**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


WASHINGTON,
D.C. 20549


**FORM
10-K**


(Mark
One)





**x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE**


**SECURITIES
EXCHANGE ACT OF 1934**





For the
Twelve Month Period Ended December 31, 2004





**o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE**


**SECURITIES
EXCHANGE ACT OF 1934**





***Commission
File Number 0-28456***





**Metropolitan
Health Networks, Inc.**


(Name of
registrant as specified in its charter)




**Florida**
    **65-0635748****(State
      or other jurisdiction of Incorporation or
      organization)**
    **(I.R.S.
      Employer Identification No)****250
      Australian Avenue South, Suite 400**
      **West
      Palm Beach, Fl.**
    **33401****(Address
      of principal executive offices)**
    **(Zip
      Code)****Registrant’s
      telephone number: (561) 805-8500**







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




**Common
Stock, $.001 par value**




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




**None.**




Check
whether the registrant (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 o




Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be 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-K or any
amendment to this Form 10-K. o




Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes o No x




The
aggregate market value of the Registrant’s voting common stock (the “Common
Stock”) held by non-affiliates of the registrant was approximately $ 40,487,499 (computed
by reference to the last reported sale price of the registrant's Common Stock on
the American Stock Exchange on June 30, 2004, based on the assumption that
directors and officers and more than 10% stockholders are
affiliates).





There
were 48,028,821 shares of the registrant’s Common Stock, par value $.001 per
share, outstanding on February 28, 2005.




**DOCUMENTS
INCORPORATED BY REFERENCE**




None **.**















**METROPOLITAN
HEALTH NETWORKS, INC.**




**FORM
10-K**


**For
the Year Ended**


**December
31, 2004**




**TABLE
OF CONTENTS**







**ITEM**
    
    
    **Page
      No.****RISK
      FACTORS**
    3**PART
      I**1
    
    Business
    122
    
    Property
    173
    
    Legal
      Proceedings
    174
    
    Submission
      of Matters to a Vote of Security Holders
    17**PART
      II**5
    
    Market
      for Common Equity and Related Stockholder Matters
    186
    
    Selected
      Financial Data
    187
    
    Management’s
      Discussion and Analysis of Financial Conditions and Results of Operations
    197A
    
    Quantitative
      and Qualitative Disclosures about Market Risk
    298
    
    Financial
      Statements and Supplementary Data
    299
    
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
    309A
    
    Controls
      and Procedures
    309B
    
    Other
      Information
    30**PART
      III**10
    
    Directors,
      Executive Officers, Promoters and Control Persons of the Registrant
    3111
    
    Executive
      Compensation
    3612
    
    Security
      Ownership of Certain Beneficial Owners and Management
    4413
    
    Certain
      Relationships and Related Transactions
    4614
    
    Principal
      Accounting Fees and Services
    47**PART
      IV**15
    
    Exhibits,
      Financial Statement Schedules
    47**EXHIBIT
      INDEX**
    49**SIGNATURES**
    50




-1-





**GENERAL**




Unless
otherwise indicated or the context otherwise requires, all references in this
Form 10-K to the “Company” or “Metropolitan” refers to Metropolitan Health
Networks, Inc. and our consolidated subsidiaries. We disclaim any intent or
obligation to update “forward looking statements”.




**CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS**




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




****
    **•**
    ****
    **our
      ability to renew our managed care agreements and negotiate terms which are
      favorable to us and affiliated physicians;****•**
    
    **our
      ability to respond to future changes in Medicare reimbursement levels and
      reimbursement rates from other third parties;******
    **•**
    ****
    **our
      ability to enhance the services we provide to our
      members;******
    **•**
    ****
    **our
      ability to strengthen our medical management
      capabilities;******
    **•**
    ****
    **our
      ability to improve our physician networks;**********
    **•**
    ****
    **our
      ability to establish new business relationships and expand into new
      geographic markets;**********
    **•**
    ****
    **our
      ability to make capital expenditures and respond to capital needs;
      and******
    **•**
    ****
    **our
      ability to fund and develop the necessary capabilities to successfully
      launch our HMO.**







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




-2-




****
    **•**
    ****
    **pricing
      pressures exerted on us by managed care organizations and the level of
      payments we receive under governmental programs or from other
      payers;**********
    **•**
    ****
    **future
      legislation and changes in governmental
    regulations;**********
    **•**
    ****
    **increased
      operating costs;******
    **•**
    ****
    **the
      impact of Medicare Risk Adjustments on payments we receive for our managed
      care operations;**********
    **•**
    ****
    **loss
      of significant contracts;******
    **•**
    ****
    **general
      economic and business conditions;******
    **•**
    ****
    **increased
      competition;****•**
    
    **the
      relative health of our patients;****•**
    
    **the
      ability to obtain sufficient quantities of flu vaccine for our
      membership;******
    **•**
    ****
    **changes
      in estimates and judgments associated with our critical accounting
      policies;**********
    **•**
    ****
    **federal
      and state investigations;**********
    **•**
    ****
    **our
      ability to successfully recruit and retain key management personnel and
      qualified medical professionals; and**********
    **•**
    ****
    **impairment
      charges that could be required in future
  periods.**





**RISK
FACTORS**




***Failure
to manage our growth effectively could harm our business and results of
operation.***




We have
experienced growth in our business during the last three years. Continued growth
may impair our ability to provide our services efficiently and to manage our
employees adequately. Our strategy is to focus on growth within geographic
parameters, identifying regions throughout Florida. Future results of operations
could be materially adversely affected if we are unable to manage our growth
effectively.




***Our
quarterly results will likely fluctuate, which could cause the value of our
Common Stock to decline.***




We are
subject to quarterly variations in our medical expenses due to fluctuations in
patient utilization. We have significant fixed operating costs and, as a result,
are highly dependent on patient utilization to sustain profitability. Our
results of operations for any quarter are not necessarily indicative of results
of operations for any future period or full year. We experience a greater use of
medical services in the winter months. As a result, our results of operations
may fluctuate significantly from period to period, which could cause the value
of our Common Stock to decline. For example, in recent times, Metropolitan has
been unable to secure a sufficient supply of flu vaccine for its members due to
the announced national shortfall in flu vaccine supply. While the anticipated
additional cost of the vaccine is not expected to be material, influenza and
related seasonal illnesses could have a material impact on Metropolitan’s
results of operations.




-3-


***The
loss of certain agreements and the capitated nature of our revenues could
materially affect our operations.***




The
majority of our revenues come from agreements with one managed care organization
that provides for the receipt of capitated fees. The principal organization that
we contract with is Humana. We have one-year automatically renewable agreements
with Humana to provide healthcare services to Humana members in certain markets.
For the twelve months ended December 31, 2004, approximately 99% of our revenue
was obtained from these agreements. The Humana agreements may be terminated in
the event we participate in activities Humana reasonably believes may adversely
affect the health or welfare of any member or other material breach, or upon
180-day notice of non-renewal by either party. Failure to maintain these
agreements, or successfully develop additional sources of revenue could
adversely affect our financial condition. A continuing decline in enrollees in
Medicare Advantage could also have a material adverse effect on our
profitability.




Under the
Humana agreements we, through our affiliated providers, are generally
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 benefits. To the
extent that enrollees require more care than is anticipated, aggregate
capitation rates may be insufficient to cover the costs associated with the
treatment of enrollees. Additionally, certain other factors beyond our control
such as pricing pressures, changes in government regulations or mandated
benefits, changes in health care practices, inflation, new technologies and
costly treatments, catastrophes, epidemics or terrorist attacks, and other
factors affecting the delivery and cost of health care may increase the cost of
providing the required medical services and may adversely affect our operating
results.




In
general, if revenue is insufficient to cover costs, our operating results would
be adversely affected. As a result, our success will depend in large part on the
effective management of health care costs. If we cannot continue to improve our
controls and procedures for managing costs, our business, results of operations,
and financial condition may be adversely affected.




***Reimbursement
for Our Managed Care Operations will be affected by the Medicare Risk
Adjustment.***




The
Balanced Budget Act of 1997 directed the Health Care Financing Administration
(now the Centers for Medicare and Medicaid Services) to replace the then
existing system of risk adjustment, which previously relied solely on
demographic factors, with one that took enrollees’ health status into account
(the “Medicare Risk Adjustment” or “MRA”). The demographic-only portion of the
payment was adjusted for age, gender, Medicaid eligibility, institutional status
and working aged status. The revised MRA portion of the payment, however,
includes these same categories but adds health status as a new criteria. Such
health status is measured by the previous medical costs for inpatient hospital
stays incurred by the individual. These are then used to determine each
individual’s expected future medical risk and, therefore, how much the health
plan in which they are enrolled should be paid. To ensure that health plans had
time to adjust to the new payment method, the Centers for Medicare and Medicaid
Services (“CMS”) built a five-year transition period into the MRA methodology it
adopted. The initial data used to facilitate the transition to MRA was based
solely upon inpatient hospital encounter data. For 2000 and 2001, under the
Balanced Budget Refinement Act of 1999 (“BBRA”) the transition to risk
adjustment was based upon a blend percentage consisting of 10% risk adjustment
payment and 90% on the adjustment for demographic factors. For 2002, the blend
percentage was adjusted to 20% risk adjustment payment and 80% on the adjustment
for demographic factors. The law required that the ambulatory data be
incorporated beginning January 1, 2004, at which time the blend percentage
consisted of 30% risk adjustment payment and 70% on the adjustment for
demographic factors. In 2005, the blend percentage will consist of 50% risk
adjustment payment and 50% on the adjustment for demographic factors. In 2006,
the blend percentage will consist of 75% risk adjustment payment and 25% on the
adjustment for demographic factors. In 2007, the blend percentage
will consist of 100% risk adjustment payment and 0% on the adjustment for
demographic factors. While the impact of the MRA methodology in fiscal year 2004
was favorable on our operating results, at this time it cannot be determined if
the impact will be favorable or unfavorable in future years.




-4-


***We
depend on third parties to provide us with crucial data.***




Our
Provider Services Network (“PSN”) operations are dependent on the management
information systems of Humana. Humana provides us with certain financial and
other information, including reports and calculations of costs of services
provided and payments to be received by us. Because Humana generates certain of
the information on which we depend, we have less control over the manner in
which that information is generated than we would if we generated the
information internally. In addition, information systems such as these may be
vulnerable to failure, acts of sabotage such as "hacking," and obsolescence. Our
business and results of operations could be materially and adversely affected by
our lack of control over the information generated by Humana, a loss of
information by Humana or loss of use of this development system owned by Humana.




With
respect to our HMO segment, we expect that we will initially rely on a third
party to provide claims processing, billing and customer services. Because these
matters will be outsourced as opposed to handled internally, we will have less
control over the manner in which these matters are handled and the data that is
ultimately provided to us than we would have if we handled those matters
internally. Additionally, any loss of information by the third party hired to
provide these services could have a material adverse effect on our business and
the results of our operations.




***Potential
claims against Metropolitan and the high cost of insurance could adversely
affect our business, results of operation and financial
condition*** .




We rely
on insurance to protect us from many business risks. As insurance policies
expire, we may be offered renewal policies offering narrower coverage, more
exclusions and higher premiums. For example, our business involves some exposure
to medical malpractice claims due to claims against physicians practicing in our
PSN for services rendered by those physicians to patients. As a result of
national trends evidencing a risk of substantial damage awards in medical
malpractice cases and the significant loss of professional insurance
underwriting capacity, the cost of our medical malpractice insurance has
increased while the coverage afforded under the policies available has
decreased. As such, we cannot be certain that the insurance coverage carried by
Metropolitan will be sufficient to cover all liability stemming from pending or
future medical malpractice claims. Additionally, as a result of recent high
profile director and officer related litigation, the cost of our director and
officer insurance policy has also increased. We may also experience future
increases in stop-loss insurance premiums for which the premium is based on a
cost per member.




-5-


We
anticipate that the costs for medical malpractice and director and officer
liability insurance will continue to increase in 2005. Furthermore, we cannot
ensure that the insurance coverage maintained by Metropolitan will be adequate
to cover claims against Metropolitan or that the higher cost of insurance and
pending and future claims will not have a material adverse effect on our
business, financial condition and results of operations.




***Our
industry is already very competitive; increased competition could adversely
affect our revenues.***




Metropolitan
competes in the highly competitive and regulated health care industry which is
subject to continuing changes with respect to the provisioning of services and
the selection and compensation of providers. The majority of Metropolitan’s
revenues come from its agreements with one principal organization, Humana. Humana is
Florida’s largest Medicare Advantage insurer with more than a 50% share of the
market and Metropolitan currently provides care for approximately 10% of
Humana’s Florida Medicare Advantage members. As stated above, t he Humana
agreements are structured as one-year automatically renewable agreements. Humana
may terminate such agreements upon 180 days’ notice of non-renewal to
Metropolitan. Metropolitan competes with other risk providers for Humana’s
business and Humana competes with other HMOs in securing and serving patients in
the Medicare Advantage Program. Failure to maintain favorable terms in its
agreements with Humana or to successfully develop additional sources of revenue
could adversely affect the financial condition of Metropolitan.





Metropolitan’s competitors
vary in size and scope, in terms of products and services offered. Metropolitan
believes that it competes directly with various national, regional and local
companies in providing its services. Some of
Metropolitan’s direct competitors in the PSN industry are Continucare
Corporation, Primary Care Associates, Inc. and MCCI, all based and operating in
Florida .
Additionally, companies in other health care industry segments, some of which
have financial and other resources greater than Metropolitan, may become
competitors in providing similar services at any given time. Additionally, the
market in Florida may become increasingly attractive to competitor PSNs due to
the large population of Medicare participants. Metropolitan may not be able to
continue to compete effectively in the health care industry if additional
competitors enter the same market.





Metropolitan
believes that some of its competitors may be substantially larger than
Metropolitan and have significantly greater financial, sales and marketing, and
other resources. Metropolitan believes that these competitors may be able to
respond more rapidly to changes in the regulatory environment in which
Metropolitan operates and changes in managed care organization business or to
devote greater resources to the development and promotion of their services than
Metropolitan can. Furthermore, it is Metropolitan’s belief that some of its
competitors may make strategic acquisitions or establish cooperative
relationships among themselves.




-6-


***We
are dependent upon our key management personnel and the qualified physicians and
medical personnel in our network for our future
success.***




Our
success depends to a significant extent on the continued contributions of our
key management personnel. The loss of these key personnel could have a material
adverse effect on our business, results of operations, financial condition and
plans for future development. While we have employment contracts with certain
key members of management, we compete with other companies in the industry for
executive talent and there can be no assurance that highly qualified executives
would be readily and easily available without delay, given the limited number of
individuals in the industry with expertise particular to Metropolitan’s business
operations.




Our
success also depends to a significant extent on the physicians and other medical
professionals who provide medical services in our network. We compete with
hospitals other networks and medical providers for the services of qualified
physicians and medical personnel. If we are unable to successfully recruit and
retain qualified physicians and medical personnel, the success of our business
could suffer.




***The
health care industry is highly regulated and our failure to comply with laws or
regulations, or a determination that in the past we have failed to comply with
laws or regulations, could have an adverse effect on our business, financial
condition and results of operations*** .




The
health care services that we and our affiliated professionals provide are
subject to extensive federal, state and local laws and regulations governing
various matters such as the licensing and certification of our facilities and
personnel, the conduct of our operations, our billing and coding policies and
practices, our policies and practices with regard to patient privacy and
confidentiality, and prohibitions on payments for the referral of business and
self-referrals. These laws are generally aimed at protecting patients and not
shareholders of Metropolitan and the agencies charged with the administration of
these laws have broad authority to enforce them. For example, federal
anti-kickback laws and regulations prohibit certain offers, payments or receipts
of remuneration in return for referrals of Medicaid or other
government-sponsored health care program patients or patient care opportunities
or purchasing, leasing, ordering, arranging for or recommending any service or
item for which payment may be made by a government-sponsored health care
program. In addition, federal physician self-referral legislation, known as the
Stark law, prohibits Medicare or Medicaid payments for certain services
furnished by a physician who has a financial relationship with various
physician-owned or physician-interested entities. These laws are broadly worded
and, in the case of the anti-kickback law, have been broadly interpreted by
federal courts, and potentially subject many business arrangements to government
investigation and prosecution, which can be costly and time consuming.
Violations of these laws are punishable by monetary fines, civil and criminal
penalties, exclusion from participation in government-sponsored health care
programs and forfeiture of amounts collected in violation of such laws. Florida
also has anti-kickback and self-referral laws, imposing substantial penalties
for violations.




-7-


The
health care industry has been the subject of increased scrutiny by federal and
state regulatory authorities in recent years focusing on the appropriateness of
care provided and referral and marketing practices. As such, Metropolitan cannot
be absolutely certain that it will not become subject to investigation from time
to time which may be costly and time consuming. Any adverse review, audit or
investigation could result in forfeiture of amounts paid, the imposition of
penalties or fines, loss of rights to participate in government-sponsored
programs, loss of licenses, damage to reputation in various markets, and
increased difficulty in hiring and retaining qualified personnel and marketing
Metropolitan’s business. In general, if we fail to comply with laws regulating
our business, or a determination is made that in the past we have failed to
comply with those laws, our business, financial condition and results of
operations could be adversely affected.




***Changes
in regulations or health care reform initiatives could adversely affect
Metropolitan’s business, results of operations or financial
condition.***




Changes
to health care laws or regulations or health care reform initiatives adopted by
the federal and Florida governments from time to time may have an adverse effect
on Metropolitan’s business, results of operations, and financial conditions
particularly if they restrict our existing operations, limit the expansion of
our business or impose additional compliance requirements. These changes, if
effected, could have the effect of reducing our opportunities for continued
growth and imposing additional compliance costs on us that may not be
recoverable through price increases.




***Limitations
of or reduction in reimbursement amounts or rates by government-sponsored
healthcare programs could adversely affect our financial condition and results
of operations.***




The
Medicare and Medicaid programs are subject to statutory and regulatory changes,
retroactive and prospective rate adjustments, administrative rulings and funding
restrictions, any of which could have the effect of limiting or reducing
reimbursement levels. As of December 31, 2004 approximately 99% of our revenues
were derived from reimbursements by various government-sponsored health care
programs. These government programs, as well as private insurers, have taken and
may continue to take steps to control the cost, use and delivery of health care
services. Any changes that limit or reduce Medicare reimbursement levels could
have a material adverse effect on our business. For example, the following
events could result in an adverse effect on our financial condition and results
of operations:




·
    reductions
      in or limitations of reimbursement amounts or rates under
      programs;




·
    reductions
      in funding of programs;




·
    elimination
      of coverage for certain individuals or treatments under programs, which
      may be implemented as a result of increasing budgetary and cost
      containment pressures on the health care industry;
or




·
    new
      federal or state legislation reducing funding and
      reimbursements.




Further,
significant changes may be made in the Medicare program, which could have a
material adverse effect on our business, results of operations, prospects,
financial results, financial condition or cash flows. In addition, the Congress
of the United States may enact unfavorable legislation, which could adversely
affect operations by, among other things, decreasing Medicare reimbursement
rates or reducing funding for Medicare without adjusting the benefits
offered to patients.




-8-


***A
failure to estimate incurred but not reported medical benefits expense
accurately will affect our profitability*** *.*




Direct
medical expenses incurred by Metropolitan include costs paid by Humana on
Metropolitan’s behalf. These costs also include estimates of claims incurred but
not reported (“IBNR”). The IBNR estimates are made by Humana utilizing actuarial
methods and are continually evaluated and adjusted by Metropolitan’s management,
based upon its specific claims experience and input from outside consultants.
Adjustments, if necessary, are made to direct medical expenses when the criteria
used to determine IBNR change and when actual claim costs are ultimately
determined. Due to the inherent uncertainties associated with the factors used
in these estimations, materially different amounts could be reported in our
financial statements for a particular period under different possible conditions
or using different, but still reasonable, assumptions. Although our past
estimates of IBNR have been adequate, they may be inadequate in the future,
which would adversely affect our results of operations. Further, our inability
to estimate IBNR accurately may also affect our ability to take timely
corrective actions, further exacerbating the extent of any adverse effect on our
results.




***We
have anti-takeover provisions which may make it difficult to replace or remove
our current management.***




Our
Articles of Incorporation authorize the issuance of up to 10,000,000 shares of
preferred stock with such rights and preferences as may be determined from time
to time by the Board of Directors. Our Board of Directors may, without
shareholder approval, issue preferred stock with dividends, liquidation,
conversion, voting or other rights, which could adversely affect the voting
power, or other rights of the holders of our Common Stock. The ability of our
Board of Directors to issue preferred stock may prevent or frustrate shareholder
attempts to replace or remove current management.




***The
market price of our Common Stock could fall as a result of sales of shares of
Common Stock in the market or the price could remain lower because of the
perception that such sales may occur.***




We cannot
predict the effect, if any, that future sales or the possibility of future sales
may have on the market price of our Common Stock. As of December 31, 2004, there
were 48,004,262 shares of our Common Stock outstanding, all of which are freely
tradable without restriction with the exception that approximately 12,600,000
shares, which were owned by certain of our officers, directors, affiliates and
third parties, and which may be sold publicly at any time subject to the volume
and other restrictions under Rule 144 of the Securities Act. In addition, as of
December 31, 2004, approximately 7,400,000 shares of our Common Stock were
reserved for issuance upon the exercise of warrants and options which have been
previously granted.




