U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                 FORM 10-KSB

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

      For the fiscal year ended June 30, 1997

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

      For the transition period from __________ to ____________


                             Commission file number
                                   0-28456

                       Metropolitan Health Networks, Inc.
                 ---------------------------------------------- 
                 (Name of small business issuer in its charter)

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

5100 Town Center Circle, Suite 560, Boca Raton, Florida           33486
--------------------------------------------------------------------------------
(Address of principal executive offices)                       (Zip Code)

Issuer's telephone number: (561) 416-9484

Securities registered under Section 12(b) of the Exchange Act: none

Securities registered under Section 12(g) of the Exchange Act:

                               Title of each class
                          Common Stock, $.001 par value
                    Redeemable Common Stock Purchase Warrants

      Check  whether  the issuer (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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
    ---   ---

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be


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contained,  to the best of registrant's  knowledge,  in the definitive  proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      State issuer's revenues for its most recent fiscal year:  $7,512,185

      The aggregate market value of the Registrant's voting Common Stock held by
non-affiliates of the registrant was approximately  $14,584,650  (computed using
the closing  price of $6.25 per share of Common  Stock on October 10,  1997,  as
reported by NASDAQ, based on the assumption that directors and officers and more
than 5% stockholders are affiliates).

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)





There were 5,210,825  shares of the  registrant's  Common Stock, par value $.001
per share,  and 2,764,500 of the  registrant's Redeemable  Common Stock Purchase
Warrants outstanding on October 10, 1997.


                   DOCUMENTS INCORPORATED BY REFERENCE


                                  None.


Transitional Small Business Disclosure Format (Check One): Yes No X


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                                       PART I


ITEM 1. DESCRIPTION OF BUSINESS.


      Metropolitan Health Networks, Inc. (the "Company") was incorporated in the
State of Florida in January 1996 for the purpose of developing a vertically  and
horizontally  integrated  health care  delivery  network  (the  "Network").  The
Network  will  provide  primary  and  subspecialty  physician  care  as  well as
diagnostic and therapeutic services.


      The  Company is seeking to develop its  Network  through the  acquisition,
expansion  and  integration  of (i) physician  care  practices  (the  "Physician
Practices")  together with (ii)  laboratories,  pharmacies  and  diagnostic  and
rehabilitation centers ("Ancillary Services").


      The Company is organized,  in principal part, as a multi-county vertically
and  horizontally  integrated  medical  group  practice.  As  such,  all  of the
physicians  to be employed by the Company will  provide an aggregate  minimum of
75% of their services through the group practice and all physician  services are
to be billed under one common Medicare provider number.  The Company believes it
will meet all government  requirements of a "group  practice" to avail itself of
benefits available to group practices under Florida and federal laws.


      The  Company's  goal  through  its  Network  is to provide  quality,  cost
effective  and  outcome  oriented  health  care in Dade,  Broward and Palm Beach
Counties,  Florida,  a  tri-county  area  with a  population  in  excess of four
million.


INDUSTRY


      GENERAL. The Health Care Financing  Administration estimates that national
health care spending in the United States in 1994 was approximately $1 trillion,
with approximately $200 billion directly  attributable to physician services and
another $612 billion  under  physician  direction.  Health care  spending in the
tri-county  Florida  region  was  estimated  to be  $16  billion.  Historically,
patients in need of medical  care went  directly to a specialist  who  typically
provided service on an inpatient basis. In the 1980's and early 1990's,  managed
care entities began assuming a significant  role by contracting with health care
providers on a capitated  basis.  At the same time,  HMOs began to encourage the
use of alternate-site facilities (sites other than hospitals).


      As a result of the trends toward  increased HMO  enrollment  and physician
membership  in group medical  practices,  health care  providers  have sought to
reorganize  themselves into health care delivery  systems that are better suited
to the managed care environment.  The Company believes that physician groups are
joining  with  hospitals  and other  institutional  providers in various ways to
create  vertically and  horizontally  integrated  delivery systems which provide


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medical and hospital  services ranging from community based primary medical care
to specialized  inpatient services through single coordinated  delivery systems.
These health care delivery  systems  contract with HMOs to provide  hospital and
medical  services to enrollees under full risk contracts,  under which providers
assume the  obligation  of providing  both the  professional  and  institutional
components of covered  health care  services to the enrollees for  predetermined
fixed per capita payments.


      In  order  to  compete  effectively  in  such  an  emerging   environment,
physicians  are  concluding  that they must have  control  over the delivery and
financial impact of a broader range of health care services. To this end, groups
of independent physicians and medium to large medical groups are taking steps to
assume  responsibility  and risk for  health  care  services  which  they do not
provide.  The Company  believes  that  physicians  are  increasingly  abandoning
traditional private practice in favor of affiliations with larger  organizations
which offer skilled and innovative  management,  information systems and capital
resources.  The  Company  believes  that many  payors and their  intermediaries,
including  governmental  entities and HMOs are  increasingly  looking to outside
providers  of  physician  services to develop  and  maintain  quality  outcomes,
management  programs and patient care data. The Company believes that physicians
are  increasingly  turning to  organizations  such as the Company to provide the
resources necessary to function effectively in a managed care environment


STRATEGY


      The  Company's  strategy  is to develop  and  expand a locally  prominent,
integrated health care delivery network in Dade, Broward and Palm Beach counties
Florida within a medical group practice structure,  that provides a high quality
and cost-effective health care delivery system. The Company's principal strategy
for developing and expanding its network is through the  acquisition of (through
purchases, merger or otherwise) or affiliation with physicians,  medical groups,
and other health care providers in the South Florida  market.  The Company seeks
to acquire or otherwise  affiliate with physician  groups and other providers in
their local  markets with  reputations  for  providing  quality  cost  effective
healthcare  services.  The  Company  also seeks to acquire  Ancillary  Services,
including  laboratories,  pharmacies and diagnostic and  rehabilitation  centers
within its group  practice  structure.  The Company  believes that by increasing
marketing activities,  enhancing patient service and improving the accessibility
of care, it will increase the Company's  market share. The Company also believes
strategic alliances with hospitals and health plans will improve the delivery of
managed  health care.  The Company also  believes that by the  consolidation  of
management and administrative services that its costs should be reduced.


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OVERVIEW OF THE NETWORK


  Medical Group Expansion


      The Company is developing its Network mostly through the  acquisition of a
broad range of multi-disciplinary physicians. These will range from primary care
through highly  specialized  sub-specialists.  These physicians,  once acquired,
will be merged  directly  into the  medical  group and form part of the  group's
medical  staff,  where  they will  share all of the  resources  of the group and
increase the cross-referral of all physicians within the group.


      In  the  South  Florida  region,   the  Company  has  primarily   targeted
multi-specialty  medical groups that are comprised of four to thirty physicians.
The Company will seek to purchase the medical  groups or to enter into long term
management  agreements  with the affiliated  physician  groups (see below).  The
Company  believes  the key to its growth will be its ability to greatly  improve
and expand the health care  services  provided  through its medical  groups,  to
enhance  operating  efficiency  and profits of the medical group and to earn and
maintain the trust and confidence of the physicians associated with the Network.












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  Practice Management Activities


      In  situations  where  the  Company  is  unable  to or does not  desire to
purchase a medical group,  it will seek to enter into  contractual  arrangements
with the medical group that will allow the Company to receive  substantially all
of the benefits of ownership without the additional capital.


      The Company believes that as the health care industry  continues to become
more complex,  the administrative needs of medical groups will best be served by
professional managers. Under these types of contractual arrangements the Company
would acquire from the medical group  substantially  all of the groups medically
related  assets  and  the  Company  would  function  as  a  management  services
organization (MSO). The medical group,  independent of the Company's own medical
group,  could then enter into a 20 to 40-year service agreement with the Company
to have the Company  provide all or part of the front and back office  functions
of the medical  group.  The Company will provide the  physicians and groups with
the equipment and  facilities  used in its medical  practices,  manage  practice
operations and employ substantially all the practices'  non-physician  personnel
exclusive  of  those  required  by law to be  employed  by  the  practices.  The
physicians  will  continue to be  responsible  for all the  decisions  regarding
patient health care,  including diagnosis,  treatment,  surgery and therapy. The
Company believes the fees retained by the Company would range from 30% to 70% of
the medical groups' net  collections  depending on the size and specialty of the
medical group.


  Independent Practice Associations


      The  Company  does  not  now  own  or  manage  any  independent   practice
associations  ("IPAs").  However, the Company anticipates  organizing,  managing
and/or  purchasing  an IPA  management  company  in the future to  complete  its
network. An IPA allows an individual  practitioner to access patients in his/her
area through  contracting  with HMOs without  having to join a group practice or
sign exclusive  contracts,  and also coordinates  utilization review and quality
assurance  programs  for its  affiliated  physicians.  In addition to  providing
access to HMO contracts,  an IPA offers other benefits to the physicians seeking
to remain independent,  including enhanced risk sharing  arrangements and access
to other strategic alliances within the Company's network.  The Company believes
the IPAs will  enable it to increase  HMO market  share with  relative  low risk
because  of the  low  incremental  investment  required  to  recruit  additional
physicians.  The Company  believes an IPA  management  company  negotiates  both
managed care contracts and discounted fees for service  contracts and collects a
percentage of total revenues on the contract plus fees for providing billing and
collection functions.  An IPA can also provide substantial savings to physicians
by pooling purchasing and insurance on behalf of physician members.  Usually the
IPA  Management  Company  collects a  percentage  of the savings  generated  for
physicians.


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  Ancillary Service Groups


      The  Company  currently  provides  certain  ancillary   services,   mostly
diagnostic  and  rehabilitation  services.  The Company  intends to expand these
services both by acquisition  and internal  growth to cover the entire  targeted
area as well as expand into additional  ancillary services.  The Company expects
that these  Ancillary  Services  will  complement  the services  provided by the
Physician  Practices and the other  Ancillary  Services owned or acquired by the
Company.  The Company  intends to acquire those  Ancillary  Services  which will
permit the Network to expand and provide services needed by patients. Through an
association  of  administrative  services,  as well as  facilities,  the Company
believes that it can increase revenues and profitability. As of the date hereof,
the Company has acquired (i) Magnetic  Resonance Imaging Center ("MRI"), a fixed
and mobile magnetic  resonance  imagery  business which is engaged in performing
and reading magnetic  resonance images for patients  primarily  located in South
Florida,  and (ii)  Datascan  of Florida,  Inc.,  a mobile  diagnostic  services
company which provides  nerve  conduction,  vascular and  ultrasound  studies in
South Florida.


  HMO Arrangements


      The  Company  intends  to have a  portion  of its  revenues  derived  from
agreements with Health  Management  Organizations  ("HMOs") that provide for the
receipt of capitated  fees.  Capitated fees are negotiated fees that stipulate a
specific dollar amount or a percentage of total premium  collected by an insurer
or payor source to cover the partial or complete  healthcare services deliveries
to a person.  The fees are  determined  on a per capita  basis  paid  monthly by
managed care  organizations.  HMO  enrollees  may come from the  integration  or
acquisition of healthcare providing entities,  additional  affiliated physicians
and acquire and  increase  enrollment  in HMOs  currently  contracting  with the
Company  through  its  Physician   Practices  and  Ancillary  Services  or  from
agreements with new HMOs. The Company intends to enter into HMO agreements which
generally will be for one-year terms and subject to annual negotiation of rates,
covered  benefits  and other  terms and  conditions.  HMO  agreements  are often
negotiated  and  executed  in  arrears.  There  can be no  assurance  that  such
agreements  will be entered  into,  renewed or, if entered into and/or  renewed,
that they will contain these  favorable  reimbursement  terms to the Company and
its  affiliated  providers.  There can be no assurance  that the Company will be
successful  in  identifying,  acquiring  and  integrating  HMO  entities  or  in
increasing the number of HMO enrollees.  Once acquired a decline in enrollees in
HMOs could also have a material adverse effect on the Company's profitability.


      Under the HMO agreements,  the Company,  through its affiliated providers,
will  generally  be  responsible  for  the  provision  of all  covered  hospital
benefits,  as well as outpatient benefits,  regardless of whether the affiliated
providers directly provide the healthcare  services  associated with the covered


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benefits.  To the extent that enrollees require more care than is anticipated or
require  supplemental  healthcare which is not otherwise  reimbursed by the HMO,
aggregate  capitation  rates may be insufficient  to cover the costs  associated
with the treatment of enrollees.  If revenue is insufficient to cover costs, the
Company's  operating  results  could be  adversely  affected.  As a result,  the
success of the Company will depend in large part on the effective  management of
health care costs through various  methods,  including  utilization  management,
competitive pricing for purchased services and favorable agreements with payers.
Recently,  many  providers,  including  the Company,  have  experienced  pricing
pressures  with respect to  negotiations  with HMOs.  In  addition,  the Company
believes  that  employer   groups  are  becoming   increasingly   successful  in
negotiating  reductions  in the  growth of  premiums  paid for their  employees'
health  insurance,  which  tends to depress  the  reimbursement  for health care
services.  At the same time, employer groups are demanding higher accountability
from payers and  providers of health care  services  with respect to  measurable
accessibility,  quality  and  service.  If these  trends  continue,  the cost of
providing  healthcare  services could increase while the level of  reimbursement
could grow at a  significant  lower rate.  There can be no assurance  that these
pricing  pressures  will not have a  material  adverse  effect on the  operating
results  of the  Company.  Changes  in health  care  practices,  inflation,  new
technologies,  major  epidemics,  natural  disasters and numerous  other factors
affecting  the  delivery  and cost of health  care are beyond the control of the
Company and may adversely affect its operating results.


      The Company  currently  only has discounts for service  arrangements  with
managed care companies. These arrangements place no additional financial risk to
the Company. In all cases there are either negotiated flat, mutually agreed upon
rates for covered services, usually calling for a discount of 30% from usual and
customary  charges,  or a call for payment at a percentage of Medicare allowable
rates (ranging from 100% to 150%). The Company,  however,  intends to enter into
full risk  managed  care  agreements  within the next six (6) months and at such
time will be subject to additional  financial risk. The Company believes that in
the next 12  months  it may be  receiving  approximately  10% in  revenues  from
managed care agreements and 20%-25% in two years.


PHYSICIAN PRACTICES ACQUIRED


      The Company,  on March 12, 1997 acquired the clinical practice of Dr. Paul
Wand,  M.D.,  P.A.  ("Wand  Practice").  Dr. Wand is a neurologist who began his
practice in South Florida in 1982, and who, in addition to his practice conducts
certain research in the field of head injuries.  Dr. Wand is currently  planning
clinical  trials to obtain FDA  approval in the  treatment  of  traumatic  brain
injuries with a drug that has been previously  approved by the FDA for treatment
of patients with other diagnosis.

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      Pursuant  to  the  terms  of  the  acquisition,  the  Company,  through  a
wholly-owned subsidiary,  acquired by merger the Wand Practice for consideration
of 75,000  shares of Common  Stock and  $125,000 in cash.  In  addition,  if the
earnings before interest, taxes, depreciation and amortization ("EBITDA") of the
Wand  Practice for the twelve  months ended June 30, 1997 and 1998 is determined
to have  equaled or exceeded  $75,500,  the Company  shall  deliver up to 37,500
additional  shares of Common Stock of the Company upon each such occurrence.  No
additional  consideration  for the Wand  practice is due for the 12 month period
ended June 30, 1997. In addition,  and as part of the  acquisition,  the Company
entered  into  a  five  year  employment  contract  with  Dr.  Wand  with a base
compensation  of  $200,000  per year and a  potential  to receive a bonus in the
amount of 10% of the total practice revenues. Dr. Wand has agreed not to compete
or solicit  patients  or  referring  sources to the  Company for a period of two
years following the termination of his employment agreement.


      Effective July 1, 1997, the Company,  through a wholly-owned subsidiary of
the Company, acquired General Medical Associates, Inc. ("GMA"). GMA was owned by
Martin  Harrison,  M.D.  ("Harrison").  Pursuant  to the merger  agreement,  the
Company  paid (i)  $300,000  in cash;  (ii) a $400,000 8%  promissory  note with
interest  and  principal  due monthly in an eleven month  period  commencing  on
September 5, 1997; (iii) 523,077 shares of Common Stock of the Company,  156,923
shares of which can be earned by Harrison  based upon the annual  performance of
GMA. If the earnings  before  interest,  taxes,  depreciation  and  amortization
("EBITDA")  of GMA for the years  ended June 30, 1998 and 1999 equals or exceeds
80% of GMA's  EBITDA,  the  twelve  months  ended June 30,  1997 (the  "Targeted
Amount"), there shall be released from escrow 104,615 and 52,308,  respectively,
additional  shares of the Common Stock of the Company upon each  occurrence.  In
the event, however,  that the EBITDA is less than the Targeted Amount,  Harrison
is entitled to receive  additional  shares of the Company,  as determined  based
upon a sliding scale down to 60%.


