payments and continuing lease  obligations will result in additional future cash
expenditures.  We believe  that the  restructuring  will enable us to reduce our
related operating  expenses by approximately  $1.2 million per annum, with no or
limited impact on the HMO's and PSN's ability to serve their existing customers.
At the  time  of  its  closure  on  July  31,  2007,  the  PSN  Practice  served
approximately  450 customers in South Florida,  all of which were moved to other
providers  outside of the PSN. Prior to its closing on July 31, the PSN practice
generated approximately $2.6 million of revenue in 2007 and had a negative gross
margin. Of the $583,000 restructuring charge,  approximately $400,000 relates to
the HMO with the balance of $183,000 associated with the PSN.

 The  remaining  severance  payments  associated  with  the  restructuring  will
primarily occur in the fourth quarter of 2007. Certain cash payments  associated
with lease terminations could be paid over the remaining lease terms.

A summary of the  restructuring  activity during the third quarter of 2007 is as
follows:

Restructuring costs accrued in third quarter of 2007   $583,000
Cash paid in third quarter of 2007                      191,000
                                                       --------
Balance at September 30, 2007                          $392,000
                                                       ========

On April 9, 2007  ("Separation  Date"),  we entered  into a  mutually  agreeable
separation agreement (the "Separation Agreement") with the individual who served
as our President and Chief Operating  Officer until the Separation  Date.  Under
the  Separation  Agreement,  we agreed,  among  other  things,  to provide  this
individual  with her base salary,  to allow her to participate in certain of our
benefit  programs  and to  provide  her  with an  automobile  and  mobile  phone
allowance for twelve months  following the separation date. Under the Separation
Agreement,  this  individual  has  agreed to be bound by  restrictive  covenants
regarding,  among other things,  non-competition  with us for a one-year period,
non-solicitation of our employees for a two-year period and confidentiality.  In
the second  quarter of 2007, we accrued  approximately  $500,000  related to the
amount payable under the Separation  Agreement and the value of certain  options
held by this  individual  that,  in  accordance  with their terms,  became fully
vested on the Separation Date, subject to a three-month exercise period.


                                       9


On June 26,  2007,  we  entered  in to an  agreement  with this  individual,  to
repurchase for $10,000 options she held to purchase 800,000 shares of our common
stock with an exercise price of $1.83 per share.  This amount has been reflected
as a reduction of additional paid-in capital.

NOTE 9     INCOME TAXES

The effective income tax rate was 33.0% for the three months ended September 30,
2007  compared to 37.8% for the three  months  ended  September  30,  2006.  The
decrease in the effective  income tax rate in 2007 is a result of an approximate
$120,000 tax benefit  which had been reserved and is now being  recognized  upon
the  expiration  of the statute of  limitations  for the tax period to which the
benefit relates.

For the nine months ended September 30, 2007 and 2006, the effective  income tax
rate was 37.8% and 37.9%, respectively.

NOTE 10    EARNINGS PER SHARE

Earnings per common share,  basic is computed using the weighted  average number
of common  shares  outstanding  during the period.  Earnings  per common  share,
diluted  is  computed  using  the  weighted  average  number  of  common  shares
outstanding  during the period  adjusted for  incremental  shares  attributed to
outstanding   options  and  warrants,   nonvested   stock  and  preferred  stock
convertible into shares of common stock.



                                                              Nine months ended September 30,   Three months ended September 30,
                                                                   2007             2006             2007             2006
                                                               -------------    -------------    -------------    -------------
                                                                                                      
Net income                                                     $   3,356,000    $   3,193,000    $   1,597,000    $   2,532,000
Less:  Preferred stock dividend                                      (38,000)         (38,000)         (13,000)         (13,000)
                                                               ------------------------------    ------------------------------
Income available to common stockholders                        $   3,318,000    $   3,155,000    $   1,584,000    $   2,519,000
                                                               ==============================    ==============================
Denominator:
Weighted average common shares outstanding                        50,434,000       49,981,000       50,714,000       50,108,000
                                                               =============    =============    =============    =============
Basic earnings per common share                                $        0.07    $        0.06    $        0.03    $        0.05
                                                               =============    =============    =============    =============

Income available to common stockholders, diluted basis         $   3,318,000    $   3,155,000    $   1,597,000    $   2,532,000
                                                               =============    =============    =============    =============

Denominator:
Weighted average common shares outstanding                        50,434,000       49,981,000       50,714,000       50,108,000
Common share equivalents of outstanding stock:
   Convertible preferred stock                                            --               --          632,000          437,000
   Nonvested stock                                                   110,000               --          273,000               --
   Options and warrants                                            1,075,000        1,402,000          794,000        1,494,000
                                                               -------------    -------------    -------------    -------------
Weighted average common shares outstanding                        51,619,000       51,383,000       52,413,000       52,039,000
                                                               =============    =============    =============    =============
Diluted earnings per common share                              $        0.06    $        0.06    $        0.03    $        0.05
                                                               =============    =============    =============    =============
Weighted average of antidilutive stock options                       718,000          455,000          954,000          356,000
                                                               =============    =============    =============    =============
Weighted average of antidilutive convertible preferred stock         355,000          496,000               --               --
                                                               =============    =============    =============    =============



                                       10


NOTE 11    STOCKHOLDERS' EQUITY

During the three months ended  September 30, 2007, we issued  240,100  shares of
common stock in connection  with the exercise of stock options.  During the nine
month period ended  September 30, 2007, we issued 495,900 shares of common stock
in connection with the exercise of stock options.

In connection with the 2006 bonus plan,  during the 2007 third quarter we issued
193,500 restricted shares and options to purchase 482,500 shares of common stock
to  employees.  The  restricted  shares and stock  options  vest in equal annual
installments over a four year period from the date of grant. The options,  which
vest in equal  annual  installments  over a four  year  period  from the date of
grant,  have an exercise price equal to the closing price of our common stock on
the day preceding the grant date. Compensation expense related to the restricted
stock and options is recognized ratably over the vesting period.

During  the 2007 third  quarter,  we also  issued  options  to a  consultant  to
purchase 100,000 shares of our common stock. These options,  which fully vest on
December 31, 2007 and expire on June 30, 2008,  have an exercise  price equal to
the closing price of our common stock on the day  preceding the grant date.  The
expense related to the restricted options is recognized ratably over the vesting
period.

In addition,  during the nine month period ended  September 30, 2007, we awarded
an  aggregate  of 157,296  restricted  shares of our common stock and options to
purchase  78,648 shares of our common stock to the  non-employee  members of our
Board of  Directors.  The options  have an  exercise  price equal to the closing
price of our common stock on the day preceding the grant date.  These restricted
shares and stock options are scheduled to vest on the first  anniversary  of the
date of grant.  Compensation  expense related to the restricted shares and stock
options is recognized ratably over the vesting period.

NOTE 12    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On March 13, 2007, a complaint was filed by Mr. Noel Guillama, who served as our
President,  Chairman of the Board and Chief Executive  Officer from January 1996
through February 2000, in the Circuit Court of the Fifteenth Judicial Circuit in
and for Palm  Beach  County,  naming us as a  defendant.  The  dispute  involves
1,500,000 restricted shares of common stock issued to Mr. Guillama in connection
with his personal  guarantee of a Company line of credit in 1999.  We repaid the
line of credit and expected,  based on documentation signed by Mr. Guillama, the
1,500,000 shares issued as collateral to be returned to us. Mr. Guillama alleges
that we have  breached an  agreement to remove the  transfer  restrictions  from
these  shares  and is  seeking  damages  for  breach of  contract  and  specific
performance.  We believe this  lawsuit is without  merit and intend to assert an
appropriate  defense.  We filed a motion to dismiss the  complaint  in May 2007.
These  shares  have  not  been   reflected  as  issued  or  outstanding  in  the
accompanying  condensed  consolidated  balance sheets or in the  computations of
earnings per share.

We are also a party to certain  other claims  arising in the ordinary  course of
business.  We believe that the outcome of these matters will not have a material
adverse effect on our financial position or the results of our operations.

Guarantees

In connection with the sale of the assets of our pharmacy  division in 2003, the
purchaser of the pharmacy  assets agreed to assume our obligation  under a lease
which ran through 2012.  In the event of the  purchaser's  default,  we could be
responsible  for  future  lease  payments  totaling  approximately  $582,000  at
September 30, 2007.

NOTE 13    PHYSICIAN PRACTICES

Effective  July 31, 2007, we acquired  certain  assets of one of our  contracted
independent  primary care physician  practices in the Central Florida market for
approximately  $875,000,  plus transaction costs of approximately  $91,000. This
transaction has been accounted for as a purchase of assets.  We are currently in
the process of determining the allocation of the purchase price among the assets
acquired.  At September 30, 2007,  the purchase price has been included in other
assets.

In addition,  the PSN opened a medical  center in its Central  Florida market on
November 1, 2007.


                                       11


NOTE 14    BUSINESS SEGMENT INFORMATION

We manage the PSN and HMO as  separate  business  segments.  We  identified  our
segments  in  accordance  with  the  aggregation  provisions  of SFAS  No.  131,
Disclosures  about Segments of an Enterprise and Related  Information,  which is
consistent with information used by our Chief Executive  Officer in managing our
business.  The segment  information  aggregates  products with similar  economic
characteristics. These characteristics include the nature of customer groups and
the nature of the services and  benefits  provided.  The results of each segment
are measured by income before income taxes. We allocate all selling, general and
administrative expenses, investment and other income, interest expense, goodwill
and certain other assets and liabilities to our segments.  Our segments do share
overhead costs.