Sales of
substantial amounts of Metropolitan’s Common Stock or the perception that such
sales could occur could adversely affect prevailing market prices which could
impair Metropolitan’s ability to raise funds through future sales of our Common
Stock.




-9-


***Our
Common Stock has experienced in the past, and is
expected*** ***to experience in the future, significant price and volume volatility, which
could substantially increase the risk of loss to persons owning Common
Stock.***




The
market price and trading volume of our Common Stock could fluctuate
significantly and unexpectedly as a result of a number of factors, including
factors beyond the control of Metropolitan and unrelated to Metropolitan’s
business. Some of the factors related to Metropolitan’s business include:
termination of Metropolitan’s contracts with Humana, announcements relating to
Metropolitan’s business or that of Metropolitan’s competitors, adverse publicity
concerning organizations such as Metropolitan, changes in state or federal
legislation and programs, general conditions affecting the industry, performance
of companies comparable to Metropolitan, and changes in the expectations of
analysts with the respect to Metropolitan’s future financial performance.
Additionally, Metropolitan’s Common Stock may be affected by general economic
conditions or specific occurrences such as epidemics (such as influenza),
natural disasters (including hurricanes), acts of war or terrorism. Because of
the limited trading market for our Common Stock, and because of the possible
price volatility, you may not be able to sell your shares of Common Stock when
you desire to do so. The inability to sell your shares in a rapidly declining
market may substantially increase your risk of loss because of such illiquidity
and because the price for our Common Stock may suffer greater declines because
of its price volatility.




***There
can be no assurance that Metropolitan will be successful in its operation as an
HMO.***




Although
Metropolitan has
operated as a risk provider since 1999, it has not operated as an HMO.  To
successfully operate an HMO, Metropolitan believes it will have to develop the
following capabilities, among others: sales and marketing, customer service,
claims administration and regulatory compliance.  Metropolitan anticipates
that the development efforts, required reserve requirements and start-up costs
for its HMO can be funded by Metropolitan’s current resources and projected cash
flows from operations. Metropolitan expects that the HMO will be licensed and
operational in 2005 and expects to spend between $5 million and $7 million of
its existing or future cash resources to develop its HMO business. No assurances
can be given that Metropolitan will be successful in developing, licensing or
operating this new segment of its business despite its allocation of a
substantial amount of resources for this purpose. If Metropolitan’s HMO business
does not develop as anticipated or planned, Metropolitan may have to devote
additional managerial and/or capital resources to the HMO business, which could
limit Metropolitan’s ability to manage and/or grow its PSN.




***Delisting
of our Common Stock from AMEX, which is possible, would adversely affect us and
the holders of those shares.***





Our
Common Stock is listed on the AMEX. To maintain listing of securities, the AMEX
requires satisfaction of certain maintenance criteria that we are not sure that
we will continue to be able to satisfy. If we become unable to satisfy such
maintenance criteria in the future and we fail to comply, our Common Stock may
be delisted from trading on AMEX. If our Common Stock is delisted from trading
on AMEX, then trading, if any, might thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or on the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc. (the
"NASD") and consequently an investor could find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, our Common
Stock.





-10-


***Our
Common Stock may not be excepted from “Penny Stock” Rules, which may adversely
affect the market liquidity of our Common Stock.***





The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a “penny stock.” The Securities
Exchange Commission’s (the “Commission” or the “SEC”) regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. For example, such
exceptions include any equity security listed on a national securities exchange
such as the AMEX. Currently, our Common Stock meets this exception. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. In addition, if our
Common Stock becomes delisted from the AMEX and we do not meet another exception
to the penny stock regulations, trading in our Common Stock, including
exercising the rights offered hereby, would be covered by the Commission's Rule
15g-9 under the Exchange Act for non-national securities exchange listed
securities. Under this rule, broker/dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share. If
our Common Stock becomes subject to the regulations applicable to penny stocks,
the market liquidity for our Common Stock could be adversely affected. In such
event, the regulations on penny stocks could limit the ability of broker/dealers
to sell our Common Stock and thus the ability of purchasers of our Common Stock
to sell their shares in the secondary market.







-11-





**PART
I**





**ITEM
1** **DESCRIPTION
OF BUSINESS**




**Introduction**




Metropolitan
provides healthcare benefits to approximately 26,700 Medicare Advantage members
in Central and South Florida under risk contracts with Humana, Inc., the second
largest participant in this Medicare program (“Humana”). Metropolitan entered
into this business in 1999, operating a PSN, also known as a Managed Service
Organization (“MSO”).




Metropolitan’s
PSN currently includes thirty-nine (39) primary care physician
practices .
Metropolitan owns nine  of these
practices; the balance are independently owned and operated under capitation
contracts with Metropolitan. In addition to the primary care practices, the PSN
contracts with specialists, ancillary service providers, and hospitals.
Metropolitan also owns and operates an oncology practice, which is part of the
network **.**




Under its
full risk agreements with Humana, Metropolitan receives monthly payments per
patient at a rate established by the agreements in return for its services, also
called a capitated fee. The capitated fee is a majority percentage of the
monthly premiums received by Humana from CMS. In return for such fees,
Metropolitan assumes full financial responsibility for the provision of all
covered medical care to its patients, including those medical services that
Metropolitan’s PSN does not itself provide. To the extent the costs of providing
such care are less than the related premiums received from Humana, Metropolitan
generates an operating profit. Conversely, if the costs exceed related premiums,
Metropolitan generates an operating loss. As of
December 31, 2004, Metropolitan had the exclusive right and obligation to
provide medical care to designated Humana members in certain areas of Central
Florida (“Central Florida” as used in this Annual Report means Flagler and
Volusia Counties) and the non-exclusive right to provide medical care to Humana
members in South Florida (“South Florida” as used in this Annual Report means
Palm Beach, Broward and Miami-Dade Counties). As of December 31, 2004,
Metropolitan’s contracts with Humana covered over 26,700 Humana members,
including 19,200 members in Central Florida and 7,500 members in South
Florida.





Metropolitan
re-insures against catastrophic losses and certain diseases annually on a per
member basis. The annual stop-loss limits are $100,000 and $40,000 per member in
the Central Florida and South Florida markets, respectively.





The
Medicare Advantage business accounts for nearly all of Metropolitan’s revenues.
In addition, Metropolitan charges a fee for servicing patients in its owned
practices.




Metropolitan
is currently developing and seeking to license its own Medicare Advantage HMO to
operate in certain Florida markets underserved by this Medicare program.
Management does not intend to compete in markets in which it is contracted with
Humana and views this growth strategy as an extension of its existing core
competency and organization.  The current plan calls for operations to
begin in 2005. Management believes that the ongoing development efforts,
required reserve requirements and start-up costs for the HMO can be
funded by Metropolitan’s current resources and projected cash
flows from operations.





-12-


Although
Metropolitan has operated as a Medicare risk provider since 1999, it has not
operated as an HMO.  To successfully operate an HMO, Metropolitan is
developing additional capabilities, including sales and marketing, customer
service, claims administration and regulatory compliance. No assurances can be
given that Metropolitan will be successful in developing, licensing or operating
the new plan.





Information
regarding Metropolitan’s PSN and HMO segments for fiscal years 2004, 2003 and
2002, if any, is set forth in Note 11 to Metropolitan’s “Notes to Consolidated
Financial Statements” contained on pages F-20 through F-21 of this Form 10-K.
Such information is incorporated herein by reference.





**Background**




Metropolitan
was incorporated in the State of Florida in January 1996, and began operations
as a physician practice group. During the late 1990’s, Metropolitan acquired a
number of physician practices and ancillary service providers. In late 1999, the
group practice strategy was abandoned in connection with a change in the senior
management team.




The first
managed care risk contract was secured with Humana in 1999. In 2000, an
additional contract was subsequently secured to manage certain designated Humana
Medicare Advantage lives in Central Florida.




Metropolitan
renegotiated its most significant contract with Humana, covering the Central
Florida area, effective January 1, 2003. This renegotiation increased the
percentage of Medicare premium received by Metropolitan and resolved a number of
contractual disputes between Metropolitan and Humana.




Metropolitan
acquired a diagnostic laboratory business, renamed Metlabs, Inc., in 2000. This
operation was subsequently shut down in 2002. Metropolitan formed Metcare Rx, a
pharmacy business, in 2001. The pharmacy business was sold in November
2003.




Metropolitan’s
Board of Directors replaced Metropolitan’s President and CEO in March 2003, and
subsequently adopted a strategy to focus its resources and energies on its core
managed care business. In December 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (the “Medicare Modernization Act” or
“MMA”) was signed into law, which, among other changes, significantly increased
funding for the Medicare Advantage program beginning in 2004. The MMA
legislation is intended to significantly increase membership in the Medicare
Advantage program over the next several years.




In the
latter part of 2004, Metropolitan added three new wholly-owned physician
practices to its PSN. Most significant of these additions was a South Florida
multi-specialty practice serving over 1,000 Humana Medicare Advantage members
and several hundred fee-for-service patients. Metropolitan assumed the ongoing
operating expenses of the office and the risk for the Medicare Advantage
members, consistent with Metropolitan’s business model.




**Industry**




A report
issued in early 2005 by the Office of the Actuary at CMS estimated that national
healthcare spending in the United States was nearly $1.8 trillion, or $6,000 for
every American, in 2004. The CMS report projected that healthcare spending,
which today accounts for nearly 19% of the national economy, would grow to $3.6
trillion by 2014. The principal drivers for this growth include continued
cost-increasing medical innovation, rising price inflation, continued strong
demand for prescription drugs and the aging baby-boomer demographic.




-13-


Medicare
currently provides healthcare benefits to 43.3 million elderly and disabled
Americans, and was established in 1965. This number is expected to more than
double by 2030. The Medicare Advantage program (formerly Medicare+Choice)
represents private health plans’ participation in the Medicare program. Under
Medicare Advantage plans, private insurers provide care under contracts with
Medicare. These plans represent an alternative to traditional fee-for-service
Medicare and by definition must provide enhanced benefits which exceed those
provided by traditional Medicare by at least 30%. These enhanced benefits
typically include prescription drugs, eye exams, hearing aids and routine
physical exams. Out-of-pocket costs for the Medicare beneficiary may also be
lower and choice of physicians is typically restricted to the plan’s
network.




This
participation of private health plans in the Medicare Advantage Program under
full risk contracts began in the 1980’s and grew to a peak membership in 2000
when Medicare HMOs covered 6.3 million lives. Today, private plans account for
slightly more than 12% of Medicare members, down from a peak penetration of 18%. The
Balanced Budget
Act of 1997 (the “BBA”) resulted in significant funding decreases
causing the number of participating plans to drop from 346 in 1998 to 151 in
2003. The exodus of managed care companies from Medicare left many of its
beneficiaries without a private plan option.




The
Medicare Modernization Act, signed into law in December 2003 provided sweeping
changes to the Medicare program. At a cost currently estimated to be over $700
billion for the next ten years, the law provides for a Medicare prescription
drug offering beginning in 2006, established new tax-advantaged Health Savings
Account regulations and made significant changes to the old Medicare+Choice (now
“Medicare Advantage”) program. The changes to the Medicare Advantage program
were a response to the decreased managed care participation in Medicare and the
resulting lack of choice for Medicare beneficiaries. The MMA made favorable
changes to the premium rate calculation methodology and generally provides for
program rates that will
better reflect the increased cost of medical services provided by managed care
organizations to Medicare beneficiaries. The MMA rates for 2004 reflected an
average increase of 10.6%; the announced average rate increase for 2005 is
6.6%.




The MMA’s
funding increases were intended to both offset medical cost inflation and to
allow enhanced plan benefit design to encourage increased participation by
managed care organizations in Medicare Advantage plans.




**Markets**




Metropolitan
currently provides healthcare services to approximately 7,500 Medicare Advantage
beneficiaries in South Florida (Palm Beach, Broward and Miami-Dade Counties) and
19,200 members in the Central Florida area (Flagler and Volusia
Counties). Behind only California, which has 4.3 million Medicare eligibles,
Florida has the second largest Medicare population in the U.S. with an estimated
three million lives. However, California’s Medicare Advantage penetration is
approximately 31% while Florida’s is only 18%. The most significant counties in
terms of Medicare Advantage membership currently include Palm Beach, Broward,
Miami-Dade and Volusia. Florida’s Medicare population is expected to grow to
four million by 2015.




-14-


**Business
Model**




Metropolitan
provides “turn-key” healthcare services to Medicare Advantage beneficiaries who
participate in the Medicare Advantage program through Humana. Metropolitan’s
current agreements with Humana have one-year terms and renew automatically each
December 31 for additional one-year terms unless terminated for cause or upon
180 day’s prior notice. Humana is paid a
certain premium per member, per month, for its Medicare Advantage members by
Medicare under its contract with CMS. The monthly amount varies by patient,
county, age and severity of health status. Humana, in turn, allocates a majority
of this amount to Metropolitan for all patients cared for by
Metropolitan.




Metropolitan
serves over 26,700 patients enrolled by Humana in South and Central Florida.
Metropolitan’s PSN operates predominantly as an “affiliated” model as contrasted
with a “staff” model in which the physician practices are owned and operated by
the risk provider. Under Metropolitan’s model, the physicians maintain their
independence but are aligned with a professional staff
that assists in providing high quality, cost effective health care.
Metropolitan’s PSN is comprised of 39 primary care physician practices, nine of
which Metropolitan owns. The others are independent practices that are
contracted with on a capitated-basis. Under these agreements, Metropolitan pays
the physician a set amount per member, per month, to provide the
necessary primary care services on a full risk basis. The monthly amount is
negotiated and is subject to change based on certain quality metrics under
Metropolitan’s Partners In Quality (“PIQ”) program, a proprietary care
management model which was implemented by Metropolitan in 2002. In addition to
primary care physicians, Metropolitan’s PSN contracts with specialists,
ancillary service providers and hospitals. These providers deliver services to
Metropolitan’s patients based on certain fee schedules and care requirements.
Metropolitan pays capitated (fixed cost) fees for certain high volume
specialties, averaging the cost on a per member, per month basis; the others are
paid on a contractual fee-for-service basis **.**




Metropolitan
does not pay or process any of the payments to its PSN physicians or other
providers. All claims processing is handled directly by Humana. Metropolitan
does review and approve claims in advance of payment (prospective payment
review). Incorrect claims are identified and corrected prior to payment by
Metropolitan’s claims suspense staff. Paid claims are reviewed again and errors
are handled and recovered by Metropolitan’s contestation staff. Metropolitan
regularly monitors and measures Humana’s claims escrow pools, or allocations for
claims incurred but not yet reported (IBNR) for accuracy and underfunding.




Metropolitan
is certified as a Utilization Review Agent by Florida’s Agency for Health Care
Administration. Utilization review is a process whereby multiple data is
analyzed and considered to ensure that appropriate health services are provided
in a cost-effective manner. Factors include the risks and benefits of a medical
procedure, the cost of providing those services, specific payer coverage
guidelines, and historical outcomes of healthcare providers such as physicians
and hospitals.




As
mentioned above, Metropolitan has developed a proprietary care management model,
the PIQ program, which was implemented in 2002. PIQ is a “pay for performance”
program based on the principle that optimal clinical outcomes depend on multiple
factors including perceptions of care, efficient utilization of healthcare
resources, evidence-based medical treatment and appropriate follow-up. This
model is used to manage and compensate Metropolitan’s primary care physicians in
caring for Metropolitan’s patients. The PIQ program measures performance based
on quality metrics including patient satisfaction, disease state management of
high-risk, chronically ill patients, increased frequency of physician-patient
encounters, and enhanced medical record documentation. Metropolitan believes
that this focus provides Metropolitan with a competitive advantage as a
PSN.




-15-


**Competition**




Metropolitan
competes in the highly competitive and regulated health care industry which is
subject to continuing changes with respect to the provisioning of services and
the selection and compensation of providers. As stated above, the Humana
agreements are structured as one-year automatically renewable agreements. Humana may terminate
such agreements upon 180 days’ notice of non-renewal to Metropolitan.
Metropolitan competes with other risk providers for Humana’s business and Humana
competes with other HMOs in securing and serving patients in the Medicare
Advantage Program.




Metropolitan’s competitors
vary in size and scope, in terms of products and services offered. Metropolitan
believes that it competes directly with various national, regional and local
companies in providing its services. Some of Metropolitan’s direct competitors
in the PSN industry are Continucare Corporation, Primary Care Associates, Inc.
and MCCI, all based and operating in Florida. Additionally, companies in other
health care industry segments, some of which have financial and other resources
greater than Metropolitan, may become competitors in providing similar services
at any given time. Additionally, the market in Florida may become increasingly
attractive to competitor PSNs due to the large population of Medicare
participants. Metropolitan
believes that many of its competitors are substantially larger than Metropolitan
and have significantly greater financial, sales and marketing, and other
resources. Metropolitan believes that these competitors may be able to respond
more rapidly to changes in the regulatory environment in which Metropolitan
operates and changes in managed care organization business or to devote greater
resources to the development and promotion of their services than Metropolitan
can. Furthermore, it is Metropolitan’s belief that some of its competitors may
make strategic acquisitions or establish cooperative relationships among
themselves.




**Growth
Initiatives**




Prior to
2004, membership in Medicare Advantage programs declined as a percentage of
Medicare eligible lives over several years, principally the result of decreased
funding which has negatively impacted plan benefits. Although
Metropolitan has seen
growth in its membership through its expansion of its relationship with Humana,
Metropolitan has experienced gradual attrition in its membership commensurate
with the industry. Prior to the membership increases resulting from the
aforementioned expansion, net membership decreases from attrition were
approximately 770 in 2004 compared to 1,200 in 2003. Metropolitan expects that
this trend will improve over the next few years as a result of the passage of
the Medicare Modernization Act in late 2003. With operations focused in Florida,
the nation’s second largest Medicare market, Metropolitan expects
incremental membership growth in its current markets. Among a number of sweeping
changes to Medicare, the MMA legislation was intended to substantially increase
participation in Medicare Advantage through increased funding commitments. Beginning
with an average increase of 10.6% in 2004, this stimulus allowed plans to
improve benefits and attract new enrollees. Metropolitan’s total 2004 premium
increases were approximately 13.2% in Central Florida and 15.7% in South
Florida, a significant portion of which was utilized to enhance plan benefits.
As well, Metropolitan expects that opportunities to
expand into other Florida markets will develop as Humana and other Medicare HMOs
grow their respective businesses.




-16-


The
underlying economics of the Medicare Modernization Act have also provided
incentive for companies such as Metropolitan to directly enter the Medicare
Advantage business. Metropolitan
is currently developing and licensing its own Medicare Advantage HMO to operate
in certain Florida markets underserved by this program. Management does not
intend to compete in markets in which it is contracted with Humana and views
this growth strategy as an extension of its existing core competency and
organization.  The current plan calls for operations to begin in 2005.
Management believes that its ongoing development efforts, required reserve
requirements and start-up costs for the HMO can be funded by
Metropolitan’s current resources and projected cash flows from
operations.





**Employees**




As of
December 31, 2004, Metropolitan had 134 full-time employees, of which 34 were
employed at
Metropolitan’s executive offices. No employees of Metropolitan are covered by a
collective bargaining agreement or are represented by a labor union.
Metropolitan considers its employee relations to be good.




**ITEM
2** **DESCRIPTION
OF PROPERTY**




Our
principal executive offices are located at 250 Australian Avenue South, Suite
400, West Palm Beach, Florida where we occupy 13,211 square feet at a current
monthly rent of $16,200 pursuant to a lease expiring March 31,
2008.




Metropolitan
has a satellite office in Daytona Beach, Florida with 5,700 square feet and
monthly rent of  $8,300.
The lease expires September 30, 2006.




The PSN
leases 7 offices serving patients in Central and South Florida with an aggregate
monthly rental of $32,400 with expiration dates ranging from one to five years
from December 31, 2004.




**ITEM
3** **LEGAL
PROCEEDINGS**




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




**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 twelve months ended December 31,
2004.




-17-


**PART
II**




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




The
Company’s Common Stock is currently traded on the American Stock Exchange and
the Pacific Exchange under the symbol “MDF”. The
following table sets forth the high and low closing bid prices for the Common
Stock, as reported by American Stock Exchange:




**High**
    
    **Low****($)**
    
    **($)****COMMON
      STOCK**Quarter
      ended March 31, 2003
    
    
    0.27
    
    
    0.14Quarter
      ended June 30, 2003
    
    
    0.20
    
    
    0.07Quarter
      ended September 30, 2003
    
    
    0.34
    
    
    0.13Quarter
      ended December 31, 2003
    
    
    0.79
    
    
    0.26Quarter
      ended March 31, 2004
    
    
    1.10
    
    
    0.67Quarter
      ended June 30, 2004
    
    
    1.07
    
    
    0.81Quarter
      ended September 30, 2004
    
    
    1.70
    
    
    0.80Quarter
      ended December 31, 2004
    
    
    2.90
    
    
    1.35





As of
February 28, 2005, there were 295 record holders of our Common Stock.




Metropolitan
has never declared or paid any cash dividends on its Common Stock. Metropolitan
has no intention to pay cash dividends in the foreseeable future. Metropolitan
presently intends to invest its earnings, if any, in the development and growth
of its operations and the reduction of debt.