      The Company has  warranted to Harrison  that if the gross  proceeds of the
sale by Harrison,  of up to 200,000 shares (over a period of time beginning July
1, 1998 and ending February 13, 1999) of the Company's  Common Stock received in
the  Merger,  is less than  $6.50 per  share,  the  Company  shall  make up such
deficiency in cash.  In the event the  Company's  Common Stock trades over $7.50
per share  during any  fifteen  (15) day period in a calendar  month,  the price
protection  shall be  eliminated  in 25,000 share  blocks.  The Company has also
guaranteed  Harrison price per share  protection in the event that the Company's
Common  Stock  trades at an  average of less than $6.50 per share for any twenty
(20) day period beginning on August 1, 1999 and ending October 1, 1999, Harrison
shall receive  additional  shares of Company Common Stock determined by dividing
$3,400,000  (less certain  shares sold x $6.50) by the lowest  closing bid price
over such 20 day  period and  deducting  523,077  (subject  to  adjustment).  In
addition, Harrison has been granted a security interest in GMA's receivables, to
secure  the  Company's  obligations  under  the  promissory  note and the  price
protection guarantee.


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      GMA is a multi-specialty group with components of neurology and physiatry,
in  addition  to  chiropractic  physicians,   licensed  massage  therapists  and
additional ancillary services.  GMA uses both staff and subcontracting  services
to provide the  healthcare  services and  currently  has three  physicians,  two
massage  therapists,  two  medical  assistants,  one  x-ray  technician  and two
electro-diagnostic   technicians   who  perform  nerve  studies.   GMA  provides
full-service   medical   evaluations   including  x-rays,  EKG,  minor  surgical
procedures as well as physical therapy and clerical and billing support persons.
GMA currently sees approximately 300 patients per week in its facilities and has
over 3,000 active charts.


      Subsequent to the  acquisition,  information  concerning  the valuation of
certain assets has come to the attention of the Company.  Presently, the Company
is unable to quantify such  information  and is  consulting  with its counsel to
determine  the  significance  and effect of such  information  on the  financial
statements of the Company, subsequent to consummation of the GMA acquisition.


      On October  15, 1996 the Company  acquired  pursuant to an asset  purchase
agreement  ("International  Agreement")  certain  medically  related  assets  of
International Family Healthcare Centers, Inc.  ("International")  from Emergency
Care  Services,  Inc.  ("ECSI").  The assets  consist  primarily  of two medical
clinics one located in North  Miami  Beach and the second  located in  Aventura,
Florida.  The  Company  had  previously  entered  into  a  management  agreement
effective April 23, 1996 to operate the facilities of  International.  Under the
International  Agreement,  the Company purchased the assets for 50,000 shares of
its Common  Stock and the  issuance  of an 8%  promissory  note  ("International
Note") in the amount of $150,000.  The final payment of  $11,503.63  was made on
September 24, 1997.


DIAGNOSTIC SERVICES


      The Company,  through its group practice,  owns a full range of fixed-site
and mobile  diagnostic  services.  These will  include  x-ray,  MRIs,  CT, neuro
diagnostic   equipment,   vascular  studies,   nuclear  equipment,   ultrasound,
echocardiograph,  Holter monitors and others.  As a group practice,  the Company
may own and benefit from historically profitable ancillary services for patients
of the group as well as,  under  current  interpretations  of state and  federal
laws,  patients  referred to the Company by other  physicians  and providers not
associated  with  the  Company.  This  ability  to own and  refer  patients  for
ancillary  services is  significantly  restricted  for  physicians  not in group
practices by both state and federal health care laws, thus the Company  believes
it will enjoy a  competitive  advantage  over other  health care  providers  and


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physicians.  The Company  believes many  self-insured  employers and third party
payors  have   determined  that  the  delivery  of  services  in  an  outpatient
environment is often less costly than the provision of the identical services on
an inpatient basis.  Consequently,  some payors insist that services be obtained
solely on an  outpatient  basis where  medically  appropriate  and contract with
diagnostic imaging centers for the provision of these services.















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ACQUIRED ANCILLARY SERVICES


      Effective  September 1, 1996,  the Company  acquired 100% of the operating
assets of Nuclear Magnetic  Imaging,  Inc. ("NMI") and 97.5% of Magnetic Imaging
Systems I, Ltd. ("MIS"),  which jointly operate as MRI Scan Center. The MRI Scan
Center, which began operations in 1984, performs  approximately 9,000 procedures
per year. In May 1986, the MRI Scan Center began  providing  mobile MRI services
to  outpatient  facilities  and to  hospitals.  The MRI  Scan  Center  currently
operates at three  locations,  two in Fort  Lauderdale  and one in Coral Gables,
Florida.  The MRI  Scanner  uses a  highly  technical  process  called  magnetic
resonance  imaging,  which utilizes an extremely  powerful magnetic field, radio
waves and computers to produce  images of the body.  While the patient is in the
magnetic field, radio waves stimulate the hydrogen molecules in the body to give
off their own signals. This information is fed through numerous computers, which
map  the  action  and  properties  of the  molecules.  Images  of the  body  are
constructed which display biochemistry of tissue as a picture. The MRI procedure
was approved by the Food and Drug  Administration  in the early 1980's.  The MRI
Scanner  differentiates  between  healthy  tissue,  tumors,  fatty  tissues  and
muscles.  This means that many uncomfortable tests, certain types of exploratory
surgeries,  some biopsies,  angiograms,  mammographies and others, can be safely
replaced by MRIs. In most cases, a clear image is produced with no discomfort to
the patient or costly hospitalization.


      Effective  September 1, 1996,  under two separate  agreements with certain
limited partners of Magnetic Imaging Systems I, Ltd. (MIS), the Company acquired
each such  partner's  4.75%  interest  in MIS in  exchange  for $30,000 in notes
payable and 7,500 shares of the Company's Common Stock, each.


      Under a third agreement  dated  September 1, 1996 (MRI Agreement)  between
Dr.  Robert  Kagan,  who  was a  28.5%  limited  partner  in MIS  and  the  sole
shareholder of Nuclear Magnetic  Imaging,  Inc. (NMI), the 59.5% general partner
in MIS  (combined,  MRI  Group),  the Company  acquired  100% of NMI and the MRI
shareholders'  28.5%  interest in MIS  (resulting in a total  interest in MIS of
97.5%),  for  consideration of 550,000 shares of Common Stock of the Company and
the  issuance of a $400,000  note bearing  interest for 6.5%,  $200,000 was paid
during April 1997, and the remaining $200,000 plus accrued interest on or before
April 1, 1998.  The MRI  Agreement  also  provides  for the issuance of up to an
additional 400,000 shares to the MRI Group as follows:  if the EBITDA of the MRI
Group for the twelve  months ended June 30, 1997 and 1998 is  determined to have
exceeded $1.2 million and $1.5 million  respectively,  the Company shall deliver
200,000  additional  shares  of  Common  Stock of the  Company  upon  each  such
occurrence.  The MRI Scan Center did not meet its EBITDA  requirement for the 12
month  period  ended  June 30,  1997.  The  Company  agreed to extend the EBITDA
threshold for earning the bonus share, to be cumulative at the end of the second
year.


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      On August 21, 1997, the Company  offered to convert any, or a portion,  of
the limited partnership units purchased by the MRI Scan Center in 1993 and 1994,
into the  Company's  common  stock.  The  Company's  offer was to allow the note
holders to convert any amount due into the  appropriate  amount of the Company's
Common  Stock at a 25%  discount to the market  value of the  Company's  shares,
based on the  closing  price  for the  Company's  Common  Stock on the date they
notified the Company of  acceptance  of the  conversion  option.  The  Company's
shares  were issued as legend  shares and will not be  eligible  for sale in the
open market for 12 months from the date of issue under SEC Rule 144. The Company
warranted that at the time the restrictive  legend is removed,  the price of the
common  stock will be no lower  than the price on the  conversion  date,  or the
Company will make up any shortfall in stock or cash. A total of $60,000 has been
converted to date at an average price of $4.39 per share.


      The Company has warranted  that the cumulative  shares  represented in the
MRI  Agreement  will be worth no less than 10 times the pre-tax  earnings of the
combined  consolidated  companies  following  12 and 24 months  from the time of
acquisitions. If the average closing price of the Company's Common Stock for the
ten days prior to the years ended June 30, 1997 and 1998,  multiplied by 550,000
plus the number of any contingent  shares earned ("Trading  Value") is less than
ten times the pretax earnings of the MRI Group for each respective  twelve month
period,  the Company must deliver  additional shares such that the Trading Value
is equal to ten times,  or pay the NMI and MRI  shareholders  the  difference in
cash. Additionally, as part of the acquisition, Dr. Kagan received an employment
contract  which calls for payment of $600,000 per year and a  percentage  of the
adjusted  revenues of NMI jointly not to exceed 15% of all revenue  generated by
NMI.  The  5-year   employment   contract  in   addition,   calls  for  numerous
non-solicitation  and  non-compete  provisions that will prohibit Dr. Kagan from
competing with the Company for a period of no less than two (2) years  following
termination.


      On September  26,  1996,  effective  October 1, 1996,  pursuant to a stock
purchase  agreement  ("Datascan  Agreement")  the Company  acquired  Datascan of
Florida,  Inc. and Datascan  Southeast,  Inc.,  mobile and fixed site diagnostic
testing companies servicing Dade, Broward and Palm Beach Counties (collectively,
"Datascan").  Datascan was  organized in May 1981 in Fort  Lauderdale,  Florida.
Datascan serves its patients from mobile facilities  providing services directly
to the  physicians'  offices.  Datascan has  currently 32 employees and provides
ultrasound  procedures including  echocardiography,  cardiac Doppler,  colorflow
mapping,   transesophogeal  echocardiography  and  stress  echocardiography  and
carotid artery, abdominal,  transrectal and transvaginal ultrasound, small parts
imaging and peripheral vascular ultrasound.  It also provides Holter monitoring,
event  monitoring,  EKG and  pacemaker  checks,  in addition to nuclear  cardiac
imaging.  The Company sees  approximately  17,000 patients per year, with 32,000
procedure  codes billed in 1995. The payor mix for the Company is  approximately
40% Medicare,  20% private  insurance and 40% managed care. Its referral  source
includes over 400 local physicians and hospitals.


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<PAGE>

      Under the Datascan Agreement,  the Company acquired all of the outstanding
stock and ownership  interest in Datascan for consideration of 300,000 shares of
Common  Stock of the  Company.  The  Datascan  Agreement  also  provides for the
issuance of up to an additional  200,000 shares to the Datascan  shareholders as
follows: if the EBITDA of Datascan for the twelve months ended June 30, 1997 and
1998  is  determined   to  have  equaled  or  exceeded   $288,000  and  $313,894
respectively,  and if certain Datascan shareholders continue employment (subject
to certain  exceptions) the Company shall deliver 100,000  additional  shares of
Common  Stock  of the  Company  to the  Datascan  shareholders  upon  each  such
occurrence.  Kenneth J. Hall, a director of the Company was an approximately 50%
shareholder  of  Datascan,  with the other  principal  shareholder  of Datascan,
Michael P. Goldstein,  Group Vice President of the Company, a 29% stockholder of
Datascan and at the time of  acquisition  a Vice  President of Datascan.  In the
event,  however,  that  EBITDA  does not equal or exceed  $288,000 in the twelve
months  ended  June  30,  1997,  but it  equals  or  exceeds  $602,532  for  the
twenty-four  months ended June 30, 1998,  the Company will deliver up to 200,000
additional  shares.  Datascan met its EBITDA requirement for the 12 month period
ended June 30, 1997. The Company,  in addition,  agreed to enter into employment
contracts  with the  principals of Datascan that in part calls for an employment
contract  with a base  salary of $200,000  per year,  plus a bonus to be paid in
combination of cash and/or stock to be negotiated.


      In addition,  the Datascan Agreement provides that, if the Company merges,
consolidates  or  otherwise  reorganizes  and such  transaction  results  in the
Company  not  being  the  surviving   corporation,   depending  upon  when  such
transaction occurs, additional consideration may be due. Specifically, if during
the twelve month period ended June 30, 1997, the EBITDA of Datascan for the most
recent  three  months  (at the  point  in time as such  transaction  occurs)  is
determined  to have  equaled or exceeded  $72,000,  the Company  will deliver an
additional 200,000 shares and further,  if such transaction occurs subsequent to
June 30,  1997 but prior to June 30,  1998,  and both the  EBITDA for the twelve
months ended June 30, 1997 equaled or exceeded  $288,000 and the average monthly
EBITDA for the prior months in the period equals or exceeds $26,157, the Company
shall  deliver  100,000  additional  shares  of  Common  Stock  to the  Datascan
shareholders.


      All the  Acquisitions  to date were  accounted  for  under the  "purchase"
method of accounting.


MANAGEMENT INFORMATION SYSTEMS


      The  Company  has begun to install  and  maintain  integrated  information
systems to support its growth and acquisition  plans.  The Company believes that
effective  and  efficient  access to key  clinical  patient  data is  crucial in
improving costs and quality  outcomes.  The Company will utilize its information
systems  to  improve  productivity,  manage  complex  reimbursement  procedures,


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<PAGE>

measure  patient  care   satisfaction   and  outcomes  of  care,  and  integrate
information from multiple facilities throughout the care spectrum. The Company's
overall  information  systems will be designed to be modular and  flexible.  The
Company has selected a partner to provide the information  systems that will, in
part,  allow the Company to track physician  utilization,  outcomes  management,
patient  scheduling  and  tracking  and  most  importantly,  managed  care  plan
processing.


      The Company,  through its wholly owned subsidiary  MetBilling  Group, Inc.
has invested over $500,000 in setting up the information and billing systems for
the  Company.  The  services  of  MetBilling  have been and will  continue to be
provided to all of the Company's acquisitions and the general medical community.
As of this date the Company is providing billing services to various non-Company
owned facilities and expansion of outside services is anticipated.


COMPETITION


      The health  care  industry  is highly  competitive.  The  industry is also
subject to continuing changes in the provision of services and the selection and
compensation of providers. In addition,  certain companies,  including hospitals
and insurers,  are expanding their presence in the physician  management market.
The  Company's  operations  will  compete  with  national,  regional  and  local
companies in providing  its  services.  Many of the  Company's  competitors  are
larger and better  capitalized to provide a wider variety of services,  may have
greater  experience in providing  health care  management  services and may have
longer established relationships with buyers of such services.


GOVERNMENT REGULATION


      As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing  regulation by a number of
governmental  entities  at the  federal,  state and local  levels.  The  Company
intends to structure its operations to be in material compliance with applicable
laws.  Nevertheless,   because  of  the  uniqueness  of  the  structure  of  the
relationship of the Physician Practices and Ancillary Services owned or acquired
by the Company,  many  aspects of the  Company's  actual and  proposed  business
operations   have  not  been  the   subject  of  state  or  federal   regulatory
interpretation  and there can be no assurance  that a review of the Company's or
the affiliated physicians' business by courts or regulatory authorities will not
result in a  determination  that could  adversely  affect the  operations of the
Company  or the  affiliated  physicians  or  that  the  health  care  regulatory
environment  will not change so as to restrict the  Company's or the  affiliated
physicians' existing operations or their expansion.


      The  federal  Medicare  program  adopted  a  system  of  reimbursement  of
physician  services,  known as the resource  based relative value scale schedule
("RBRVS"),  which took effect in 1992 and is expected to be fully implemented by


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<PAGE>

December 31,  1996.  The  government  revises the RBRVS  Physician  Fee Schedule
annually.  The Company  expects  that the RBRVS fee  schedule  and other  future
changes in Medicare  reimbursement  will result in some cases in a reduction and
in some cases in an increase from historical  levels in the per patient Medicare
revenue received by physicians affiliated with the Company. However, the Company
does not believe such reductions will result in a material adverse change in the
Company's  operating results,  although there can be no assurance that this will
be the case.