              NINE MONTHS ENDED SEPTEMBER 30, 2007                    PSN              HMO            Total
- --------------------------------------------------------------   -------------   -------------    -------------
                                                                                         
Revenues from external customers                                 $ 169,371,000   $  38,289,000    $ 207,660,000
Segment gain (loss) before allocated overhead and income taxes      21,134,000      (8,668,000)      12,466,000
Allocated corporate overhead                                         3,534,000       3,539,000        7,073,000
Segment gain (loss) after allocated overhead and before income
taxes                                                               17,600,000     (12,207,000)       5,393,000
Segment assets                                                      30,882,000      14,598,000       45,480,000
Goodwill                                                             1,992,000              --        1,992,000

              NINE MONTHS ENDED SEPTMEBER 30, 2006                    PSN              HMO            Total
- --------------------------------------------------------------   -------------   -------------    -------------
Revenues from external customers                                 $ 152,627,000   $  19,859,000    $ 172,486,000
Segment gain (loss) before allocated overhead and income taxes      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              --        1,992,000

             THREE MONTHS ENDED SEPTEMBER 30, 2007                    PSN              HMO            Total
- --------------------------------------------------------------   -------------   -------------    -------------
Revenues from external customers                                 $  55,616,000   $  14,006,000    $  69,622,000
Segment gain (loss) before allocated overhead and income taxes       8,045,000      (3,117,000)       4,928,000
Allocated corporate overhead                                         1,347,000       1,197,000        2,544,000
Segment gain (loss) after allocated overhead and before income
taxes                                                                6,698,000      (4,314,000)       2,384,000

             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 and income taxes       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




Segment assets at September 30, 2007 exclude  general  corporate  assets of $6.7
million including deferred tax assets of $5.5 million.

Segment assets at September 30, 2006 exclude  general  corporate  assets of $7.4
million including deferred tax assets of $6.0 million.


                                       12


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

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR ANNUAL REPORT ON
FORM  10-K  FOR THE YEAR  ENDED  DECEMBER  31,  2006,  AS WELL AS THE  FINANCIAL
STATEMENTS AND NOTES THERETO.

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The condensed  consolidated financial statements of the Company in this document
present our financial position, results of operations and cash flows, and should
be read in conjunction with the following  discussion and analysis.  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, as amended,  (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 report contains forward-looking  statements,  including
the following:

      o     the PSN's ability to renew its agreements with Humana and maintain
            these 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 ("IBNR") claims; and

      o     the HMO's ability to renew, maintain and/or to successfully rebid
            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 or HF
            Administrative Services, the third party administrative service
            provider for the HMO;

      o     failure to receive, on a timely or accurate basis, customer
            information from CMS;

      o     future legislation and changes in governmental regulations;

      o     our ability to grow our HMO customers in our current geographic
            markets and our ability to expand our HMO into new geographic
            markets;

      o     increases in our operating costs;

      o     the impact of Medicare Risk Adjustments on payments we receive from
            CMS or Humana;


                                       13


      o     the impact of the Medicare prescription drug plan on our operations;

      o     loss of any 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;

      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  section  entitled  "Risk  Factors" in our Annual
Report on Form 10-K for the year ended December 31, 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.

BACKGROUND

We operate two business segments in Florida, the PSN which provides and arranges
for medical care  primarily to customers of Humana and the HMO,  which  provides
healthcare benefits to Medicare  beneficiaries in Florida that have selected our
health plan.

Both our PSN and HMO  operations  primarily  focus  on  individuals  covered  by
Medicare,  the national,  federally-administered  health insurance  program that
covers  the cost of  hospitalization,  medical  care,  and some  related  health
services for U.S.  citizens aged 65 and older,  qualifying  disabled persons and
persons suffering from end-staged renal disease.

Substantially  all of our revenue for the nine months ended  September  30, 2007
and 2006 was generated by providing services to Medicare  beneficiaries  through
arrangements  that require us to assume  responsibility to provide and/or manage
the care for all of our customers'  medical needs in exchange for a monthly fee,
also known as a capitated fee or capitation arrangement.

Provider Service Network

The PSN has two network contracts (the "Humana  Agreements") with Humana, one of
the largest participants in the Medicare Advantage program in the United States.
Our 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 through Humana's  Medicare  Advantage Plan. As of September 30,
2007, the Humana Agreements covered  approximately  19,000 Humana Plan Customers
(as defined  below) in Central  Florida and 5,600 Humana Plan Customers in South
Florida. Approximately 81.1% of our revenue during the first nine months of 2007
was generated through the Humana Agreements.


Effective as of August 1, 2007,  the PSN entered into a network  agreement  (the
"CarePlus  Agreement")  with CarePlus Health Plans,  Inc., a Medicare  Advantage
health plan in Florida. CarePlus Health Plans, Inc. is a wholly-owned subsidiary
of Humana.  Pursuant  to the  CarePlus  Agreement,  the PSN will  provide,  on a
non-exclusive  basis,  healthcare  services  to Medicare  beneficiaries  in nine
Florida counties who have elected to receive benefits through CarePlus' Medicare
Advantage  plans.  The counties  covered by the CarePlus  Agreement  include the
South  Florida  counties in which we provide  services to Humana Plan  Customers
(Palm  Beach,  Broward and  Miami-Dade)  as well as Orange,  Osceola,  Seminole,
Pasco,  Pinellas and Hillsborough  counties. As of October 1, 2007, the CarePlus
Agreement covered approximately 16 CarePlus Participating  Customers (as defined
below).


                                       14


We have built our PSN physician network by contracting with independent  primary
care physicians (individually, an "IPA") for their services and by acquiring and
operating  our own physician  practices  (collectively  with the IPAs,  the "PSN
Physicians").

To service the Humana  Participating  Customers (as defined below), at September
30,  2007,  we had  contracts  in place with 30 IPAs and we own and operate nine
primary care physician practices and one medical oncology physician practice. In
addition,   through  our  Humana   Agreements  we  have   established   referral
relationships  with a large number of specialist  physicians,  ancillary service
providers and hospitals throughout South Florida and Central Florida.

Under the CarePlus Agreement,  with certain limited exceptions, we are precluded
from using the PSN Physicians who provide  services to the Humana  Participating
Customers to provide  services to CarePlus  Participating  Customers (as defined
below).  Accordingly,  the PSN must (i) locate and contract with new IPAs and/or
(ii) acquire or establish and operate its own physician practices to service the
CarePlus  Participating  Customers.  At September 30, 2007, we have contracts in
place with six IPAs to provide services to the CarePlus Participating Customers.

Effective July 31, 2007,  the PSN acquired  certain assets of one of our IPAs in
the Central Florida market for approximately  $966,000.  Effective August 1, the
PSN closed a wholly-owned  primary care physician practice in South Florida. The
PSN opened an additional  primary care physician practice in the Central Florida
market on November 1, 2007.

Humana  directly  contracts with CMS and is paid a fixed monthly premium payment
for each customer (each a "Humana Plan Customer")  enrolled in Humana's Medicare
Advantage Plan. The monthly premium 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
Customer  who  selects  one of the PSN  Physicians  as his or her  primary  care
physician (a "Humana  Participating  Customer").  In return for the provision of
these  medical  services,  the PSN receives from Humana a capitated fee for each
Humana  Participating  Customer.  The fee rates are  established  by the  Humana
Agreements and comprise a substantial  portion of the monthly premiums  received
by Humana from CMS with respect to Humana Participating Customers.

In Central Florida, our PSN assumes full responsibility for the provision of all
necessary medical care for each Humana Participating Customer, even for services
we do not provide  directly.  In South Florida,  the PSN and Humana share in the
cost of inpatient hospital services and the PSN assumes full  responsibility for
the  provision of all other  medical care  provided to the Humana  Participating
Customer.  To the extent the costs of providing  such medical care are less than
the related  premiums  received  from Humana,  our PSN generates a gross profit.
Conversely,  if medical expenses exceed the premiums  received from Humana,  our
PSN experiences a gross loss.

CarePlus directly contracts with CMS and is paid a fixed monthly premium payment
for each customer (each a "CarePlus  Customer")  enrolled in CarePlus'  Medicare
Advantage Plan. The monthly premium varies by patient,  county, age and severity
of health  status.  Pursuant  to the  CarePlus  Agreement,  the PSN  provides or
arranges for the  provision of covered  medical  services to each  CarePlus Plan
Customer  who  selects  one of the PSN  Physicians  as his or her  primary  care
physician (a "CarePlus Participating  Customer"). In return for the provision of
these medical  services,  the PSN will receive a monthly Network  Administration
Fee for each CarePlus Participating  Customer. The network administration fee is
paid on a per customer,  per month basis, and it is a flat rate amount. Upon the
earlier of the number of CarePlus  Participating  Customers  exceeding  500 in a
given calendar month or March 31, 2008, the PSN will begin receiving a capitated
fee for each CarePlus Participating  Customer and, in connection therewith,  the
PSN will assume full  responsibility  for the provision of all necessary medical
care for each  CarePlus  Participating  Customer,  even for  services  we do not
provide directly.

Substantially all of our PSN's revenue is generated under the Humana Agreements.
We do receive  additional revenue in the medical practices we own and operate by
providing  primary  care  services to  non-Humana  Participating  Customers on a
fee-for-service basis.


                                       15


Health Maintenance Organization

We operate  the HMO  through  METCARE  Health  Plans,  Inc.,  our  wholly  owned
subsidiary  that was  issued a Health  Care  Provider  Certificate  ("HCPC")  by
Florida's Agency for Health Care Administration  ("AHCA") on March 16, 2005. The
Department  of  Financial  Services,  Office  of  Insurance  Regulation  ("OIR")
approved the HMO's  application and issued a Certificate of Authority to operate
a HMO in the State of Florida  ("COA") on April 22,  2005.  The HMO recorded its
first revenue in the third quarter of 2005.

Effective  July 1, 2005,  the HMO  entered  into a  contract  with CMS (the "CMS
Contract") to begin offering Medicare Advantage plans to Medicare  beneficiaries
in six  Florida  counties - Lee,  Charlotte,  Sarasota,  Martin,  St.  Lucie and
Okeechobee.  Beginning  January 1, 2007,  the HMO began to provide  services  in
Polk, Glades,  Manatee,  Marion, Lake and Sumter counties. In July 2007, the HMO
was approved to operate in Collier County beginning January 1, 2008. The HMO has
been marketing its "AdvantageCare" branded plan since July 2005.

The HMO is  required to maintain  satisfactory  minimum net worth in  accordance
with  requirements   established  by  the  Florida  State  Office  of  Insurance
Regulation.  The  HMO  is  restricted  from  making  dividend  payments  without
appropriate  regulatory  notifications  and  approvals  or to  the  extent  such
dividends would put us out of compliance with statutory capital requirements.