**Equity
Compensation Plan**




A table
detailing Metropolitan’s existing equity compensation plans as of December 31,
2004 is included in Item 12 of this Form 10-K and is incorporated herein by
reference.




**ITEM
6** **SELECTED
FINANCIAL DATA**


Set forth
below is our selected historical consolidated financial data for the five fiscal
years ended December 31, 2004. The selected historical consolidated financial
data should be read in conjunction with our consolidated financial statements
and accompanying notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included in Item 7 of this Annual Report. The consolidated statement of
operations data and balance sheet data for the years ended December 31, 2000,
2001, 2002, 2003 and 2004 are derived from our audited consolidated financial
statements which have been audited by Kaufman, Rossin & Co., P.A., our
registered public accounting firm.





-18-








**For
      the years ended December 31,****2004
      (1)**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000
      (2)**Net
      revenues
    
    $
    158,069,791
    
    $
    143,874,488
    
    $
    119,129,854
    
    $
    128,186,307
    
    $
    119,047,520Operating
      income/(loss)
    
    
    11,940,337
    
    
    7,211,068
    
    
    (10,898,177
    )
    
    2,201,632
    
    
    1,157,274Income/(Loss)
      from continuingoperations before income
taxes
    
    
    11,473,732
    
    
    5,861,303
    
    
    (13,865,800
    )
    
    934,163
    
    
    4,417,862Income/(Loss)
      from continuingoperations
    
    
    18,853,978
    
    
    5,861,303
    
    
    (13,865,800
    )
    
    934,163
    
    
    4,417,862Discontinued
      operations, net of tax
    
    
    (31,266
    )
    
    (1,459,550
    )
    
    (3,215,087
    )
    
    (1,303,404
    )
    
    (94,711
    )Net
      income/(loss)
    
    
    18,822,712
    
    
    4,401,753
    
    
    (17,080,887
    )
    
    (369,241
    )
    
    4,323,151Basic
      income/(loss) from continuingoperations per
      share
    
    
    0.42
    
    
    0.17
    
    
    (0.46
    )
    
    0.03
    
    
    0.26Basic
      earnings/(loss) per share
    
    
    0.42
    
    
    0.13
    
    
    (0.56
    )
    
    (0.02
    )
    
    0.25Diluted
      earnings/(loss) per share
    
    
    0.38
    
    
    0.10
    
    
    (0.56
    )
    
    (0.02
    )
    
    0.21Weighted
      average common sharesoutstanding-basic
    
    
    45,123,843
    
    
    34,750,173
    
    
    30,374,669
    
    
    25,859,411
    
    
    16,887,402Weighted
      average common sharesoutstanding-diluted
    
    
    50,028,303
    
    
    46,914,839
    
    
    30,374,669
    
    
    25,859,411
    
    
    20,934,496Cash
      dividend declared
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -**Financial
      Position**Cash
      and equivalents
    
    $
    12,844,113
    
    $
    2,176,204
    
    $
    399,614
    
    $
    393,968
    
    $
    44,724Total
      current assets
    
    
    18,923,011
    
    
    5,452,254
    
    
    5,957,163
    
    
    12,922,453
    
    
    6,754,274Total
      assets
    
    
    28,037,263
    
    
    9,223,729
    
    
    10,158,911
    
    
    17,379,262
    
    
    11,159,834Total
      current liabilities
    
    
    3,224,633
    
    
    7,822,298
    
    
    13,784,575
    
    
    9,796,526
    
    
    7,888,056Total
      liabilities
    
    
    3,474,633
    
    
    9,726,390
    
    
    17,027,204
    
    
    10,683,441
    
    
    10,922,619Total
      working capital
    
    
    15,698,378
    
    
    (2,370,044
    )
    
    (7,827,412
    )
    
    3,125,927
    
    
    (1,133,782
    )Long
      - term obligations,including current portion
    
    
    1,132,000
    
    
    2,983,576
    
    
    5,603,370
    
    
    1,821,705
    
    
    2,099,052Total
      stockholder's equity
    
    
    24,562,630
    
    
    (502,661
    )
    
    (6,868,293
    )
    
    6,695,821
    
    
    235,215
 (1) The
financial data for 2004 includes a deferred tax asset of $8,281,110 and a
benefit from income taxes of $7,380,246.
 (2) The
financial data for 2000 includes the operations of Metlabs, Inc., which was
discontinued in 2002.


****


**ITEM 7** **MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND** **RESULTS
OF OPERATIONS**




For the
twelve months ended December 31, 2004, approximately 99% of Metropolitan’s
revenue came from agreements with Humana. Metropolitan has one-year, full risk
renewable agreements with Humana to provide healthcare services to Humana
members in certain markets. Failure to maintain these agreements or successfully
develop additional sources of revenue could adversely affect Metropolitan’s
financial condition. (See “Risk Factors” - “The loss of certain agreements and
the capitated nature of our revenues could materially affect our
operations” *)* .




Under its
full risk agreements with Humana, Metropolitan receives monthly payments per
patient at a rate established by the agreements in return for its services, also
called a capitated fee. The capitated fee is a majority percentage of the
monthly premiums received by Humana from CMS (Centers for Medicare and Medicaid
Services). In return for such fees, Metropolitan assumes full financial
responsibility for the provision of all covered medical care to its patients,
including those medical services that Metropolitan’s PSN does not itself
provide. To the extent the costs of providing such care is less than the related
premiums received from Humana, Metropolitan generates an operating profit.
Conversely, if the costs exceed related premiums, Metropolitan generates an
operating loss.




-19-


**Critical
Accounting Policies**




Our
significant accounting policies are described in Note 1 on pages F-8 through
F-13 of the “Notes to Consolidated Financial Statements” included in this Form
10-K. We believe our most critical accounting policies include “Use of
Estimates, Revenue, Expense and Receivables” and “Use of Estimates, Deferred Tax
Asset.”




*Use
of Estimates, Revenue, Expense and Receivables.*




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




With
regard to revenues, expenses and receivables arising from agreements with
Humana, Metropolitan estimates amounts it believes will ultimately be realizable based in
part upon estimates of IBNR (claims incurred but not reported) and estimates of
retroactive adjustments or unsettled costs to be applied by Humana . The IBNR
estimates are made by Humana utilizing actuarial methods and are continually
evaluated by Metropolitan’s management based upon its specific claims
experience. It is
reasonably possible that some or all of these
estimates could change in the near term by an amount that could be material to
the financial statements. (See “Notes to Consolidated Financial Statements,”
Note 1 - “Use of Estimates, Revenue,
Expense and Receivables” and “Risk Factors - “A failure to estimate incurred but not
reported medical benefits expense accurately will affect our
profitability ”).




*Use
of Estimates, Deferred Tax Asset.*




The
Company has recorded a deferred tax asset of approximately $8.3 million at
December 31, 2004. Realization of the deferred tax asset is dependent on
generating sufficient taxable income in the future. The amount of the deferred
tax asset considered realizable could change in the near term if estimates of
future taxable income are modified and those changes could be material (see
“Notes to Consolidated Financial Statements,” Note 1 - “Use of Estimates,
Deferred Tax Asset” and Note 6 - “Income Taxes”).




-20-


In the
future, if Metropolitan determines that it cannot, on a more likely than not
basis, realize all or part of its deferred tax assets in the future, an
adjustment to establish (or record an increase in) the deferred tax asset
valuation allowance would be charged to income in the period in which such
determination is made. Changes in Metropolitan’s deferred tax assets are
reflected in the tax expense (benefit) line of our consolidated statements of
operations.




**Off-Balance
Sheet Arrangements**




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




**Tabular
Disclosure of Contractual Obligations**





**Payment
      Due by Period****Contractual**
    
    
    
    **Less
      Than**
    
    **1-3**
    
    **4-5**
    
    **More
      Than****Obligations**
    
    **Total**
    
    **1
      Year**
    
    **Years**
    
    **Years**
    
    **5
      years**Long-term
      debt
    
    $
    1,132,000
    
    $
    882,000
    
    $
    250,000
    
    $
    -
    
    $
    -Operating
      lease obligations
    
    
    3,812,000
    
    
    1,115,000
    
    
    2,006,000
    
    
    291,000
    
    
    400,000Employment
      obligations
    
    
    2,538,000
    
    
    2,215,000
    
    
    323,000
    
    
    -
    
    
    -$
    7,482,000
    
    $
    4,212,000
    
    $
    2,579,000
    
    $
    291,000
    
    $
    400,000





As of
December 31, 2004, Metropolitan had no payment obligations that would constitute
capital lease obligations.





**Comparison
of Fiscal 2004 and 2003**





**Introduction**




For the
year ended December 31, 2004, Metropolitan recognized revenues of $158.1 million
compared to $143.9 million in the prior year, an increase of $14.2 million or
9.9%. Net income for 2004 was $18.8 million compared to $4.4 million for the
year ended December 31, 2003. The 2004 year included a $7.4
million benefit from income taxes while the 2003 year included approximately
$1.5 million in losses related to its discontinued pharmacy operations.
Operating income improved 65.6%, from $7.2 million in 2003 to $11.9 million in
2004.




Net
earnings per share, inclusive of a $0.16 per share benefit from income taxes,
was $0.42 for the
year ended December 31, 2004 compared to $0.13 in the prior year. The increase
in the basic net earnings per share for the year ended December 31, 2004 was
partially offset by an increase in the number of weighted average shares
outstanding, from 34,750,173 at December 31, 2003 to 45,123,843 at December 31,
2004.




In
February 2004, Metropolitan issued an aggregate of 5,004,999 shares of Common
Stock (the "Private Placement Shares") at a price of $0.60 per share to 24
accredited investors and one non-accredited investor, accounting for much of the
increase in weighted average shares outstanding. Metropolitan received
$2,953,000 in proceeds, net of offering costs of approximately $50,000, from the
sale of these Private Placement Shares. The proceeds of this transaction were
used to settle its longstanding payroll tax obligation for an amount totaling
$3.4 million.




-21-


In 2004,
Metropolitan operated in two segments for purposes of presenting financial
information and evaluating performance, the PSN (managed care and direct medical
services) and the HMO. The HMO division is in the development stage. During
2003, Metropolitan also operated in two segments, the PSN and the pharmacy.
Metropolitan disposed of its pharmacy division in November 2003 and,
accordingly, the operations of the pharmacy division are reported as
discontinued operations. The remaining PSN segment, prior to allocation of
corporate overhead, reported an increase in income as a percentage of revenue,
from 8.0% in 2003 to 10.9% in 2004.  In 2004,
Metropolitan began the process of developing its own Medicare Advantage HMO and,
as of December 31, 2004, had incurred $460,000 of related expenses.




The
passage of the Medicare Modernization Act in late 2003 brought a number of
sweeping changes to Medicare, including substantially increasing participation
in Medicare Advantage through increased funding commitments. Beginning with an
average increase of 10.6% in 2004, this stimulus allowed plans to improve
benefits and attract new enrollees. When combined with the Medicare risk
adjustment increases, Metropolitan realized total 2004 premium increases of
approximately 13.2% in Central Florida and 15.7% in South Florida, resulting in
incremental revenue increases of $19.6 million over 2003.





Total
Medicare Advantage lives increased approximately 1,400 members from December 31,
2003 to a membership of 26,700 at December 31, 2004. Expansion of Metropolitan’s
primary physician network resulted in an incremental increase in excess of 2,100
members. Attrition slowed considerably in 2004, the result of the increased
funding and a corresponding improvement in member benefits provided by the MMA.
As a result, net membership decreases from attrition, which were approximately
1,200 in 2003, decreased to 770 in 2004.




**Revenues**




Revenues
for the year ended December 31, 2004, increased $14.2 million, or 9.9%, over the
prior year, from $143.9 million to $158.1 million. PSN revenues from Humana
increased 10.1%, from $142.3 million to $156.6 million. As previously discussed,
approximately $19.6 million in incremental revenues were generated by Medicare
funding and MRA increases that totaled 13.2% in the Central Florida market and
15.7% in South Florida,  while the
addition of three new South Florida medical practices in the last four months of
2004 accounted for $2.3 million in incremental revenue. These increases were
partially offset by net declines in membership, resulting in approximately $5.8
million in reduced revenue. In addition, effective August 1, 2003, Metropolitan
cancelled its risk arrangement with one of its South Florida centers due to
noncompliance with Metropolitan’s policies and procedures, resulting in a
funding decrease  of $1.7
million for the year ended  December
31, 2004 as compared to 2003.




Included
in the 2004 funding increases were MRA increases totaling approximately $2.3
million. The purpose of risk adjustment is to use health status indicators to
improve the accuracy of payments and establish incentives for plans to enroll
and treat less healthy Medicare beneficiaries. From 2000 to 2003, risk adjusted
payment has accounted for only 10 percent of Medicare health plans payment, with
the remaining 90 percent being based on demographic factors used before the BBA
was enacted. In 2004, the portion of risk-adjusted payment was increased to 30
percent, from 10 percent in 2003. The portion of risk-adjusted payment will
increase to 50 percent in 2005, 75 percent in 2006 with the 100% phase-in of
risk-adjusted payment to be completed in 2007.




-22-


Non-Humana
revenue for Metropolitan’s wholly-owned physician practices in 2004 declined,
relative to 2003, by $178,000, to a total of $1.4 million. Metropolitan operated
six physician practices and an oncology center in both years, adding three more
practices in the latter half of 2004.




**Expenses**




Total
expenses for the year ended December 31, 2004 increased $9.5 million, or 6.9%,
over the year ended December 31, 2003, from $136.7 million to $146.1 million.
However, total expenses improved as a percentage of revenue from 95.0% in 2003
to 92.4% in the current year.




Direct
medical costs, the largest component of expense, represents costs associated
with providing services of the PSN operation including direct medical payments
to physician providers, hospitals and ancillaries on a capitated or fee for
service basis. Direct medical costs for 2004 were $129.2 million compared to
$121.0 million for 2003. As a percentage of PSN revenues, direct medical costs
improved from 85.1% in the 2003 period to 82.5% in the current year. While
Humana enhanced the benefits provided in its 2004 Medicare Advantage benefit
plans in Metropolitan’s markets, increased Medicare funding and favorable
medical utilization more than offset the increased benefit costs. In addition,
the absolute level of Metropolitan’s average benefit costs per member life
increased in 2004 relative to 2003 as a result of, among other things, the most
severe flu season in four years, which resulted in increases in hospital
admissions and lengths of stay in the first quarter of 2004. Metropolitan also
experienced a $1.8 million increase in direct medical expenses in 2004 relative
to 2003 due to the addition of new medical practices in the last four months of
2004. Metropolitan estimates that its direct medical expenses were $1.9 million
lower in 2004 relative to 2003 as a result of Metropolitan’s closure of a
medical center in South Florida in August 2003 and a net decline in the number
of patients served by the PSN.




Payroll,
payroll taxes and benefits for 2004 was $9.3 million, as compared to the prior
year’s total of $7.8 million, a $1.4 million increase. The 2004 year included
$525,000 in incremental accrued bonus and pension expenses, the result of
Metropolitan’s improved performance in 2004. In addition, an increase of
approximately $298,000 resulted from the hiring of an oncologist in late 2003,
whereas in the 2003 period a consultant was utilized. An additional $524,000 was
incurred in Metropolitan’s three new medical centers in the South Florida and
Central Florida markets. Savings of approximately $171,000 were realized through
the closure of Metropolitan’s hospitalist program in early 2003. Increased
staffing, including the hiring of a general counsel, salary increases and
increased benefit costs accounted for the balance of the incremental
expense.




Medical
supplies were $1.6 million for 2004, compared to $2.1 million in 2003, due in
part to decreased utilization and more cost-effective purchasing. Medical supply
costs are incurred in all Metropolitan’s medical offices, but most prominently
in Metropolitan’s Central Florida oncology offices, accounting for 93.4% of the
2004 expense.




Depreciation
and amortization for the year ended December 31, 2004 totaled $370,000, a 43.6%
decrease over the prior year total of $655,000, as many of Metropolitan’s fixed
assets are fully depreciated.




-23-


Rents and
leases for the year ended December 31, 2004 increased $186,000 (18.3%) over the
prior year. Of this increase, $105,000 related to the opening of three new
medical centers.




Consulting
expense for the year decreased approximately $672,000, from $1.4 million in 2003
to $679,000 in 2004. Of the reduction, $370,000 resulted from the hiring of an
oncologist, whereas in the prior year a consultant was utilized. In addition,
approximately $383,000 in savings was realized through a reduction in marketing
and administrative consultants and the closure of Metropolitan’s hospitalist
program in early 2003. These savings were partially offset by $139,000 in
expenses incurred in the development of Metropolitan’s HMO.




General
and administrative expenses for 2004 amounted to $3.8 million, an increase of
$1.3 million over the prior year. Among the increases, $100,000 resulted from
contributions made by Metropolitan to relief efforts in the aftermath of
Hurricanes Frances and Jeanne, which had a significant impact on Metropolitan’s
service area. Another $321,000 of incremental expense was incurred in the
development of Metropolitan’s HMO, with increased director fees accounting for
an additional $345,000. In addition, $160,000 of general and administrative
expenses was incurred in connection with Metropolitan’s three new medical
centers in the South Florida and Central Florida markets. Metropolitan generated
an additional $91,000 of general and administrative expenses in connection with
successful listing on the American Stock Exchange and for dues and
subscriptions. The balance of the increase resulted from small increases over a
wide range of expense categories.




Other
income and expenses for the year included a decrease in interest expense of $1.0
million from the prior year due to the decreased average amount of debt and IRS
obligations carried by Metropolitan in the 2004 period as compared to the prior
year. In addition, as a result of Metropolitan’s increased cash balances,
interest income increased from $27,000 in 2003 to $101,000 in 2004. Metropolitan
accumulated approximately $10.7 million in additional cash and equivalents in
2004 and anticipates that its interest income will increase in 2005. Other
income and expenses also included a $200,000 reserve on the note receivable from
the purchaser (“Purchaser”) of the pharmacy operations. This note was due in May
2004 and, as of December 31, 2004 was in default. On February 11, 2005,
Metropolitan and the Purchaser executed a settlement agreement requiring the
note to be repaid in monthly installments ranging from $5,000 to $10,000, with
interest at 8%, until paid in full. Management believes that the collectibility
of the note remains uncertain.




The
Company has recorded a benefit from income taxes of approximately $7.4 million
at December 31, 2004. Realization of the benefit and the associated deferred tax
asset is dependent on generating sufficient taxable income in the future. The
amount of the deferred tax asset considered realizable could change in the near
term if estimates of future taxable income are modified and those changes could
be material (See
“Notes to Consolidated Financial Statements,” Note 6 - “Income
Taxes”).




Losses
related to the discontinued pharmacy operations for the twelve months were
$31,000 in 2004 as compared to $1.5 million in 2003. The pharmacy operations
were sold in November 2003.




-24-


**Comparison
of Fiscal 2003 and 2002**





**Introduction**




Revenues
for the year ended December 31, 2003 totaled $143.9 million compared to $140.1
million in the prior year. Net income was $4.4 million for the year ended
December 31, 2003 compared to a net loss of $17.1 million in 2002. On a per
share basis, Metropolitan earned $0.13 for the year ended December 31, 2003,
compared to a loss of $0.56 in the prior year. Income from continuing operations
amounted to $5.9 million in 2003, compared to a net loss of $13.9 million in
2002. Results for 2002 included significant adjustments to direct medical costs
of approximately $6.6 million, imputed interest expense of $1.2 million and
$520,000 in write-downs of accounts receivable from medical practices closed in
prior years.




Included
in the 2003 and 2002 years were $1.5 million and $3.2 million, respectively, of
losses related to the discontinued operations. Metropolitan operated two
business segments in 2003, managed care and direct medical services (PSN) and
pharmacy. It operated a third segment in 2002, the clinical laboratory business,
which was disposed of in July 2002. The pharmacy business was established in
2001 and sold in November 2003.




As
discussed in the audited financial statements, the PSN segment reported a gain
of $11.5 million before allocated overhead of $3.7 million for 2003, compared to
a loss of $5.0 million in 2002. Segment revenues for the same time periods were
$143.9 million and $140 million, respectively. Expenses, which include direct
medical costs and supplies, physician salaries and other costs relating to the
operations of medical practices, were $132.2 million and $147.2 million for the
years ended December 31, 2003 and 2002, respectively.




**Revenues**




Revenues
for the year ended December 31, 2003 increased $3.8 million or 2.7% over the
prior year, from $140.1 million to $143.9 million. PSN revenues from Humana
increased 2.8%, from $138.5 million to $142.3 million. Approximately $12.1
million in incremental revenues were generated by funding increases resulting
from the renegotiation of Metropolitan’s contract with Humana in the Central
Florida market, combined with governmental funding increases of approximately
1.8%. These increases were partially offset by a decline in the number of
patients in our Central Florida network, resulting in approximately $6.7 million
in reduced funding. In connection with the renegotiation of its Central Florida
HMO contract, Metropolitan was no longer at risk for the HMO’s commercial
membership effective January 1, 2003, resulting in lost revenue of approximately
$3.1 million for the year, but increased profitability as this line of business
had been unprofitable.