      The laws of many states prohibit business corporations such as the Company
from  practicing  medicine and  employing  physicians to practice  medicine.  In
Florida,  non-licensed persons or entities,  such as the Company, are prohibited
from engaging in the practice of medicine  directly;  however,  Florida does not
prohibit  such  non-licensed  persons or entities  from  employing  or otherwise
retaining licensed physicians to practice medicine,  so long as the Company does
not interfere with the physicians'  exercise of independent  medical judgment in
the  treatment  of  patients.  The Company  believes it is not in  violation  of
applicable  Florida law relating to the  practice of medicine.  The laws in most
states,  including  Florida,  regarding the corporate  practice of medicine have
been subjected to limited judicial and regulatory interpretation and, therefore,
no assurances can be given that the Company's  activities will be found to be in
compliance, if challenged.


      There are also state and  federal  civil and  criminal  statutes  imposing
substantial  penalties,  including  civil and criminal  fines and  imprisonment,
administrative   sanctions  and  possible  exclusion  from  Medicare  and  other
governmental  programs on health care providers that  fraudulently or wrongfully
bill  governmental  or other  third-party  payers for health care services.  The
federal law prohibiting  false billings allows a private person to bring a civil
action  in the  name of the  United  States  government  for  violations  of its
provisions.  Moreover,  technical Medicare and other  reimbursement rules affect
the  structure of physician  and  ancillary  billing  arrangements.  The Company
believes it is in material  compliance with such laws, but there is no assurance
that the Company's activities will not be challenged or scrutinized by courts or
governmental authorities.  Noncompliance with such laws may adversely affect the
operation of the Company and subject it to penalties and additional costs.


      Certain provisions of the Social Security Act, commonly referred to as the
"Anti-Kickback Statute," prohibit the offer, payment, solicitation or receipt of
any form of  remuneration in return for the referral of Medicare or state health
program  patients  or  patient  care   opportunities,   or  in  return  for  the
recommendation,  arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs.  The Anti-Kickback  Statute is
broad in scope and has been broadly interpreted by courts in many jurisdictions.
Read  literally,   the  statute  places  at  risk  many  business  arrangements,
potentially  subjecting such arrangements to lengthy,  expensive  investigations
and  prosecutions  initiated  by  federal  and  state  governmental   officials.


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<PAGE>

Violation of the  Anti-Kickback  Statute is a felony,  punishable by significant
fines and/or  imprisonment.  In  addition,  the  Department  of Health and Human
Services may impose civil penalties  excluding  violators from  participation in
Medicare or state health programs.


      In July 1991 and November 1992, in part to address concerns  regarding the
Anti-Kickback Statute, the federal government published regulations that provide
exceptions,  or "safe  harbors," for sections that will be deemed not to violate
the  Anti-Kickback  Statute.  Although  the Company  believes  that it is not in
violation of the Anti-Kickback  Statute, its operations do not fit within any of
the  existing  or  proposed  safe  harbors,  and,  accordingly,  there can be no
assurance that the Company's practices, if scrutinized, would not be found to be
in violation of the statute,  and any such finding could have a material adverse
effect on the  Company.  Transactions  outside  of a safe  harbor are not per se
violations of the statute,  but may be subject to government  scrutiny on a case
by  case  basis.  Among  the  safe  harbors  included  in the  regulations  were
provisions  relating  to the  sale of  practitioner  practices,  management  and
personal  services  agreements,  and  employee  relationships.  Additional  safe
harbors were  published in September  1993  offering new  protections  under the
statute  to  eight  activities,   including  referrals  within  group  practices
consisting  of active  investors.  Proposed  amendments  to  clarify  these safe
harbors were published in July 1994 which, if adopted,  would cause  substantive
retroactive changes to the 1991 regulations.


      The new federal Health  Insurance  Portability and  Accountability  Act of
1996, signed into law on August 21, 1996, expands the government's  resources to
combat health care fraud,  creates several new criminal health care offenses and
establishes a new advisory opinion mechanism under which the Office of Inspector
General  is  required  to  respond  to  requests  for   interpretation   of  the
Anti-Kickback  Statute,  in an  effort  to  bring  clarity  and  relief  to  the
uncertainty of the Anti-Kickback Statute. Due to the newness of the legislation,
it is  impossible  to  predict  the  impact  of the  new  law  on the  Company's
operations.


      Florida  has  adopted  state  laws  similar to the  federal  Anti-Kickback
Statute  prohibiting  payments  intended to induce  referrals  of all  patients,
regardless of payor source.  The "Patient  Brokering Law," effective  October 1,
1996,  makes it a crime for any person,  including  any health care  provider or
health care facility, to offer, pay, solicit, or receive any commissions, bonus,
rebate, kickback, or bribe, directly or indirectly, overtly or covertly, in cash
or in kind, or to engage in any split-fee  arrangement,  in any form whatsoever,
to induce or in return for  referring  patients or patronage to or from a health
care provider or health care facility,  or to aid, abet,  advise, or participate
in any such act.  There are exceptions to the Patient  Brokering Law,  including
exceptions  for any  payment  practice,  discount,  or  waiver  of  payment  not


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<PAGE>

prohibited by the federal  Anti-Kickback Statute or the safe harbor regulations,
and certain  payment,  compensation,  or financial  arrangements  within a group
practice.  The Company  believes its  activities  fit within  exceptions  to the
Patient Brokering Law, however, until the new law has been subjected to judicial
and/or  regulatory  interpretations,  there can be no assurances  given that the
Company's activities will be found to be in compliance, if challenged.


      Significant  prohibitions  against  physician  referrals  were  enacted by
Congress in the Omnibus Budget  Reconciliation Act of 1993. These  prohibitions,
commonly known as "Stark II," amended prior physician self-referral  legislation
known as "Stark I" by  dramatically  enlarging the field of  physician-owned  or
physician-interested   entities  to  which  the  referral   prohibitions  apply.
Effective  January 1, 1995, Stark II prohibits,  subject to certain  exceptions,
including a group practice  exception,  a physician  from referring  Medicare or
Medicaid patients to an entity providing  "designated  health services" in which
the physician or immediate family member has an ownership or investment interest
or with which the physician  has entered into a  compensation  arrangement.  The
designated health services include clinical laboratory  services,  radiology and
other diagnostic services, radiation therapy services, physical and occupational
therapy services,  durable medical equipment,  parenteral and enteral nutrients,
equipment and supplies,  prosthetics,  orthotics, outpatient prescription drugs,
home health  services,  and  inpatient and  outpatient  hospital  services.  The
penalties  for  violating  Stark II  include a  prohibition  on payment by these
government programs and civil penalties of as much as $15,000 for each violative
referral and $100,000 for  participation in a "circumvention  scheme." The Stark
legislation  is broad and  ambiguous.  Interpretive  regulations  clarifying the
provisions  of Stark II have not been issued.  Florida has also enacted  similar
self-referral  laws.  The Florida  Patient  Self-Referral  Act of 1992  severely
restricts patient referrals for certain services by physicians with ownership or
investment  interests,  requires disclosure of physician ownership in businesses
to which  patients  are referred  and places  other  regulations  on health care
providers.  While the Company  believes it is in compliance with the Florida and
Stark   legislation,   and  their  exceptions,   future  laws,   regulations  or
interpretations  of current law could  require the Company to modify the form of
its relationships with physicians and ancillary service providers. Moreover, the
violation of Stark I or II or the Florida Patient  Self-Referral  Law of 1992 by
the  Company's  Physician  group could result in  significant  fines and loss of
reimbursement which would adversely affect the Company.


      As a result  of the  continued  escalation  of health  care  costs and the
inability of many  individuals to obtain health  insurance,  numerous  proposals
have been or may be  introduced  in the U.S.  Congress  and  state  legislatures
relating to health care  reform.  There can be no  assurance  as to the ultimate
content,  timing or effect of any  health  care  reform  legislation,  nor is it
possible at this time to estimate the impact of potential legislation, which may
be material on the Company.


EMPLOYEES


      As of October 10, 1997 the Company had 103  full-time  and five  part-time
employees.  Of the total, 17 were employed at the Company's corporate office. No


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<PAGE>

employee of the Company is covered by a  collective  bargaining  agreement or is
represented by a labor union. The Company considers its employee relations to be
good.


ITEM 2. DESCRIPTION OF PROPERTY


      The Company's  Executive  offices are located at 5100 Town Center  Circle,
Suite 560, Boca Raton,  Florida 33486 where it occupies  3,800 square feet and a
monthly rental of approximately  $8,836.00 pursuant to a sublease expiring April
15, 2000.


      MetBilling Group, Inc.  occupies  approximately  2,490 square feet in Boca
Raton,  Florida 33486,  at a monthly rental of  approximately  $3,321.00,  which
lease expires on April 15, 2000.


      Magnetic Imaging Systems,  I, Ltd. also leases  approximately 4,656 square
feet for diagnostic facilities located in Fort Lauderdale,  Florida at a monthly
rental rate of  approximately  $14,126 which lease expires April 30, 1999 and is
leased from Dr. Kagan, a Director of the Company.


      The Company also leases  approximately  5,740  square feet for  diagnostic
facilities in Fort Lauderdale, Florida at a monthly rate of approximately $6,708
which lease expires January 31, 1999 and is leased from KFK Enterprises, Inc., a
corporation  in which Dr.  Kagan,  a Director  of the  Company,  is a  principal
shareholder which was entered into on favorable terms for Dr. Kagan.


      None of the  Company's  properties,  except as  otherwise  indicated,  are
leased from affiliates.


ITEM 3. LEGAL PROCEEDINGS.


      The Company is not a party to any material legal  proceedings  and, to the
best of the Company's information, knowledge and belief, none is contemplated or
has been threatened, other than stated below.


      Datascan  and the  Company  have  been  named as  defendants  in a lawsuit
wherein a former Datascan employee is alleging  employment  discrimination.  The
lawsuit seeks unspecified  punitive and economic  damages.  The Company believes
that these  claims are  without  merit,  and intends to  vigorously  defend this
action.  At this time,  the Company is unable to estimate the  possible  loss or
range of loss that would occur if this action were judged unfavorably.

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<PAGE>

      On September 25, 1996,  pursuant to a merger agreement ("FRSI Agreement"),
the  Company,  acquired  Florida  Rehabilitation  Services,  Inc.  ("FRSI")  and
Southeast Medical  Staffing,  Inc. ("SMSI" and collectively "FR Group") from the
sole  shareholder  of both  companies.  On December  31,  1996,  the Company has
rescinded this  transaction as a result of the Company's belief that a breach of
the agreement has occurred and requested the return of all  consideration  paid.
In  connection  therewith,  the Company has cancelled the shares of common stock
issued as part of the purchase price and will take all action  necessary for the
return of all cash and other expenses paid in connection  with the  transaction.
The merger  transaction  is not  reflected in the financial  statements  and the
common stock is not considered to be outstanding at June 30, 1997

      During the year ended June 30, 1997,  the Company  reserved  approximately
$72,000 of advances incurred in connection with this transaction.

      In January  1997, a medical  billing  group filed a complaint  against the
company and FR Group claiming  breach of a funding and security  agreement,  and
economic damages of approximately  $150,000 plus treble damages of approximately
$208,000.  Although the Company believes it has meritorious defenses against the
suit,  the ultimate  resolution of the matter could result in a material loss to
the Company.


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


      No matter was  submitted  to a vote of the security  holders,  through the
solicitation of proxies or otherwise, during the fourth quarter of 1997.










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


      The Company's Common Stock and Warrants are currently traded on the NASDAQ
SmallCap  Stock  Market  ("NASDAQ")  under the symbols  "MDPA" and  "MDPAW." The
following  table sets forth,  since the  Company's  initial  public  offering on
February  14,  1997,  the high and low closing  values for the common  stock and
warrants, as reported by NASDAQ:

                                               HIGH                      LOW
                                               ($)                       ($)

COMMON STOCK                 
            
Quarter ended March 31, 1997                   7.56                      3.56
Quarter ended June 30, 1997                    5.37                      3.18
            
WARRANTS    
            
Quarter ended March 31, 1997                   2.75                      1.00
Quarter ended June 30, 1997                    1.28                      0.50



      The Company has not declared or paid any  dividends on common  stock.  The
Company presently intends to invest its earnings, if any, in the development and
growth of its operations.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      As noted in Item I -  "Description  of  Business  -General",  Metropolitan
Health Network,  Inc. was formed in January 1996 for the purpose of developing a
vertically and horizontally integrated health care delivery network in the south
Florida area. The framework of the network was to be built through  acquisition,
internal  development,  management  of  non-owned  practices,  and  the  network
affiliations.  On February  13, 1997 the Company  completed  its initial  public
offering.

      From its inception  through the offering,  the Company's  activities  were
primarily  limited to the  start-up  activities,  including  raising of capital,
recruiting  key operating  personnel,  obtaining and  implementing  computerized
billing,  collections and operational  information systems,  negotiating network
acquisitions, and setting up the infrastructure of the network.

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<PAGE>

      The Company took operational control of its first acquisitions in February
(MRI  Scan  Center  and  Datascan  of  Florida).  These  two  companies  perform
diagnostic  services  and are a central  core to the  network.  The Company also
completed the acquisition of a physician  practice and is developing two medical
clinics prior to the fiscal year end.

      Another  integral  part of the framework of the network is the billing and
collection  of patient  visits.  The  Company has  launched  its own billing and
collection company (MetBilling Group), with the focus toward the most up-to-date
operational information and billing system to provide intra-network and external
services.  Though the  Company's  health care  provider  network is in the south
Florida  area,  MetBilling  Group  has  extended  its  service  area by  signing
contracts with hospital emergency rooms throughout the country.

Operating Revenues

      As previously noted,  Metropolitan  Health Network,  Inc.'s operations are
dependent upon the formation of its network.  During fiscal 1997, $ 6,782,000 or
91% of  the  Company's  total  revenue  of $  7,512,185  was  derived  from  its
diagnostic  companies.  The balance of revenues  primarily were derived from its
physician  practices.  The ratio of diagnostic  revenue to other  operations was
higher than  anticipated  due in part (as  previously  stated) to the  Company's
delay in acquiring  physician practices that would have enhanced the revenues of
the network.  The Company believes that the revenue  composition will shift away
from  diagnostics  and will  increase  as the  Company  increases  the number of
physicians  it merges,  manages  and  affiliates  into its  network.  Diagnostic
revenues  in the  last  part of the  fiscal  year  decreased  due to the loss of
certain direct  diagnostic  contracts and the aging  equipment at one of the MRI
Scan Center facilities.  The Company has recently entered into additional direct
contracts and has  contracted to purchase a new Super  Conductor  Open MRI to be
operational by the end of December.

      The Company has implemented a managed care/network  development department
to broaden  its  existing  managed  care  contracts  throughout  the network and
procure new managed care  agreements  with the inclusion of  affiliated  network
physicians.  The  Company  believes  this will  enable  the  Company to have the
multi-specialty/modality,  as well as geographical  presence necessary to obtain
these managed care contracts.  The Company has dedicated the resources necessary
to ensure the success of this plan by hiring a Director and full support staff.

      In addition to patient revenues,  approximately  $43,000 can be attributed
to Metbilling's  contractual  arrangements  from outside the medical group. This
represents  30 days of billings  from an  emergency  room  physician  group with
annualized  revenues expected to be approximately  $300,000.  Additionally,  the
Company  believes  its  billing  company  will expand in the next fiscal year by
providing  services to hospital  emergency rooms and other healthcare  providers
outside the network.


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<PAGE>

      Subsequent  to June  30,  1997,  the  medical  groups'  two  primary  care
facilities  been  restructured  within the last 60 days,  with the hiring of two
board certified physicians,  structural improvements and an aggressive marketing
campaign  under  way.  Both  facilities  will  be  structured  and  marketed  as
multispecialty clinics with emphasis on patient education and early prevention.

      The Company's  ability to increase  revenues and achieve  profitability is
dependent  in part upon its ability to expand its network,  maintain  reasonable
third party reimbursements,  obtain favorable managed care contracts, and expand
billing and collection  services for outside healthcare  providers.  There is no
assurance,  if or when,  the Company will achieve  profitability.  The Company's
prospects,  therefore,  must be  evaluated  in light of the risks  and  expenses
normally encountered by a new entrant into the health care industry.

      OPERATING  EXPENSES.  Operating expenses totaling  $9,520,128 for the year
ended June 30, 1997  consisted  primarily  of  expenses  incurred  for  payroll,
payroll taxes and benefits,  depreciation  and  amortization,  bad debt expense,
interest, rent and other general and administrative expenses.

      Payroll related  expenses  totaling  $4,259,916  represented  44.8% of the
total operating  expenses for the year ended June 30, 1997.  Payroll and related
expenses  increased  during  the  latter  part  of the  fiscal  year  due to the
additional corporate staff hired during the fourth quarter as well as the merger
of Dr. Wand's practice into the medical group. In the future,  revenue increases
will not require a  proportional  increase in staffing  relating to the internal
growth of revenues.