We continue to evaluate  expanding our HMO business into other  counties  within
Florida.  However,  we do not intend to provide HMO  services in the  geographic
markets  covered  by the  Humana  Agreements.  We view  our HMO  business  as an
extension of our existing core competencies.

The HMO's revenue is generated by premiums  consisting  of monthly  payments per
customer that are  established  by the CMS Contract.  The monthly  premium for a
customer  varies by, among other  things  county,  age and health  status of the
customer.

While the HMO's business has continued to grow,  such growth has required and is
expected  to continue to require a  considerable  amount of capital.  We believe
that in 2008,  the HMO's  business  will  continue  to  generate  a loss  before
allocated  overhead and income taxes. The HMO's actual cash needs and losses for
2008 are expected to be strongly  influenced  by, among other things,  the HMO's
customer base, operating costs and the Medical Expense Ratio as well as the cost
and effectiveness of various marketing programs we may undertake.  In July 2007,
we  restructured  our  HMO  operations  by  closing  two  office  locations  and
terminating  eight employees to better match the current size of the HMO. During
the first nine months of 2007, we  transferred  $14.5 million to the HMO to fund
the operations  and growth of the HMO. See - "LIQUIDITY  AND CAPITAL  RESOURCES"
section contained in this Form 10-Q.

To  successfully  operate  the HMO,  we  believe  we will have to  continue  our
development of the following  capabilities,  among others:  sales and marketing,
medical management,  network management 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 would likely
explore  strategic  alternatives  for  the  business  and/or  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

Critical Accounting Policies

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. Actual results may ultimately differ materially from those
estimates.  We believe that the following discussion addresses our most critical
accounting policies, including those that are perceived to be the most important
to the portrayal of our financial  condition and results of operations  and that
require complex and/or subjective judgments by management.


                                       16


We believe that our most critical accounting policies include "Use of Estimates,
Revenue, Expense and Receivables" and "Use of Estimates, Deferred Tax Asset."

Use of Estimates, Revenue, Expense and Receivables.

Our revenue is primarily derived from risk-based  health insurance  arrangements
in which the premium is fixed and paid to us on a monthly  basis.  We assume the
economic  risk of funding  our  customers'  health  care  services  and  related
administrative  costs.  Premium  revenue  is  recognized  in the period in which
eligible  individuals  are entitled to receive health care services.  Because we
have the  obligation to fund medical  expenses,  we recognize  gross revenue and
medical expenses for these contracts in our consolidated  financial  statements.
We record  health  care  premium  payments  we receive in advance of the service
period as unearned premiums.

CMS  periodically  retroactively  adjusts the  premiums  paid to us based on the
updated  health status of  participants.  The factors  considered by CMS include
changes in demographic factors, risk adjustment scores, customer information and
adjustments  mandated by the risk sharing  requirements  for  prescription  drug
benefits under Part D of the Medicare  program.  In addition,  CMS retroactively
adjusts  the  number  of  customers  enrolled  in our HMO or PSN as a result  of
enrollment  changes  not yet  processed,  or not yet  reported by Humana or CMS.
These  retroactive  adjustments  could, in the near term,  materially impact the
revenue  that has been  recorded  by us for both our HMO and PSN.  We record any
adjustments  to this revenue at the time the  information  necessary to make the
determination  of the  adjustment  is  available  from  Humana  or CMS  and  the
collectibility of the amount is reasonably assured.

Medical  expenses for both the PSN and HMO are recognized in the period in which
services  are provided  and include an estimate of our  obligations  for medical
services  that have been  provided to our customers but for which we have either
not yet  received  or  processed  claims,  and for  liabilities  for  physician,
hospital  and other  medical  expense  disputes.  We  estimate  liabilities  for
physician, hospital and other medical expense disputes based upon an analysis of
potential  outcomes,   assuming  a  combination  of  litigation  and  settlement
strategies.  We  develop  our  estimated  medical  claims  payable  by  using an
actuarial process that is consistently applied. The actuarial process and models
develop a range of estimated  medical claims payable and we record to the amount
in the range that is our best estimate of the ultimate liability.

Each period, we re-examine  previously recorded estimated medical claims payable
based on actual claim submissions and other changes in facts and  circumstances.
As the estimate of medical claims payable recorded in prior periods becomes more
exact, we adjust the amount of our estimates, and include the changes in medical
expense  in the  period in which the  change is  identified.  In each  reporting
period,  our operating results include the effects of more completely  developed
medical expense payable estimates  associated with previously  reported periods.
While we believe our estimated  medical  expenses  payable are adequate to cover
future  claims  payments  required,  such  estimates  are  based  on our  claims
experience to date and various  management  assumptions.  Therefore,  the actual
liability could differ materially from the amounts recorded.

Use of Estimates, Deferred Tax Assets.

We have  recorded  net  deferred  tax assets of  approximately  $5.5  million at
September  30,  2007.  Realization  of the  deferred  tax assets is dependent on
generating  sufficient  taxable income in the future.  In order to fully utilize
the  deferred  tax  assets,   we  will  have  to  generate   taxable  income  of
approximately  $14.6  million.  We  believe  that our  current  operations  will
generate  sufficient  income to fully  utilize  this  asset.  The  amount of the
deferred tax asset  considered  realizable  could change  materially in the near
term if our estimates of future taxable income are modified.

In the event we  determine  that we  cannot,  on a  more-likely-than-not  basis,
realize all or part of our deferred tax assets in the future,  an  adjustment to
establish a deferred tax asset valuation allowance would be charged to income in
the period such determination is made.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2007 AND SEPTEMBER 30, 2006

Summary

During the three months ended  September  30, 2007 and 2006,  we operated in two
financial reporting segments, the PSN business and the HMO business.


                                       17


For the three months ended September 30, 2007, we realized  consolidated revenue
of $69.6  million  compared to $60.8  million of revenue  realized for the three
months ended  September 30, 2006, an increase of  approximately  $8.8 million or
14.4%.

Of this increase, approximately $3.3 million related to the PSN. The increase is
due primarily to a premium increase from CMS of approximately 4% and an increase
in the average  medicare risk score of customers,  partially offset by a decline
in membership.

As more fully  described  below,  the PSN's  third  quarter  revenue in 2007 was
impacted by changes in the  estimated  settlements  related to  Medicare's  drug
program for 2007 and 2006.  These  changes had the effect of reducing  the PSN's
2007 third  quarter  revenue  for out of period  revenue by  approximately  $1.0
million.  The impact  reduced net income for the third quarter by  approximately
$624,000  and  reduced  earnings  per share for the  quarter  by $.01 per share.
Conversely, in the third quarter of 2006, the PSN recorded a benefit of $763,000
for Medicare risk score adjustments  related to prior years, which increased net
income by approximately  $475,000 and increased earnings per share for the three
months ended September 30, 2006 by $.01

The remaining  $5.5 million of the increase in revenue is related to the HMO and
is principally  the result of the increase in customer  months between the third
quarter of 2007 and the third  quarter of 2006,  an increase in the average risk
score of its customers, and a premium increase from CMS. In the third quarter of
2006, the HMO recorded  revenue from a retroactive risk share adjustment for the
first nine months of 2006 of approximately $534,000. The MRA adjustment for 2007
was recorded in the second quarter of 2007.

Customer  months,  the  aggregate  number of  customers to whom the PSN provided
services for each month during the applicable  period,  for the PSN decreased to
approximately  74,400 in the third quarter of 2007 from approximately  76,600 in
the second  quarter  of 2007 and  approximately  77,200 in the third  quarter of
2006.  At September  30, 2007,  the PSN had  approximately  24,600  customers as
compared to approximately  25,300  customers at June 30, 2007 and  approximately
25,700  customers  at  September  30,  2006.  Of the 1,100  reduction in our PSN
customer base,  approximately  450 was related to the closing of an unprofitable
PSN-owned  physician practice in South Florida with the balance being related to
deaths,  people  leaving  the  covered  areas,  transfers  to another  physician
practice or other insurance selections.

HMO customer  months for the 2007 third  quarter were 16,500.  This  compares to
15,200 HMO customer  months for the 2007 second  quarter and 10,300 HMO customer
months for the 2006 third quarter.  At September 30, 2007, the HMO customer base
had  increased to  approximately  6,000  customers as compared to  approximately
5,100 customers at the end of the second quarter of 2007 and approximately 3,500
customers at the end of the third  quarter of 2006.  The growth in HMO customers
from the end of the third  quarter  of 2006 to the end of the third  quarter  of
2007,  resulted  primarily from the enrollment of new customers  during the 2007
open enrollment  period and the enrollment  realized during the special election
period  afforded  customers of a Medicare  Advantage  plan that had its contract
terminated by CMS in July 2007.

Consolidated total medical expense for the 2007 third quarter was $60.5 million,
an increase of $8.2  million over the 2006 third  quarter.  Our ratio of medical
expense to revenue (the "Medical  Expense Ratio" or "MER") increased to 86.9% in
the 2007 third quarter compared to 85.9% in the 2006 third quarter. The increase
is a  result  of  the  growth  of  the  HMO  and  its  increased  impact  on our
consolidated  results.  As discussed  below,  the impact of retroactive  premium
adjustments  and prior period claims  development  also impacted the MER for the
2007 and 2006 third quarters.

Included in  consolidated  operating  expenses  in the 2007 third  quarter was a
restructuring   charge  of   approximately   $583,000  and  marketing  costs  of
approximately  $500,000  associated with a special election period commencing in
late July 2007 and ending on  September  30, 2007  allowing  the  customers of a
Medicare Advantage plan that had its contract  terminated by CMS in July 2007 to
enroll in a new Medicare  Advantage  Plan. We did not incur similar  expenses in
the 2006 third quarter.

Income  before  income tax expense for the 2007 third  quarter was $2.4  million
compared to $4.1 million in the 2006 third  quarter.  The decrease in the income
before  income  tax  expense  between  the  quarters  is a result  of the  items
discussed above. Net income for the 2007 third quarter was $1.6 million compared
to $2.5 million for the 2006 third quarter.


                                       18


Net  earnings per common  share,  basic and diluted was $0.03 for the 2007 third
quarter and $.05 for the 2006 third quarter.