Metropolitan’s
South Florida centers reported a net increase in PSN revenues from Humana of
$1.6 million over the prior year period, with $1.4 million in increases from a
new center in Broward County, which Metropolitan assumed management of in
October 2002, and $1.9 million due to increased membership at its Boca Raton
medical office. Effective August 1, 2003 Metropolitan cancelled its risk
arrangement with the Broward County center due to noncompliance with
Metropolitan’s policies and procedures. These revenue increases were partially
offset by $1.7 million in decreases due to net decreased membership in
Metropolitan’s other South Florida medical centers.




-25-


Total
Medicare Advantage lives declined approximately 1,700 members from year-end 2002
to a membership of approximately 25,500 at December 31, 2003. Approximately 500
of these belong to the terminated Broward County center, with the other 1,200
attributable to attrition.




Non-Humana
revenue for Metropolitan’s wholly-owned physician practices in 2003 remained the
same as the prior year, $1.6 million. Metropolitan operated six physician
practices and an oncology center in each of the years.




**Expenses**




Operating
expenses for the year ended December 31, 2003 decreased $14.3 million (9.5%)
over the prior year, from $151.0 million to $136.7 million. Operating expenses
other than direct medical costs and medical supplies, which correlate to
revenue, decreased 12.5% over the prior year due in part to several cost cutting
measures undertaken by Metropolitan in late 2002 and 2003.




Direct
medical costs, the largest component of expense, represents costs associated
with providing services of the PSN operation including direct medical payments
to physician providers, hospitals and ancillaries on a capitated or
fee for service basis. Direct medical costs for 2003 were $121.0 million
compared to $133.6 million for 2002, a decrease of $12.6 million, or 9.4%,
despite a $3.8 million increase in HMO revenues. A savings of $3.5 million in
expenses was realized in 2003 due to no longer being at risk for commercial
membership in conjunction with Metropolitan’s renegotiated Central Florida HMO
contract. Included in 2002 were significant adjustments to direct medical costs
of approximately $6.6 million relating to prior years. Metropolitan was able to
obtain its own stop-loss insurance in the Central Florida market in 2003,
accounting for additional savings estimated at approximately $2.4
million.




Payroll,
payroll taxes and benefits for 2003 increased 1.9% over 2002, from $7.7 million
to $7.8 million. Increases were comprised of approximately $400,000 in
management and staff bonuses, increases of $378,000 in Metropolitan’s growing
Boca Raton medical and Central Florida oncology offices and $67,000 related to
Metropolitan’s Central Florida operations. Offsetting the increases were
approximately $139,000 in savings resulting from the closure of two unprofitable
medical practices in 2002 and $676,000 related to the termination of
Metropolitan’s hospitalist program in the first quarter.




Medical
supplies were $2.1 million for 2003, compared to $1.9 million in 2002, as the
2002 expense only represented ten months of operations for Metropolitan’s
Central Florida oncology offices. Medical supply costs are incurred in all
Metropolitan’s medical offices, but most prominently in Metropolitan’s Central
Florida oncology offices, accounting for 94.0% of the 2003 expense.




Depreciation
and amortization for the year ended December 31, 2003 totaled $655,000, a 30.8%
decrease over the prior year total of $946,000. The prior year included $429,000
in amortization and write-offs of financing costs, compared to $164,000 in the
current year.




Rent and
leases for the year ended December 31, 2003 totaled $1.0 million, a $162,000
increase over 2002. Approximately $100,000 of the increase resulted from
increased rent at Metropolitan’s new corporate offices, with another $119,000
arising from the expansion of the aforementioned Boca Raton and oncology medical
offices. These increases were offset in part by $56,000 in savings resulting for
the closure of the medical practices previously mentioned.




-26-


Consulting
expense for the year decreased approximately $1.3 million, or 49.3%, from $2.7
million in 2002 to $1.4 million in 2003. These savings resulted in part from
$273,000 in reductions of consulting services connected with Metropolitan’s
pharmacy and HMO development efforts. Further savings were achieved through the
discontinued use of medical consultants in Metropolitan’s hospitalist program in
the first quarter of 2003 amounting to $973,000, a $314,000 reduction in
marketing consultants and $81,000 in savings due to a closed medical practice in
July 2002. These reductions were partially offset by $303,000 in increases
related to the development of Metropolitan’s oncology practice.




General
and administrative expenses for the year decreased $492,000, or 16.1%, from the
$3.0 million reported in the year ended December 31, 2002. The result of cost
cutting measures undertaken by Metropolitan in the second half of 2002 and 2003,
decreases were recognized in a wide number of expense categories, most
significantly in legal and accounting. These reductions were partly offset by an
increase in insurance costs amounting to $158,000.




Other
income and expenses for 2003 included a decrease in interest expense of $1.1
million from the prior year, as 2002 included $1.2 million of imputed interest
due to beneficial conversion features on convertible notes. The difference of
$100,000 is due to the increased average amount of debt carried by Metropolitan
in 2003 as compared to the prior year.




Loss from
discontinued operations for the year, which includes Metropolitan’s pharmacy
division in 2003 and both the pharmacy and clinical laboratory in 2002, was $1.7
million in 2003 compared to $2.4 million in 2002. The 2003 year also included a
$290,000 gain on the disposal of the pharmacy division, while 2002 reported a
$834,000 loss on the disposal of the clinical laboratory.




**Liquidity
and Capital Resources**




During
the year ended December 31, 2004, Metropolitan reduced its current liabilities
from $7.8 million to $3.2 million and its total liabilities from $9.7 million to
$3.5 million. Most significantly, Metropolitan settled its longstanding payroll
tax obligation for an amount totaling $3.4 million. Metropolitan’s equity
totaled $24.6 million at December 31, 2004 compared to a deficit of $503,000 at
December 31, 2003. Additionally, working capital improved from a deficit of $2.4
million at year-end 2003 to a surplus of $15.7 million at December 31, 2004, an
improvement of $18.1 million.




As of
December 31, 2004, Metropolitan had approximately $12.8 million in cash and
equivalents as compared to approximately $2.2 million at December 31, 2003, an
increase of nearly $10.7 million.




Metropolitan
has adopted an investment policy with respect to the investment of cash and
equivalents. The investment policy goal is to obtain the highest yield possible
while investing only in highly rated instruments or investments with nominal
risk of loss of principal. The investment policy sets forth a list of “Permitted
Investments” and provides that exceptions to the policy and procedure must be
approved by the Chief Financial Officer or the Chief Executive Officer.




-27-


Cash
flows from operating activities for the year ended December 31, 2004 constituted
approximately $8.2 million of the $10.7 million increase in cash. Net income of
$18.8 million, inclusive of a benefit from income taxes of $7.4 million, was the
largest source of cash flow from operations, with an additional $664,000 in cash
generated by a reduction in accounts receivable. These sources of cash were
partially offset by $3.3 million, $916,000, $351,000 and $330,000 of cash
utilized for payroll taxes payable, accounts payable and accrued expenses, other
assets and other current assets.  In
addition, the recognition of a deferred income tax asset accounted for $8.3
million in cash used in operating activities, which was partially offset by a
$882,000 tax benefit on the exercise of stock options. In February 2004,
Metropolitan was successful in negotiating a settlement with the IRS on its
outstanding payroll tax liabilities for an amount totaling approximately $3.4
million. This amount has been paid in full.




Cash flow
from investing activities for the year ended December 31, 2004 had a $444,000
impact on Metropolitan’s cash resources, the entire amount having been used for
capital expenditures.




Metropolitan’s
financing activities for the year ended December 31, 2004 provided Metropolitan
approximately $2.9 million of cash. Metropolitan generated approximately $4.1
million of cash from the issuance of stock and the exercise of warrants and
options. Approximately $1.2 million was used for loan, note and capital lease
payments. A significant portion of the cash generated by Metropolitan from
financing activities is attributable to approximately $3.0 million of net
proceeds received by Metropolitan in connection with a private placement of
5,004,999 shares of its Common Stock.




Although
not reflected as a source or use of cash from financing activities on
Metropolitan’s consolidated statements of cash flow, certain creditors converted
$1,015,000 in principal amount of long-term debt into 1,868,055 shares of Common
Stock during the year ended December 31, 2004. As well, Metropolitan
successfully extended and modified the terms of a $1.2 million in principal
amount promissory note due May 2004 (the “Note”). The new terms of the Note
provided for monthly payments in the amount of $50,000 plus interest each month
over twenty-four months beginning June 2004, with interest at 12%. There is no
prepayment penalty for early repayment of the Note and, upon an uncured event of
default, the Note automatically converts into 6% Convertible Debentures with a
principal amount equal to the principal amount and accrued interest outstanding
under the Note. Metropolitan issued 100,000 shares of Common Stock in
conjunction with the restructuring. The Note was repaid in full January
2005.




Metropolitan
anticipates that the development efforts, required reserve requirements and
start-up costs for its HMO can be funded by Metropolitan’s current resources and
projected cash flows from operations. Metropolitan currently expects to spend
between $5 million and $7 million of its existing or future cash resources to
develop its HMO business through 2006. The actual amount will depend on a number
of variables including, but not limited to, the effectiveness of its sales and
marketing efforts in enrolling members and the HMO’s medical cost ratio. It is
expected that the HMO will be licensed and operational in 2005, however no
assurances can be given that Metropolitan will be successful in this
project.




-28-


**ITEM** **7A** **QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT** **MARKET
RISK**




Market
risk generally represents the risk of loss that may result from the potential
change in value of a financial instrument as a result of fluctuations in
interest rates and market prices. We do not currently have any trading
derivatives nor do we expect to have any in the future. We have established
policies and internal processes related to the management of market risks, which
we use in the normal course of our business operations.




**Intangible
Asset Risk**




We have a
substantial amount of intangible assets. We are required to perform goodwill
impairment tests whenever events or circumstances indicate that the carrying
value may not be recoverable from estimated future cash flows. As a result of
our periodic evaluations, we may determine that the intangible asset values need
to be written down to their fair values, which could result in material charges
that could be adverse to our operating results and financial position. Although
at December 31, 2004 we believed our intangible assets were recoverable, changes
in the economy, the business in which we operate and our own relative
performance could change the assumptions used to evaluate intangible asset
recoverability. We continue to monitor those assumptions and their effect on the
estimated recoverability of our intangible assets.





**Equity
Price Risk**




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




**Commodity
Price Risk**





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




**ITEM
8** **FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA**




Consolidated
Financial Statements and additional Supplementary Data are included on pages F-1
to F-21 of this Form 10-K.





**Summary
of Consolidated Quarterly Earnings (unaudited):**




**For
      the Quarter Ended****December
      31, 2004**
    
    **September
      30, 2004**
    
    **June
      30, 2004***
    
    **March
      31, 2004**Net
      revenues
    
    $
    40,880,563
    
    $
    40,091,999
    
    $
    38,554,033
    
    $
    38,543,196Income
      from continuing operations
    
    $
    9,839,757
    
    $
    3,654,603
    
    $
    3,868,851
    
    $
    1,490,767Net
      Income
    
    $
    9,853,883
    
    $
    3,666,746
    
    $
    3,857,274
    
    $
    1,444,809Net
      Income - per share - basic
    
    $
    0.21
    
    $
    0.08
    
    $
    0.08
    
    $
    0.03Net
      Income - per share - diluted
    
    $
    0.19
    
    $
    0.07
    
    $
    0.08
    
    $
    0.03
  *
      Includes $200,000 reclassification of reserve on pharmacy note from
      discontinued operations
  -29-
  **For
      the Quarter Ended****December
      31, 2003**
    
    **September
      30, 2003**
    
    **June
      30, 2003**
    
    **March
      31, 2003**Net
      revenues
    
    $
    35,452,435
    
    $
    35,680,129
    
    $
    35,865,376
    
    $
    36,876,548Income
      from continuing operations
    
    $
    1,555,763
    
    $
    1,691,617
    
    $
    1,649,329
    
    $
    964,594Net
      Income
    
    $
    1,565,390
    
    $
    1,172,972
    
    $
    947,694
    
    $
    715,697Net
      Income - per share - basic
    
    $
    0.04
    
    $
    0.03
    
    $
    0.03
    
    $
    0.02Net
      Income - per share - diluted
    
    $
    0.04
    
    $
    0.03
    
    $
    0.02
    
    $
    0.02





**ITEM
9** **CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE**




None.




**ITEM
9A.** **CONTROLS
AND PROCEDURES**




Our
management, which includes our Chief Executive Officer and our Chief Financial
Officer, has conducted an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated
under the Exchange Act) as of the end of the fiscal year covered by this report. Based
upon that evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act, is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.




There
have been no change in our internal controls over financial reporting that
occurred during our last fiscal quarter of the fiscal year covered by this
report that has materially affected or is reasonably likely to materially affect
our internal control over financial reporting.




**ITEM
9B.** **OTHER
INFORMATION**




**Item
1.01** **Entry
into Material Agreements**




On
November 5, 2004, the Board of Directors of Metropolitan, upon the
recommendation of the Compensation Committee, approved salary increases for
fiscal year 2005 for Michael M. Earley, Chairman and Chief Executive Officer,
Debra A. Finnel, President and Chief Operating Officer, David S. Gartner, Chief
Financial Officer, and Roberto L. Palenzuela, General Counsel and Secretary,
effective as of January 3, 2005. The salary increases were as follows: Mr.
Earley from $250,000 to $300,000; Ms. Finnel from $250,000 to $300,000; Mr.
Gartner from $160,000 to $190,000; and Mr. Palenzuela from $160,000 to $190,000.
Metropolitan entered into amended and restated employment agreements with each
of Mr. Earley, Ms. Finnel, Mr. Gartner and Mr. Palenzuela also effective as of
January 3, 2005. The initial term of the agreements is one year, which is
automatically renewable for successive one year periods unless earlier
terminated in accordance with the agreements. The terms and conditions of the
agreements are summarized in more detail in Item 11 of this Form 10-K under the
heading “Employment Agreements” which summaries are incorporated herein by
reference.




-30-


Each of
Mr. Earley’s, Ms. Finnel’s, Mr. Gartner’s and Mr. Palenzuela’s employment
agreements have been filed as exhibits to this Form 10-K and Metropolitan refers
you to such exhibits for the complete terms of the agreements which are also
incorporated herein by reference.




On
November 5, 2004, the Compensation Committee recommended and the Board ratified
the following discretionary bonus compensation for the fiscal year 2004 for
Metropolitan’s executive officers. The amount of the bonuses awarded were as
follows:




Michael
      M. Earley
    
    $125,000Debra
      A. Finnel
    
    $125,000David
      S. Gartner
    
    $
      75,000Roberto
      L. Palenzuela
    
    $
      60,000


The bonus
compensation will be paid by Metropolitan 65% in cash and 35% in Metropolitan
Common Stock, based on the per share closing price of the Common Stock on
December 31, 2004.




On
November 5, 2004, the Board of Directors, upon the recommendation of the
Compensation Committee, approved the compensation arrangement for non-employee
Directors of Metropolitan for the fiscal year 2005. The arrangement provides
that non-employee Directors are to receive $20,000 for Board service for the
year as well as additional
compensation ranging from $500 to $1,500 for attendance at Board and committee
meetings. The Chairpersons of the Governance & Nominating Committee,
Compensation Committee and Audit & Finance Committee will also receive an
additional retainer of $2,000, $4,000 and $6,000, respectively, annually for
service in 2005. In addition, each non-employee Director will receive an annual
grant of 25,000 options of Metropolitan’s Common Stock, issuable at the market
price at the date of grant with a one-year vesting period. Directors who are
also employees of Metropolitan will not receive additional compensation for
Board service in 2005.




The
compensation arrangement summarized above has been filed as an exhibit to this
Form 10-K, and Metropolitan refers you to such exhibit for the complete terms of
the arrangement which are incorporated herein by reference.




**PART
III**




**ITEM
      10**
    **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
      REGISTRANT**




As of the
date of this filing, the directors and executive officers of Metropolitan are as
follows:




-31-


**Name**
    **Age**
    **Position**Michael
      M. Earley
    49
    Chairman
      and Chief Executive OfficerDebra
      A. Finnel
    43
    President,
      Chief Operating Officer and DirectorDavid
      S. Gartner, CPA
    47
    Chief
      Financial OfficerRoberto
      L. Palenzuela, Esq.
    41
    General
      Counsel and SecretaryKarl
      M. Sachs, CPA
    68
    DirectorMartin
      W. Harrison, M.D.
    52
    DirectorEric
      Haskell, CPA
    58
    DirectorBarry
      T. Zeman
    58
    DirectorDouglas
      R. Carlisle
    54
    Director




**MICHAEL
M. EARLEY** ,
Chairman and
Chief Executive Officer has been employed by Metropolitan
since March 10, 2003 and previously served as a director of Metropolitan from
June 2000 to December 2002. Mr. Earley became Chairman of the Board of Directors
in September 2004. Mr. Earley has been an advisor to public and privately owned
companies, acting in a variety of management roles since 1997. From 1986 to
1997, he served in a number of senior management roles, including CEO and CFO of
Intermark, Inc. and Triton Group Ltd., both publicly traded diversified holding
companies. He was Chief Executive Office of Triton Group Management, a corporate
consulting firm, from 1997 through December 1999. He was Chief Executive Officer
of Collins Associates, an institutional money management firm, from January 2000
through December 2002. Mr. Earley was a self-employed corporate consultant from
January 2002 through February 2003. Since August 2002, Mr. Earley has been
serving as a director and member of the audit committee of MPower
Communications, a publicly traded telecommunications company. Mr. Earley
received his undergraduate degrees in Accounting and Business Administration
from the University of San Diego. From 1978 to 1983, he was an audit and tax
staff member of Ernst & Whinney.




**DEBRA
A. FINNEL** ,
President and Chief Operating Officer, has been employed by Metropolitan since
January 1999 and has served on the Board of Directors of Metropolitan since
2002. She has twenty years of healthcare experience in the South Florida market,
specializing in managed care and risk contracting, including five years as
Regional Director with FamilyCare, Inc., the largest affiliate of International
Medical Centers, Inc., Florida’s first Medicare+Choice HMO. Prior to joining
Metropolitan, Ms. Finnel was President and Chief Operating Officer of Advanced
HealthCare Consultants, Inc., which managed and owned physician practices in
multiple states and provided turnaround consulting to managed care providers,
MSOs, Independent Physician Associations **** and
hospitals. She also has extensive experience in provider contracting, claims
administration and customer service. Ms. Finnel has had an affiliated provider
relationship with Humana Medical Plans since their inception in the Florida
market in 1986 and has developed strong relationships with many senior
healthcare executives throughout Florida, as well as state and federal
government.




-32-


**DAVID
S. GARTNER, CPA** joined
Metropolitan in November 1999 as its Chief Financial Officer. He is a certified
public accountant with over twenty-three years experience in accounting and
finance, including thirteen years of specialization in the healthcare industry.
Previously, from July 1998 through November 1999, Mr. Gartner served as Chief
Financial Officer of Medical Specialists of the Palm Beaches, Inc., a large Palm
Beach County multi-practice, multi-specialty group of 40 physicians. Prior to
Medical Specialists, he held the position of Chief Financial Officer at National
Consulting Group, Inc., a treatment center licensed for 140 inpatient beds in
New York and Florida, from 1991 to 1998. Mr. Gartner is a member of the American
Institute of Certified Public Accountants and is a graduate of the University of
Buffalo, where he received his Bachelor of Science Degree in
Accounting.




**ROBERTO
L. PALENZUELA, ESQ.** was
appointed General Counsel and Secretary in March 2004. Mr. Palenzuela served as
General Counsel and Secretary of Continucare Corporation from May 2002 through
March 2004. From 1994 to 2002, Mr. Palenzuela served as an officer and director
of Community Health Plan of the Rockies, Inc., a health maintenance organization
based in Denver, Colorado. Community Health Plan of the Rockies, Inc. filed for
protection under Chapter 11 of the federal bankruptcy laws on November 15, 2002,
and was released from Chapter 11 on December 16, 2002. From March 1999 through
June 2001, Mr. Palenzuela served as General Counsel of Universal Rehabilitation
Centers of America, Inc. (n/k/a Universal Medical Concepts, Inc.), a physician
practice management company. Mr. Palenzuela received his Bachelors Degree in
Business Administration from the University of Miami in 1985 and his law degree
from the University of Miami School of Law in 1988.




**MARTIN
W. HARRISON, M.D.** has
served as a Director of Metropolitan since June 1999 and currently serves as a
member of Metropolitan’s Compensation, Audit & Finance and Governance &
Nominating Committees. From 2000 to March 2003, Mr. Harrison also served as an
advisor to the Board of Directors of Metropolitan. Mr. Harrison is a
self-employed medical doctor and has practiced medicine in South Florida,
specializing in preventive and occupational medicine. Dr. Harrison completed his
undergraduate training at the University of Illinois and obtained his
postgraduate and residency training as well as his Masters in Public Health from
Johns Hopkins University. Dr. Harrison has also served on the faculty of both
Johns Hopkins University and Johns Hopkins University Medical School. He is
currently the owner of H30, Inc. a privately held research & biomedical
company.