      Depreciation  and  amortization  totaling  $718,436  or 7.6% of the  total
operating expenses for the year ended June 30, 1997. The increases in the fourth
quarter are due to the purchase of the medical  information  system  utilized at
corporate for all billing and collections for the medical group.

      Bad debt  expense  amounting  to  $824,780  represented  8.7% of the total
operating  expenses for the year ended June 30, 1997. A  significant  portion of
the medical groups revenue is generated from personal injury type claims. Due to
the nature of this type of billing,  collections can require up to two years and
is not tied to any reimbursement  schedule.  Consequently,  exact reimbursements
cannot be defined at the time of service.

      Interest expense totaling $511,617 represented 5.4% of the total operating
expenses for the year ended June 30, 1997.  Approximately  $304,000 of the total
is due to interest on capital leases.

Page 23

<PAGE>

      Rent expense amounted to $668,460 or 7.0% of the total operating  expenses
for the year ended June 30, 1997.  MRI has three  fixed-site  locations plus one
warehouse.  Total rent expense related to these leases amounted to approximately
$257,000. All other entities are single site. The rent expense for the corporate
offices is  approximately  $120,000 for the year ended June 30,  1997.  There is
sufficient capacity at these locations for future growth of existing operations.

      Based upon the foregoing,  the Company  incurred a loss from operations of
$2,007,943 for the year ended June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

      Since its inception,  the Company has and continues to acquire  healthcare
providers.  In addition, the Company has allocated significant capital resources
to the  development  of its  infrastructure  through  the  purchase of a medical
information  system  and  hiring of  personnel.  Prior to any  acquisitions  the
Company financed its initial operations, through the initial public offering, by
the sale of Common Stock  through  private  placement  of  $334,127,  and bridge
financing of $897,362.

      The Company was delayed in its initial  public  offering by three  months.
Significant  funds were  expended  relating  to the  offering,  with  additional
expenses incurred during the subsequent  delay. The Company received  $3,394,408
in proceeds from the IPO, net of IPO-related  expenses,  and began investing the
funds in constructing the corporate  infrastructure along with acquiring medical
practices.  Management  anticipates future asset based and working capital lines
of credit as requirements to continue its aggressive growth through acquisitions
of healthcare  providers.  Subsequent to June 30, 1997,  the Company has entered
into  an  agreement  for  a  private  placement  of  preferred  stock  to  raise
approximately  $3  million  of  which,  to date,  $500,000  has  been  received.
Management believes that the above referenced  financing,  if and when received,
will provide the Company with  sufficient  working  capital for the expansion of
its network; and supplement any operational cash requirements although there can
be no  assurances  that  these  funds  will be  sufficient  that  any  necessary
financing will be available to the Company.


FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

      Except for historical  information contained herein, the matters discussed
in this report are  forward-looking  statements made pursuant to the safe harbor
provisions   of  the   Securities   Litigation   Reform   Act  of  1995.   These
forward-looking  statements are based largely on the Company's  expectation  and
are subject to a number of risks and  uncertainties,  including  but not limited
to, economic,  competitive and other factors affecting the Company's operations,
markets, expansion strategies,  available financing, and other factors discussed
elsewhere  in this  report  and the  documents  filed  by the  Company  with the
Securities  and  Exchange  Commission.  Many of these  factors  are  beyond  the
Company's   control.   Actual   results   could  differ   materially   from  the


Page 24

<PAGE>

forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the  forward-looking  information  contained in this report
will, in fact, occur.

ITEM 7. FINANCIAL STATEMENTS.


      The financial statements required to be filed hereunder are included under
Item 13 (a) (1) of this report.


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


None.














Page 25

<PAGE>


                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.


      As of October  13,  1997,  the  directors  and  executive  officers of the
Company are as follows:

<TABLE>
<CAPTION>

NAME                    AGE   TITLE
----                    ---   -----

<S>                     <C>   <C>                                                          
Noel J. Guillama        37    Chairman, President, Chief Executive and Operating Officer
Donald B. Cohen         43    Executive Vice President, Chief Financial Officer,
                              Treasurer, Secretary and Director
Luis J. Crucet, Jr.     43    Executive Vice President
                              President - MetBilling Group, Inc.
Roman G. Fisher         49    Executive Vice President
                              Chief Operating Officer - MRI Scan Center
Robert L. Kagan, M.D.         50    Medical Director - MRI Scan Center, Director
Kenneth J. Hall         59    President of Datascan, Director
_________________
</TABLE>


      NOEL J. GUILLAMA has served as Chairman, President and Chief Executive and
Operating  Officer of the Company since inception in January 1996.  During 1995,
Mr.  Guillama  served as a health care  consultant to public and private  health
care  providers.   During  1995,  he  was  Vice  President  of  Development  for
MedPartners,  Inc., a Birmingham,  Alabama-based  physician practice  management
public  company.  From 1991 to 1994, he served as Director and Vice President of
Operations of Quality Care Networks, Inc. From 1980 to 1990, Mr. Guillama served
as President and Chief Executive Officer of JMG Corporation, Inc., a diversified
company with interest in  construction,  real estate,  mortgage  financing,  and
trucking in South Florida.


Page 26

<PAGE>


      DONALD B. COHEN has served as Chief Financial  Officer and Director of the
Company since April 1996,  Executive Vice  President  since April 1, 1997 and as
Secretary  since  October  1,  1997.  Mr.  Cohen was Vice  President  and CFO of
ProSports  Video  Response,  Inc.,  from 1989 to 1992, Vice President and CFO of
BDS, Inc., from 1987 to 1989, and Director of Finance of Tel-Plus  Communication
of  Southern  California  from 1984 to 1986.  Prior to his  employment  with the
Company,  from 1993 to 1995,  Mr. Cohen worked for Ocwen  Financial  Corporation
designing and  implementing a loan  accounting  system.  Mr. Cohen has extensive
experience in information  systems and start-up  ventures.  Mr. Cohen received a
Bachelor of Science degree from California  State  University in Northridge.  In
1981, Mr. Cohen was certified as a CPA in the State of California.


      DR.  ROBERT L. KAGAN has served as a Director of the Company since October
1996.  Dr.  Kagan owned and  operated the MRI Center from 1984 until its sale to
the  Company in  September  1996.  Prior  thereto he served as  Director  of the
Department of Nuclear  Medicine at Holy Cross Hospital in Fort  Lauderdale.  Dr.
Kagan has 20 years of experience in clinical pathology and nuclear medicine. His
numerous  distinctions  include  diplomate of the American Board of Pathology in
clinical  Pathology,  Chairman of the American  Society of Clinical  Pathology's
Board of  Registry  in Nuclear  Medicine,  diplomate  of the  American  Board of
Nuclear  Medicine.   Past  President  of  the  Florida  Association  of  Nuclear
Physicians,  and former  Assistant  Professor of Radiology at the  University of
Miami.  Dr. Kagan received his MD degree from  Georgetown  University  School of
Medicine in  Washington,  DC, and his  Bachelor  of Arts  degree  from  Bucknell
University in Lewisburg, Pennsylvania.


      KENNETH J. HALL has  served as a Director  of the  Company  since  October
1996.  Mr. Hall founded  Datascan of Florida,  Inc., in 1981, and since then has
served as its  President  and  Director.  Datascan  provides  mobile  diagnostic
services to individual  physician  practices and hospitals in Dade,  Broward and
Palm Beach Counties. He is responsible for day-to-day administration,  including
finance and budgeting, operations, development, logistics, management, sales and
marketing.  Mr.  Hall also has  extensive  experience  in sales,  marketing  and
management  with  several  international   companies,   such  as  Merck  &  Co.,
Hoffman-LaRoche and Metpath Laboratories Corning.


Page 27

<PAGE>

      LUIS J. CRUCET,  JR.  joined the Company in April 1996 as  Executive  Vice
President.   Mr.  Crucet  is  also  President  of  MetBilling  Group,   Inc.,  a
wholly-owned  subsidiary of the Company.  MetBilling handles all billing for the
Company and for other  unrelated  third party  customers.  From 1991 to 1996, he
founded and served as President of MedBilling  Group, Inc.  MedBilling  provided
billing and collection  services to physicians and diagnostic  facilities in the
south Florida area. From 1989 to 1992, Mr. Crucet served as Regional Director of
Information  Services for Columbia  Hospital  Corporation in the tri-county area
before that from 1985 to 1989,  as Director  of Systems  Development  at Florida
Medical Center in Fort Lauderdale. Before entering the health care industry, Mr.
Crucet worked with American  Express as a Project  Leader,  where he developed a
front-end-capture financial system.

      ROMAN G. FISHER has served as Executive  Vice President  since  September,
1996.  Since 1985 Mr. Fisher has served as Chief Operating  Officer and Director
of the MRI Scan Center.  He specializes  in  administration,  staff  management,
information  systems  selection  and  implementation,  accounting,  payroll  and
database  management.  Since 1985, Mr. Fisher has initiated and  implemented key
administrative  policies  and  procedures  at the MRI Scan  Center.  Mr.  Fisher
studied   engineering  and  mathematics  at  George  Washington   University  in
Washington,  DC,  received a Masters of Science  degree from Nova  University in
Fort Lauderdale,  Florida,  and earned a law degree from the University of Basel
in Switzerland.


BOARD OF DIRECTORS

Election of Officers

      Each director is elected at the Company's  annual meeting of  shareholders
and holds office  until the next annual  meeting of  stockholders,  or until the
successors are elected and qualified.  At present,  the Company's bylaws provide
for not less than one (1) director.  Currently,  there are four (4) directors in
the Company;  however, the Company will seek to elect a least two (2) additional
outside  directors by the end of 1997.  The bylaws permit the Board of Directors
to fill any vacancy and such director may serve until the next annual meeting of
shareholders  or until his  successor  is elected and  qualified.  Officers  are
elected by the Board of Directors  and their terms of office are,  except to the
extent governed by employment  contracts,  at the discretion of the Board. Other
than as indicated  above,  there are no family  relations  among any officers or
directors  of the Company.  The officers of the Company  devote full time to the
business of the Company.

      Mr.  Guillama,  Dr. Kagan and Ms.  Hilderbrand,  a fifteen  (15%)  percent
shareholder of the Company have entered into a cross-nominating  agreement/proxy
that  requires each to vote all of their  respective  shares of Common Stock for
the  re-election of Mr.  Guillama and Dr. Kagan to the Board of Directors.  This
agreement  is valid for the period of time Dr. Kagan is employed by the Company.


Page 28

<PAGE>

Accordingly,  Mr. Guillama,  Dr. Kagan and Ms.  Hilderbrand,  collectively under
this  agreement,  are in a position to control the election of directors as well
as the other affairs of the Company.

Board Committees

      The Company has three (3) committees,  an Audit,  Compensation  and Option
Committee,  as well as an Advisory Board.  The Audit  Committee  consists of Mr.
Guillama and Mr. Hall. The Audit Committee makes recommendations to the Board of
Directors regarding the selection of independent  auditors,  reviews the results
and scope of the audit and other services provided by the Company's  independent
auditors, and review and evaluates the Company's internal control functions.

      The  Compensation  Committee  consists of Messrs.  Guillama and Kagan. The
Compensation   Committee  makes   recommendations  to  the  Board  of  Directors
concerning compensation for executive officers and consultants of the Company.

      The Option  Committee  consists of Messrs.  Guillama and Cohen. The Option
Committee administers the Company's Stock Option Plan.

ADVISORY BOARD

      The Advisory  Board  ("Advisory  Board")  consists of Dr. Robert Kagan who
serves as Chairman,  Kenneth J. Hall and a designee, who has not been identified
as of the date hereof, appointed by the Managing Underwriter.
      The members of the Advisory  Board  advise and consult with the  Company's
Board of  Directors  on an informal  basis from time to time as requested on any
and all  matters  designated  by the Board of  Directors.  Except  for  employee
members, the members are not expected to devote their efforts exclusively to the
business of the Company and will spend only such time on such business as needed
by the Company at the mutual  convenience  of the Company and such members.  The
Advisory Board has no formal duties, authority or management obligations.  There
is no written agreement between the Company and any member of the Advisory Board
providing  for  compensation  for services  rendered.  However,  the Company may
compensate  each  such  member  at  competitive  rates as and when  such  member
performs work for the Company.

COMPENSATION OF DIRECTORS

      The Company reimburses all directors for their expenses in connection with
their  activities  as directors of the Company.  The directors  make  themselves
available to consult with the Company's management.  All of the directors of the
Company  are  also  employees  of the  Company  and do  not  receive  additional
compensation for their services as directors.

Page 29

<PAGE>

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

      Section  16(a)  of the  Securities  Exchange  Act  of  1934  requires  the
Company's  directors and executive  officers,  and persons who own more than ten
(10%) percent of the  outstanding  Common Stock, to file with the Securities and
Exchange  Commission  (the "SEC")  initial  reports of  ownership  on Form 3 and
reports of changes in  ownership  of Common  Stock on Forms 4 or 5. Such persons
are  required by SEC  regulation  to furnish the Company with copies of all such
reports they file.

      Based solely on its review of the copies of such reports  furnished to the
Company or written  representations  that no other  reports were  required,  the
Company  believes that all Section 16(a) filing  requirements  applicable to its
officers,  directors  and  greater  than (10%)  percent  beneficial  owners were
complied  with  during  the year  ended  June  30th,  1997.





















Page 30

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

      The following tables present information  concerning the cash compensation
and stock options  provided to the Company's  Chief  Executive  Officer and each
additional  executive  officer  whose  total  annualized  compensation  exceeded
$100,000 for the period from inception  (January 16, 1996) to June 30, 1996, and
for year ended June 30, 1997 ("fiscal 1997").  The notes to these tables provide
more specific information regarding compensation.

                          SUMMARY COMPENSATION TABLE

                             Annual Compensation
                             -------------------

<TABLE>
<CAPTION>

                                                                              Long-term
                                                                            Compensation
                                                                               Awards
                                                                             Securities
                                                                             Underlying
                                                              Other Annual    Options/
        Name and            Fiscal      Salary        Bonus   Compensation      SARs       All Other
   Principal Position        Year          $            $         ($)            (#)      
Compensation
   ------------------        ----          -            -         ---            ---      ----------
--
<S>                        <C>         <C>         <C>         <C>          <C>           <C>
Noel J. Guillama           1996        32,000
Chairman of the Board,     1997        67,100       37,027        --
President,
Chief Executive Officer

Robert L. Kagan, MD        1997       500,000      151,017
Director, Medical
Director - MRI Scan
Center

Kenneth J. Hall            1997       150,000
Director, President -
Datascan of Florida, Inc.

Roman G. Fisher            1997       125,000       15,166
Executive Vice
President, Chief
Operating Officer - MRI
Scan Center

</TABLE>










Page 31

<PAGE>

               Options Granted in the Year Ended June 30, 1997
               -----------------------------------------------
<TABLE>
<CAPTION>
                  Number of
                 Securities        % of Total
                 Underlying         Options/
                  Options/            SARs
                    SARs           Granted to     Exercise or Base
                   Granted        Employees in         Price           Expiration
                   (a)(#)         Fiscal Year        ($/Share)            Date
                   ------         -----------        ---------            ----
<S>               <C>              <C>               <C>              <C>  
Name

Noel J. Guillama  100,000          33.3%             $10.00           9/5/2000
Roman Fisher      128,000          42.6%             $1.00 to $18.00  9/4/2001 to 9/4/2004

</TABLE>


Total number of options granted during the year ended June 30, 1997 was 300,500.

Aggregated Fiscal Year-End Option Value Table

      The following table sets forth certain information  concerning unexercised
stock options as of June 30, 1997.  Noel J. Guillama  exercised  200,000 options
during the period ended June 30, 1997. No stock appreciation rights were granted
or are outstanding.

                                                    Value of Unexercised
                    Number of Unexercised Options   In-The-Money
                    Held at June 30, 1997           Options at June 30, 1997
Name                Exercisable  Unexercisable      Exercisable    Unexercisable
----                -----------  -------------      -----------    -------------
                    (#)          (#)                ($)            ($)
Noel J. Guillama    270,000                         625,677
Donald B. Cohen      92,000       28,000            124,186
Luis J. Crucet, Jr.  75,500       39,500            110,387
Roman Fisher         41,500       86,500             77,158

(i) The closing  sale price of the Common  Stock on June 30, 1997 as reported by
NASDAQ  was  $3.81  per  share.  Value  is  calculated  by  multiplying  (a) the
difference  between $3.81 and the option  exercisable price by (b) the number of
shares of Common Stock underlying.