The PSN reported a segment gain before  income taxes and  allocated  overhead of
$8.0 million for the 2007 third  quarter,  as compared to a gain of $7.7 million
in the 2006 third  quarter,  an increase of $386,000 or 5.0%. The primary reason
for the increase in the PSN income before  income taxes and  allocated  overhead
between the 2007 and 2006 third quarters is the improved gross margin  primarily
offset by the impact of the Part D settlement  adjustment  discussed  above. The
HMO segment  incurred a net loss before income taxes and  allocated  overhead of
$3.1  million for the 2007 third  quarter  compared to a net loss before  income
taxes and  allocated  overhead of $2.0 million in the 2006 third  quarter.  This
increase is  primarily  a result of the  increasing  general and  administrative
costs  associated  with the growth in membership  and the  additional  sales and
marketing costs and  restructuring  costs discussed above.  Allocated  corporate
overhead  increased to $2.5 million from $1.5 million in the 2007 and 2006 third
quarters,  respectively.  This  increase  was  primarily  a result of  increased
professional  fees,  increases in bonus  expense in the 2007 third  quarter (see
Payroll,  Payroll  Taxes  and  Benefits  below)  and  additional  payroll  costs
associated with supporting the growing HMO.

Customer Information

The table set forth below  provides (i) the total number of customers to whom we
were providing  healthcare  services through the PSN and HMO as of September 30,
2007 and September 30, 2006 and (ii) the  aggregate  customer  months of the PSN
and the HMO during the third quarter of 2007 and 2006.



                  September 30, 2007               September 30, 2006
                -------------------------      ----------------------------
                 Customers    Customers         Customers       Customer           Percentage Change in
                 at End of    Months For        at End of      Months for         Customer Months Between
                  Period       Quarter            Period        Quarter                  Quarters
                -----------  ------------      ------------  --------------      ------------------------
                                                                           
PSN                  24,600        74,400            25,700          77,200                -3.6%
HMO                   6,000        16,500             3,500          10,300                60.2%
                -----------  ------------      ------------  --------------
         Total       30,600        90,900            29,200          87,500
                ===========  ============      ============  ==============


Revenue

The  following  table  provides a breakdown of our sources of revenue by segment
for the 2007 third quarter and the 2006 third quarter:



                                 Three Months Ended September 30         $              %
                                                                     Increase
                                       2007            2006          (Decrease)      Change
                                  -------------    -------------    -------------    ------
                                                                         
PSN revenue from Humana           $  55,346,000    $  51,962,000    $   3,384,000    $  6.5%
PSN fee-for-service revenue             270,000          354,000          (84,000)    -23.7%
                                  -------------    -------------    -------------    ------
    Total PSN revenue                55,616,000       52,316,000        3,300,000       6.3%
                                  -------------    -------------    -------------    ------
    Percentage of total revenue            79.9%            86.0%
HMO revenue                          14,006,000        8,522,000        5,484,000      64.4%
    Percentage of total revenue            20.1%            14.0%
                                  -------------    -------------    -------------    ------
Total revenue                     $  69,622,000    $  60,838,000    $   8,784,000      14.4%
                                  =============    =============    =============    ======


The PSN's most significant source of revenue during both the 2007 and 2006 third
quarters was the premium  revenue  generated  pursuant to the Humana  Agreements
(the "Humana Related Revenue").  The Humana Related Revenue increased from $52.0
million in the 2006 third quarter to $55.3 million in the 2007 third quarter, an
increase of approximately 6.5%.

During the third quarter of 2007,  based on drug costs incurred during the year,
utilization patterns and changes in actuarial assumptions underlying future drug
cost projections, we recorded a liability for premium payments in excess of drug
costs for the PSN of  approximately  $3.0  million  representing  the  amount of
premium  payments  we  estimate  we will be  required to refund to CMS under the
Medicare Part D program for  prescription  drug costs incurred  during the first
nine months of 2007. Of this $3 million,  approximately  $2.0 million relates to
premiums received in the first half of 2007. Accordingly,  we reduced revenue in
the third  quarter and accrued a liability for the $3.0 million at September 30,
2007.  We anticipate  that this change in our estimated  final Part D settlement
will  also  reduce  the  PSN's  revenue  in the  fourth  quarter  of  2007 by an
additional $1.0 million. CMS will make its ultimate determination regarding 2007
Medicare Part D payments in 2008 (the "Final Part D Settlement").


                                       19


As of December 31, 2006, the PSN had recorded an estimated Part D settlement for
2006. Based upon the final determination by CMS in October 2007 of Medicare Part
D costs incurred by the PSN in 2006, we recorded additional revenue in the third
quarter of 2007 of approximately $1.0 million,  representing the amount by which
our 2006 year-end estimate exceeded the final amount.

The Medicare Part D adjustments described above had the net effect of decreasing
the PSN's revenue for the third quarter of 2007 by  approximately  $1.0 million,
reducing  the per customer  per month  premium for the third  quarter of 2007 by
approximately  $13.00 and  increasing the PSN's MER in the 2007 third quarter by
1.5%.

In the third quarter of 2006,  the PSN recorded  additional  revenue of $763,000
for Medicare  risk score  adjustments  related to prior years.  This  adjustment
increased  the average per  customer per month  premium in the third  quarter of
2006 by  approximately  $10 and had the effect of lowering  the PSN's MER in the
third quarter of 2006 by 1.3%.

The PSN's  average per customer per month  premium in the 2007 third quarter was
approximately  $748, an increase of approximately  $71 or 10.5% per customer per
month  over the 2006  third  quarter  per  customer  per month  premium of $677.
Excluding the items described in the preceding paragraphs, the net change in the
revenue per customer per month between the 2007 third quarter and the 2006 third
quarter was $94. The increase in the PSN's per customer per month revenue is due
to a  premium  increase  from CMS of  approximately  4% and an  increase  in the
average Medicare risk score of our customers.

Fee-for-service revenue represents amounts earned from medical services provided
to non-Humana customers by the PSN's owned physician practices.

Revenue for the HMO  increased  by $5.5  million or 64.4%,  from $8.5 million to
$14.0  million.  The  increase in revenue is primarily  attributable  to the 60%
increase in the HMO's customer  months between the 2007 and 2006 third quarters.
Revenue  per  customer  per month for the HMO  increased  from $828 for the 2006
third quarter to $851 for the 2007 third quarter. This increase is primarily due
to a combination of the 2007 rate increase in the premium  payments from CMS and
an increase in the average Medicare risk scores of our customers.

Included  in the HMO's  revenue  for the third  quarter of 2006 was a risk score
adjustment  for the first six months of 2006 of  $534,000.  This  increased  the
revenue per customer per month by approximately  $52 and lowered the MER for the
2006 third  quarter by 6.6%.  The risk  adjustment  for 2007 was recorded in the
second quarter of 2007.

Medical Expense

Total medical expense  represents the estimated total cost of providing  patient
care and is  comprised of two  components,  medical  claims  expense and medical
center costs.  Medical claims expense for both the PSN and HMO are recognized in
the  period in which  services  are  provided  and  include an  estimate  of our
obligations  for medical  services  that have been provided to our customers but
for  which  we have  either  not  yet  received  or  processed  claims,  and for
liabilities for physician,  hospital and other medical expense disputes. Medical
claims  expense  includes  such  costs as  inpatient  and  outpatient  services,
pharmacy  benefits and physician  services by providers other than the physician
practices owned by the PSN (collectively  "Non-Affiliated  Providers").  Medical
center costs represent the operating  costs of the physician  practices owned by
the PSN.

We develop our estimated  medical expenses payable by using an actuarial process
that is consistently  applied.  The actuarial process and models develop a range
of estimated  medical  expenses payable and we record to the amount in the range
that is our best estimate of the ultimate liability.  Each period, we re-examine
previously  established  medical claims payable  estimates based on actual claim
submissions and other changes in facts and  circumstances.  As medical  expenses
recorded  in prior  periods  becomes  more  exact,  we adjust  the amount of the
estimate,  and include the change in medical  expense in the period in which the
change is identified.  In each reporting  period,  our operating results include
the effects of more  completely  developed  medical  expense  payable  estimates
associated  with  previously  reported  periods.  While we believe our estimated
medical expenses  payable is adequate to cover future claims payments  required,
such estimates are based on our claims experience to date and various management
assumptions.  Therefore,  the actual liability could differ  materially from the
amount recorded.


                                       20


Total Medical Expense

Medical  costs and the Medical  Expense  Ratio for the three month period ending
September 30 are as follows:



                                                            2007                                        2006
                                          -------------------------------------------  ------------------------------------------
                                              HMO            PSN         Consolidated       HMO          PSN         Consolidated
                                          ---------------------------------------------------------------------------------------
                                                                                                   
Estimated medical expense for the
quarter, excluding prior period claims
development                               $ 13,040,000   $ 47,907,000    $ 61,415,000   $  7,845,000  $ 45,104,000   $ 54,197,000
(Favorable) unfavorable prior period
medical claims development in current
period based on actual claims submitted   $    863,000   $ (1,305,000)   $   (910,000)  $    613,000  $ (1,307,000)    (1,942,000)
                                          ------------   ------------    ------------   ------------  ------------   ------------
Total reported medical expense for
quarter                                   $ 13,903,000   $ 46,602,000    $ 60,505,000   $  8,458,000  $ 43,797,000   $ 52,255,000
                                          ============   ============    ============   ============  ============   ============

Reported Medical Expense Ratio for
quarter                                           99.3%          83.8%           86.9%          99.2%         83.7%          85.9%
                                          ============   ============    ============   ============  ============   ============

Medical Expense Ratio for the quarter,
excluding the impact of retroactive
premium adjustments and prior period
medical claims development                        93.1%          85.2%           86.8%          96.5%         84.9%          86.4%
                                          ============   ============    ============   ============  ============   ============


In the table  above,  favorable  adjustments  to  amounts we  recorded  in prior
periods for estimated  claims payable appear in  parentheses  while  unfavorable
adjustments do not appear in  parentheses.  Favorable  adjustments  reduce total
medical  expense for the respective  applicable  period and  unfavorable  claims
development increases total medical expense for the applicable period.