**KARL
M. SACHS, CPA** rejoined
the Board of Directors in September 2002 after previously serving as a Director
of Metropolitan from March 1999 to December 2001. He currently serves on
Metropolitan’s Compensation, Audit & Finance and Governance & Nominating
Committees. He is a founding partner of the Miami-based public accounting firm
of Sachs & Foccaraci, P.A. A certified public accountant for more than
thirty years, Mr. Sachs is a member of the American Institute of Certified
Public Accountants, Personal Financial Planning and Tax Sections; Florida
Institute of Certified Public Accountants; and the National Association of
Certified Valuation Analysts. The firm of Sachs & Focaracci, P.A. serves the
financial and tax needs of its diverse clients in addition to providing
litigation support services. Mr. Sachs is a qualified litigation expert for the
U.S. Federal District Court, U.S. District Court, U.S. Bankruptcy Court and
Circuit Courts of Dade and Broward Counties and has previously served as an
auditor for the Internal Revenue Service. He is a graduate of the University of
Miami where he received his Bachelors Degree in Business
Administration in 1957.




**ERIC
HASKELL, CPA** joined
the Board of Directors of the Company in August 2004. Mr. Haskell is a
certified public accountant with over 30 years of experience in senior financial
positions at several public and private companies and has significant expertise
in the areas of acquisitions and divestitures, strategic planning and investor
relations. From 1989 until April 2004, Mr. Haskell served as the Chief Financial
Officer of Systems & Computer Technology Corp., a NASDAQ listed software and
services corporation with annual revenues of approximately $270 million. He
currently serves on the Board of Directors and the Audit and Nominating
Committees of Triton PCS Holdings, Inc., a publicly traded company and wireless
communication services provider. He also serves on the Board of Directors and
Audit and Compensation Committees of eMoney Advisor, Inc., a provider of
web-enabled comprehensive wealth planning solutions. Mr. Haskell has served on
the Board of the Philadelphia Ronald McDonald House since 1996 and currently
serves as Chairman of its Finance Committee. Mr. Haskell received his Bachelors
Degree in Business Administration from Adelphi University in 1969.





-33-


**BARRY
T. ZEMAN** joined
the Board of Directors in August 2004. Mr. Zeman has 34 years of health care
industry and hospital management experience. Mr. Zeman has operated in the
capacity of President and/or Chief Executive Officer of several hospital
organizations throughout the State of New York. He served as Associate Director
of the Long Island Jewish Medical Center from 1971 through 1976. He served as
President and Chief Executive Officer of Staten Island University Hospital from
1976 to 1989 and was President and Chief Executive Officer of St. Charles
Hospital and Rehabilitation Center from 1991 through 2000. From 2000 through
February 2003, Mr. Zeman served as President of the Parker Jewish Institute, a
private not-for-profit rehabilitative, sub-acute and long-term care institution.
In 1989, Mr. Zeman founded U.S. Business Development Corp., a private consulting
firm offering comprehensive and consultative solutions to professionals in the
areas of health care finance, construction, physician group practices, hospital
association activities and health care law. He has served as President of U.S.
Business Development Corp. since its inception. In May 2004, Mr. Zeman became
Regional Business Development Manager for Wells Fargo Home Mortgage. He
currently serves as the Chair of the Building & Grounds Committee and
Secretary of the Board of Directors of Adelphi University and has served on the
Board of Directors of Adelphi University since 1997. Mr. Zeman received his
Bachelors Degree in Business Administration from the University of Cincinnati in
1969.





**DOUGLAS
R. CARLISLE** joined
the Board of Directors in December 2004. Mr. Carlisle is a senior executive with
over 18 years of leadership in the health insurance industry. Most recently, Mr.
Carlisle was the Senior Vice President of the $3 billion Senior Products segment
of Humana (the largest Medicare Advantage contractor in Florida and the second
largest Medicare Advantage contractors in the nation). Mr. Carlisle was employed
with Humana from 1986 until his retirement in June 2004 during which time he was
employed in various management positions. Prior to joining Humana, Mr. Carlisle
served as Chief Financial Officer and later Chief Executive Officer of Belknap,
Inc., a private hardware distribution company and as Vice-President of Finance
for Vermont American Corporation, an AMEX-listed manufacturing corporation with
annual revenues of approximately $300 million. Mr. Carlisle obtained his
Bachelor of Science degree in Accounting from the University of New Haven in
1976 and began his career as an accountant with Alexander Grant & Company
(now known as Grant Thornton) in New York City. From 1976 to 1984, Mr. Carlisle
worked for large international public accounting firms such as Alexander Grant
& Company and Coopers & Lybrand (now known as PriceWaterhouse Coopers)
until he joined Vermont American Corporation.





-34-


**Board
of Directors**




Each
director is elected at Metropolitan’s annual meeting of shareholders and holds
office until the next annual meeting of stockholders, or until successors
are elected and qualified. At present, Metropolitan’s bylaws provide for no less
than one director and no greater than eleven directors. Currently, there are
seven directors in Metropolitan. 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. There
are no family relations among any officers or directors of Metropolitan, nor are
there any arrangements or understandings between any of the directors or
officers of Metropolitan or any other person pursuant to which any officer or
director was or is to be selected as an officer or director. The officers of
Metropolitan devote full time to the business of Metropolitan. In 2004, the
Board of Directors held 14 meetings and there were 2 votes by Unanimous Written
Consent.




In
September 2004, the Board of Directors adopted a Code of Business Conduct and
Ethics for Metropolitan’s Chief Executive Officer and Senior Financial Officers.
A copy of the Code of Business Conduct and Ethics was filed with the SEC as
Exhibit 99.1 to Metropolitan’s Current Report on Form 8-K filed on September 30,
2004 .




**Board
Committees**




Metropolitan
had three active committees in 2004, the Audit & Finance Committee, the
Compensation Committee and the Governance & Nominating Committee.




The Audit
& Finance Committee consists of Mr. Sachs, Mr. Haskell, Mr. Zeman and
Dr. Harrison. The primary function of the Audit Committee is to assist the Board
in fulfilling its oversight responsibilities relating to (i) the quality and
integrity of the Corporation’s financial statements and corporate accounting
practices, (ii) the Corporation’s compliance with legal and regulatory
requirements, (iii) the independent auditor’s qualifications and independence
and (iv) the performance of the Corporation’s internal audit function and
independent auditors. The Board
of Directors has determined that Mr. Sachs and Mr. Haskell are the audit
committee “financial experts”, as such term is defined under federal securities
law, and are “independent” as such term is
defined by Rule 121A of the American Stock Exchange Company Guide. Mr. Sachs and
Mr. Haskell are experts by virtue of their extensive careers in finance and
accounting.




The
Compensation Committee’s primary objectives include making recommendations to
the Board of Directors regarding the compensation for our directors, executive
officers, non-officer employees and consultants and administering Metropolitan’s
employee stock option plans. It is currently composed of Mr. Haskell, Mr. Sachs
and Dr. Harrison.




The
primary objectives of the Governance & Nominating Committee include: (1)
assisting the Board by identifying individuals qualified to become Board members
and recommending to the Board the director nominees for the next annual meeting
of shareholders; (2) overseeing the governance of the corporation including
recommending to the Board Corporate Governance Guidelines for Metropolitan; (3)
leading the Board in its annual review of the Board’s performance; and (4)
recommending to the Board director nominees for each Board Committee. It is
currently composed of Mr. Zeman, Mr. Haskell, Mr. Sachs and Dr. Harrison.




-35-


**Shareholder
Nominations to the Board of Directors**




Historically,
Metropolitan has not had a formal policy concerning shareholder recommendations
of nominees to the Board of Directors. As of December 31, 2004, Metropolitan has
not received any recommendations from shareholders requesting that Metropolitan
consider a candidate for inclusion among Metropolitan’s slate of nominees in
Metropolitan's proxy statement. **** The
absence of such a policy does not mean, however, that a recommendation would not
have been considered had one been received. In September 2004, the Board of
Directors adopted a Shareholder Communication Policy for shareholders wishing to
communicate with: the Board of Directors, Metropolitan’s Governance &
Nominating Committee, and specified individual members of the Board of
Directors. Additionally, Metropolitan’s Governance & Nominating Committee
Charter provides that shareholder nominees to the Board of Directors will be
evaluated using the same guidelines and procedures used in evaluating nominees
nominated by other persons. Metropolitan will consider this matter fully during
the upcoming year with a view to adopting and publishing a policy on shareholder
recommendations for director nominees prior to its next meeting of
shareholders.




**COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT**




Section
16(a) of the Exchange Act requires Metropolitan’s directors and executive
officers, and persons who own more than ten (10%) percent of the outstanding
Common Stock, to file with 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 Metropolitan with copies of all such
reports they file.




Based
solely on its review of the copies of such reports furnished to Metropolitan or
written representations that no other reports were required, Metropolitan
believes that all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten (10%) percent beneficial owners were complied
with during the year ended December 31, 2004 except for the following: Barry T.
Zeman failed to file on a timely basis one report on Form 3 and two reports on
Form 4 with respect to six transactions; Martin W. Harrison, M.D. failed to file
on a timely basis four reports on Form 4 with respect to seven transactions;
Karl M. Sachs failed to file on a timely basis five reports on Form 4 with
respect to seven transactions; Roberto L. Palenzuela failed to file on a timely
basis one report on Form 3 with respect to one transaction and one report on
Form 4 with respect to two transactions; Eric Haskell failed to file on a timely
basis one report on Form 3 and one report on Form 4 with respect to two
transactions; David S. Gartner failed to file on a timely basis one report on
Form 4 with respect to one transaction; Debra A. Finnel failed to file on a
timely basis one report on Form 4 with respect to one transaction; and Michael
M. Earley failed to file on a timely basis one report on Form 4 with respect to
one transaction.




**ITEM
11.** **EXECUTIVE
COMPENSATION**




The
following tables present information concerning the compensation awarded to,
earned by or paid to Metropolitan’s Chief Executive Officer and the other three
most highly compensated individuals serving as executive officers at the end of
the 2004 fiscal year (collectively, the “Named Executive Officers”). No
executive officer of Metropolitan or its subsidiaries, other than the Named
Executive Officers, earned compensation in excess of $100,000 during the fiscal
year ended December 31, 2004 **.**





-36-




**Securities**
    
    **All****Fiscal**
    
    
    
    
    
    **Underlying**
    
    **Other****Name
      and Principal Position**
    
    **Year**
    
    **Salary**
    
    **Bonus
      (3)**
    
    **Options**
    
    **Compensation(4)**Michael
      M. Earley (1)
    
    
    2004
    
    $
    250,000
    
    $
    125,000
    
    
    400,000
    
    $
    2,084Chairman
      & CEO
    
    
    2003
    
    $
    118,000
    
    $
    60,000
    
    
    350,000
    
    
    -Debra
      A. Finnel
    
    
    2004
    
    $
    250,000
    
    $
    125,000
    
    
    800,000
    
    $
    4,333President
      & COO
    
    
    2003
    
    $
    250,000
    
    $
    160,000
    
    
    350,000
    
    
    -2002
    
    $
    250,000
    
    
    -
    
    
    -
    
    
    -David
      S. Gartner
    
    
    2004
    
    $
    160,000
    
    $
    75,000
    
    
    150,000
    
    $
    4,333Chief
      Financial Officer
    
    
    2003
    
    $
    144,000
    
    $
    60,000
    
    
    180,000
    
    
    -2002
    
    $
    120,000
    
    
    -
    
    
    -
    
    
    -Roberto
      L. Palenzuela (2)
    
    
    2004
    
    $
    129,000
    
    $
    60,000
    
    
    250,000
    
    $
    1,867Secretary
      & General Counsel





(1)
    Mr.
      Earley became Metropolitan’s President and Chief Executive Officer
      effective March 10, 2003. The 2003 salary figure above is based on an
      annualized salary of $130,000.(2)
    Mr.
      Palenzuela became Metropolitan’s Secretary and General Counsel effective
      March 8, 2004. The 2004 salary figure above is based on an annualized
      salary of $160,000.(3)
    Each
      of Mr. Earley, Ms. Finnel and Mr. Gartner were awarded a bonus in the
      amount of $60,000 on March 19, 2004 for services provided during the 2003
      fiscal year. Ms. Finnel received an additional bonus in 2003
      in the amount of $100,000. The board has approved bonuses of $125,000 each
      for Mr. Earley and Ms. Finnel, $75,000 for Mr. Gartner and $60,000 for Mr.
      Palenzuela for services rendered in 2004. Thebonuseswill be paid by Metropolitan 65% in cash and 35% in Metropolitan Common
      Stock, based on the per share closing price of the Common Stock on
      December 31, 2004. As of the date of this filing, these bonuses have not
      been paid**.**(4)
    Metropolitan’s
      401(k) Plan was adopted in 2004. The amounts disclosed in this column
      represent Metropolitan’s annual contribution for the fiscal year 2004 to
      each Named Executive Officer’s plan. Metropolitan matched each Named
      Executive Officer’s contribution by 33.3%.


****


**Options
granted in the Year Ended December 31, 2004 to Named Executive
Officers**




**Name**
    
    **Number
      of**
      **Securities**
      **Underlying**
      **Options**
    
    **Percent
      of**
      **Total
      Options**
      **Granted
      to**
      **Employees
      in**
      **Fiscal
      Year (1)**
    
    **Exercise
      or**
      **Base
      Price**
      **($/Share)**
    
    **Expiration**
      **Date**
    
    **Potential
      Realizable Value****at
      Assumed Annual Rate of****Stock
      Price Appreciation****For
      Option Term****5%**
    
    **10%**Michael
      M. Earley
    
    
    400,000
    
    
    17.39
    %
    $
    1.83
    
    
    11/5/14
    
    $
    460,351
    
    $
    1,166,619Debra
      A. Finnel
    
    
    800,000
    
    
    34.79
    %
    $
    1.83
    
    
    11/5/14
    
    $
    920,702
    
    $
    2,333,239David
      S. Gartner
    
    
    150,000
    
    
    6.52
    %
    $
    1.83
    
    
    11/5/14
    
    $
    172,632
    
    $
    437,482Roberto
      L. Palenzuela
    
    
    50,000
    
    
    2.17
    %
    $
    0.67
    
    
    3/8/10
    
    $
    11,393
    
    $
    25,84750,000
    
    
    2.17
    %
    $
    0.67
    
    
    3/8/11
    
    $
    13,638
    
    $
    31,78250,000
    
    
    2.17
    %
    $
    0.67
    
    
    3/8/12
    
    $
    15,995
    
    $
    38,310100,000
    
    
    4.35
    %
    $
    1.83
    
    
    11/5/14
    
    $
    115,088
    
    $
    291,655


(1)
    A
      total of 2,299,800 options were granted to employees of Metropolitan in
      the fiscal year ended December 31, 2004. Included in this number are
      1,200,000 options that were granted to two directors who are also
      employees of Metropolitan.





-37-


**Aggregated
Options Exercises in Fiscal 2004 and Fiscal Year Ending Option
Values**




The
following table sets forth certain information as to the exercise of stock
options during fiscal year 2004 by each of the Named Executive Officers and the
value of unexercised stock options held by each of the Named Executive Officers
at the end of fiscal year 2004. No Named Executive Officer held outstanding
stock appreciation rights during or at the end of fiscal year 2004
..




**Name**
    **Shares
      Acquired****on
      Exercise (#)**
    **Value****Realized
      ($)**
    **Number
      of****Securities
      Underlying****Unexercised
      Options****at
      Fiscal Year-End****(#)
      Exercisable/****Unexercisable**
    **Value
      of Unexercised****In-the-Money
      Options****At
      Fiscal Year-End****($)
      Exercisable/****Unexercisable
      (1)**Michael
      M. Earley
    0
    $0
    298,334/516,666
    $700,618/$689,332Debra
      A. Finnel
    0
    $0
    800,000/800,000
    $1,766,500/$800,000David
      S. Gartner
    0
    $0
    180,000/150,000
    $446,400/$150,000Roberto
      L. Palenzuela
    0
    $0
    0/250,000
    $0/$424,000





(1)
    The
      closing sale price of the Common Stock on December 31, 2004 as reported by
      the American Stock Exchange was $2.83 per share. Value is calculated by
      multiplying (a) the difference between $2.83 and the option exercisable
      price by (b) the number of shares of Common Stock
    underlying.


****


**Employment
Agreements**




Metropolitan
is a party to employment agreements with Michael M. Earley, Chairman and Chief
Executive Officer, Debra Finnel, President and Chief Operating Officer, David S.
Gartner, Chief Financial Officer, and Roberto L. Palenzuela, General Counsel and
Secretary.





In 2004,
Metropolitan was a party to an employment agreement with Michael M. Earley,
Chairman and Executive Officer, which was amended and restated effective January
3, 2005. The initial term of Mr. Earley’s current employment agreement is for
one year and is automatically renewable for successive one year terms, unless
earlier terminated in accordance with the terms of the agreement. The agreement
calls for an annual base salary of $300,000 to be reviewed annually.
Metropolitan’s Board of Directors in its sole discretion may increase Mr.
Earley’s salary and award bonuses and options to Mr. Earley at any time. The
agreement also provides for an automobile allowance in the amount of $800 per
month, a telephone allowance in the amount of $250 per month, vacation,
participation in all benefit plans offered by Metropolitan to its executives and
the reimbursement of reasonable business expenses The agreement also contains
non-disclosure, non-solicitation and non-compete restrictions. The
non-solicitation and non-compete restrictions survive for a period of two years
and one year, respectively, following the date of termination. Either party may
terminate the contract at any time.




From 2001
through the end of 2004, Metropolitan was a party to an employment agreement
with Debra A. Finnel, President and Chief Operating Officer, which was amended
and restated effective January 3, 2005. The initial term of Ms. Finnel’s current
employment agreement is for one year and is automatically renewable for
successive one year terms, unless earlier terminated in accordance with the
terms of the agreement. The agreement calls for an annual base salary of
$300,000 to be reviewed annually. Metropolitan’s Board of Directors in its sole
discretion may increase Ms. Finnel’s salary and award bonuses and options to Ms.
Finnel at any time. The agreement also provides for an automobile allowance in
the amount of $1,500 per month, a telephone allowance in the amount of $250 per
month, vacation, participation in all benefit plans offered by Metropolitan to
its executives and the reimbursement of reasonable expenses incurred in the
course of the business of Metropolitan. The agreement also contains
non-disclosure, non-solicitation and non-compete restrictions. The
non-solicitation and non-compete restrictions continue for a period of one year
following the date of termination. Either party may terminate the agreement at
any time.




-38-


In 2004,
Metropolitan was a party to an employment agreement with David S. Gartner, Chief
Financial Officer, which was amended and restated effective January 3, 2005. The
initial term of Mr. Gartner’s current employment agreement is for one year and
is automatically renewable for successive one year terms, unless terminated in
accordance with the terms of the agreement. The agreement calls for an annual
base salary of $190,000 to be reviewed annually. Metropolitan’s Board of
Directors may in its sole discretion increase Mr. Gartner’s salary and award
bonuses and options to Mr. Gartner at any time. The agreement also provides for
an automobile allowance in the amount of $500 per month, a telephone allowance
in the amount of $100 per month, vacation, participation in all benefit plans
offered by Metropolitan to its executives and the reimbursement of reasonable
business expenses The agreement also contains non-disclosure, non-solicitation
and non-compete restrictions. The non-solicitation and non-compete restrictions
survive for a period of two years and one year, respectively, following the date
of termination. Either party may terminate the agreement at any time.




In 2004,
Metropolitan was a party to an employment agreement with Roberto L. Palenzuela,
General Counsel and Secretary, which was amended and restated effective January
3, 2005. The initial term of Mr. Palenzuela’s current employment agreement is
for one year and is automatically renewable for successive one year terms,
unless earlier terminated in accordance with the terms of the agreement. The
agreement calls for an annual base salary of $190,000 to be reviewed annually.
Metropolitan’s Board of Directors in its sole discretion may increase Mr.
Palenzuela’s salary and award bonuses and options to Mr. Palenzuela at any time.
The agreement also provides for an automobile allowance in the amount of $500
per month, a telephone allowance in the amount of $100 per month, vacation,
participation in all benefit plans offered by Metropolitan to its executives and
the reimbursement of reasonable expenses incurred in the course of the business
of Metropolitan. The agreement also contains non-disclosure, non-solicitation
and non-compete restrictions. The non-solicitation and non-compete restrictions
survive for a period of two years and one year, respectively, following the date
of termination. Either party may terminate the agreement at any
time.




In the
event that any one of Mr. Earley, Ms. Finnel, Mr. Gartner or Mr. Palenzuela (i)
is terminated by Metropolitan without cause, (ii) dies or becomes disabled,
(iii) terminates his/her employment because he/she has been assigned duties
inconsistent with his/her position or because his/her duties and
responsibilities have been diminished or because of a breach of the agreement by
Metropolitan or because he/she has been reassigned to a location outside of the
area for which he/she was hired, he/she will be entitled to reimbursement of all
unreimbursed expenses incurred prior to the date of termination, payment of
unused vacation days and payment of his/her then annual base salary and benefits
for a period of one year following the termination; *provided,
however* , that if
Ms. Finnel’s employment is terminated because of her death or disability, she
will be entitled to payment of her then annual base salary and benefits for an
additional one year period for a total of two years after the date of her
termination. If there is a change of control of Metropolitan (as such term is
defined in the agreements), each of Mr. Earley, Ms. Finnel, Mr. Gartner and Mr.
Palenzuela will be entitled to reimbursement of all unreimbursed expenses
incurred prior to the date of termination, payment of unused vacation days, a
single lump sum payment of an amount equal to his/her then annual base salary
plus bonuses payable, the value of annual fringe benefits paid to him/her in the
year preceding the year of termination, and the value of the portion of his/her
benefits under any deferred compensation plan which are forfeited for reason of
the termination.