Page 32

<PAGE>

      COMPENSATION OF DIRECTORS. For the fiscal period ending June 30, 1997, all
directors who received remuneration in excess of $100,000 are listed above.


      EMPLOYMENT AGREEMENTS.


      The  Company  has  entered  into  a five  (5)  year  Employment  Agreement
("Agreement")  with Noel J.  Guillama,  the  President  and Chief  Executive and
Operating  Officer  of the  Company  effective  on the  effective  date  of this
Offering.  The terms of the Agreement call for a salary of no less than $100,000
each  year.  Mr.  Guillama  is  also  eligible  for a bonus  equal  to 5% of the
Company's  earnings  before income taxes in excess of $2,000,000 per year plus a
bonus equal to 1/2 of 1% of the gross  revenues of the Company for each quarter.
Mr. Guillama will also receive healthcare benefits, life insurance, a retirement
plan and car allowance of $700 a month.  Mr.  Guillama  will receive  options to
purchase  100,000 shares of the Company's  Common Stock at $10.00 per share, and
options to purchase  an  additional  50,000  shares at $10.00 per share for each
$20,000,000  increase in the Company's revenues until it reaches $100,000,000 in
revenues.


      In the event Mr. Guillama is terminated for cause or voluntarily  resigns,
he shall be subject to a  non-competition  clause for a period of two years. Mr.
Guillama's  Agreement also provides that he shall be deemed to be constructively
terminated in the event of a change of control of the Company or the election of
a chairman. In such event, the Company would be required to pay Mr. Guillama the
balance of the  Employment  Agreement,  register  all of the shares  held by Mr.
Guillama, his family and any stock owned by his affiliated entities.


      The Company has entered into a five (5) year employment agreement with Dr.
Robert  Kagan,  the Medical  Director  for the MRI Scan Center.  The  employment
agreement  specifies  a yearly  salary  of  $600,000,  and a 10%  bonus of total
collected revenues.  Total compensation,  salary and bonus, not to exceed 15% of
total collected revenues of NMI. In addition, Dr. Kagan is entitled to a monthly
automobile  allowance of $700 and five weeks vacation.  The agreement  commenced
September 1, 1996 and expires August 31, 2001 and shall  automatically renew for
successive  five year (5) terms unless notice is given at least ninety days (90)
prior to the expiration  date. As of this date, the Company is delinquent in the
payment of certain bonuses in the amount of  approximately  $50,000 to Dr. Kagan
which amount will be paid from cash flow.


      On June 30, 1997, the Company and Dr. Robert Kagan modified the employment
contract  between the Company and Dr. Robert Kagan.  Dr. Robert Kagan agreed to,
effective July 1, 1997 and for the life of the contract,  to have his bonus paid
only in months  where the MRI Scan  Center had  positive  cash flow and that all
accruals that went beyond 90 days due to lack of cash flow,  would be lost.  Dr.
Robert Kagan further agreed to read 1,293 scans per quarter.

Page 33

<PAGE>


      The Company has entered  into a five (5) year  employment  agreement  with
Kenneth Hall, President of Datascan. The employment agreement specifies a yearly
salary of $200,000 and a bonus of 5% of pre-tax profits over $400,000.  Mr. Hall
is entitled to receive a monthly automobile allowance of $600 and four weeks (4)
vacation. The agreement commenced September 30, 1996 and expires August 31, 2001
with annual renewals thereafter.


      Nuclear Magnetic Imaging,  Inc., (a subsidiary of the Company) has entered
into a five (5) year  employment  agreement with Roman Fisher whereby Mr. Fisher
functions as the Chief Operating  Officer of the MRI Scan Center and also serves
as Executive Vice President of the Company.  The employment  agreement  provides
for base  compensation of $150,000 per year for serving as COO plus 5% of EBITDA
in excess of $800,000 per year plus a bonus of 0.0033% of the gross  revenues of
the MRI  Scan  Center,  a car  allowance  of $500 per  month,  and  three  weeks
vacation.  The employment  agreement  additionally  provides  125,000 options to
purchase  the  Company's  stock  exercisable  from  the  date of the  employment
agreement and for three (3) years thereafter if he remains employed,  at a price
of from $1.00 to $18.00 per share. The employment  agreement commenced September
1, 1996 and expires  August 31, 2001,  which may be renewed for up to two, three
year terms.


      The Company expects to negotiate long term Employment  Agreements with Mr.
Cohen and Mr.  Crucet,  but no  assurance  can be given that the Company will be
successful in such negotiations.












Page 34

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


      The following table sets forth certain information regarding the Company's
Common  Stock  beneficially  owned at October 10, 1997 (i) by each person who is
known by the  Company to own  beneficially  5% or more of the  Company's  common
stock;  (ii) by each  of the  Company's  directors;  and  (ii) by all  executive
officers and directors as a group.

                                                            Percentage of
Name/Address of                 Beneficial Ownership      Beneficial Ownership
Beneficial Owner                   Common Stock                Common Stock
----------------                   ------------                ------------

Noel J. Guillama(1)(9)                  876,726                   13.66%
Robert L. Kagan, M.D.(2)(9)(10)         775,000                   12.08%
Kenneth J. Hall(3)                      354,000                    5.52%
Donald B. Cohen(4)                      102,000                    1.59%
Luis Crucet, Jr.(5)                     115,500                    1.80%
Roman G. Fisher(6)                       93,900                    1.46%
Bonnie Hilderbrand(7)(9)10              875,000                   13.63%
Martin Harrison, M.D.(8)                516,154                    8.04%

Directors and Executive
Officers as a group
(8 persons)                           3,708,280                   57.78%
_________________


(1)   Includes  (1) 100,000  shares  held by Mr.  Guillama's  wife,  (2) 265,000
      shares held by Guillama Family Holdings,  Inc., a corporation in which Mr.
      Guillama  is a  shareholder,  (3) 142,000  shares held by Mr.  Guillama as
      trustee for his minor son, (4) 15,000 shares owned by Beacon Equity Group,
      a corporation in which Mr. Guillama is a director, (5) 84,000 shares owned
      by Beacon Consulting Group, Inc., a corporation in which Mr. Guillama is a
      director,  (6) 135,000 shares issuable upon exercise of options at a price
      of $.10 per share until  September 5, 2001,  (7) 100,000  shares  issuable
      upon exercise of options at a price of $10.00 per share until September 5,
      2001,  and (8) 35,000 shares  issuable upon exercise of options at a price
      of $.50  until  April 15,  2001,  pursuant  to Mr.  Guillama's  Employment
      Agreement. Does not include up to 250,000 shares issuable upon exercise of
      options  at a  price  of  $10.00  per  share  pursuant  to Mr.  Guillama's
      Employment Agreement. See "Management - Employment Agreements."


(2)   Includes 175,000 shares issuable upon exercise of an option granted by Ms.
      Hilderbrand,  exercisable  at a price  of $.01  per  share  commencing  on
      February 13, 1997, and continuing for a period of 5 years thereafter. Does
      not include 400,000 shares which may be issued pursuant to the Acquisition
      Agreement  and  the  achievement  of  certain  earnings  criteria  for the
      acquired practice.

Page 35

<PAGE>


(3)   Does not  include  51,000  shares  which  may be  issued  pursuant  to the
      Acquisition Agreement and the achievement of certain earnings criteria for
      the acquired practice.


(4)   Includes (1) 16,000 shares issuable upon exercise of options at a price of
      $.50 per share until  October 15, 2001,  (2) 20,000  shares  issuable upon
      exercise of options at a price of $.50 per share  until  November 1, 2001,
      and (3) 14,000  shares  issuable  upon  exercise  of options at a price of
      $5.00 until January 15, 2002.  Does not include (1) 14,000 shares issuable
      upon  exercise  of options of a price of $6.00 per share at any time after
      April 29, 1997 until  April 29,  2002;  (2) 14,000  shares  issuable  upon
      exercise  of options at a price of $8.00 per share at any time after April
      29, 1997 until April 29, 2002; (3) 14,000 shares issuable upon exercise of
      options at a price of $10.00 per share at any time  after  April 29,  1997
      until April 29, 2002.


(5)   Includes (1) 30,000 shares issuable upon exercise of options at a price of
      $.50 per option  until  July 31,  2001,  (2) 2,000  shares  issuable  upon
      exercise of options at a price of $.50 per share until  October 15,  2001,
      (3) 13,500  issuable  upon  exercise  of options at a price of $7.00 until
      December 31, 2001, and (4) 3,000 shares  issuable upon exercise of options
      at a price of $5.00 until  January 15,  2002.  Does not include (1) 13,500
      shares  issuable upon exercise of options at a price of $9.00 per share at
      any time after  April 30,  1997 until April 30,  2002;  (2) 13,500  shares
      issuable  upon  exercise  of options at a price of $11.00 per share at any
      time after June 30, 1997 until June 30, 2002.


(6)   Includes (1) 25,000 shares issuable upon exercise of options at a price of
      $1.00 per share until  September 5, 2001;  (2) 3,000 shares  issuable upon
      exercise  of  options at a price of $10.00 per share  until  September  5,
      2001. Does not include (1) 13,500 shares issuable upon exercise of options
      at a price of $6.00 per share at any time after  March 5, 1997 until March
      5, 2002; (2) 13,500 shares issuable upon exercise of options at a price of
      $8.00 per option at any time  after  July 5, 1997 until July 5, 2002;  (3)
      13,500  shares  issuable upon exercise of options at a price of $10.00 per
      share at any time after November 5, 1997 until November 5, 2002.


(7)   Includes (1) 25,000  shares owned by each of Ms.  Hilderbrand's  three (3)
      children;  (2)  50,000  shares  held by a  corporation  of which  she is a
      stockholder;  and (3) 150,000 shares issuable upon the exercise of options
      at a price of $.10 per share until September 5, 2001.


(8)   Does not  include  156,923  shares  which  may be issued  pursuant  to the
      Acquisition Agreement and the achievement of certain earnings criteria for
      the acquired practice.


(9)   Mr.  Guillama,   Dr.  Kagan  and  Ms.  Hilderbrand  have  entered  into  a
      cross-nominating  agreement/proxy  that requires each to vote all of their
      respective  shares of Common Stock for the reelection of Mr.  Guillama and
      Dr.  Kagan to the  Board of  Directors.  This  agreement  is valid for the
      period of time Dr.  Kagan is employed  by the  Company.  Accordingly,  Mr.
      Guillama,   Dr.  Kagan  and  Ms.  Hilderbrand,   collectively  under  this
      agreement,  are in a position to control the election of directors as well
      as the other affairs of the Company.


(10)  With respect to the 175,000 shares (3% of the outstanding shares of Common
      Stock) subject to the option granted by Ms.  Hilderbrand to Dr. Kagan (see
      above),  Ms.  Hilderbrand  has agreed to vote such  securities in the same
      proportion as the vote of the other shareholders on all matters except for
      the election of directors (see above).  The Company has agreed to register
      the shares underlying the options within two years of February 13, 1997.

Page 36

<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The Company has a month to month consulting  agreement with Sternco,  Inc.
that  provides  for weekly draws of $1,500 per week  towards  commissions  to be
earned plus reimbursement of allowable expenses and a one time commission of 1/2
of 1% of the previous  year's  revenue of all  transactions  consummated  by the
Company as a result of Sternco, Inc.'s involvement, through January 31, 1997 and
thereafter  the  commission  will  be  increased  to 1% of  the  revenue  of all
transactions consummated as a result of Sternco, Inc.'s direct involvement.  The
Company will pay the  commissions  in either cash or stock.  Sternco,  Inc. is a
shareholder of the Company and is owned or controlled by Bonnie Hilderbrand, the
Company's second largest shareholder.

      The facility  leases  between Dr. Robert Kagan and the Company are for the
addresses 3122 East Commercial Boulevard and 3079 East Commercial Boulevard. The
property  located at 3122 East  Commercial  Boulevard is owned by Dr.  Kagan,  a
director of the  Company,  and leased by Magnetic  Imaging  Systems I, Ltd.  The
current rent is $14,126 per month net of expenses.  The total square  footage is
4,656 of office space plus an additional  2,000 square feet of garage.  Magnetic
Imaging  Systems,  I,  Ltd.  built  the  garage  in 1987.  The  total  leasehold
improvements were approximately $285,289 at this location.  Independent property
appraisals  were  performed and both valued the properties at a maximum of $22 a
square foot net of  expenses.  Magnetic  Imaging  Systems,  I, Ltd. is currently
paying  $36.40 a square foot net of expenses for the 4,656 square feet of office
space.  The Company  intends to  renegotiate  the lease  between  Dr.  Kagan and
Magnetic Imaging Systems,  I, Ltd.,  however,  no assurance can be made that the
Company will be successful. This lease expires April 30, 1999, at which time the
Company may seek to move to a less expensive location.

      The property  located at 3079 East Commercial  Boulevard,  is owned by KFK
Enterprises, Inc., a Florida corporation and leased by Magnetic Imaging Systems,
I, Ltd.  Dr.  Kagan,  a director of the Company  owns  approximately  50% of KFK
Enterprises.  The rental  payment is $6,708 per month and the  property is 5,740
square feet. Thus,  Magnetic  Imaging Systems,  I, Ltd. is paying $14 per square
foot net of expenses.  The Company  believes that this price is equal to current
market value.  Magnetic Imaging Systems, I, Ltd. made leasehold  improvements of
$139,289 at this location. This lease expires January 31, 1999.

      All future transactions  between the Company and any officer,  director or
5%  shareholder  will be on terms no less  favorable than could be obtained from
independent  third parties and will be approved by a majority of the independent


Page 37

<PAGE>

disinterested  directors of the  Company.  The Company  believes  that all prior
affiliated transactions except those identified above were made on terms no less
favorable to the Company than available from  unaffiliated  parties.  Loans,  if
any, made by the Company to any officer,  director or 5% stockholder,  will only
be made for bona fide business purposes.























Page 38

<PAGE>



ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.


(a) (1) Financial Statements


      The financial  statements  listed on the index to financial  statements on
page F-1 are filed as part of this Form 10KSB.


(a) (2) Exhibits


      Exhibits marked with footnote one are filed herewith. The remainder of the
exhibits have  heretofore  been filed with the Commission  and are  incorporated
herein  by  reference.   Each  management   contract  or  compensation  plan  or
arrangement filed as an exhibit hereto is identified by a dagger (+).


Exhibit                       
Number                  Description
------                  -----------
                       
        3.1     Articles of Incorporation.


        3.2     Articles of Amendment to the Articles of Incorporation.


        3.3     By-laws.


        4.1     Specimen Common Stock Certificate.


        4.2     Specimen Common Stock Purchase Warrant.


        4.4     Underwriter's Warrant Agreement.


        4.5     Underwriter's Warrant.


        4.6     Warrant Agreement.


        4.7     Specimen of Private Placement Warrant

Page 39

<PAGE>


        10.1    Stock Option Plan.


        10.     Executive  Employment  Agreement between the Company and Noel J.
                Guillama.


        10.3    Executive Employment Agreement between the Company and Robert L.
                Kagan, M.D.


        10.4    Sub-Lease  Agreement  with the Company and Safeskin dated August
                1, 1996.


        10.5    Purchase and Sales Agreement  between the Company,  Roman Fisher
                and Ofra Fisher dated August 13, 1996.


        10.6    Purchase and Sales Agreement between the Company and Edwin Kagan
                dated August 13, 1996.


        10.7    Agreement  between  the  Company  and  Dr.  Robert  Kagan  dated
                September 1, 1996.


        10.8    Merger  Agreement  between the Company,  Florida  Rehabilitation
                Services,   Inc.,  Southeast  Medical  Staffing,  Inc.  and  Dr.
                Frederick J. Kunen dated September 25, 1996.


        10.9    Stock Purchase  Agreement between the Company,  Kenneth J. Hall,
                Ira P. Hall, Lee M. Hall and Michael  Goldstein  dated September
                26, 1996.


        10.10   Assets  Purchase  Agreement  between the Company,  International
                Family  Healthcare  Centers,  Inc. and Emergency  Care Services,
                Inc. dated October 15, 1996.


        10.11   Merger  Agreement  between the Company,  Metcare II, Inc.,  Paul
                Wand, M.D., P.A., and Paul Wand dated October 24, 1996.


        10.12   Merger  Agreement dated August 6, 1997 by and among the Company,
                Metcare, GMA and Martin Harrison, M.D.


        10.2    Promissory Note dated August 6, 1997.


Page 40

<PAGE>

        10.13   Promissory  Note dated December 23, 1993 by Datascan of Florida,
                Inc. to First Union National Bank.