Total  consolidated  medical expense was $60.5 million and $52.3 million for the
2007 and 2006 third quarters, respectively. Approximately $57.7 million or 95.4%
of our total  medical  expense in the 2007 third  quarter  and $49.7  million or
95.1% of total  medical  expense in the 2006 third quarter are  attributable  to
medical claims.

Our Medical  Expense  Ratio  increased  from 85.9% in the 2006 third  quarter to
86.9% in the 2007 third quarter primarily as a result of the increased impact of
the HMO on our consolidated medical costs and the HMO's higher MER.

The  reported  Medical  Expense  Ratio is impacted by both  revenue and expense.
Retroactive  adjustments  of prior  period's  premiums  that are recorded in the
current period impact the MER of that period.  If the retroactive  adjustment is
positive  then  the  impact  reduces  the  recorded  MER.  Conversely,   if  the
retroactive  adjustment  reduces  revenue  of the  period,  then the MER for the
period is higher. These retroactive adjustments include, among other things, the
mid-year and annual MRA adjustments  and settlement of Part D program  premiums.
In addition,  actual medical claims expense usually  develops  differently  than
estimated  during the period.  Therefore,  the estimated actual MER shown in the
table above will likely change as additional claim development occurs. Favorable
claims  development  is a result of actual  medical claim cost for prior periods
developing  lower than the original  estimated  cost which  reduces the reported
medical  expense  and  the  MER  for the  current  quarter.  Unfavorable  claims
development is a result of actual medical claim cost for prior periods exceeding
the original  estimated cost which increases total reported  medical expense and
the MER for the current quarter.  We believe the Medical Expense Ratio excluding
the impact of retroactive  premium  adjustments  and prior period medical claims
development is useful in understanding the operating  performance for the period
since this measure  excludes the impact of  retroactive  premium  adjustments on
revenue and the impact of prior period claim development on medical expense.


                                       21


A change  of  approximately  $140,000  in the  third  quarter  of 2007 in either
revenue  or medical  claims  expense  impacts  the MER for the HMO by 1%. In the
third quarter of 2006, a change in either  revenue or medical  claims expense of
approximately  $80,000  impacts  the HMO's MER by 1%.  For the PSN,  a change in
either revenue or medical claims expense of  approximately  $525,000 impacts the
PSN's MER by 1% in the third quarters of 2007 and 2006.

The Humana  Agreements  provide that the PSN is financially  responsible for all
medical services provided to the Humana Participating Customers. The PSN's total
medical  expense in the 2007 third quarter was $46.6  million  compared to $43.8
million in the 2006 third quarter, an increase of approximately $2.8 million.

Approximately  $2.8  million  of our total  medical  expense  in the 2007  third
quarter related to physician practices we own as compared to $2.5 million in the
2006 third quarter.

The PSN's Medical  Expense Ratio in the 2007 third quarter was 83.8% as compared
to 83.7% in the 2006  third  quarter.  The PSN'S MER was  impacted  by the prior
period  medical claim  development  reflected in the above chart and the revenue
items  described in the Revenue  section above.  Giving  consideration  to these
items the estimated MER excluding the impact of retroactive  premium adjustments
and prior period  medical claims  development  for the third quarter of 2007 was
85.2% as  compared  to 84.9% for the third  quarter of 2006.  This  increase  is
primarily a result of increased  rates paid to hospitals  and an increase in the
intensity of the health  services  required by our customers as indicated by the
increase in the risk scores of these customers.

At September 30, 2007, we determined that the range for estimated medical claims
payable for the PSN was between  $13.4 million and $14.5 million and we recorded
a liability of $13.9 million.  Based on historical  results, we believe that the
mid-point of the range continues to be the best estimate within the range of the
PSN's ultimate liability.

Total  medical  expense for the HMO was $13.9  million in the 2007 third quarter
compared to $8.5  million in the 2006 third  quarter.  The  increase in the 2007
third quarter of 63.4% is due primarily to the 60% increase in the number of HMO
customer months between the 2007 and 2006 third quarters.

The HMO's Medical  Expense Ratio in the 2007 third quarter was 99.3% as compared
to 99.2% in the 2006  third  quarter.  The HMO's MER was  impacted  by the prior
period  medical claim  development  reflected in the above chart and the revenue
item  described  in the  Revenue  section  above.  The  Medical  Expense  Ratio,
excluding the retroactive  premium adjustments and medical claims development of
prior periods, for the 2007 quarter was 93.1% as compared to 96.5% in 2006. This
improvement is a result of decreasing medical costs and lower inpatient days.

At September 30, 2007, we determined that the range for estimated medical claims
payable for the HMO was between  $6.4 million and $7.4 million and we recorded a
liability of $6.4 million.  Based on historical results, we believe that the low
end of the  range  continues  to be the  best  estimate  of the  HMO's  ultimate
liability.

Operating Expenses



                                      Three Months Ended September 30     Increase            %
                                          2007             2006          (Decrease)         Change
                                      -------------    -------------    -------------    -----------
                                                                                   
Payroll, payroll taxes and benefits   $   3,357,000    $   2,536,000    $     821,000          32.4%
       Percentage of total revenue              4.8%             4.2%
Marketing and advertising                   578,000          203,000          375,000         184.7%
       Percentage of total revenue              0.8%             0.3%
Restructuring expense                       583,000               --          583,000            --
       Percentage of total revenue              0.8%             0.0%
General and administrative                2,589,000        2,080,000          509,000          24.5%
       Percentage of total revenue              3.7%             3.4%
                                      -------------    -------------    -------------
Total operating expenses              $   7,107,000    $   4,819,000    $   2,288,000          47.5%
                                      =============    =============    =============



Payroll, Payroll Taxes and Benefits


                                       22


Payroll,  payroll taxes and benefits  include  salaries,  sales  commissions and
related costs for our executive,  administrative  and sales staff.  For the 2007
third quarter,  payroll, payroll taxes and benefits were $3.4 million,  compared
to $2.5  million  for the 2006  third  quarter,  an  increase  of  approximately
$821,000.  Payroll,  payroll  taxes and benefit  costs  associated  with the HMO
segment and corporate accounted for substantially all of this increase.

Sales commissions paid by the HMO, related to the enrollment of the customers of
the  Medicare  Advantage  plan that had its contract  terminated  by CMS in July
2007, accounted for $100,000 of this increase.

As the HMO's  customer base has grown,  we have  increased our HMO staff to meet
the  operational  needs of the HMO's  growing  customer  base.  The  increase in
full-time employees resulted in payroll, payroll taxes and benefits attributable
to the HMO  increasing  to $1.3 million in the 2007 third quarter as compared to
$1.1 million in the 2006 third quarter, a 27.1% increase.

Increases in bonus expense in the 2007 third  quarter  accounted for $550,000 of
the  increase as we adjusted the amount  accrued at  September  30, 2007 to give
effect to the final 2007 bonus plan.

Marketing and Advertising

Marketing and advertising  expense includes  advertising  expenses and brokerage
commissions  paid to  independent  sales  agents.  For the 2007  third  quarter,
marketing and  advertising  expense was $578,000 as compared to $203,000 for the
2006 third quarter,  an increase of 184.7%. The primary reason for this increase
was the marketing costs and commissions  associated with the special  enrollment
period  afforded  customers of a Medicare  Advantage  plan that had its contract
terminated by CMS in July 2007.

Restructuring Expenses

As part of our continuing efforts to enhance our profitability, in July 2007, we
implemented a restructuring  plan designed to reduce costs and improve operating
efficiencies.  The  restructuring  plan,  completed  by the end of August  2007,
resulted in the closure of two of the HMO's  office  locations,  one PSN medical
practice (the "PSN Practice"), and a workforce reduction involving 16 employees.
In   connection   with  this  plan,  we  recorded   approximately   $583,000  of
restructuring  costs during the third  quarter of 2007  including  approximately
$147,000 for severance  payments,  approximately  $364,000 for continuing  lease
obligations on closed locations and  approximately  $72,000 for the write-off of
certain leasehold improvements and equipment.  During the third quarter of 2007,
we made cash payments related to the  restructuring  of $191,000.  The severance
payments and continuing lease  obligations will result in additional future cash
expenditures.  We believe  that the  restructuring  will enable us to reduce our
related operating  expenses by approximately  $1.2 million per annum, with no or
limited impact on the HMO's and PSN's ability to serve their existing customers.
At the  time  of  its  closure  on  July  31,  2007,  the  PSN  Practice  served
approximately  450 customers in South Florida,  all of which were moved to other
providers  outside of the PSN. Prior to its closing on July 31, the PSN practice
generated approximately $2.6 million of revenue in 2007 and had a negative gross
margin. Of the $583,000 restructuring charge,  approximately $400,000 relates to
the HMO with the balance of $183,000 associated with the PSN.

General and Administrative

General and  administrative  expenses  for the 2007 third  quarter  totaled $2.6
million, an increase of $509,000, or 24.5% over the 2006 third quarter.

Approximately  $242,000 of the increase in general and  administrative  costs is
attributable  to the  growth of the HMO.  The HMO  incurred  increased  costs of
$224,000 relating to claims processing as the number of HMO customers increased.

Corporate  general  and  administrative  costs for the 2007 third  quarter  were
approximately  $1.2 million as compared to $828,000 for the 2006 third  quarter,
an  increase of 47.4%.  Approximately  $262,000  of the  increase  relates to an
increase in  professional  service  costs with another  $72,000  resulting  from
increased director fees.

Other Income (Expense)

We realized  other  income of $373,000 in the 2007 third  quarter as compared to
$306,000 in the 2006 third quarter.  Investment income in the 2007 third quarter
increased by $71,000  over the 2006 third  quarter as we had more cash to invest
and  interest  rates  increased as compared to the 2006 third  quarter.  Cash is
invested in highly liquid  securities,  primarily  certificates of deposits with
short term  maturities  and money market funds.  We expect to continue to invest
our excess cash in this manner for the remainder of 2007.


                                       23


Income taxes

Our  effective  tax rate was 33% in the 2007 third quarter and 37.8% in the 2006
third quarter.  The decrease in the effective  income tax rate in the 2007 third
quarter is a result of our  recognition of an  approximate  $120,000 tax benefit
upon the  expiration of the statute of  limitations  for the tax period to which
the benefit relates.

COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
AND SEPTEMBER 30, 2006

Summary

During the nine months  ended  September  30, 2007 and 2006,  we operated in two
financial reporting segments, the PSN business and the HMO business.

For the nine months ended September 30, 2007, we realized  consolidated  revenue
of $207.7 million  compared to $172.5  million of revenue  realized for the nine
months ended September 30, 2006, an increase of  approximately  $35.2 million or
20.4%.

Of this  increase,  approximately  $16.8  million is  related  to the PSN.  This
increase  in revenue is due to an increase  of  approximately  4% in the premium
payment from CMS in 2007 and an increase in the average  Medicare  risk score of
the PSN's customers, partially offset by the decline in the customer base.

As more fully described below, the PSN's 2007 nine month revenue was impacted by
a change in the  estimated  settlement  related to  Medicare's  drug program for
2006.  This increase in revenue had the effect of increasing the PSN's 2007 nine
month revenue by  approximately  $1 million.  This item increased net income for
the nine month period ended  September  30, 2007 by  approximately  $624,000 and
increased  earnings  per share by $.01.  In the third  quarter of 2006,  the PSN
recorded a benefit of $763,000 for Medicare  risk score  adjustments  related to
prior years,  which increased net income by $475,000 and increased  earnings per
share for the nine months ended September 30, 2006 by $.01.

Approximately  $18.4  million  of the  increase  is  related  to the  HMO and is
principally the result of the increase in customer months between the first nine
months of 2007 and the first nine months of 2006. In July 2007, the HMO received
the final 2006 Medicare risk score adjustment from CMS of $575,000.  This amount
was $340,000  higher than our  recorded  estimate at December 31, 2006 and March
31, 2007 of $235,000. The $340,000 was recorded in revenue in the second quarter
of 2007.

Customer  months  for the PSN for the  nine  months  ended  September  30,  2007
decreased  to   approximately   227,700  in  the  third  quarter  of  2007  from
approximately  232,000 for the same period in 2006, a decline of 2.0%.  The drop
in our  customer  base is a result of the closing of an  unprofitable  center in
South Florida with approximately 450 customers on July 31, 2007 with the balance
being related to deaths, people leaving the covered areas,  transfers to another
physician practice or other insurance selections.

Customer  months for the HMO for the nine months ended  September  30, 2007 were
45,200 as compared  to 24,700 for the same  period in 2006,  an increase of 83%.
The increase is a result of our successful marketing efforts during 2007.

Total consolidated  medical expense for the first nine months of 2007 was $181.8
million,  an increase of $29.1 million over the total medical  expense of $152.7
million  incurred in the first nine months of 2006.  Our Medical  Expense  Ratio
decreased to 87.5% for the first nine months of 2007  compared to 88.6% in 2006.
This increase is primarily a result of the growth of the HMO and its  increasing
impact  on  our  consolidated   results.  As  discussed  below,  the  impact  of
retroactive  premium  adjustments  and  prior  period  claims  development  also
impacted the MER for the 2007 and 2006 third quarters.


                                       24


Included in  consolidated  operating  expenses for the first nine months of 2007
are:

      o     Severance benefits payable pursuant to a Separation Agreement with
            our former President and Chief Operating Officer of $500,000;
      o     A restructuring charge of approximately $583,000; and
      o     Additional marketing costs of $500,000 associated with the special
            election period afforded the customers of a Medicare Advantage plan
            that had its contract terminated by CMS in July 2007. The special
            enrollment period allowed customers of the terminated plan to elect
            to join another plan during the period from late July 2007 to
            September 30, 2007.


These items reduced net income by approximately  $1,000,000 and reduced earnings
per share by $.02.

Consolidated  income  before  income taxes for the first nine months of 2007 was
$5.4  million  compared  to $5.1  million  for the  first  nine  months of 2006,
primarily for the reasons  discussed above. Net income for the first nine months
of 2007 was $3.4  million  compared to $3.2 million for the first nine months of
2006.  Our results of operations for the first nine months of 2007 and 2006 were
negatively  impacted  by  losses  related  to the  operations  of  our  Medicare
Advantage HMO.

Net  earnings  per  common  share,  basic and  diluted  were  $0.07  and  $0.06,
respectively  for the first  nine  months  of 2007 and $0.06 for the first  nine
months of 2006.

The PSN reported a segment gain before  income taxes and  allocated  overhead of
$21.1  million for the first nine months of 2007,  as compared to $16.2  million
for the first nine months of 2006,  an increase of $4.9  million or 30.9%.  This
increase is primarily a result of the lower Medical  Expense  Ration for the PSN
and thus,  increased  gross margin.  The HMO segment  incurred a net loss before
income taxes and allocated overhead of $8.7 million for the first nine months of
2007,  compared to a net loss before income taxes and allocated overhead of $6.2
million  in the first  nine  months  of 2006.  This  decrease  is a result of an
increase in gross margin of  approximately  $1 million being offset by salaries,
sales and marketing costs and general and  administrative  costs associated with
the growth of members in the HMO.  Allocated  overhead was $7.1 million and $4.8
million for the first nine months of 2007 and 2006, respectively.  This increase
was a result of severance  benefits of  $500,000,  an increase in bonus costs of
approximately  $550,000  and an  increase in general &  administrative  costs of
approximately $1.2 million as discussed in more detail in that section below.

Customer Information

The table set forth below  provides (i) the total number of customers to whom we
were providing  healthcare  services through the PSN and HMO as of September 30,
2007 and September 30, 2006 and (ii) the  aggregate  customer  months of the PSN
and the HMO during the first nine months of 2007 and 2006.



             September 30, 2007           September 30, 2006
           -----------------------      ------------------------
           Members at   Member          Members at   Member             Percentage Change in
             End of                       End of                      Customer Months Between
             Period     Months YTD        Period     Months YTD               Periods
           -----------  ----------      -----------  ----------       -----------------------
                                                                
PSN             24,600     227,700           25,700     232,300                -2.0%
HMO              6,000      45,200            3,500      24,700                83.0%
           -----------  ----------      -----------  ----------
    Total       30,600     272,900           29,200     257,000
           ===========  ==========      ===========  ==========


Revenue

The  following  table  provides a breakdown of our sources of revenue by segment
for year to date 2007 and 2006:


                                       25




                                Nine Months Ended September 30          $
                                                                     Increase             %
                                     2007            2006           (Decrease)         Change
                                -------------    -------------    -------------     -----------
                                                                           
PSN revenue from Humana         $ 168,407,000    $ 151,570,000    $  16,837,000        11.1%
PSN fee-for-service revenue           964,000        1,059,000          (95,000)       -9.0%
                                -------------    -------------    -------------
  Total PSN revenue               169,371,000      152,629,000       16,742,000        11.0%
                                -------------    -------------    -------------
  Percentage of total revenue            81.6%           88.5%
HMO revenue                        38,289,000       19,857,000       18,432,000        92.8%
  Percentage of total revenue            18.4%           11.5%
                                -------------    -------------    -------------
Total revenue                   $ 207,660,000    $ 172,486,000    $  35,174,000        20.4%
                                =============    =============    =============



The PSN's most  significant  source of revenue during both the first nine months
of 2007  and 2006 was the  premium  revenue  generated  pursuant  to the  Humana
Agreements (the "Humana Related Revenue").  The Humana Related Revenue increased
from $151.6  million for the first nine months of 2006 to $168.4 million for the
first nine months of 2007, an increase of approximately 11.1%.

As of December 31, 2006, the PSN had recorded an estimated Part D settlement for
2006. In October 2007, CMS determined  the final  settlement  liability for 2006
Part D costs of the PSN. The ultimate  liability was approximately  $1.0 million
lower than we had estimated at December 31, 2006.  This amount has been recorded
as  additional  revenue for the nine month period ended  September  30, 2007 and
decreased  the MER for the first nine  months of 2007 by .5%.  In the first nine
months of 2006,  the PSN  recorded  additional  revenue of $763,000 for Medicare
risk score  adjustments  related to prior years.  This decreased the MER for the
PSN for the nine month period ended September 30, 2006 by .4%.

The PSN's  average per  customer  per month  premium in the first nine months of
2007 was approximately  $744, an increase of approximately $87 or 13.2% over the
average  per  customer  per month  premium  for the first nine months of 2006 of
$657.  This  increase in the average per customer per month premium is due to an
increase  of  approximately  4% in the premium  payment  from CMS in 2007 and an
increase in the average Medicare risk score of the PSN's customers.

Fee-for-service revenue represents amounts earned from medical services provided
to non-Humana customers in the PSN's owned physician practices.

The  HMO's  revenue  was $38.3  million  for the  first  nine  months of 2007 as
compared  to $19.9  million  for the first nine  months of 2006,  an increase of
$18.4 million or 92.8%. The increase in revenue is primarily attributable to the
increase in customer  months between the first nine months of 2006 and the first
nine months of 2007 and the 2007 rate  increase  from CMS. The HMO's average per
customer  per month  premium  for the HMO  increased  to $847 in the first  nine
months of 2007 from $805 in the first nine months of 2006,  an increase of 5.2%.
This increase is primarily a result of the 2007 rate increase from CMS.

In July  2007,  the HMO  received  $575,000  as the final  Medicare  risk  score
adjustment  from CMS for 2006.  This increase in the premiums is $340,000 higher
than our  recorded  estimate of  $235,000.  The  $340,000  has been  recorded as
additional  revenue for the nine month period  ended  September  30, 2007.  This
additional  revenue  lowered  the  HMO's  MER for the nine  month  period  ended
September 30, 2007 by .9%.