-39-


**Compensation
Committee Interlocks and Insider Participation**




From
January 1, 2004 until September 23, 2004 the following individuals served as
members of Metropolitan’s Compensation Committee; Dr. Martin Harrison, Dr.
Salomon Melgen and Karl Sachs. Effective September 24, 2004 through December 31,
2004, the Compensation Committee consisted of Eric Haskell, Karl Sachs and Dr.
Martin Harrison.




Except
for Dr. Harrison who served as an advisor to the Board of Directors of
Metropolitan from 2000 through March of 2003 and Vitreo Consultants, Inc., a
company owned by Dr. Melgen, which served as a provider in the Company’s PSN,
none of the members of the Compensation Committee are or have served as a
consultant to or been employed by Metropolitan. During fiscal year 2004,
Metropolitan paid to Vitreo Consultants $295,000 for services rendered as a
provider in its PSN.




No
executive officer of Metropolitan served as a director or on the compensation
committee of any entity of which any member of the Board of Directors or
Compensation Committee of Metropolitan is an executive officer during the fiscal
year 2004.




**Compensation
Committee Report on Executive Compensation**




Metropolitan’s
compensation policy with respect to executive officers is to offer a
compensation package which includes a competitive salary, competitive benefits,
a supportive workplace environment and bonus and stock options awards based upon
the achievement of individual and company performance goals established by the
Board of Directors annually as an incentive for superior corporate performance.
Executive officer salaries are reviewed annually by the Compensation Committee
which makes recommendations to the Board of Directors for its approval of the
salaries, bonuses, and stock option grants to be awarded to Metropolitan’s
executive officers.




-40-


During
the fiscal year 2004, the Compensation Committee engaged an independent firm,
Watson Wyatt & Company, to provide consulting services to the Compensation
Committee regarding its executive officer compensation policies. The objectives
of the study with respect to executive compensation were as follows: assess the
competitiveness of pay for executive management team; identify any gaps that may
exist; and make recommendations to address gaps that may exist, including
designing a more clearly defined bonus plan with measurable
payouts.




After
reviewing the recommendations of Watson Wyatt & Company, the Board of
Directors approved final salaries for fiscal year 2005 and bonuses for fiscal
year 2004 payable to Metropolitan’s executive officers. Additionally, for fiscal
year 2005, the Board of Directors is presently reviewing a Cash Bonus Plan for
executive officers, which will clearly define both individual-specific and
company-specific performance goals will and award bonuses as a percentage of
base salary upon the achievement of the various performance goals throughout the
year. Individual-specific performance goals are determined annually by the Board
of Directors for the Chief Executive Officer and by the Chief Executive Officer
for all other executive officers. For 2005, company-specific performance goals
under the proposed Cash Bonus Plan relate to Metropolitan’s attainment of a
specified level of operating income and the status of its developing HMO
business segment.




**Committee
Report on Chairman and Chief Executive Officer
Compensation**




The
Compensation Committee has previously established that the corporate goals and
objectives relevant to Michael M. Earley’s, Chairman and Chief Executive
Officer, compensation include, among other things, (i) diversification,
expansion, and broadening of the Company’s core business and new service
offerings; (ii) an increase in shareholder value, (iii) fulfillment of customer
expectations, (iv) out-performance of the competition, (v) development of an
employee-valued culture, and (vi) enhancement of social responsibility.




In
reviewing Mr. Earley’s proposed compensation package for fiscal year 2004, the
independent firm engaged by Metropolitan, Watson & Wyatt Company, reported
that the base salary paid by Metropolitan to Mr. Earley was significantly below
market and that the short-term and long-term incentives paid to Mr. Earley were
below market. Watson & Wyatt Company’s report, which included a peer review
of 13 companies, recommended that Metropolitan allocate Mr. Earley’s bonus in
terms of a percent of his base salary based on performance of Metropolitan from
both a numbers and objectives standpoint and further recommended that the bonus
be paid in a combination of cash, stock and options. The award of stock and
options would serve to enhance Mr. Earley’s stock ownership and incentivize Mr.
Earley with respect to future growth of Metropolitan. In determining Mr.
Earley’s overall annual compensation for fiscal year 2004, the Compensation
Committee considered Mr. Earley’s performance as the Chief Executive Officer in
2004, in light of the goals described in the paragraph above, Metropolitan’s
performance for the fiscal year 2004, and the findings of Watson Wyatt &
Company. The Compensation Committee recommended to the Board a 20% increase in
Mr. Earley’s salary from $250,000 to $300,000 for fiscal year 2005, a bonus in
the amount of $125,000 to be paid part in cash and Common Stock (to be valued at
the closing price of the Common Stock on December 31, 2004), and 400,000 stock
options (the exercise price of which is equal to the closing price of the Common
Stock on November 12, 2004). The Compensation Committee believes that, in light
of Mr. Earley’s satisfaction of certain individual goals and Metropolitan’s
achievement of performance goals for the fiscal year 2004, the compensation paid
to Mr. Earley as Chief Executive Officer for fiscal year 2004, including his
base salary, bonus and stock options, is reasonable when compared to the
compensation paid to other chief executive officers of public companies
competing in the same market as Metropolitan.




**COMPENSATION
COMMITTEE**


Eric
Haskell


Martin W.
Harrison, M.D.


Karl M.
Sachs





-41-


**Compensation
of Directors**




Metropolitan
reimburses all Directors for their expenses in connection with their activities
as Directors of Metropolitan. Non-Employee Directors make themselves available
to consult with Metropolitan’s management. Currently, two of the seven Directors
of Metropolitan are also employees of Metropolitan and do
not receive additional compensation for their services as Directors. In exchange
for Board service for a full year in 2004, Metropolitan’s non-employee Directors
received cash compensation in the amount of $36,000, and 25,000 options to
acquire Metropolitan’s Common Stock at the market price on the date of grant
with a one-year vesting period. Additionally, each non-employee Director was
paid $6,000 for the year in Metropolitan’s Common Stock for each committee
membership and committee chairmanship. Non-employee directors who joined the
Board in 2004 received 30,000 shares of Metropolitan’s Common Stock upon
joining the Board of Directors. During fiscal year 2005, the Board of Directors retained the services
of an independent consulting firm to review Metropolitan’s compensation package
for its non-employee Directors. After reviewing the recommendations of the
consulting firm, effective January 1, 2005, the Board’s compensation arrangement
was amended to provide that Metropolitan’s non-employee Directors will receive a
retainer of $20,000 for the full year of Board service in 2005. Additionally,
the non-employee Directors will receive additional amounts ranging from $500 to
$1,500 for attendance at Board and committee meetings. The Chairpersons of the
Governance & Nominating Committee, Compensation Committee and Audit &
Finance Committee will also receive an additional retainer of $2,000, $4,000 and
$6,000, respectively, per year for service in 2005. In addition, each
non-employee Director will receive an annual grant of 25,000 options of
Metropolitan’s Common Stock, issuable at the market price at the date of grant
with a one-year vesting period.




**Performance
Graph**




The
following graph depicts Metropolitan's cumulative total return for the last five
fiscal years relative to the cumulative total
returns of the NASDAQ Stock Market Index and a group of peer companies (the
“Peer Group”). All
indices shown in the graph have been reset to a base of $100 as of December 31,
1999 and assume an investment of $100 on that date and the reinvestment of
dividends paid since that date.







-42-









-43-


**ITEM
12**  **SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS** **AND** **MANAGEMENT**





The
following table sets forth certain information regarding Metropolitan's Common
Stock beneficially owned at February 28, 2005 (i) by each person who is known by
Metropolitan to beneficially own more than 5% of Metropolitan's Common Stock;
(ii) by each of Metropolitan's directors and named executive officers; and (iii)
by named executive officers and directors as a group.





**Name
      of Beneficial Owner**
    
    **Amount
      of**
      **Beneficial
      Ownership**
    
    **Percentage**
      **of
      Class**Martin
      W. Harrison, M.D. (1)
    
    
    5,176,169
    
    
    10.47
    %Karl
      M. Sachs (2)
    
    
    876,975
    
    
    1.77Debra
      A. Finnel (3)
    
    
    817,000
    
    
    1.65David
      S. Gartner (4)
    
    
    280,000
    
    
    0.57Michael
      M. Earley (5)
    
    
    322,774
    
    
    0.65Roberto
      L. Palenzuela (6)
    
    
    50,000
    
    
    0.10Eric
      Haskell (7)
    
    
    30,333
    
    
    0.06Barry
      T. Zeman (8)
    
    
    33,214
    
    
    0.07Douglas
      R. Carlisle (9)
    
    
    105,000
    
    
    0.21Norman
      Pessin (10)
    
    
    2,596,655
    
    
    5.25Fundamental
      Management Corporation (11)
    
    
    2,530,000
    
    
    5.12Directors
      and Executive Officers as a Group
    
    
    7,691,465
    
    
    15.56





(1)
    250
      Australian Ave., Suite 400, West Palm Beach, FL. 33401. Includes (1)
      4,152,169 shares owned directly by Dr. Harrison, (2) 900,000 shares owned
      by H30, Inc., a corporation for which Dr. Harrison serves as a Director,
      (3) 40,000 shares issuable upon exercise of options at a price of $0.91,
      expiring between November 2005 and November 2006, (4) 70,000 shares
      issuable upon exercise of options at a price of $0.70, expiring December
      2008, (5) 7,000 shares issuable upon exercise of options at a price of
      $6.938, expiring April 2005 and (6) 7,000 shares issuable upon exercise of
      options at a price of $7.938, expiring April 2005. Does not include 25,000
      shares issuable upon the exercise of options at a price of $1.83 that have
      not yet vested.(2)
    3675
      Coral Way, Miami, Florida 33145. Includes 876,975 shares owned directly by
      Karl M. Sachs. Does not include 25,000 shares issuable upon the exercise
      of options at a price of $1.83 that have not yet
vested.(3)
    250
      Australian Ave., Suite 400, West Palm Beach, FL. 33401. Includes (1)
      17,000 shares owned directly by Debra A. Finnel, (2) 150,000 shares
      issuable upon the exercise of options at $0.50 per share, expiring between
      October 2005 and October 2007, (3) 300,000 shares issuable upon the
      exercise of options at a price of $1.00, expiring between 1/1/07 and
      1/1/09, and (4) 350,000 shares issuable upon the exercise of options at a
      price of $0.35, expiring in September 2008. Does not include 800,000
      shares issuable upon the exercise of options at a price of $1.83 that have
      not yet vested.(4)
    250
      Australian Ave., Suite 400, West Palm Beach, FL. 33401. Includes (1)
      100,000 shares owned directly by David S. Gartner and (2) 180,000 shares
      issuable upon the exercise of options at a price of $0.35, expiring in
      September 2008. Does not include 150,000 shares issuable upon the exercise
      of options at a price of $1.83 that have not yet
vested.(5)
    250
      Australian Ave., Suite 400, West Palm Beach, FL. 33401. Includes (1)
      24,440 shares owned directly by Michael Earley, (2) 40,000 shares issuable
      upon the exercise of options at a price of $0.30 per share, expiring
      between June 2005 and June 2006, (3) 25,000 shares issuable upon the
      exercise of options at a price of $2.00 per share, expiring in September
      2005 and (4) 233,334 shares issuable upon the exercise of options at a
      price of $0.35 per share, expiring between December 2008 and December
      2009. Does not include 116,666 shares issuable upon the exercise of
      options at a price of $0.35 per share or 400,000 shares issuable upon the
      exercise of options at a price of $1.83 that have not yet
      vested.
  -44-
  (6)
    250
      Australian Ave., Suite 400, West Palm Beach, FL. 33401. Includes 50,000
      shares issuable upon the exercise of options at a price of $0.67, expiring
      March 2010. Excludes 100,000 shares issuable upon the exercise of options
      at a price of $0.67 and 100,000 shares issuable upon the exercise of
      options at a price of $1.83 that have not yet vested.(7)
    518
      Candace Lane, Villanova, PA. 19085. Includes 30,333 shares owned directly
      by Eric Haskell. Does not include 25,000 shares issuable upon the exercise
      of options at a price of $1.83 that have not yet
vested.(8)
    26
      Beaver Street, New York City, New York 10004. Includes 30,250 shares owned
      directly by Barry Zeman, 2,264 owned by his spouse and 700 held in his
      IRA. Does not include 25,000 shares issuable upon the exercise of options
      at a price of $1.83 that have not yet vested.(9)
    11811
      Hazelwood Road, Louisville, KY. 40223. Includes 105,000 shares owned
      directly by Douglas Carlisle. Does not include 25,000 shares issuable upon
      the exercise of options at a price of $2.30 that have not yet
      vested.(10)
    605
      Third Avenue, 14th floor, New York, NY, 10158.Includes
      (1) 50,000 shares owned by Norman H. Pessin, (2) 699,883 shares owned by
      Sandra F. Pessin and (3) 1,846,772 owned f/b/o Norman H. Pessin SEP
      IRA.(11)
    8567
      Coral Way, #138, Miami, FL 33155.Includes
      (1) 930,000 shares owned by Active Investors II, Ltd. and (2) 1,600,000
      shares owned by Active Investors III,
Ltd.





**Equity
Compensation Plans**




The
following table provides certain information regarding Metropolitan’s existing
equity compensation plans as of December 31, 2004:




**Number
      of securities to be issued upon exercise of outstanding options,
      warrants**
      **and
      rights**
    
    **Weighted-
      average exercise price of outstanding options, warrants and
      rights**
    
    **Number
      of securities remaining available for issuance under equity compensa-tion
      plans**Equity
      compensation plans approved by security holders (1)
    
    1,308,510
    
    $0.56
    
    0Equity
      compensation plans not approved by security holders (2)
    
    3,835,900
    
    $1.17
    
    0Equity
      compensation plans not approved by security holders (3)
    
    2,299,800
    
    $1.84
    
    3,700,200Total
    
    7,444,210
    
    
    
    3,700,200





(1)
    Issued
      pursuant to Metropolitan’s 2001 Stock Option Plan.(2)
    Issued
      pursuant to Metropolitan’s Supplemental Stock Option Plan (the
      “Supplemental Plan”).(3)
    Issued
      pursuant to Metropolitan’s Omnibus Equity Compensation Plan (the “Omnibus
      Plan”).


**Employee
Stock Option Plans**




Metropolitan
has three stock option plans that are administered by the Compensation Committee
of the Board of Directors. The Supplemental Plan and the Omnibus Plan have not
been approved by Metropolitan’s shareholders.





The
Supplemental Plan provides for the grant of nonqualified stock options to
officers, directors, employees and consultants of Metropolitan. A total of
8,253,242 shares of Metropolitan’s common stock were authorized for issuance
pursuant to options granted under the Supplemental Plan. As of December 31,
2004, there were 3,835,900
shares of Common Stock underlying outstanding options granted pursuant to
Metropolitan’s Supplemental Stock Option Plan. The remaining shares authorized
for issuance under Metropolitan’s Supplemental Plan were retired by the
Compensation Committee and the Board of Directors of Metropolitan by formal
resolution dated February 21, 2005. The
Compensation Committee determines the terms of options granted under the
Supplemental Plan, including the number of shares subject to the option,
exercise price, term, and exercisability. The exercise price may be equal to,
more than or less than 100% of fair market value on the date the option is
granted, as determined by the Compensation Committee. Unless otherwise
determined by the Compensation Committee, each option shall expire and terminate
five years after the subject option grant date. Unless otherwise determined by
the Compensation Committee, in the event the holder of an option leaves the
employ of the Company or ceases performing services for the Company or any
subsidiary of the Company for any reason including, without limitation,
termination, resignation, death, disability or otherwise, the unvested portion
of any option shall immediately expire. The Board of Directors may amend or
suspend the Supplemental Plan or any portion thereof at any time, provided such
amendment is made with shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement.




-45-


The
Omnibus Plan provides for the grant of non qualified or incentive stock options
and other stock based awards to directors, executives and key employees of
Metropolitan, as well as to any other persons if the Compensation Committee
determines that it is in the best interests of Metropolitan that such person
participate in the Omnibus Plan. A total of 6,000,000 shares of Metropolitan’s
common stock were authorized for issuance pursuant to awards granted under the
Omnibus Plan. As of December 31, 2004 there were 2,299,800
shares of Common Stock underlying outstanding non-qualified stock options
granted pursuant to Metropolitan’s Omnibus Equity Compensation Plan. The
Compensation Committee makes all determinations necessary or advisable for the
Omnibus Plan including (a) selecting the participants, (b) making awards
thereunder in such amounts and form as the Compensation Committee may determine,
(c) imposing such restrictions, terms, and conditions upon such awards as the
Compensation Committee may deem appropriate, and (d) correcting any defect or
omission, or reconciling any inconsistency, in the Omnibus Plan or any award
agreement. The Compensation Committee determines the exercise price and the
terms of awards granted under the Omnibus Plan with certain limitations
depending on the nature of an award. Generally, if a participant's employment is
terminated for any reason other than disability, retirement, or death before an
option has vested, such participant’s rights to exercise such option terminate
immediately. If a participant’s employment is terminated by disability,
retirement, or death before an option has vested, such option will generally
vest to the extent determined by the Compensation Committee. The Compensation
Committee has the authority to suspend, terminate or amend the Omnibus Plan,
although such actions may require shareholder approval.




**ITEM
13** **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS**





Metropolitan
during the fiscal year ending December 31, 2004, paid Vitreo Retinal
Consultants, a company owned by Dr. Salomon Melgen, a director, $295,000 for
services rendered as a provider to Metropolitan’s PSN. The fees paid were usual
and customary for the services provided. Dr. Melgen resigned as a director of
Metropolitan effective January 13, 2005.





-46-




**ITEM
14** **PRINCIPAL
ACCOUNTING FEES AND SERVICES**





The
following table presents fees billed in each of the last two fiscal years for
services rendered to Metropolitan by Metropolitan’s registered accounting firm,
Kaufman, Rossin & Co., P.A.:




Fiscal
      Year Ended
    
    Audit
      Fees(1)
    
    Audit-RelatedFees(2)
    
    Tax
      Fees(3)
    
    All
      Other Fees(4)December
      31, 2004
    
    $
    233,318
    
    $
    22,943
    
    $
    24,810
    
    $
    16,651December
      31, 2003
    
    $
    285,513
    
    $
    31,864
    
    $
    32,780
    
    $
    17,080





(1) “Audit
Fees” represents the aggregate fees billed for each of the last two fiscal years
for professional services rendered for the audit of Metropolitan’s annual
financial statements and review of financial statements included in
Metropolitan’s Form 10-Q and/or services provided by Kaufman, Rossin & Co.,
P.A. in connection with statutory or regulatory filings or engagements By
Metropolitan for those two fiscal years.




(2) “Audit
Related Fees” represents the aggregate fees billed for each of the last two
fiscal years for assurance and related services reasonably related to the
performance of the audit of Metropolitan’s annual financial statements for those
years. For the two years, the audit-related fees were incurred in connection
with SEC registration statement consent procedures.




(3) “Tax
Fees” represents the aggregate fees billed for each of the last two fiscal years
for professional services related to tax compliance, tax advice and tax
planning. The “Tax Fees” also included fees billed for the preparation of
federal and state income tax returns on behalf of Metropolitan.




(4) “All
Other Fees” represents fees billed for other products and services rendered by
Kaufman Rossin & Co., P.A. to Metropolitan for the last two fiscal years. In
both 2004 and 2003, these fees consisted primarily of services provided in
connection with Metropolitan’s investigation by the U.S. Attorneys’ Office in
Wilmington, Delaware.




**Pre-Approval
Policies and Procedures of the Audit & Finance
Committee**




The
engagement of Kaufman, Rossin & Co., P.A. was pre-approved by the Audit
& Finance Committee. All services performed by Kaufman, Rossin & Co.,
P.A. on behalf of Metropolitan during fiscal years 2003 and 2004 were
pre-approved by the Audit & Finance Committee. In September 2004, the Audit
& Finance Committee adopted, and the Board of Directors ratified,
Metropolitan’s Audit and Non-Audit Services Pre-Approval Policy which sets forth
the procedures and the conditions pursuant to which services proposed to be
performed by Kaufman, Rossin & Co., P.A., Metropolitan’s independent
auditor, will be pre-approved by the Audit & Finance Committee. All of the
audit and non-audit services performed by Kaufman, Rossin & Co.,
P.A. during the 2004 and 2003 fiscal years were pre-approved by our Audit
& Finance Committee.




**PART
IV**





**ITEM
15** **EXHIBITS,
FINANCIAL STATEMENT SCHEDULES**





(a) The
following documents are filed as a part of this Form 10-K:





(1)
Financial Statements.