        10.14   Promissory Note dated September 1, 1996 by the Company to Robert
                L. Kagan.


        10.15   Promissory Note dated September 1, 1996 by the Company to Robert
                L. Kagan.


        10.16   Promissory Note dated September 1, 1996 by the Company to Robert
                L. Kagan.


        10.17   Promissory  Note  dated  September  25,  1996 by the  Company to
                Frederick J. Kunen.


        10.18   Promissory  Note  dated  October  15,  1996  by the  Company  to
                International Family Healthcare Center, Inc.


        10.19   Executive  Employment  Agreement between the Company and Kenneth
                Hall.


        10.20   Executive  Employment  Agreement  between  the Company and Roman
                Fisher.


        10.21   Agreement between Mr. Guillama, Mr. Kagan and Ms. Hilderbrand


        10.22   Consulting  Agreement  between  the  Company  and  Euro-Atlantic
                Securities, Inc.


        10.23   Consulting Agreement between the Company and Sternco, Inc.


        10.24   Letter  of  Intent  between  the  Company  and  General  Medical
                Associates, Inc.


        10.25   Lease Agreement between the Company and Champion Technologies of
                Florida, Inc.


        10.26   Consulting  Agreement  dated July 28, 1997,  between the Company
                and Lion Capital

Page 41

<PAGE>


        10.27   Merger Agreement dated August 6, 1997, by and among the Company,
                MetCare, GMA and Martin Harrison, MD


        10.28   Promissory  Note  dated  August 6, 1997,  by the  Company to Dr.
                Harrison, MD


        21      Subsidiaries of the Company.


        23.1    Consent of Kaufman, Rossin and Company. (1)


        23.2    Consent  of Atlas,  Pearlman,  Trop & Borkson,  counsel  for the
                Company (included in opinion filed in Exhibit 5.1).


        23.3    Consent of Jesse Small, C.P.A.(1)


        23.4    Consent of Barry I. Hechtman, P.A.


        23.5    Consent of Goldstein Lewin & Co. (1)


        27      Financial Data Schedule

___________________



(1) Filed herewith








Page 42

<PAGE>




                                   SIGNATURES


      Pursuant to the  requirements  of the  Securities  Act,  as  amended,  the
registrant  has duly  caused  this Form 10-KSB to be signed on its behalf by the
undersigned,  thereunto duly  authorized in the Boca Raton,  State of Florida on
the 14th day of October, 1997.

                                   METROPOLITAN HEALTH NETWORKS, INC.


                                   By: /s/Noel J. Guillama
                                      --------------------
                                      NOEL J. GUILLAMA
                                      President, Chief Executive and
                                      Operating Officer and Chairman


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

         
     SIGNATURE                      TITLE                              DATE
     ---------                      -----                              ----

/s/  NOEL J. GUILLAMA         President, Chief Executive       October 14, 1997
---------------------------   and Operating Officer   
Noel J. Guillama              (Principal Executive   
                              Operating Officer) and 
                              Chairman of the Board  
                              

/s/  DONALD B. COHEN          Vice President of Finance,       October 14, 1997
---------------------------   Chief Financial Officer,
Donald B. Cohen               Treasurer, Secretary    
                              and Director            
                              

/s/  ROBERT L. KAGAN, M.D.    Director                         October 14, 1997 
---------------------------                                    
Robert L. Kagan, M.D.

/s/  KENNETH J. HALL          Director                         October 14, 1997 
---------------------------                                    
Kenneth J. Hall















Page 43

<PAGE>

________________________________________________________________________________

                      METROPOLITAN HEALTH NETWORKS, INC.
                               AND SUBSIDIARIES
                      CONSOLIDATED FINANCIAL STATEMENTS
                                JUNE 30, 1997
________________________________________________________________________________



C O N T E N T S
                                                                           Page
________________________________________________________________________________

INDEPENDENT AUDITORS' REPORT                                                F-2

CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheet                                                         F-3 

      Statements of Operations                                              F-4

      Statements of Changes in Stockholders' Equity                         F-5

      Statements of Cash Flows                                        F-6 - F-7 
 
      Notes to Financial Statements                                  F-8 - F-22





























                                      F-1



<PAGE>


INDEPENDENT AUDITORS' REPORT
________________________________________________________________________________


To the Board of Directors and Stockholders
Metropolitan Health Networks, Inc. and Subsidiaries
Boca Raton, Florida


We have audited the  accompanying  consolidated  balance  sheet of  Metropolitan
Health  Networks,  Inc. and  Subsidiaries  as of June 30, 1997,  and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the period from inception  (January 2, 1996) through June 30, 1996 and
for  the  year  ended  June  30,  1997.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Metropolitan Health
Networks,  Inc. and  Subsidiaries  as of June 30, 1997, and the results of their
operations and their cash flows for the period from inception  (January 2, 1996)
through June 30, 1996 and for the year ended June 30, 1997, in  conformity  with
generally accepted accounting principles.





September 26, 1997
Miami, Florida




















                                      F-2



<PAGE>

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
________________________________________________________________________________

ASSETS
________________________________________________________________________________

CURRENT ASSETS
   Cash and cash equivalents                                         $ 1,667,887
   Trading securities (Note 4)                                           183,276
   Securities available for sale (Note 4)                                166,527
   Accounts receivable, net of allowances of $3,608,743                3,256,423
   Other current assets                                                  149,918
--------------------------------------------------------------------------------
      Total current assets                                             5,424,031

PROPERTY AND EQUIPMENT (Note 3)                                        4,299,816

GOODWILL, net of accumulated amortization of $71,610 (Note 2)          2,882,005

INTANGIBLE ASSETS, net of accumulated amortization of $38,481            341,204

DEFERRED ACQUISITION COSTS                                               136,506

OTHER ASSETS                                                             146,966
--------------------------------------------------------------------------------

                                                                     $13,230,528
================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
________________________________________________________________________________

CURRENT LIABILITIES
   Accounts payable                                                  $   159,287
   Accrued expenses                                                      783,838
   Line of credit facilities (Note 6)                                    628,501
   Current maturities of capital lease obligations (Note 5)              594,358
   Current maturities of long-term debt (Note 7)                         365,633
   Notes payable to redeemed partners (Note 8)                           555,000
--------------------------------------------------------------------------------
      Total current liabilities                                        3,086,617

CAPITAL LEASE OBLIGATIONS (NOTE 5)                                     3,099,072

LONG-TERM DEBT (NOTE 7)                                                   71,119

COMMITMENTS AND CONTINGENCIES (NOTE 13)

EQUITY (NOTE 11)                                                       6,973,720
--------------------------------------------------------------------------------

                                                                     $13,230,528
================================================================================










                             See accompanying notes.

                                       F-3




<PAGE>

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1997 AND FOR THE PERIOD FROM
INCEPTION (JANUARY 2, 1996) THROUGH JUNE 30, 1996

<TABLE>
<CAPTION>

__________________________________________________________________________________________

                                                           Year Ended      Period Ended
                                                         June 30, 1997    June 30, 1996
__________________________________________________________________________________________
<S>                                                       <C>              <C>   
REVENUES:
   Patient services                                       $ 7,469,035      $         -
   Billing services                                            43,150                -
   Management fees                                                  -          120,000
------------------------------------------------------------------------------------------
      Total revenues                                        7,512,185          120,000
------------------------------------------------------------------------------------------

EXPENSES:
   Payroll, payroll taxes and benefits                      4,259,916           65,083
   Depreciation and amortization                              718,436              920
   Provision for bad debts                                    824,780                -
   Interest                                                   511,617                -
   Rent (Note 9)                                              668,460           13,162
   General and administrative                               2,536,919          169,826
------------------------------------------------------------------------------------------
      Total expenses                                        9,520,128          248,991
------------------------------------------------------------------------------------------

LOSS FROM OPERATIONS                                    (   2,007,943)   (     128,991)

INTEREST AND OTHER INCOME                                      76,324              482
------------------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX
   BENEFIT                                              (   1,931,619)   (     128,509)

INCOME TAX BENEFIT                                            362,000                -
------------------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS                         (   1,569,619)   (     128,509)

DISCONTINUED OPERATIONS (NOTE 14)
   Income from operation of pharmacy management business       41,826                -
   Loss on disposal of pharmacy management business     (      91,691)               -
------------------------------------------------------------------------------------------

NET LOSS                                                  $ 1,619,484      $   128,509
==========================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                              4,101,323        2,189,870
==========================================================================================

PER SHARE AMOUNTS
   Loss from continuing operations                      ( $      0.38)   ( $      0.06)
   Income from discontinued operations                           0.01                -
   Loss on disposal of discontinued operations          (        0.02)               -
------------------------------------------------------------------------------------------

NET LOSS                                                ( $      0.39)   ( $      0.06)
==========================================================================================
</TABLE>
                             See accompanying notes.

                                       F-4


<PAGE>

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1997 AND THE PERIOD FROM INCEPTION
(JANUARY 2, 1996) THROUGH JUNE 30, 1996

<TABLE>
<CAPTION>

____________________________________________________________________________________________________________________________________
                                                                                                          Unrealized Gain
                                                        Common                    Additional   Retained   On Securities    
                                                         Stock         Common       Paid-in    Earnings   Available
                                                         Shares         Stock       Capital   (Deficit)   For Sale          Total
____________________________________________________________________________________________________________________________________
<S>                                                     <C>          <C>        <C>          <C>            <C>         <C>        
BALANCES - JANUARY 2, 1996 (INCEPTION)                          -    $       -  $         -  $         -   $       -     $        -

                Issuance of common stock and warrants   2,290,175        2,290      590,372            -           -        592,662

Net loss - period from inception (January 2,
     1996) through June 30, 1996                                -            -            -    ( 128,509)           -    (  128,509)
                                                                                       
------------------------------------------------------------------------------------------------------------------------------------

BALANCES - JUNE 30, 1996                                2,290,175        2,290      590,372    ( 128,509)           -       464,153
                                                                                                      
Issuance of common stock in connection with
     acquisitions (Note 2)                              1,110,000        1,110    3,256,890            -           -      3,258,000

Issuance of common stock and warrants in connection
     with equity financing (Note 11)                      433,500          434      996,616            -           -        997,050

Common stock and warrant equity financing
     issue costs (Note 11)                                      -            -  (    99,688)           -           -     (   99,688)
                                                                                          
Issuance of common stock and warrants in connection
     with initial public offering (Note 11)               825,000          825    5,196,675            -           -      5,197,500

Common stock and warrant public offering issue costs            -            -  ( 1,802,267)           -           -     (1,802,267)
                                                                                          
Issuance of warrants - underwriters over-allotment              -            -       37,125            -           -          37,125

Underwriters over allotment issue costs                         -            -  (     3,712)           -           -     (    3,712)
                                                                                      
Issuance of common stock and warrants - other             552,150          552      503,575            -           -        504,127
                                                              
Change in unrealized gain on securities available for
     sale, net of tax effect of $24,000                         -            -            -            -      40,916         40,916
                                                                
Net loss - year ended June 30, 1997                             -            -            -  ( 1,619,484)          -     (1,619,484)
------------------------------------------------------------------------------------------------------------------------------------
BALANCES - JUNE 30, 1997                                5,210,825    $   5,211  $ 8,675,586  ($1,747,993)   $  40,916   $ 6,973,720
====================================================================================================================================
</TABLE>









































                                                        See accompanying notes.

                                                                 F-5



<PAGE>

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1997 AND THE PERIOD FROM INCEPTION
(JANUARY 2, 1996) THROUGH JUNE 30, 1996

<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
                                                                  Year Ended         Period Ended
                                                                 June 30, 1997      June 30, 1996
_____________________________________________________________________________________________________
<S>                                                             <C>                <C>            
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                   ( $  1,619,484)    ( $    128,509)
-----------------------------------------------------------------------------------------------------
     Adjustments to reconcile net loss to net cash used in
         operating activities:
         Depreciation and amortization                                 718,436                920
         Gain on sales of securities                            (        6,845)                 -
         Provision for bad debts                                       824,780                  -
         Deferred costs charged to operations                           84,203                  -
         Amortization of discount on note payable                       47,775                  -
         Stock options issued in lieu of compensation                   50,000                  -
         Income tax benefit                                     (      362,000)                 -
         Changes in operating assets and liabilities:
             Accounts receivable                                (    1,116,646)    (       70,751)
             Trading securities                                 (      176,431)                 -
             Other current assets                               (       87,798)    (       12,156)
             Other assets                                               16,440                  -
             Accounts payable and accrued expenses              (      127,883)            41,983
------------------------------------------------------------------------------------------------------
                  Total adjustments                             (      135,969)    (       40,004)
------------------------------------------------------------------------------------------------------
                      Net cash used in operating activities     (    1,755,453)    (      168,513)
------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Deferred acquisition costs                                 (      136,506)    (       72,138)
     Collections on note receivable                                          -             24,345
     Issuance of note receivable                                             -     (       35,000)
     Cash consideration paid for companies acquired             (      120,000)                 -
     Cash balances of companies acquired                                82,633                  -
     Purchases of securities available for sale                 (      101,611)                 -
     Capital expenditures                                       (      258,695)    (       15,239)
-----------------------------------------------------------------------------------------------------
                      Net cash used in investing activities     (      534,179)    (       98,032)
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings under line of credit facilities                     33,188                  -
     Repayments of notes payable                                (      469,356)                 -
     Repayments of capital lease obligations                    (      400,513)                 -
     Loan acquisition cost                                      (      164,750)                 -
     Deferred offering costs                                                 -     (       27,302)
     Net proceeds from issuances of common stock                     4,660,135            592,662
-----------------------------------------------------------------------------------------------------
                      Net cash provided by financing activities      3,658,704            565,360
-----------------------------------------------------------------------------------------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                            1,369,072            298,815

CASH AND CASH EQUIVALENTS - BEGINNING                                  298,815                  -
-----------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS - ENDING                                $  1,667,887       $    298,815
=====================================================================================================

</TABLE>






                             See accompanying notes.

                                       F-6





<PAGE>


METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEAR ENDED JUNE 30, 1997 AND THE PERIOD FROM INCEPTION
(JANUARY 2, 1996) THROUGH JUNE 30, 1996

<TABLE>
<CAPTION>
___________________________________________________________________________________________________________
                                                                              Year Ended      Period Ended
                                                                             June 30, 1997   June 30, 1996
___________________________________________________________________________________________________________
<S>                                                                          <C>             <C>            
Supplemental Disclosures:
-----------------------------------------------------------------------------------------------------------

     Interest paid                                                           $     500,000   $      -
-----------------------------------------------------------------------------------------------------------
     Income taxes paid                                                                   -          -
-----------------------------------------------------------------------------------------------------------

Supplemental Disclosure of Noncash Investing and
     Financing Activities (Note 2)
    -------------------------------------------------------------------------------------------------------
         Common stock issued in connection with acquisitions                 $   3,108,000          -
    -------------------------------------------------------------------------------------------------------
         Issuance of notes payable in connection with acquisitions           $     575,923          -
    -------------------------------------------------------------------------------------------------------
         Fair value of assets received in connection with acquisitions       $   6,709,509          -
    -------------------------------------------------------------------------------------------------------
         Fair value of liabilities assumed in connection with acquisitions   $   5,558,511          -
    -------------------------------------------------------------------------------------------------------
         Capital lease obligations incurred on purchases of equipment        $   1,176,090          -
    -------------------------------------------------------------------------------------------------------
         Common stock issued for purchase of equipment                       $     120,000          -
    -------------------------------------------------------------------------------------------------------
         Common stock issued in exchange for certain assets of IFHC          $     150,000          -
    -------------------------------------------------------------------------------------------------------
         Issuance of note payable for certain assets of IFHC                 $     150,000          -
    -------------------------------------------------------------------------------------------------------
         Unrealized gain on securities available for sale, net of tax effect
         of $24,000                                                          $      40,916          -
    -------------------------------------------------------------------------------------------------------

</TABLE>

























                             See accompanying notes.

                                       F-7






<PAGE>

METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
________________________________________________________________________________
      NOTE 1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________

            BASIS OF CONSOLIDATION

            The  consolidated  financial  statements  include  the  accounts  of
            Metropolitan   Health   Networks,   Inc.  and  all  majority   owned
            subsidiaries,  the most  significant  of which are Magnetic  Imaging
            Systems I, Ltd. and Nuclear Magnetic  Imaging,  Inc.  (collectively,
            MIS), Datascan of Florida,  Inc. (Datascan),  Dr. Paul Wand, MD P.A.
            (Wand) and Metbilling  Group,  Inc.  (Metbilling).  The consolidated
            group is referred to, collectively,  as the Company. All significant
            intercompany  balances  and  transactions  have been  eliminated  in
            consolidation.