Medical Expense

Total Medical Expense

Medical  costs and the Medical  Expense  Ratio for the nine month  period  ended
September 30 are as follows:


                                       26




                                                         2007                                            2006
                                     ---------------------------------------------   ---------------------------------------------
                                         HMO             PSN         Consolidated        HMO             PSN         Consolidated
                                     -------------   -------------   -------------   -------------   -------------   -------------
                                                                                                   
Estimated medical expense
for the period excluding prior
period claims development            $  36,939,000   $ 143,272,000   $ 180,211,000   $  19,021,000   $ 134,333,000   $ 153,354,000
(Favorable) unfavorable prior
period medical claims development
in current period based on actual
claims submitted                     $    (599,000)  $   2,182,000   $   1,583,000   $    (164,000)  $    (446,000)  $    (610,000)
                                     -------------   -------------   -------------   -------------   -------------   -------------
Total reported medical expense for
the period                           $  36,340,000   $ 145,454,000   $ 181,794,000   $  18,857,000   $ 133,887,000   $ 152,744,000
                                     =============   =============   =============   =============   =============   =============

Reported Medical Expense Ratio for
the period                                    94.9%           85.9%           87.5%           95.0%           87.7%           88.6%
                                     =============   =============   =============   =============   =============   =============

Medical  Expense  Ratio for the
quarter, excluding  the impact of
retroactive premium adjustments and
prior period medical claims
development                                   97.3%           85.2%           87.5%           96.3%           87.2%           88.7%
                                     =============   =============   =============   =============   =============   =============


In the table  above,  favorable  adjustments  to  amounts we  recorded  in prior
periods for estimated  claims payable appear in  parentheses  while  unfavorable
adjustments do not appear in  parentheses.  Favorable  adjustments  reduce total
medical  expense for the respective  applicable  period and  unfavorable  claims
development increases total medical expense for the applicable period.

Total medical  expense was $181.8 million and $152.7 million for the nine months
ended September 30, 2007 and 2006, respectively, an increase of $29.1 million or
19.0% Approximately  $173.5 million or 95.5% of our total medical expense in the
2007 nine month period and $145.1  million or 95.0% of total medical  expense in
the 2006 nine month period are attributable to medical claims expense.

Our Medical Expense Ratio decreased from 88.6% for the first nine months of 2006
to 87.5% for the same period in 2007.

The  reported  Medical  Expense  Ratio is impacted by both  revenue and expense.
Retroactive  adjustments  of prior  period's  premiums  that are recorded in the
current period impact the MER of that period.  If the retroactive  adjustment is
positive  then  the  impact  reduces  the  recorded  MER.  Conversely,   if  the
retroactive  adjustment  reduces  revenue  of the  period,  then the MER for the
period is higher. These retroactive adjustments include, among other things, the
mid-year and annual MRA adjustments  and settlement of Part D program  premiums.
In addition,  actual medical claims expense usually  develops  differently  than
estimated  during the period.  Therefore,  the estimated actual MER shown in the
table above will likely change as additional claim development occurs. Favorable
claims  development  is a result of actual  medical claim cost for prior periods
developing  lower than the original  estimated  cost which  reduces the reported
medical  expense  and  the  MER  for  the  current  period.  Unfavorable  claims
development is a result of actual medical claim cost for prior periods exceeding
the original  estimated cost which increases total reported  medical expense and
the MER for the period.  We believe  the Medical  Expense  Ratio  excluding  the
impact of  retroactive  premium  adjustments  and prior  period  medical  claims
development is useful in understanding the operating  performance for the period
since this measure  excludes the impact of  retroactive  premium  adjustments on
revenue and the impact of prior period claim development on medical expense.

A change of  approximately  $380,000 for the first nine months of 2007 in either
revenue or the medical claims expense impacts the MER of the HMO by 1%. In 2006,
a change in either revenue or medical claims expense of  approximately  $200,000
impacts the HMO's MER by 1%. For the PSN, a change in either  revenue or medical
claims expense of approximately $1.7 million impacts the PSN's MER by 1% for the
nine month period ended September 30, 2007, and a change of  approximately  $1.5
million impacts the PSN's MER for the same period nine month period in 2006.

The Humana  Agreements  provide that the PSN is financially  responsible for all
medical services  provided to the Humana  Participating  Customers.  The Medical
Expense Ratio for the PSN segment improved to 85.9% for the first nine months of
2007 as  compared  to 87.7% for the first nine  months of 2006 and 88.4% for the
year ended  December  31,  2006.  The PSN'S MER was impacted by the prior period
medical  claim  development  reflected in the above chart and the revenue  items
described in the Revenue section above. Adjusting the MER for these prior period
items the MER for the PSN for the nine month period ended  September 30, 2007 is
85.2% as compared to 87.2% for the same period in 2006.


                                       27


The PSN's  total  medical  expense  for the first nine months of 2007 was $145.5
million,  compared  to $133.9  million  in the  first  nine  months of 2006,  an
increase of approximately $11.6 million.

Approximately $8.3 million of our total medical expense in the first nine months
of 2007  related to  physician  practices  owned by the PSN as  compared to $7.6
million for the first nine months of 2006.

The  Medical  Expense  Ratio for the HMO  segment  was 94.9% for the first  nine
months of 2007 as compared to 95.0% for the first nine months of 2006 and 102.4%
for the year ended  December 31,  2006.  The HMO's MER was impacted by the prior
period  medical claim  development  reflected in the above chart and the revenue
item described in the Revenue section above. Excluding these prior period items,
for the nine month period ended  September 30, 2007,  the HMO's MER was 97.3% as
compared  to 96.3%  for the same  period in 2006.  We  experienced  higher  than
acceptable medical costs in the last quarter of 2006 and the first six months of
2007. During the second quarter of 2007, we renegotiated lower costs for certain
contracts and enhanced our medical  management  process.  As a result, the HMO's
MER dropped to 93.1% in the third quarter of 2007.

Total medical expense for the HMO was $36.3 million for the first nine months of
2007 as compared to $18.9 million for the first nine months of 2006, an increase
of $17.5  million.  This  increase is  substantially  due to the increase in the
number of HMO  customer  months  between  the first nine  months of 2007 and the
first nine months of 2006 and the premium rate increase for 2007 from CMS.

Operating Expenses



                                                                            $
                                      Nine Months Ended September 30     Increase           %
                                           2007          2006           (Decrease)      Change
                                      -------------  -------------    -------------   ---------
                                                                               
Payroll, payroll taxes and benefits   $  10,101,000  $   7,566,000    $   2,535,000        33.5%
       Percentage of total revenue              4.9%           4.4%
Marketing and advertising                 2,609,000      2,217,000          392,000        17.7%
       Percentage of total revenue              1.3%           1.3%
Restructuring expense                       583,000             --          583,000          --
       Percentage of total revenue              3.0%           0.0%
General and administrative                8,242,000      5,555,000        2,687,000        48.4%
       Percentage of total revenue              4.0%           3.2%
                                      -------------  -------------    -------------
Total operating expenses              $  21,535,000  $  15,338,000    $   6,197,000        40.4%
                                      =============    ============= =============



Payroll, Payroll Taxes and Benefits

Payroll,  payroll taxes and benefits  include salaries and related costs for our
executive,  administrative  and sales staff.  For the first nine months of 2007,
payroll, payroll taxes and benefits were $10.1 million, compared to $7.6 million
in the first nine months of 2006, an increase of $2.5 million.

As the HMO's  customer base had grown,  we have  increased our HMO staff.  These
employees were added to meet the operational needs of the HMO's growing customer
base. The increase in full time employees resulted in payroll, payroll taxes and
benefits  attributable  to the HMO increasing to $4.3 million for the first nine
months of 2007 as compared to $2.9 million for the first nine months of 2006, an
increase of $1.4 million or 48.3%.

Included in corporate  salary  expense for the nine months ended  September  30,
2007 is  approximately  $500,000 of severance  benefits  payable pursuant to the
Separation  Agreement  we  entered  into  with our  former  President  and Chief
Operating  Officer in April 2007.  Increases in the bonus  expense for the first
nine months of 2007  accounted  for  $550,000 of the increase as we adjusted the
amount accrued at September 30, 2007 to give effect to the final 2007 bonus plan
that was approved by the Board of Directors during the third quarter of 2007.


                                       28


Marketing and Advertising

Marketing  and  advertising  expenses,  which include  advertising  expenses and
brokerage commissions paid to independent sales agents, totaled $2.6 million for
the nine month period ended  September  30, 2007,  an increase of  approximately
$392,000  over the  first  nine  months of 2006.  The  primary  reason  for this
increase was marketing  costs and  commissions  incurred in the third quarter of
2007  associated  with the special  enrollment  period  afforded  customers of a
Medicare Advantage plan that had its contract terminated by CMS in July 2007.

Restructuring expenses

As part of our continuing efforts to enhance our profitability, in July 2007, we
implemented a restructuring  plan designed to reduce costs and improve operating
efficiencies.  The  restructuring  plan,  completed  by the end of August  2007,
resulted in the closure of two of the HMO's  office  locations,  one PSN medical
practice (the "PSN Practice"), and a workforce reduction involving 16 employees.
In   connection   with  this  plan,  we  recorded   approximately   $583,000  of
restructuring  costs during the third  quarter of 2007  including  approximately
$147,000 for severance  payments,  approximately  $364,000 for continuing  lease
obligations on closed locations and  approximately  $72,000 for the write-off of
certain leasehold improvements and equipment.  During the third quarter of 2007,
we made cash payments related to the  restructuring  of $191,000.  The severance
payments and continuing lease  obligations will result in additional future cash
expenditures.  We believe  that the  restructuring  will enable us to reduce our
related operating  expenses by approximately  $1.2 million per annum, with no or
limited impact on the HMO's and PSN's ability to serve their existing customers.
At the  time  of  its  closure  on  July  31,  2007,  the  PSN  Practice  served
approximately  450 customers in South Florida,  all of which were moved to other
providers  outside of the PSN. Prior to its closing on July 31, the PSN practice
generated approximately $2.6 million of revenue in 2007 and had a negative gross
margin. Of the $583,000 restructuring charge,  approximately $400,000 relates to
the HMO with the balance of $183,000 associated with the PSN.

General and Administrative

General and  administrative  expenses  for the first nine months of 2007 totaled
$8.2  million,  an increase of $2.7  million,  or 48.4% as compared to the first
nine months of 2006.

The HMO incurred general and administrative  costs of approximately $3.9 million
for the first nine months of 2007 as compared to approximately  $2.4 million for
the first nine  months of 2006,  an increase of  approximately  $1.5  million or
63.0%.  This increase is primarily  attributable  to  additional  infrastructure
required  to service to the HMO's  growing  customer  base,  including  $766,000
related  to  increased   claims  and  customer   services  costs  and  increased
professional fees of approximately $450,000.