-47-










**METROPOLITAN
HEALTH**


**NETWORKS,
INC. AND SUBSIDIARIES**





**CONSOLIDATED
FINANCIAL STATEMENTS**





**DECEMBER
31, 2004**








**C
O N T E N T S**








**Page**





REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    F-2CONSOLIDATED
      FINANCIAL STATEMENTSBalance
      Sheets
    
    F-3Statements
      of Operations
    
    F-4Statements
      of Changes in Stockholders' Equity (Deficiency in Assets)
    
    F-5Statements
      of Cash Flows
    
    F-6-F7Notes
      to Financial Statements
    
    F-8-F-21











F-1





**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To the
Board of Directors and Stockholders


Metropolitan
Health Networks, Inc. and Subsidiaries


West Palm
Beach, Florida





We have
audited the accompanying consolidated balance sheets of Metropolitan Health
Networks, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency in assets), and cash flows for each of the three years in the period
ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.








KAUFMAN,
ROSSIN & CO., P.A.






Miami,
Florida


February
18, 2005





F-2








**METROPOLITAN
      HEALTH NETWORKS, INC. AND SUBSIDIARIES****CONSOLIDATED
      BALANCE SHEETS****December
      31,****ASSETS**
    
    **2004**
    
    **2003**CURRENT
      ASSETSCash
      and equivalents
    
    $
    12,844,113
    
    $
    2,176,204Accounts
      receivable, net of allowance of $2,921,156 and $2,539,231,
      respectively
    
    
    1,474,438
    
    
    2,138,690Inventory
    
    
    217,630
    
    
    304,248Prepaid
      expenses
    
    
    422,839
    
    
    334,686Reinsurance
      receivable
    
    
    559,541
    
    
    284,591Deferred
      income taxes
    
    
    3,400,000
    
    
    -Other
      current assets
    
    
    4,450
    
    
    213,835TOTAL
      CURRENT ASSETS
    
    
    18,923,011
    
    
    5,452,254CERTIFICATES
      OF DEPOSIT - restricted
    
    
    1,000,000
    
    
    1,000,000PROPERTY
      AND EQUIPMENT, net of accumulated depreciation andamortization
      of $2,643,107 and $2,363,354, respectively
    
    
    824,003
    
    
    659,682GOODWILL
    
    
    1,992,133
    
    
    1,992,133DEFERRED
      INCOME TAXES
    
    
    4,881,110
    
    
    -OTHER
      ASSETS
    
    
    417,006
    
    
    119,660TOTAL
      ASSETS
    
    $
    28,037,263
    
    $
    9,223,729**LIABILITIES
      AND STOCKHOLDERS' EQUITY/(DEFICIENCY IN
    ASSETS)**CURRENT
      LIABILITIESAdvances
      from HMO
    
    $
    -
    
    $
    164,536Accounts
      payable
    
    
    840,470
    
    
    1,756,347Accrued
      payroll
    
    
    1,223,897
    
    
    897,716Accrued
      expenses
    
    
    184,733
    
    
    515,479Current
      maturities of capital lease obligations
    
    
    -
    
    
    104,315Current
      maturities of long-term debt
    
    
    882,000
    
    
    975,169Payroll
      taxes payable
    
    
    93,533
    
    
    3,408,736TOTAL
      CURRENT LIABILITIES
    
    
    3,224,633
    
    
    7,822,298CAPITAL
      LEASE OBLIGATIONS
    
    
    -
    
    
    3,092LONG-TERM
      DEBT
    
    
    250,000
    
    
    1,901,000TOTAL
      LIABILITIES
    
    
    3,474,633
    
    
    9,726,390COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY/(DEFICIENCY IN ASSETS)Preferred
      stock, par value $.001 per share; stated value $100 per
    share;10,000,000
      shares authorized; 5,000 issued and outstanding
    
    
    500,000
    
    
    500,000Common
      stock, par value $.001 per share; 80,000,000 shares
      authorized;48,004,262
      and 38,527,699 issued and outstanding, respectively
    
    
    48,004
    
    
    38,527Additional
      paid-in capital
    
    
    37,527,529
    
    
    31,343,887Accumulated
      deficit
    
    
    (13,415,621
    )
    
    (32,238,333
    )Prepaid
      expenses
    
    
    (97,282
    )
    
    (146,742
    )TOTAL
      STOCKHOLDERS' EQUITY/(DEFICIENCY IN ASSETS)
    
    
    24,562,630
    
    
    (502,661
    )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIENCY IN
ASSETS)
    
    $
    28,037,263
    
    $
    9,223,729See
      accompanying notes to consolidated financial
statements.








F-3








**METROPOLITAN
      HEALTH NETWORKS, INC. AND SUBSIDIARIES****CONSOLIDATED
      STATEMENTS OF OPERATIONS****For
      the years ended December 31,****2004**
    
    **2003**
    
    **2002**REVENUES,
      net
    
    $
    158,069,791
    
    $
    143,874,488
    
    $
    140,063,566EXPENSESDirect
      medical costs
    
    
    129,178,725
    
    
    121,010,410
    
    
    133,587,130Payroll,
      payroll taxes and benefits
    
    
    9,268,970
    
    
    7,846,785
    
    
    7,698,593Medical
      supplies
    
    
    1,588,447
    
    
    2,127,009
    
    
    1,913,446Depreciation
      and amortization
    
    
    369,682
    
    
    654,942
    
    
    946,325Bad
      debt expense
    
    
    -
    
    
    100,000
    
    
    250,000Rent
      and leases
    
    
    1,202,579
    
    
    1,016,152
    
    
    854,349Consulting
      expense
    
    
    678,705
    
    
    1,351,446
    
    
    2,663,362General
      and administrative
    
    
    3,842,346
    
    
    2,556,676
    
    
    3,048,538TOTAL
      EXPENSES
    
    
    146,129,454
    
    
    136,663,420
    
    
    150,961,743OPERATING
      INCOME (LOSS)
    
    
    11,940,337
    
    
    7,211,068
    
    
    (10,898,177
    )OTHER
      INCOME (EXPENSE):Write
      down of accounts receivable fromclosed
      practices
    
    
    -
    
    
    -
    
    
    (520,000
    )Interest
      and penalty expense
    
    
    (319,957
    )
    
    (1,322,878
    )
    
    (2,443,851
    )Interest
      income
    
    
    100,506
    
    
    26,758
    
    
    22,586Other
    
    
    (47,154
    )
    
    (53,645
    )
    
    (26,358
    )Reserve
      on note receivable - pharmacy
    
    
    (200,000
    )
    
    -
    
    
    -TOTAL
      OTHER INCOME (EXPENSE)
    
    
    (466,605
    )
    
    (1,349,765
    )
    
    (2,967,623
    )INCOME/(LOSS)
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    11,473,732
    
    
    5,861,303
    
    
    (13,865,800
    )BENEFIT
      FROM INCOME TAXES
    
    
    7,380,246
    
    
    -
    
    
    -INCOME/(LOSS)
      FROM CONTINUING OPERATIONS
    
    
    18,853,978
    
    
    5,861,303
    
    
    (13,865,800
    )DISCONTINUED
      OPERATIONS, NET OF TAX:Gain
      (loss) on disposal of business segments
    
    
    -
    
    
    289,605
    
    
    (833,657
    )Loss
      from operations of business segments
    
    
    (31,266
    )
    
    (1,749,155
    )
    
    (2,381,430
    )TOTAL
      DISCONTINUED OPERATIONS, NET OF TAX
    
    
    (31,266
    )
    
    (1,459,550
    )
    
    (3,215,087
    )NET
      INCOME/(LOSS)
    
    $
    18,822,712
    
    $
    4,401,753
    
    $
    (17,080,887
    )EARNINGS
      (LOSS) PER COMMON SHARE:INCOME/(LOSS)
      FROM CONTINUING OPERATIONS:Basic
    
    $
    0.42
    
    $
    0.17
    
    $
    (0.46
    )Diluted
    
    $
    0.38
    
    $
    0.13
    
    $
    (0.46
    )LOSS
      FROM DISCONTINUED OPERATIONS, NET OF TAX:Basic
    
    $
    -
    
    $
    (0.04
    )
    $
    (0.10
    )Diluted
    
    $
    -
    
    $
    (0.03
    )
    $
    (0.10
    )NET
      EARNINGS/(LOSS) PER SHARE:Basic
    
    $
    0.42
    
    $
    0.13
    
    $
    (0.56
    )Diluted
    
    $
    0.38
    
    $
    0.10
    
    $
    (0.56
    )See
      accompanying notes to consolidated financial
statements.










F-4





**METROPOLITAN
      HEALTH NETWORKS, INC. AND SUBSIDIARIES****CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY****(DEFICIENCY
      IN ASSETS)****FOR
      THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002****Common**
    
    
    
    **Additional****Preferred**
    
    **Preferred**
    
    **Stock**
    
    **Common**
    
    **Paid-in**
    
    **Prepaid**
    
    **Accumulated****Shares**
    
    **Stock**
    
    **Shares**
    
    **Stock**
    
    **Capital**
    
    **Expenses**
    
    **Deficit**
    
    **Total**BALANCES
      - DECEMBER 31, 2001
    
    
    5,000
    
    $
    500,000
    
    
    27,479,087
    
    $
    27,479
    
    $
    26,044,905
    
    $
    (317,364
    )
    $
    (19,559,199
    )
    $
    6,695,821Shares issued in connection with private placement,
      net
    
    
    -
    
    
    -
    
    
    200,000
    
    
    200
    
    
    199,800
    
    
    -
    
    
    -
    
    
    200,000Shares issued upon conversion of convertible
      debt
    
    
    -
    
    
    -
    
    
    1,251,778
    
    
    1,252
    
    
    1,010,371
    
    
    -
    
    
    -
    
    
    1,011,623Shares issued for consulting services and
      compensation
    
    
    -
    
    
    -
    
    
    1,070,000
    
    
    1,070
    
    
    223,897
    
    
    (221,100
    )
    
    -
    
    
    3,867Shares
      issued for commissions, net
    
    
    -
    
    
    -
    
    
    265,500
    
    
    266
    
    
    66,801
    
    
    (50,000
    )
    
    -
    
    
    17,067Exercise
      of options and warrants
    
    
    -
    
    
    -
    
    
    67
    
    
    -
    
    
    67
    
    
    -
    
    
    -
    
    
    67Shares
      issued for directors' fees
    
    
    -
    
    
    -
    
    
    57,274
    
    
    57
    
    
    69,943
    
    
    -
    
    
    -
    
    
    70,000Shares
      issued for interest expense and late fees
    
    
    -
    
    
    -
    
    
    263,000
    
    
    263
    
    
    132,130
    
    
    (57,778
    )
    
    -
    
    
    74,615Shares issued in connection with equity line,
      net
    
    
    -
    
    
    -
    
    
    38,475
    
    
    38
    
    
    35,667
    
    
    -
    
    
    -
    
    
    35,705Shares
      issued in settlement
    
    
    -
    
    
    -
    
    
    801,641
    
    
    801
    
    
    271,650
    
    
    -
    
    
    -
    
    
    272,451Shares cancelled in connection with previous
      acquisition
    
    
    -
    
    
    -
    
    
    (50,000
    )
    
    (50
    )
    
    (66,617
    )
    
    -
    
    
    -
    
    
    (66,667
    )Cancellation
      of warrants
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (72,000
    )
    
    -
    
    
    -
    
    
    (72,000
    )Issuance
      of options for services, net
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    523,900
    
    
    (189,000
    )
    
    -
    
    
    334,900Shares cancelled in connection with conversion
      feature
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,220,372
    
    
    -
    
    
    -
    
    
    1,220,372Amortization
      of prepaid expenses
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    414,773
    
    
    -
    
    
    414,773Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (17,080,887
    )
    
    (17,080,887
    )BALANCES
      - DECEMBER 31, 2002
    
    
    5,000
    
    
    500,000
    
    
    31,376,822
    
    
    31,376
    
    $
    29,660,886
    
    
    (420,469
    )
    
    (36,640,086
    )
    
    (6,868,293
    )Shares issued upon conversion of convertible
      debt
    
    
    -
    
    
    -
    
    
    3,670,214
    
    
    3,670
    
    
    1,093,834
    
    
    -
    
    
    -
    
    
    1,097,504Shares issued for consulting services and
      compensation
    
    
    -
    
    
    -
    
    
    (480,000
    )
    
    (480
    )
    
    (63,521
    )
    
    64,001
    
    
    -
    
    
    -Shares
      issued for compensation
    
    
    -
    
    
    -
    
    
    100,000
    
    
    100
    
    
    18,900
    
    
    -
    
    
    -
    
    
    19,000Exercise
      of options and warrants
    
    
    -
    
    
    -
    
    
    110,000
    
    
    110
    
    
    34,390
    
    
    -
    
    
    -
    
    
    34,500Shares
      issued for directors' fees
    
    
    -
    
    
    -
    
    
    329,760
    
    
    330
    
    
    57,170
    
    
    -
    
    
    -
    
    
    57,500Shares issued for interest expense, late fees and loan
      extension
    
    
    -
    
    
    -
    
    
    2,865,272
    
    
    2,865
    
    
    386,195
    
    
    (120,000
    )
    
    -
    
    
    269,060Shares
      issued in settlement
    
    
    -
    
    
    -
    
    
    555,631
    
    
    556
    
    
    156,033
    
    
    -
    
    
    -
    
    
    156,589Amortization
      of prepaid expenses
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    329,726
    
    
    -
    
    
    329,726Net
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,401,753
    
    
    4,401,753BALANCES
      - DECEMBER 31, 2003
    
    
    5,000
    
    
    500,000
    
    
    38,527,699
    
    
    38,527
    
    
    31,343,887
    
    
    (146,742
    )
    
    (32,238,333
    )
    
    (502,661
    )Shares issued in connection with private placement, net of
      offering costs
    
    
    -
    
    
    -
    
    
    5,004,999
    
    
    5,005
    
    
    2,947,995
    
    
    -
    
    
    -
    
    
    2,953,000Shares issued upon conversion of convertible
      debt
    
    
    -
    
    
    -
    
    
    1,868,055
    
    
    1,869
    
    
    1,013,131
    
    
    
    
    
    
    
    
    1,015,000Exercise
      of options and warrants
    
    
    -
    
    
    -
    
    
    2,269,202
    
    
    2,269
    
    
    1,142,972
    
    
    -
    
    
    -
    
    
    1,145,241Repurchase
      of warrants
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (113,250
    )
    
    -
    
    
    -
    
    
    (113,250
    )Shares
      issued for directors' fees
    
    
    -
    
    
    -
    
    
    233,292
    
    
    233
    
    
    249,651
    
    
    -
    
    
    -
    
    
    249,884Shares
      issued for interest expense and late fees
    
    
    -
    
    
    -
    
    
    1,015
    
    
    1
    
    
    576
    
    
    -
    
    
    -
    
    
    577Shares issued in connection with loan extension
    
    
    -
    
    
    -
    
    
    100,000
    
    
    100
    
    
    60,567
    
    
    (
      60,667
    )
    
    -
    
    
    -Amortization
      of prepaid expenses
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    110,127
    
    
    -
    
    
    110,127Tax
      benefit on exercise of options
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    882,000
    
    
    -
    
    
    -
    
    
    882,000Net
      income
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    18,822,712
    
    
    18,822,712**BALANCES
      - DECEMBER 31, 2004**
    
    
    **5,000**
    
    **$**
    **500,000**
    
    
    **48,004,262**
    
    **$**
    **48,004**
    
    **$**
    **37,527,529**
    
    **$**
    **(97,282**
    **)**
    **$**
    **(13,415,621**
    **)**
    **$**
    **24,562,630**See
      accompanying notes to consolidated financial
statements.










F-5





**METROPOLITAN
      HEALTH NETWORKS, INC. AND SUBSIDIARIES****CONSOLIDATED
      STATEMENTS OF CASH FLOWS****For
      the years ended December 31,****2004**
    
    **2003**
    
    **2002**CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income/loss
    
    $
    18,822,712
    
    $
    4,401,753
    
    $
    (17,080,887
    )Adjustments
      to reconcile net income/loss to net cashprovided
      by/(used in) operating activities:Unfavorable
      resolution of unsettled medical costs
    
    
    -
    
    
    -
    
    
    6,598,563Gain
      on sale of business segment
    
    
    -
    
    
    (289,605
    )
    
    -Write
      down of accounts receivable fromclosed
      practices
    
    
    -
    
    
    -
    
    
    520,000Loss
      on disposal of business segment
    
    
    -
    
    
    -
    
    
    833,657Depreciation
      and amortization
    
    
    341,772
    
    
    529,228
    
    
    946,325Reserve
      on note receivable - pharmacy
    
    
    200,000
    
    
    -
    
    
    -Provision
      for bad debts and direct write downs
    
    
    -
    
    
    100,000
    
    
    550,000Amortization
      of discount on notes payable
    
    
    52,185
    
    
    201,092
    
    
    103,798Interest
      imputed on beneficial conversion feature
    
    
    -
    
    
    -
    
    
    1,220,372Stock
      issued for interest and late fees
    
    
    577
    
    
    80,000
    
    
    -Stock
      issued for compensation and services
    
    
    249,884
    
    
    288,598
    
    
    86,800Warrants
      and options granted in lieu of compensation
    
    
    -
    
    
    -
    
    
    414,773Amortization
      of prepaid expenses
    
    
    110,127
    
    
    329,726
    
    
    313,527Deferred
      income taxes
    
    
    (8,281,110
    )
    
    -
    
    
    -Tax
      benefit on exercise of stock options
    
    
    882,000
    
    
    -
    
    
    -Changes
      in operating assets and liabilities:Accounts
      receivable, net
    
    
    664,253
    
    
    (587,350
    )
    
    756,604Inventory
    
    
    86,618
    
    
    (145,534
    )
    
    (158,714
    )Prepaid
      expenses
    
    
    (88,153
    )
    
    (44,014
    )
    
    (15,130
    )Reinsurance
      receivable
    
    
    (274,950
    )
    
    (284,591
    )
    
    -Other
      current assets
    
    
    9,385
    
    
    (60,611
    )
    
    (51,378
    )Net
      change in operating assets held for sale
    
    
    -
    
    
    (262,324
    )
    
    (2,309,552
    )Other
      assets
    
    
    (339,581
    )
    
    42,008
    
    
    (766,166
    )Accounts
      payable
    
    
    (915,877
    )
    
    (1,870,842
    )
    
    2,248,432Accrued
      payroll
    
    
    326,181
    
    
    386,235
    
    
    33,655Accrued
      expenses
    
    
    (350,531
    )
    
    (295,512
    )
    
    547,494Payroll
      taxes payable
    
    
    (3,315,203
    )
    
    (396,862
    )
    
    1,235,205Total
      adjustments
    
    
    (10,642,423
    )
    
    (2,280,358
    )
    
    13,108,265Net
      cash provided by/(used in) operating activities
    
    
    8,180,289
    
    
    2,121,395
    
    
    (3,972,622
    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of pharmacy
    
    
    -
    
    
    3,100,000
    
    
    -Purchase
      of restricted certificates of deposit
    
    
    -
    
    
    (150,000
    )
    
    (850,000
    )Capital
      expenditures
    
    
    (444,074
    )
    
    (140,962
    )
    
    (194,674
    )Net
      cash (used in)/provided by investing activities
    
    
    (444,074
    )
    
    2,809,038
    
    
    (1,044,674
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Borrowings
      on notes payable
    
    
    282,000
    
    
    637,137
    
    
    5,682,315Repayments
      on notes payable
    
    
    (1,063,354
    )
    
    (2,181,834
    )
    
    (1,359,326
    )Repayments
      on capital lease obligations
    
    
    (107,407
    )
    
    (141,229
    )
    
    (102,894
    )Repurchase
      of warrants
    
    
    (113,250
    )
    
    -
    
    
    -Proceeds
      from exercise of stock options and warrants
    
    
    1,145,241
    
    
    34,500
    
    
    353,075Net
      proceeds from issuance of common stock
    
    
    2,953,000
    
    
    -
    
    
    235,772Advance
      from/(repayments to) HMO, net
    
    
    (164,536
    )
    
    (1,502,417
    )
    
    214,000Net
      cash provided by/(used in) financing activities
    
    
    2,931,694
    
    
    (3,153,843
    )
    
    5,022,942NET
      INCREASE IN CASH AND EQUIVALENTS
    
    
    10,667,909
    
    
    1,776,590
    
    
    5,646CASH
      AND EQUIVALENTS - BEGINNING
    
    
    2,176,204
    
    
    399,614
    
    
    393,968CASH
      AND EQUIVALENTS - ENDING
    
    $
    12,844,113
    
    $
    2,176,204
    
    $
    399,614See
      accompanying notes to consolidated financial
statements.










F-6




**2004**
    
    **2003**
    
    **2002**Supplemental
      Disclosures:Interest
      Paid
    
    $
    306,020
    
    $
    1,383,863
    
    $
    980,475Income
      Taxes Paid
    
    $
    --
    
    $
    --
    
    $
    --Supplemental
      Disclosure of Non-cash Investing and Financing Activities:Fair
      value of assets received in connection with new medical
      facility
    
    $
    19,785
    
    $
    --
    
    $
    --Capital
      lease obligations incurred on purchases of equipment
    
    $
    --
    
    $
    --
    
    $
    45,009Conversion
      of debt into common stock
    
    $
    1,015,000
    
    $
    1,083,465
    
    $
    1,342,343Commitments
      to purchase restricted certificates of deposit
    
    $
    --
    
    $
    --
    
    $
    150,000Common
      stock issued for extension and interest fees on loans
    payable
    
    $
    60,667
    
    $
    75,000
    
    $
    --Common
      stock issued in connection with settlements
    
    $
    --
    
    $
    147,589
    
    $
    --Conversion
      of accrued interest to notes payable
    
    $
    --
    
    $
    98,505
    
    $
    --


See
accompanying notes to consolidated financial statements.