            ORGANIZATION AND BUSINESS ACTIVITY

            The Company was  incorporated in January 1996, under the laws of the
            State of Florida for the purpose of acquiring and  operating  health
            care related businesses.  The Company operates in South Florida, and
            currently  owns  and  operates  a  radiology  practice,  a  magnetic
            resonance  imaging (MRI)  outpatient  center,  a diagnostic  testing
            company and various general medical practice offices.  Additionally,
            the Company provides medical billing services to third party medical
            related businesses  however,  as their services are not significant,
            the company is deemed to be operating in one segment.

            Effective July 1, 1996,  the Company was no longer  considered to be
            in the development stage.

            CASH AND CASH EQUIVALENTS

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

            PROPERTY AND EQUIPMENT

            Property and equipment is recorded at cost.  Expenditures  for major
            betterments and additions are charged to the asset  accounts,  while
            replacements,  maintenance and repairs which do not extend the lives
            of the respective assets are charged to expense currently.

            Long-lived  assets are reviewed for  impairment  whenever  events or
            changes in  circumstances  indicate that the carrying amount may not
            be recoverable.  If the sum of the expected future undiscounted cash
            flows is less  than the  carrying  amount  of the  asset,  a loss is
            recognized  for the  difference  between the fair value and carrying
            value of the asset.














                                      F-8



<PAGE>
________________________________________________________________________________
NOTE 1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
________________________________________________________________________________

            DEPRECIATION AND AMORTIZATION

            Depreciation and  amortization of property and equipment,  including
            property  under  capital  leases,  is computed  using  straight-line
            methods over the estimated useful lives of the assets.  The range of
            useful lives is as follows:

                  Machinery and equipment                           5-7 years
                  Computer and office equipment                     5-7 years
                  Furniture and fixtures                            5-7 years
                  Auto equipment                                      5 years
                  Leasehold improvements                              5 years

            USE OF ESTIMATES

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and  assumptions  that  affect  the  reported  amounts of assets and
            liabilities and disclosures of contingent  assets and liabilities at
            the date of the financial  statements,  and the reported  amounts of
            revenues  and  expenses for the periods  presented.  Actual  results
            could  differ  from  those   estimates.   Estimates  are  used  when
            accounting  for certain  items such as the  allowances  for doubtful
            accounts, depreciation and amortization, fair value of consideration
            paid in nonmonetary  transactions,  employee  benefit plans,  taxes,
            contingencies, and fair value of financial instruments.

            The  allowance  for  doubtful  accounts  is  an  estimate  which  is
            established through charges to earnings for estimated  uncollectible
            amounts.  Management's  judgment in determining  the adequacy of the
            allowance is based upon several  factors which include,  but are not
            limited  to, the nature and volume of the  accounts  receivable  and
            management's  judgment with respect to current  economic  conditions
            and  their  impact  on the  receivable  balances.  It is  reasonably
            possible  the  Company's  estimate  of the  allowance  for  doubtful
            accounts could change in the near term.

            The Company has recorded a net deferred tax asset of $226,000, which
            is offset by a valuation allowance in the same amount (see Note 10).
            Realization  of the deferred  tax asset is  dependent on  generating
            sufficient  taxable income in the future. It is reasonably  possible
            that the  amount of the  deferred  tax asset  considered  realizable
            could change in the future.

            FAIR VALUE OF FINANCIAL INSTRUMENTS

            Statement of Financial  Accounting  Standards No. 107,  "Disclosures
            about Fair Value of Financial Instruments" requires that the Company
            disclose  estimated fair values for its financial  instruments.  The
            following  methods  and  assumptions  were  used by the  Company  in
            estimating  the fair values of each class of  financial  instruments
            disclosed herein:










                                      F-9



<PAGE>
________________________________________________________________________________
NOTE 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
________________________________________________________________________________

               CASH AND  EQUIVALENTS  - The carrying  amount  approximates  fair
               value because of the short maturity of those instruments.

               INVESTMENTS  -  The  fair  values  of  trading   securities   and
               securities  available  for sale  are  estimated  based on  quoted
               market prices for those or similar investments.

               LINE OF CREDIT FACILITIES,  CAPITAL LEASE OBLIGATIONS,  LONG-TERM
               DEBT AND NOTES  PAYABLE TO REDEEMED  PARTNERS - The fair value of
               line of credit facilities,  capital lease obligations,  long-term
               debt and notes payable to redeemed  partners are estimated  using
               discounted cash flows analyses based on the Company's incremental
               borrowing rates for similar types of borrowing  arrangements.  At
               June 30, 1997, the fair values approximate the carrying values.

            NET LOSS PER SHARE

            Net loss per share is computed based on the weighted  average number
            of common shares  outstanding.  Outstanding  stock options (see Note
            12) were not  considered  in the  calculation  of  weighted  average
            number of common shares outstanding, as their effect would have been
            antidilutive.

            ACCOUNTS RECEIVABLE AND REVENUES

            The Company recognizes revenues, net of contractual  allowances,  as
            medical  services  are  provided to  patients.  These  services  are
            typically billed to patients, Medicare, Medicaid, health maintenance
            organizations  and  insurance  companies.  The  Company  provides an
            allowance for uncollectible amounts and for contractual  adjustments
            relating to the difference  between  standard charges and rates paid
            by certain third party payors.

            GOODWILL

            In  connection  with its  acquisition  of  physician  and  ancillary
            practices, the Company has recorded goodwill of $2,953,615, which is
            the  excess of the  purchase  price  over the fair  value of the net
            assets  acquired.  The  goodwill  is  attributable  to  the  general
            reputation  of the  practices  in the  communities  they serve,  the
            collective  experience of the management and other  employees of the
            practices,   contracts   with  health   maintenance   organizations,
            relationships  between the  physicians and their  patients,  patient
            lists and other similar intangible assets. The Company evaluates the
            underlying  facts and  circumstances  related to each acquisition in
            establishing  amortization  periods  for the related  goodwill.  The
            goodwill  related to current  acquisitions  is being  amortized on a
            straight-line basis over 30 years.

            The Company  continuously  evaluates whether events have occurred or
            circumstances  exist which impact the recoverability of the carrying
            value of goodwill,  pursuant to  Statement  of Financial  Accounting
            Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
            Assets and for Long-Lived Assets to be Disposed Of."









                                      F-10



<PAGE>
________________________________________________________________________________

NOTE 1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
________________________________________________________________________________

            In connection  with its evaluation of the periods of amortization at
            June 30, 1997 events and  circumstances  exist that warrant revising
            the  remaining  useful  lives of  goodwill  to be 10 years from that
            date.  Accordingly,  net goodwill at June 30, 1997 will be amortized
            over 10 years from that date.

            DEFERRED ACQUISITION COSTS

            Deferred acquisition costs consist of direct expenditures related to
            pending business acquisitions.  These costs are being deferred until
            such time as the anticipated  business  acquisitions are consummated
            or these acquisitions are deemed unsuccessful.

            INTANGIBLE ASSETS

            Intangible  assets consist primarily of a trade name associated with
            the purchase of certain assets of  International  Family  Healthcare
            Centers,  Inc.  (IFHC) and  deferred  loan costs.  The trade name is
            being amortized over 20 years, and the deferred loan costs are being
            amortized over three years,  the term of the line of credit facility
            to which they apply (see Note 6).

            TRADING SECURITIES

            The  Company   considers  all   investments  in  marketable   equity
            securities  acquired in its trading  account as Trading  Securities.
            Accordingly, unrealized gains and losses are included as a component
            of earnings. Realized gains or losses are computed based on specific
            identification of the securities sold.

            SECURITIES AVAILABLE FOR SALE

            The Company considers its investment in marketable equity securities
            acquired  upon the  conversion  of a debt  security as available for
            sale.  Accordingly,  unrealized  gains and  losses  and the  related
            deferred  income tax effects are excluded from earnings and reported
            in a separate component of stockholders' equity.

            INCOME TAXES

            The Company  accounts  for income  taxes  according  to Statement of
            Financial  Accounting  Standards No. 109, which requires a liability
            approach to calculating deferred income taxes.

            RECLASSIFICATION

            Certain   amounts  in  the  1996  financial   statements  have  been
            reclassified to conform with 1997 presentation.

















                                      F-11


<PAGE>
______________________________________________________________________________
      NOTE 2.      ACQUISITIONS
________________________________________________________________________________

            PURCHASE OF MIS

            Effective  August 31, 1996, the Company acquired MIS for $2,436,984.
            The  purchase  price  consisted of 585,000  shares of the  Company's
            common stock  (valued at $3 per share),  $575,923 of notes  payable,
            and related  acquisition  costs of  $106,061.  The  acquisition  was
            accounted for as a purchase, and accordingly, the purchase price was
            allocated to the net assets  acquired based on their  estimated fair
            market values and the results of operations  beginning  September 1,
            1996 are included in the  Company's  statement of  operations.  As a
            result of this acquisition, $2,513,627 was allocated to goodwill.

            In addition to the purchase price the acquisition agreement provides
            for  contingent  consideration  of 200,000 shares of common stock if
            MIS achieves  earnings before interest,  income taxes,  depreciation
            and  amortization  ("EBITDA") in excess of  $1,200,000  for the year
            ended June 30,  1997 or in excess of  $1,500,000  for the year ended
            June 30, 1998, a total maximum  contingent  consideration of 400,000
            shares,  plus additional shares issuable in connection a share price
            guarantee based upon the Company's  pretax earnings at the first and
            second anniversary of the transaction. The Company is not liable for
            contingent consideration for the year ended June 30, 1997.

            PURCHASE OF DATASCAN

            Effective  September  30, 1996,  the Company  acquired  Datascan for
            $1,170,529.  The purchase  price  consisted of 300,000 shares of the
            Company's  common  stock  (valued  at  $3  per  share)  and  related
            acquisition costs of $42,529. The acquisition was accounted for as a
            purchase,  and accordingly,  the purchase price was allocated to the
            net assets  acquired based on their estimated fair market values and
            the results of operations of Datascan  beginning October 1, 1996 are
            included in the Company's  statement of  operations.  As a result of
            this acquisition, $429,463 was allocated to goodwill.

            Effective June 30, 1997, the purchase price includes  100,000 shares
            of  contingent  consideration  to be issued to the former  owners of
            Datascan (valued at $2.28 per share). This contingent  consideration
            is based on Datascan  obtaining  an EBITDA in excess of $288,000 for
            the year ended June 30, 1997.

            The  Company  is  potentially   liable  for  additional   contingent
            consideration  of 100,000  shares of common  stock if,  among  other
            things,  Datascan  obtains an EBITDA in excess of  $313,894  for the
            year ended June 30, 1998.

            PURCHASE OF WAND

            Effective  March 12, 1997,  the Company  acquired Wand for $363,015.
            The purchase price  consisted of a cash payment of $120,000,  75,000
            shares of the  Company's  common stock  (valued at $3 per share) and
            related acquisition costs of $18,015.  The acquisition was accounted
            for as a purchase, and accordingly, the purchase price was allocated
            to the net assets  acquired  based on their  estimated  fair  market
            values and the results of Wand's operations beginning March 12, 1997
            are included in the Company's  statement of operations.  As a result
            of this acquisition, $10,525 was allocated to goodwill.





                                      F-12



<PAGE>
_______________________________________________________________________________
NOTE 2.     ACQUISITIONS (Continued)
________________________________________________________________________________

            In  addition  to the  purchase  price  noted  above,  the Company is
            potentially  liable for contingent  consideration.  The  acquisition
            agreement provides for contingent  consideration of 37,500 shares of
            common  stock if Wand  obtains  EBITDA in excess of $75,500  for the
            year  ended  June  30,  1997 or  1998,  a total  maximum  contingent
            consideration  of 75,000  shares.  The  Company is not  contingently
            liable  for  contingent  consideration  for the year  ended June 30,
            1997.

            PURCHASE OF CERTAIN ASSETS OF IFHC

            Pursuant to an asset purchase agreement  effective October 15, 1996,
            the Company  acquired  certain  assets of IFHC.  The purchase  price
            consisted of 50,000 shares of the Company's  common stock (valued at
            $3 per share) and the issuance of a 8% note payable in the amount of
            $150,000. The note is due in October 1997.

            PRO-FORMA

            Unaudited pro-forma results of operations,  assuming the acquisition
            of MIS, Datascan and Wand occurred as of the beginning of the fiscal
            years ended June 30, 1997 and 1996,  after giving  effect to certain
            adjustments such as the elimination of intercompany transactions and
            amortization  of goodwill  resulting from the  acquisitions  were as
            follows:  This  proforma  summary  does not  reflect  the results of
            operations as they would have been if the companies has  constituted
            a single entity during such periods.
             
                                                    June 30, 1997  June 30, 1996
             -------------------------------------------------------------------

             Revenues                                 $9,594,000    $11,048,000
             Net income (loss)                      ( $1,738,000)   $    34,000
             Income (loss) per share                ( $     0.41)   $      0.01

________________________________________________________________________________
      NOTE 3.      PROPERTY AND EQUIPMENT
________________________________________________________________________________

            At June 30, 1997, property and equipment consisted of the following:

             Machinery and medical equipment                        $  816,987
             Furniture and fixtures                                    206,342
             Leasehold improvements                                    506,409
             Computer and office equipment                             255,646
             Auto equipment                                            156,432
             -------------------------------------------------------------------
                                                                     1,941,816
             Less accumulated depreciation                         (   285,212)
             -------------------------------------------------------------------
                                                                     1,656,604
             -------------------------------------------------------------------

             At June 30,  1997,  property and  equipment  under  capital  leases
             consisted of the following:

             Machinery and equipment                                 2,649,816
             Computer and office equipment                             298,711
             Leasehold improvements                                     18,738
             -------------------------------------------------------------------
                                                                     2,967,265
             Less accumulated amortization                         (   324,053)
             -------------------------------------------------------------------
                                                                     2,643,212
             -------------------------------------------------------------------

                                                                    $4,299,816
             ===================================================================

                                      F-13


<PAGE>


________________________________________________________________________________
      NOTE 4.      INVESTMENTS
________________________________________________________________________________

            Trading  securities  consisted of marketable equity securities which
            are held for  trading  purposes.  The change in  unrealized  loss on
            trading securities for the periods ended June 30, 1997 and 1996 were
            $10,431 and $0,  respectively,  and are  included in other income in
            the consolidated statements of operations.

            Securities  available  for sale  consisted of common stock  acquired
            through the conversion of convertible debenture securities. The cost
            and  market  value of these  securities  at June  30,  1997  were as
            follows:

               Cost                                                 $   101,611
               Gross unrealized gains                                    64,916
               -----------------------------------------------------------------

                                                                    $   166,527
               =================================================================

            Net realized  gains on sales of trading  securities  for the periods
            ended June 30, 1997 and 1996 were $7,982 and $0, respectively.

________________________________________________________________________________
      NOTE 5.      CAPITAL LEASE OBLIGATIONS
________________________________________________________________________________

            The Company is  obligated  under  capital  leases for certain of its
            property and  equipment.  Future  minimum lease payments for capital
            lease obligations as of June 30, 1997 were as follows:

             June 30, 1998                                          $  947,148
             June 30, 1999                                             889,748
             June 30, 2000                                             785,794
             June 30, 2001                                             785,794
             June 30, 2002                                             747,093
             Thereafter                                                888,417
             -------------------------------------------------------------------
                                                                     5,043,994
             Less amount representing interest                     ( 1,350,564)
             -------------------------------------------------------------------
                                                                     3,693,430
             Less current maturities                               (   594,358)
             -------------------------------------------------------------------

                                                                    $3,099,072
             ===================================================================












                                      F-14




<PAGE>

________________________________________________________________________________
     NOTE 6.      LINE OF CREDIT FACILITIES
________________________________________________________________________________

            In  April  1996,  MIS  entered  into a two year  loan  and  security
            agreement with a leasing/financing entity which provided the Company
            with a line of credit  providing  maximum  borrowings  not to exceed
            $1,300,000.  Any outstanding  amounts under this credit facility are
            collateralized  by certain  eligible  accounts  receivable,  and the
            Company may borrow up to 80% against these receivables. The facility
            bears  interest  at prime  plus  3.5%  (12% at June 30,  1997),  and
            repayments are made directly through a lock box arrangement. At June
            30, 1997, $628,501 is outstanding under this facility.