Corporate  general  and  administrative  costs for the first nine months of 2007
were $3.6 million as compared to $2.4 million for the first nine months of 2006,
an increase of 47.6% or $1.2  million.  Approximately  $700,000 of this increase
relates to an increase in professional service costs. In addition,  depreciation
expense  increased  $130,000 and fees paid to our Board of  Directors  increased
$130,000.

Other Income (Expense)

We realized  other  income of $1.1  million for the first nine months of 2007 as
compared to $737,000 for the first nine months of 2006, an increase of $326,000.
Investment income for the first nine months of 2007 increased  $352,000 over the
same period in 2006 as we had more cash to invest and rates have  increased over
2006.

Income taxes

Our effective tax rate was 37.8% for the first nine months of 2007 and 37.9% for
the first nine months of 2006.

LIQUIDITY AND CAPITAL RESOURCES

Total cash and  equivalents  at  September  30,  2007 were  approximately  $34.4
million as compared to approximately  $23.1 million at December 31, 2006. Of our
$34.4 million of cash and  equivalents at September 30, 2007,  $15.7 million was
statutorily limited to use by the HMO.


                                       29


We had working capital of  approximately  $24.6 million as of September 30, 2007
and $19.6 million at December 31, 2006.

Our total stockholders' equity was approximately $35.0 million and $30.9 million
at  September  30, 2007 and December  31,  2006,  respectively.  Our increase in
stockholders'  equity  during  the  first  nine  months  of  2007  is  primarily
attributable to:

      o     Net income of $3.4 million;
      o     Stock based compensation of $548,000; and
      o     The exercise of stock options totaling $494,000, including the
            related tax benefit of $245,000

The  above  increases  were  reduced  by the  impact  of the  adoption  of  FASB
Interpretation  No. 48 which  resulted  in a charge to  stockholder's  equity of
$437,000.

During the nine  months  ended  September  30,  2007,  our cash and  equivalents
increased  $11.3  million  over the  balance at  December  31,  2006.  Operating
activities  provided  approximately  $11.9 million in cash and  equivalents,  of
which net income accounted for approximately  $3.4 million.  Other large sources
of cash from operating activities were:

      o     an increase in amounts due to CMS of $1.8 million;
      o     an increase in estimated medical expenses payable of $1.6 million;
      o     a decrease in deferred income tax assets of $1.7 million;
      o     an increase in accrued payroll of $785,000;
      o     an increase in accrued expenses of $769,000;
      o     depreciation and amortization expense of $646,000; and
      o     stock based compensation expense of $548,000.

The increase in the due to CMS is primarily a result of the previously discussed
change in the PSN's  estimated Part D liability for 2007 offset by the reduction
of the PSN's 2006 Part D liability.

Net cash used in investing  activities  for the nine months ended  September 30,
2007 was  approximately  $1.2  million of which  $591,000  was cash paid for the
acquisition of a physician practice and $617,000 related to capital expenditures
made during the first nine months of 2007.

Our financing  activities for the nine months ended  September 30, 2007 provided
approximately  $249,000 of cash in connection  with the issuance of common stock
upon the exercise of outstanding options.

We have a line of credit  that  expires  on March 31,  2008,  and  provides  for
borrowing up to $1.0 million. The outstanding balance, if any, bears interest at
the  bank's  prime  rate.  If we have  outstanding  borrowings  under the credit
facility we are required to comply with certain financial covenants, including a
minimum liquidity  requirement of $2.0 million.  The availability under the line
of credit secures a $1.0 million letter of credit issued in favor of Humana.  We
have not utilized this line at anytime in 2007.

Our HMO has required and continues to require a considerable  amount of capital.
We  contributed  approximately  $8.5  million to the HMO during 2006 and another
$14.5 million through September 30, 2007 to finance the operations and growth of
the HMO. We believe that in 2008, the HMO's business will continue to generate a
loss before  allocated  overhead and income taxes.  We are  continuing to commit
resources in an effort to increase our HMO customer  base. The HMO's actual cash
needs and losses for 2008 are expected to be strongly influenced by, among other
things,  the HMO's customer base,  operating  costs and Medical Expense Ratio as
well as the scale, cost and  effectiveness of various marketing  programs we may
undertake.  In July 2007,  we  restructured  our  operations to better match the
current size of the HMO. 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. 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 December 31, 2008.


                                       30


We have adopted a Company wide investment  policy with respect to the investment
of our cash and equivalents.  The goal of our investment policy 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.

OFF-BALANCE SHEET ARRANGEMENTS

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

ITEM 3A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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.  We do not  currently  have any  trading
derivatives  nor do we expect  to have any in the  future.  We have  established
policies and internal processes related to the management of market risks, which
we use in the normal course of our business operations.

Intangible Asset Risk

We have intangible  assets and perform  goodwill  impairment  tests annually and
whenever  events or  circumstances  indicate that the carrying  value may not be
recoverable  from  estimated  future  cash  flows.  As a result of our  periodic
evaluations,  we 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 our operating  results and financial  position.  We evaluate
the  continuing  value  of  goodwill  by  using  valuation  techniques  based on
multiples of earnings,  revenue, EBITDA (i.e., earnings before interest,  taxes,
depreciation and  amortization)  particularly with regard to entities similar to
us that have  recently been  acquired.  We also consider the market value of our
own stock and those of  companies  similar to ours.  At September  30, 2007,  we
believe our intangible assets are recoverable,  however, changes in the economy,
the business in which we operate and our own relative  performance  could change
the assumptions used to evaluate intangible asset recoverability. We continue to
monitor those  assumptions and their effect on the estimated  recoverability  of
our intangible assets.

Equity Price Risk

We do not own any  equity  investments,  other  than in our  subsidiaries.  As a
result, we do not currently have any direct equity price risk.

Commodity Price Risk

We do not enter into  contracts  for the purchase or sale of  commodities.  As a
result, we do not currently have any direct commodity price risk.

ITEM 4.    CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer,
or CEO, and our Chief Financial Officer, or CFO, we carried out an evaluation of
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures for the period ended September 30, 2007.

Based on our evaluation,  our CEO and CFO concluded that our disclosure controls
and  procedures  are  effective  to ensure that the  information  required to be
disclosed  by us in the  reports  that we file or submit  under  the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
time periods specified in SEC rules and forms.

There have been no changes in our internal control over financial reporting that
occurred  during our 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 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, 2006 other
than as set forth below.

The following text  supplements the risk factors  described in our Form 10-K for
the fiscal year ended  December 31, 2006 under the heading "Risk Factors - There
Can be No Assurance that We Will be Successful in Our Operation of the HMO".

There Can be No Assurance  that We Will be  Successful  in Our  Operation of the
HMO.

To  successfully  operate the HMO, we believe we will need to reduce its medical
expenses and other  operating  costs as a percentage  of revenue and continue to
develop the following capabilities,  among others: sales and marketing,  medical
management,  customer  service and regulatory  compliance.  No assurances can be
given that we will be successful in such  endeavors or in operating this segment
of our business despite our allocation of a substantial  amount of resources for
this purpose.

The HMO's actual cash needs and losses for the remainder of 2007 are expected to
be  strongly  influenced  by,  among  other  things,  the HMO's  customer  base,
operating  costs  and  Medical  Expense  Ratio  as well as the  scale,  cost and
effectiveness of various marketing programs we may undertake.

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.(5)
10.4. Supplemental Stock Option Plan (6)
10.5. Omnibus Equity Compensation Plan (7)
10.6. Amended and Restated Employment Agreement between Metropolitan and Michael
      M. Earley dated January 3, 2005 (9)
10.7. Amended and Restated Employment Agreement between Metropolitan and Robert
      J. Sabo dated November 9, 2006 (10)
10.8. Amended and Restated Employment Agreement between Metropolitan and Roberto
      L. Palenzuela dated January 3, 2005 (9)
10.9  Employment Agreement between Metcare of Florida, Inc. and Jose A. Guethon,
      M.D. (5)
10.10. Form of Option Award Agreement for Option Grants to Directors pursuant to
      the Omnibus Compensation Plan (5)
10.11. Form of Option Award Agreement for Option Grants to Key Employees
      pursuant to the Omnibus Compensation Plan (5)
10.12. Form of Option Award Agreement for Option Grants to Employees pursuant to
      the Omnibus Compensation Plan (5)
10.13. Agreement between Metcare of Florida, Inc. and the Centers for Medicare
      and Medicaid Services (5)
10.14. Transition and Severance Agreement between Metropolitan and David S.
      Gartner, dated August 18, 2006. (11)
10.15 Transition and Severance Agreement between Metropolitan and Debra A.
      Finnel, dated April 9, 2007 (12)
10.16 Summary of 2007 Annual Bonus Plan for Executive Officers and certain key
      management employees (13)
10.17 Summary of 2007 Director Compensation Plan*
10.18 Form of Restricted Stock Award Agreement for Restricted Stock Grants to
      Directors pursuant to the Omnibus Compensation Plan*
10.19 Form of Restricted Stock Award Agreement for Restricted Stock Grants to
      Management pursuant to the Omnibus Compensation Plan*

                                       32



31.1. Certification of the Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002*
31.2. Certification of the Chief Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002*
32.1. Certification of the Chief Executive Officer and the 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 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 our Annual  Report on Form 10-K for the year
ended December 31, 2005, as filed with the Commission on March 16, 2006.

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

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

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

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

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

(11)  Incorporated  by reference to  Metropolitan's  Current  Report on Form 8-K
filed with the Commission on August 18, 2006.

(12)  Incorporated  by reference to  Metropolitan's  Current  Report on Form 8-K
filed with the Commission on April 9, 2007.

(13)  Incorporated  by reference to  Metropolitan's  Current  Report on Form 8-K
filed with the Commission on September 26, 2007.


                                       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 6, 2007                      /s/ Michael M. Earley
                                             ---------------------
                                             Michael M. Earley
                                             Chairman, Chief Executive Officer


                                             /s/ Robert J. Sabo
                                             Robert J. Sabo
                                             Chief Financial Officer


                                       34