            In March 1997, the Company  obtained a $3,500,000  fixed asset based
            line of credit  facility  with an entity that  originates  funds and
            sells  mortgages.  The credit  facility,  if used, bears interest at
            11.5%,  has a three-year  term and  provides for  financing of up to
            100% of the fair value of unencumbered  fixed assets,  which at June
            30, 1997 were insignificant.  In connection  therewith,  the Company
            paid loan fees of $150,000,  which are included in intangible assets
            at June 30, 1997. At June 30, 1997, no amounts are outstanding under
            this credit facility.

________________________________________________________________________________
      NOTE 7.      LONG-TERM DEBT
________________________________________________________________________________

            Long-term debt consisted of the following:

             Note payable  to former  owner of MIS;  interest  at
               6.5%;  principal and interest  payment of $213,000
               due April 1, 1998;  unsecured                        $   200,000

             Installment   notes   payable   to  bank;   interest
               ranging  from  7.75%  to 9.5%;  collateralized  by
               various automobiles;  due August through December,        37,374
               1997

             Equipment note payable to bank;  interest  at 9.98%;
               payable  in   monthly   installments  of   $2,552;
               collateralized by medical testing
               equipment; due April, 1999                                51,118

             Note payable to former  owners of IFHC;  interest at
               8%;  payable  in monthly  installments  of $11,429
               plus interest; due October, 1997                          34,284

             Note  payable to bank;  interest at 11.75%;  payable
               in monthly installments of $1,265;  collateralized
               by  substantially  all assets of Wand; due August,        40,018
               2000

             Loan payable to former employee                             73,958
             -------------------------------------------------------------------
                                                                        436,752
             Less current maturities                                    365,633
             -------------------------------------------------------------------

             Long-term debt                                        $     71,119
             ===================================================================

                                      F-15



<PAGE>
________________________________________________________________________________
NOTE 7.      LONG-TERM DEBT (Continued)
________________________________________________________________________________

            Aggregate  maturities of long-term debt for the years  subsequent to
            June 30, 1997 are as follows:

             June 30, 1998                                          $   365,633
             June 30, 1999                                               41,733
             June 30, 2000                                               19,377
             June 30, 2001                                                8,429
             June 30, 2002                                                1,580
             -------------------------------------------------------------------

                                                                    $   436,752
             ===================================================================

            Loan payable to former employee consisted of the remaining principal
            and  interest  due to a former  employee  under  an oral  agreement,
            wherein $75,000 was loaned to Wand in 1993. This agreement  requires
            monthly payments of $1,450,  including principal and interest at 6%,
            however  such  terms  have  not  been   complied  with  since  1993.
            Accordingly,  the full amount of the  acquired  debt is reflected as
            currently due.

________________________________________________________________________________
      NOTE 8.      NOTES PAYABLE TO REDEEMED PARTNERS
________________________________________________________________________________

            In August  1993,  MIS  commenced a buy-back  of certain  outstanding
            limited  partnership units. The buy-back agreement required MIS (and
            consequently, the Company) to purchase twenty-five partnership units
            from  certain  limited  partners  for  $1,375,000,  as  evidenced by
            non-interest  bearing  notes  payable.  At June 30,  1997,  $375,000
            remained outstanding, of which $300,000 was repaid ($240,000 in cash
            and $60,000 in stock subscribed to) in August 1997.

            During 1997, the Company charged  approximately  $25,000 to interest
            expense in connection  with imputing  interest on the above notes at
            8%.  At  June  30,  1997  the  imputed  interest   discount  on  the
            non-interest bearing notes was fully amortized.

            On July 29,  1996,  a claim  against MIS was settled  pursuant to an
            agreement  providing for the buy-back of certain limited partnership
            units from the plaintiffs.  The initial settlement required payments
            totaling  $330,000.  At June 30, 1997, the balance of this liability
            was $180,000, which was paid in August 1997.

________________________________________________________________________________
      NOTE 9.      RELATED PARTY TRANSACTIONS
________________________________________________________________________________

            OFFICE RENT

            The Company  rents one of its office  facilities  from an individual
            who is the  former  majority  owner  of MIS  and a  director  of the
            Company,  and another  office  facility  from a company owned 50% by
            this individual. Total rent expense related to these leases amounted
            to approximately $188,000 for the year ended June 30, 1997.





                                      F-16



<PAGE>

________________________________________________________________________________
NOTE 9.     RELATED PARTY TRANSACTIONS (Continued)
________________________________________________________________________________

            PURCHASE OF COMPUTER EQUIPMENT

            In  September  1996,  the Company  purchased  computer  hardware and
            software  from an  individual  who is an officer of the Company.  In
            exchange  for this  computer  equipment,  the  Company  issued  this
            individual  40,000  shares of its  common  stock  (valued  at $3 per
            share) and assigned a value to the equipment of $120,000.

________________________________________________________________________________
      NOTE 10.     INCOME TAXES
________________________________________________________________________________

            The components of the income tax benefit were as follows:

                                                      Year Ended    Period Ended
                                                    June 30, 1997  June 30, 1996
             -------------------------------------------------------------------

             Current Benefit
                Federal                               $        -     $        -
                State                                          -              -

             Deferred Benefit
                Federal                                  450,000         42,000
                State                                     66,000          6,000

             Increase in Valuation Allowance        (    154,000)  (     48,000)
             -------------------------------------------------------------------

             Income Tax Benefit                      $   362,000    $         -
             ===================================================================
  
            The net income tax benefit  resulted from the utilization of current
            year operating losses against acquired deferred tax liabilities.

            The effective tax rate differed from the federal  statutory rate due
            to  permanent  differences  of  approximately   $65,000,   valuation
            allowance of $178,000 and other differences of $76,000.

            The Company has a net operating loss carryforward  of  approximately
            $723,000, which expires beginning in 2011.

            At June 30, 1997,  approximate  deferred tax assets and  liabilities
            were as follows:

             Deferred tax assets:
             --------------------
             Allowances for doubtful accounts                        $  313,000
             Net operating loss carryforward                            771,000
             -------------------------------------------------------------------
             Total deferred tax assets                               $1,084,000

             Deferred tax liabilities:
             Accounts receivable of cash basis subsidiaries          $  751,000
             Excess tax over book deprecation                            83,000
             Unrealized gains on securities available for sale           24,000
             -------------------------------------------------------------------
             Total deferred tax liabilities                          $  858,000

             Net deferred tax asset                                  $  226,000
             Less valuation allowance                              ( $  226,000)
             -------------------------------------------------------------------
                                                                         -
             ===================================================================

                                      F-17



<PAGE>

________________________________________________________________________________
      NOTE 11.     STOCKHOLDERS' EQUITY
________________________________________________________________________________

            At June 30, 1997,  the Company has authorized  40,000,000  shares of
            par value $.001  common  stock,  with  5,210,825  shares  issued and
            outstanding.  Additionally,  the Company has  authorized  10,000,000
            shares of par value $.001 preferred  stock. No preferred  shares are
            issued or outstanding at June 30, 1997.

            In October  1996,  the Company  entered  into an  agreement  with an
            underwriter  to obtain  equity  financing  with net  proceeds to the
            Company of  approximately  $897,000.  In connection  therewith,  the
            Company offered 433,500 shares of common stock (at $2 per share) and
            867,000  warrants at $0.15 per warrant.  Each  warrant  entitled the
            holder to  purchase  one  share of  common  stock at $7.00 per share
            during  the four  year  period  commencing  thirty  days  after  the
            effective date of the offering.

            The Company completed an initial public offering of its common stock
            effective  February 13, 1997,  and issued  825,000  shares of common
            stock at a price of $6.00 per share.  As part of the  offering,  the
            Company issued 1,650,000  redeemable  common stock purchase warrants
            at a purchase price of $0.15 per warrant.  Each warrant entitled the
            holder to  purchase  one  share of  common  stock at $7.00 per share
            during  the four  year  period  commencing  thirty  days  after  the
            effective  date  of  the  offering.   The  initial  public  offering
            generated net proceeds to the Company of $3,395,233.

            At June 30, 1997, the Company has 3,207,500 warrants outstanding.
________________________________________________________________________________
      NOTE 12.     STOCK OPTIONS
________________________________________________________________________________

            The Company has adopted the disclosure-only  provisions of Statement
            of  Financial   Accounting   Standards  No.  123,   "Accounting  for
            Stock-Based  Compensation,"  ("SFAS  123") in 1997.  The Company has
            elected to continue using  Accounting  Principles  Board Opinion No.
            25,  "Accounting  for Stock Issued to Employees"  in accounting  for
            employee stock options.  Accordingly,  compensation expense has been
            recorded to the extent that the market value of the underlying stock
            exceeded the exercise price at the date of grant.  All stock options
            granted  expire 5 years  after the date of the grant.  For the years
            ended June 30, 1997 and 1996,  compensation  costs  related to stock
            options amounted to $50,000 and $0, respectively.

            Stock  option  activity  for the year  ended  June  30,  1997 was as
            follows:

                                                   Number of    Weighted Average
                                                    Options      Exercise Price
             -------------------------------------------------------------------
             Balance, June 30, 1996                 1,207,000     $     1.47
             Granted during year                      425,500     $     9.43
             Exercised during year               (    407,500)    $     0.01
             ---------------------------------------------------

             Balance, end of year                   1,225,000     $     4.72
             ===================================================

             Exercisable at end of year             1,011,500     $     2.98






                                      F-18



<PAGE>

________________________________________________________________________________
NOTE 12.    STOCK OPTIONS (Continued)
________________________________________________________________________________

            The exercise prices of stock options which were fully vested at June
            30, 1997 were as follows:

                            Exercise      Number of Options
                            Price
                            --------------------------------

                              $     0.10          492,500
                                    0.50          110,000
                                    1.00           25,000
                                    2.00            2,000
                                    4.00            5,000
                                    5.00           25,000
                                    6.00          180,000
                                    7.00           13,500
                                    8.00           14,500
                                    9.00           13,500
                                   10.00          117,000
                                   11.00           13,500

            The  weighted  average  fair  value per  option as of grant date was
            $0.73 for stock options  granted in 1997 and $0.19 for stock options
            granted in 1996.  The  determination  of the fair value of all stock
            options  granted was based on (i) risk-free  interest rate of 6.38%,
            (ii)  expected  option  lives of 5 years,  depending  on the vesting
            provisions of each option,  (iii) expected  volatility in the market
            price of the  Company's  common  stock of 20%,  and (iv) no expected
            dividends on the underlying stock.

            The following table summarizes the pro forma consolidated results of
            operations of the Company as though the fair value based  accounting
            method in SFAS 123 had been used in accounting for stock options.

                                                      Year ended    Period ended
                                                    June 30, 1997  June 30, 1996
             -------------------------------------------------------------------

             Net loss                               ( $1,795,294)  ( $  355,720)
             Net loss per share                     ( $     0.44)  ( $     0.16)

            During the year ended June 30, 1997, 407,500 options were exercised,
            with net proceeds to the Company of $4,750.





















                                      F-19



<PAGE>

________________________________________________________________________________
      NOTE 13.     COMMITMENTS AND CONTINGENCIES
________________________________________________________________________________

            LEASES

            The Company  leases  office and  medical  facilities  under  various
            non-cancelable operating leases. Future minimum payments under these
            leases are as follows:

             June 30, 1998                                          $   606,000
             June 30, 1999                                              545,000
             June 30, 2000                                              177,000
             June 30, 2001                                              128,000
             June 30, 2002                                              104,000
             Thereafter                                                 128,000
             -------------------------------------------------------------------

             Total                                                  $ 1,688,000
             ===================================================================

            EMPLOYMENT CONTRACTS

            The  Company  has  employment  contracts  with  certain  executives,
            physicians and other clinical and administrative  employees.  Future
            annual  minimum  payments under these  employment  agreements are as
            follows:

             June 30, 1998                                          $1,540,000
             June 30, 1999                                           1,540,000
             June 30, 2000                                           1,540,000
             June 30, 2001                                           1,525,000
             June 30, 2002                                             371,000
             -------------------------------------------------------------------

                                                                    $6,516,000
             ===================================================================

            DATASCAN

            Datascan and the Company have been named as  defendants in a lawsuit
            wherein  a  former   Datascan   employee  is   alleging   employment
            discrimination.  The lawsuit seeks unspecified punitive and economic
            damages.  The Company  believes that these claims are without merit,
            and intends to  vigorously  defend this  action.  At this time,  the
            Company is unable to  estimate  the  possible  loss or range of loss
            that would occur if this action were judged unfavorably.

            FLORIDA REHABILITATION

            On  September  25,  1996,  pursuant  to a  merger  agreement  ("FRSI
            Agreement"),  the Company, acquired Florida Rehabilitation Services,
            Inc.  ("FRSI") and  Southeast  Medical  Staffing,  Inc.  ("SMSI" and
            collectively   "FR  Group")  from  the  sole   shareholder  of  both
            companies.  On December 31,  1996,  the Company has  rescinded  this
            transaction as a result of the Company's belief that a breach of the
            agreement has occurred and requested the return of all consideration
            paid. In connection therewith,  the Company has cancelled the shares
            of common stock  issued as part of the purchase  price and will take
            all  action for the  return of all cash and other  expenses  paid in
            connection  with the  transaction.  The  merger  transaction  is not
            reflected in the  financial  statements  and the common stock is not
            considered to be outstanding at June 30, 1997.

                                      F-20



<PAGE>

________________________________________________________________________________
NOTE 13.    COMMITMENTS AND CONTINGENCIES (Continued)
________________________________________________________________________________

            During  the  year  ended  June  30,  1997,   the  Company   reserved
            approximately  $72,000 of advances  incurred in connection with this
            transaction.

            In January 1997, a medical  billing group filed a complaint  against
            the company and FR Group  claiming  breach of a funding and security
            agreement,  and  economic  damages of  approximately  $150,000  plus
            treble  damages of  approximately  $208,000.  Although  the  Company
            believes it has meritorious  defenses against the suit, the ultimate
            resolution  of the matter  could  result in a  material  loss to the
            Company.

________________________________________________________________________________
      NOTE 14.     DISCONTINUED OPERATIONS
________________________________________________________________________________

            In October 1996, the Company  disposed of the operations of Arthur's
            Pharmacy and Surgical Supply, Inc. through the sale of its five year
            management agreement to the majority shareholder of the second party
            to the agreement for a $90,000  collateralized note receivable.  The
            note receivable was valued at $50,000,  the approximate value of the
            collateral (12,500 shares of the Company's common stock) at the time
            of the transaction.  In connection with the  discontinuation  of the
            operations,  the Company  deemed accrued  management  fees and notes
            receivable of $141,691 to be uncollectible.  

            The note  receivable  is  included  in other  long term  assets  and
            although  it  provides  for  interest  at 10%,  the  Company  is not
            accruing interest due to its non-performing status.

________________________________________________________________________________
      NOTE 15.     SUBSEQUENT EVENTS
________________________________________________________________________________

            GENERAL MEDICAL ASSOCIATES, INC.

            Effective July 1, 1997, the Company purchased all of the outstanding
            common stock of Dr. Martin W. Harrison,  M.D.,  P.A., doing business
            as General Medical  Associates,  Inc.  (General),  a multi-specialty
            medical group with components of neurology and physiatry in addition
            to  chiropractic   physicians,   licensed  massage   therapists  and
            additional ancillary services. In exchange for the stock of General,
            the Company paid  $300,000  cash,  366,154  shares of the  Company's
            common stock and entered  into a note  payable of $400,000  with the
            former   shareholder  of  General.   In  addition  to  the  purchase
            consideration,  the  Company is  potentially  liable for  contingent
            consideration  of up  to  156,923  shares,  plus  additional  shares
            issuable  in  connection  with a $6.50 price  guarantee  for the two
            month period  commencing the second  anniversary of the transaction,
            and the Company has guaranteed  the former  shareholder a minimum of
            $6.50  per  share  selling  price on  200,000  shares  which  become
            available  for sale during the period July 1, 1998 through  February
            12, 2000.

            In connection with the acquisition the former shareholder of General
            entered into a 5-year employment  agreement with the Company whereby
            he will be paid a minimum of $350,000 annually.








                                      F-21


<PAGE>

________________________________________________________________________________
NOTE 15.    SUBSEQUENT EVENTS (Continued)
________________________________________________________________________________

            Subsequent to the consummation of the  acquisition,  information has
            come to the attention of the Company  indicating that certain of the
            representations  made during due  diligence  may be  inaccurate.  In
            connection therewith,  the Company has consulted with counsel and is
            considering all options.


            PREFERRED STOCK

            Subsequent  to  year-end,  the Company  issued  5,000  shares of its
            preferred stock via a private placement and received net proceeds of
            $500,000.



























                                      F-22