F-7




**NOTE
1.** **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES**





**Basis
of Consolidation**




The
consolidated financial statements include the accounts of Metropolitan Health
Networks, Inc. and all subsidiaries. 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 under agreements with a national health maintenance
organization, Humana Inc. (“Humana”) to provide medical care to Medicare
Advantage beneficiaries. The Company’s business with Humana commenced in 1999
and utilizes wholly-owned medical practices and contracted non-owned medical
practices, service providers and hospitals (see accounts receivable and revenue
recognition). The Company operates principally in South and Central
Florida.




In
October 2000, the Company acquired a clinical laboratory, which operated in
South Florida. The laboratory ceased operations and was closed in July 2002. In
June 2001 the Company opened a pharmacy to service its patient base in Central
Florida. Commencing in the third quarter of 2001, the Company expanded its
pharmacy division into New York and Maryland. In November 2003 the pharmacy
operations were sold.




**Segment
Reporting**




The
Company applies Financial Accounting Standards Boards ("FASB") statement No.
131, "Disclosure about Segments of an Enterprise and Related Information". The
Company has considered its operations and has determined that in 2002 it
operated in three segments and in 2003 and 2004 it operated in two operating
segments for purposes of presenting financial information and evaluating
performance. As such, the accompanying financial statements present information
in a format that is consistent with the financial information used by management
for internal use.




**Cash
and Equivalents**




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




**Reinsurance
Receivable**





Reinsurance
premiums are reported as a direct medical cost in the accompanying consolidated
statement of operations. Estimated reinsurance recoveries are reported as a
reduction of direct medical costs and included on the consolidated balance
sheets as reinsurance receivable.





**Inventory**





Inventory
consists principally of prescription drugs that are stated at the lower of cost
or market with cost determined by the first-in, first-out method.




**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









F-8


**METROPOLITAN
HEALTH NETWORKS, INC. AND SUBSIDIARIES** **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**




carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.




**Depreciation
and Amortization**




Depreciation
of property and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Amortization of leasehold improvements and
property under capital leases is computed on a straight-line basis over the
shorter of the estimated useful lives of the assets or the term of the lease.
The range of useful lives is as follows:




Machinery
      and equipment
    
    5 -
      7 yearsComputer
      and office equipment, including items under capital lease
    
    5 -
      7 yearsFurniture
      and fixtures
    
    5 -
      7 yearsAuto
      equipment
    
    5
      yearsLeasehold
      improvements
    
    5
      years





**Use
of Estimates**




*Revenue,
Expense and Receivables*




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




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




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




As
discussed above, the nature of the relationship with Humana is, and
has been such that certain estimates made by the Company are based upon
representations from Humana regarding retroactive adjustments to amounts previously credited or charged to
the Company’s fund balance. These estimates are particularly likely to change as
policy, and or personnel at Humana changes.
For the years ended December 31, 2004 and 2003 there were no material changes to
net income as a result of favorable or unfavorable settlements of 2003 or 2002
estimates, respectively. During 2002, Metropolitan recorded additional medical
costs of approximately $6.6 million related to amounts that were included in
accounts receivable at December 31, 2001. Accordingly, the 2002
income from operations and resulting net income were decreased by approximately
$6.6 million due to unfavorable settlements of estimated amounts.




Non-Humana
accounts receivable, aggregating approximately $3.3 million and $2.9 million at
December 31, 2004 and 2003, respectively, relate principally to medical services
provided on a fee for service basis, and are reduced by amounts estimated to be
uncollectible (approximately $2.9 million and $2.5 million at December 31, 2004
and 2003, respectively). Management's estimate of uncollectible amounts is based
upon its analysis of historical collections and other qualitative factors,
however it is possible the company's estimate of uncollectible amounts could
change in the near term.




F-9





METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)




*Deferred
Tax Asset*




The
Company has recorded a deferred tax asset of approximately $8.3 million at
December 31, 2004. Realization of the deferred tax asset is dependent on
generating sufficient taxable income in the future. The amount of the deferred
tax asset considered realizable could change in the near term if estimates of
future taxable income are modified and those changes could be material (see Note
6 - Income Taxes).




**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:




*Cash
and Certificates of Deposits* - The
carrying amount approximates fair value because of the short nature of those
instruments.




*Line
of Credit Facilities, Capital Lease Obligations, Long-Term Debt* - The
fair value of line of credit facilities, capital lease obligations and long-term
debt are estimated using discounted cash flows analyses based on the Company's
incremental borrowing rates for similar types of borrowing arrangements. At
December 31, 2004 and 2003, the fair values approximate the carrying
values.




**Concentrations**




Revenues
from Humana accounted for approximately 99% of the Company's total revenues,
excluding discontinued segments, for each of the three years in the period ended
December 31, 2004 and at December 31, 2004 and 2003, Humana represented
approximately 73% and 83% of the total accounts receivable balance,
respectively. Direct medical costs relating to revenues from Humana accounted
for approximately 82% of the Company's Humana revenues in 2004, 85% in 2003 and
96% in 2002. The loss of the contracts with Humana could significantly impact
the operating results of the Company. The
Humana agreements may be terminated in the event the Company participates in
activities Humana reasonably believes may adversely affect the health or welfare
of any member or other material breach, or upon 180-day notice of non-renewal by
either party.




**Earnings
(Loss) Per Share**




The
following table sets forth the computations of basic earnings per share and
diluted earnings per share:




**For
      the years ended December 31,****2004**
    
    **2003**
    
    **2002**Income/(Loss)
      from continuing operations
    
    $
    18,853,978
    
    $
    5,861,303
    
    $
    (13,865,800
    )Less:
      Preferred stock dividend
    
    
    (50,000
    )
    
    (50,000
    )
    
    (50,000
    )18,803,978
    
    
    5,811,303
    
    
    (13,915,800
    )Loss
      from discontinued operations, net of tax
    
    
    (31,266
    )
    
    (1,459,550
    )
    
    (3,215,087
    )Income/(Loss)
      available to common shareholders
    
    $
    18,772,712
    
    $
    4,351,753
    
    $
    (17,130,887
    )Denominator:Weighted
      average common shares outstanding
    
    
    45,123,843
    
    
    34,750,173
    
    
    30,374,669Basic
      earnings/(loss) per common share
    
    $
    0.42
    
    $
    0.13
    
    $
    (0.56
    )Net
      Income/(Loss)
    
    $
    18,822,712
    
    $
    4,401,753
    
    $
    (17,080,887
    )Interest
      on convertible securities
    
    
    2,565
    
    
    81,379
    
    
    -$
    18,825,277
    
    $
    4,483,132
    
    $
    (17,080,887
    )
  F-10
 **METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)**
  Denominator:Weighted
      average common shares outstanding
    
    
    45,123,843
    
    
    34,750,173
    
    
    30,374,669Common
      share equivalents of outstanding stock:Convertible
      preferred
    
    
    1,301,876
    
    
    4,901,963
    
    
    -Convertible
      debt
    
    
    91,081
    
    
    7,262,703
    
    
    -Options
      and warrants
    
    
    3,511,503
    
    
    -
    
    
    -Weighted
      average common shares outstanding
    
    
    50,028,303
    
    
    46,914,839
    
    
    30,374,669Diluted
      earnings/(loss) per common share
    
    $
    0.38
    
    $
    0.10
    
    $
    (0.56
    )





Securities
that would potentially dilute basic earnings per share in the future were not
included in the computation of diluted earnings per share because to do so would
have been anti-dilutive. The anti-dilutive securities consist of the
following:





For the
fiscal years 2004 and 2003, the Company had convertible debt in the amount of
$67,000, which could have been converted into the common stock of the Company at
$2.50 per share.




During
the fiscal years 2004, 2003 and 2002, the Company had outstanding warrants to
purchase 15,000, 2,924,775 and 3,324,775 shares of common stock, respectively.
The exercise prices of the warrants are $1.85 in 2004 and range from $0.32 to
$4.00 in 2003 and $0.32 to $6.00 in 2002.





During
the fiscal years 2004, 2003 and 2002, the Company had outstanding options to
purchase 3,204,800, 7,328,467 and 5,205,717 shares of common stock,
respectively. The weighted average exercise price of the options was $2.16 in
2004, $0.94 in 2003 and $1.46 in 2002.





For the
fiscal year 2002, the Company had 5,000 Series A preferred shares outstanding.
Each share of Series A preferred stock was convertible into shares of common
stock at the option of the holder at the lesser of 85% of the average closing
bid price of the common stock for the ten trading days immediately preceding the
conversion or $6.00.








For the
fiscal year 2002, the Company had convertible debt in the amount of $2,997,107,
which could have been converted into the common stock of the Company at a range
of 75% of market value at the date of conversion to $2.50 per
share.




**Accounts
Receivable and Revenue Recognition**




The
Company recognizes non-Humana 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
agreed upon rates paid by certain third party payers.




The
Company is a party to certain managed care contracts with Humana and provides
medical care to its patients through owned and non-owned medical practices.
Accordingly, the Company receives a monthly fee for each patient
that chooses one of the Company’s physicians as their primary care physician in
exchange for the Company assuming responsibility for the provision of all
necessary medical services, even those it does not provide directly. Fees under
these contracts are reported as revenues, and the cost of provider
services under these contracts are not included as a deduction to net revenues
of the Company, but are reported as an operating expense. In connection with its
Humana contracts, the Company is exposed to losses to the extent of its share
(100% for Medicare Part B, 100% for Medicare Part A in its Daytona market and
50% for Medicare Part A in South Florida) of deficits, if any, on its owned and
non-owned managed medical practices.




**Goodwill**




In
connection with its acquisitions of physician and ancillary practices, the
Company has recorded goodwill of $1,992,133 at December 31, 2004 and 2003, which
is the excess of the purchase price over the fair value of the net





F-11
 **METROPOLITAN
HEALTH NETWORKS, INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)**





assets
acquired. The goodwill is attributable to the general reputation of these
businesses in the communities they serve, the collective experience of the
management and other employees and relationships between the physicians and
their patients. Effective January 1, 2002 the Company, through the use of an
outside business valuation expert completed a transitional goodwill impairment
test and determined that the Company did not have a transitional impairment of
goodwill. Subsequent to that analysis, during the quarter ended September 30,
2002, the Company disposed of a segment of its business and charged off net
goodwill of approximately $986,000. The Company has performed its annual
impairment tests relating to retained business segments effective January 1 of
each year and has determined that no impairment exists.




**Income
Taxes**




The
Company accounts for income taxes pursuant to Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires income
taxes to be accounted for under the asset and liability method. Under this
method, deferred income tax assets and liabilities are determined based upon
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases using enacted tax rates in effect
for the year in which the differences are expected to reverse. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
earnings in the period that includes the enactment date. A valuation allowance
is established when it is more likely than not that some or all of the deferred
tax assets will not be realized.




**Stock
Based Compensation**




As
currently permitted by Statement 123, the Company uses the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation” and has
elected to continue using Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” in accounting for employee stock
options. C ompensation
expense for options granted to employees is recorded to the extent the market
value of the underlying stock exceeds the exercise price at the date of grant.
For the years ended December 31, 2004, 2003 and 2002 no compensation was
recorded. If compensation cost had been determined based on the fair value at
the grant date for awards in the years ended December 31, 2004, 2003 and 2002,
consistent with the provisions of SFAS 123, the Company's net income/loss and
income/loss per share would have been reduced to the pro-forma amounts indicated
below:




**For
      the years ended December 31,****2004**
    
    **2003**
    
    **2002**Net
      Income/(Loss)
    
    $
    18,822,712
    
    $
    4,401,753
    
    $
    (17,080,887
    )Less:  
      Total stock-based employee compensationexpense determined using
      the fair value method, net of related tax
    
    
    (141,398
    )
    
    (543,283
    )
    
    -Adjusted
      pro forma net income/(loss)
    
    $
    18,681,314
    
    $
    3,858,470
    
    $
    (17,080,887
    )Earnings
      per share:Basic,
      as reported
    
    $
    0.42
    
    $
    0.13
    
    $
    (0.56
    )Basic,
      pro forma
    
    $
    0.41
    
    $
    0.11
    
    $
    (0.56
    )Diluted,
      as reported
    
    $
    0.38
    
    $
    0.10
    
    $
    (0.56
    )Diluted,
      pro forma
    
    $
    0.37
    
    $
    0.08
    
    $
    (0.56
    )












F-12


**METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)**


**New
Accounting Pronouncements**




In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 151, which is effective
for fiscal periods beginning after June 15, 2005. This statement clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. These items are required to be recognized as current
period charges regardless of whether they meet the criterion of “so abnormal”.
The adoption of SFAS No. 151 is not anticipated to have a material impact on the
Company’s financial statements.





In
December 2004, the FASB issued SFAS No. 153, which is effective f or fiscal
periods beginning after June 15, 2005. In the past, the net book value of the
assets relinquished in a non-monetary transaction was used to measure the value
of the assets exchanged. Under SFAS No. 153, assets exchanged in a non-monetary
transaction will be at fair value instead of the net book value of the asset
relinquished, as long as the transaction has commercial substance and the fair
value of the assets exchanged is determinable within reasonable limits. The
adoption of SFAS No. 153 is not anticipated to have a material effect on the
Company’s financial statements.





In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
(Statement 123(R)), which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation (Statement 123). Statement 123(R) supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. Statement 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized at the date of grant in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. Statement 123(R)
is effective at the beginning of the first interim or annual period beginning
after June 15, 2005. The
impact of adoption of Statement 123(R) cannot be
accurately predicated at this time since it will depend on levels of share-based
payments in the future. However, had the Company adopted Statement 123(R) in prior
periods, the impact of the standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share in the note above. Statement 123(R) also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after
adoption. The Company cannot estimate what those amounts will be in the future
because they depend on, among other things, when employees exercise stock
options. The
Company expects to adopt Statement 123(R) on July 1, 2005.





**Reclassifications**




Certain
amounts in the 2003 and 2002 financial statements have been reclassified to
conform to the 2004 presentation.




**NOTE
2.ACQUISITIONS AND
DISPOSALS**




In the
third quarter of 2002 the Company disposed of its clinical laboratory. For the
year ended December
31, 2002, the Company recognized an $834,000 loss on the disposal of laboratory
operations.




In
November 2003, the Company sold the operations of its pharmacy division for a
cash price of $3.1 million, a note receivable of $200,000, and the assumption of
approximately $1.1 million in liabilities. For the year ended December 31, 2003,
the Company recognized a gain of $290,000 on the disposal of pharmacy
operations. During 2004 the Company was unable to collect the balance due on the
note and recorded a provision, which is included in other expense in the
consolidated statements of operations.




Revenues
from operations of discontinued business segments totaled $12,906,000 and
$13,761,000 for the years ended December 31, 2003 and 2002, respectively. Losses
from operations of discontinued business segments were $31,000, $1,700,000 and
$2,400,000 for the years ended December 31, 2004, 2003 and 2002,
respectively .





F-13




**METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)**


**NOTE
3.PROPERTY AND
EQUIPMENT**




Property
and equipment consisted of the following:




December
      31,2004
    
    2003Equipment
      under capital lease
    
    $
    -
    
    $
    674,633Machinery
      and medical equipment
    
    
    282,441
    
    
    249,881Furniture
      and fixtures
    
    
    881,880
    
    
    382,451Leasehold
      improvements
    
    
    895,481
    
    
    692,297Computer
      and office equipment
    
    
    1,345,928
    
    
    962,394Automobile
      equipment
    
    
    61,380
    
    
    61,3803,467,110
    
    
    3,023,036Less:
      accumulated depreciation and amortization
    
    
    (2,643,107
    )
    
    (2,363,354
    )$
    824,003
    
    $
    659,682





Accumulated
amortization of equipment under capital leases was $534,000 at December 31,
2003.




Depreciation
and amortization of property and equipment totaled approximately $280,000,
$365,000 and $433,00 for the years ended December 31, 2004, 2003 and 2002,
respectively.




**NOTE
4.LONG-TERM
DEBT**





December
      31,Long-term
      debt consisted of the following:
    
    2004
    
    2003Promissory
      Note payable to a venture capital group; unsecured, with interest payable
      quarterly at a rate of 12%. Principal originally due May 24, 2004. In
      March 2004, the Company renegotiated an extension, with payments due over
      twenty-four months. This note was repaid in full January
    2005.
    
    $
    850,000
    
    $
    1,182,909Promissory
      Notes payable to Humana; unsecured, with no interest payable. Payable in
      twelve equal installments with final payments due December 1, 2005. The
      principal sum of these notes may be used for improvements to three of
      Humana’s owned physician offices, reducing the Promissory Notes in direct
      proportion to the amounts spent on such improvements.
    
    
    282,000
    
    
    --Convertible
      debentures payable to a venture capital group; unsecured, with interest
      payable quarterly at a rate of 6%, increasing to 13% on default. The
      debenture has 150,000 attached warrants to purchase common stock of the
      Company at $0.68. Approximately $60,000 of the funds received was assigned
      to the warrants and this amount, along with a $79,000 discount, was
      amortized and charged to interest expense. After the effect of the value
      assigned to the warrants, the effective rate on the note was 11%. During
      2003, $865,000 of the note balance was converted into common stock of the
      Company. In January 2004, the balance of the note was converted into
      common stock.
    
    
    --
    
    
    679,906Promissory
      note payable to an investment limited partnership; secured by common stock
      of the Company, with interest payable monthly at 24%.This
      note was repaid in full March 2004.
    
    
    --
    
    
    620,000Convertible
      debentures payable to a shareholder; unsecured, with interest payable
      quarterly at a rate of 6%. In March 2004, this note was converted into
      common stock of the Company at $0.43 per share.
    
    
    --
    
    
    168,000Promissory
      note payable to a shareholder; unsecured, with interest payable quarterly
      at a rate of 12%. In March 2004, this note was converted into common stock
      of the Company.
    
    
    --
    
    
    132,000Promissory
      note payable to a shareholder of the Company, interest at 8% due and
      payable on March 30, 2004, or as otherwise agreed to by the parties. The
      note has 16,667 attached warrants at prices ranging from $2.50 to $4.00,
      also expiring March 30, 2004. This note was paid in full March
      2004.
    
    
    --
    
    
    67,000Note
      payable to Humana; interest at 5%. This note was paid in full April
      2004.
    
    
    --
    
    
    26,3541,132,000
    
    
    2,876,169Less
      current maturities
    
    
    882,000
    
    
    975,169Long-term
      debt
    
    $
    250,000
    
    $
    1,901,000





F-14
 **METROPOLITAN
HEALTH NETWORKS, INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)**





Aggregate
maturities of long-term debt for years subsequent to December 31, 2004, are as
follows:




2005
    
    
    882,0002006
    
    
    250,000$
    1,132,000





**NOTE
5.** **RELATED
PARTY TRANSACTIONS**





During
the year ended December 31, 2004, 2003 and 2002, the Company paid $295,000,
$398,000 and $76,000, respectively, to a company owned by a shareholder and
director for services rendered as a physician in the Company’s provider network.
The director resigned from the Company’s board effective January 13,
2005.




**NOTE
6.INCOME
TAXES**




The
components of income taxes from continuing operations were as
follows:




December
      31,2004
    
    2003
    
    2002Provision
      (Benefit) for Income TaxesCurrentFederal
    
    $
    --
    
    $
    --
    
    $
    --State
    
    
    --
    
    
    --
    
    
    --DeferredFederal
    
    
    3,696,000
    
    
    1,236,000
    
    
    (5,777,000
    )State
    
    
    629,000
    
    
    213,000
    
    
    (
      612,000
    )Change
      in Valuation Allowance
    
    
    (11,705,000
    )
    
    (1,449,000
    )
    
    6,389,000Income
      Tax Benefit
    
    $
    (7,380,000
    )
    $
    --
    
    $
    --





A
reconciliation of the amount computed by applying the statutory federal income
tax rate to income from continuing operations before income taxes with the
Company's income tax benefits for the years ended December 31, 2004, 2003 and
2002 is as follows:




For
      the years ended December 31,2004
    
    2003
    
    2002Statutory
      federal tax
    
    $
    3,901,000
    
    $
    1,497,000
    
    $
    (5,808,000
    )State
      income taxes, net of federal income tax benefit
    
    
    417,000
    
    
    159,000
    
    
    (612,000
    )Permanent
      differences and other
    
    
    7,000
    
    
    (207,000
    )
    
    31,000Change
      in valuation allowance
    
    
    (11,705,000
    )
    
    (1,449,000
    )
    
    6,389,000OtherIncome
      tax benefit
    
    $
    (7,380,000
    )
    $
    -
    
    $
    -





F-15


**METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)**




The
approximate deferred tax assets and liabilities were as follows:




**DEFERRED
      TAX ASSETS:**As
      of December 31,2004
    
    2003Allowances
      for doubtful accounts
    
    $
    1,099,000
    
    $
    956,000Net
      operating loss carryforward
    
    
    6,952,000
    
    
    10,585,000Reserve
      on note receivable - pharmacy
    
    
    75,000
    
    
    --Charitable
      contributions carryover
    
    
    38,000
    
    
    --Amortization
    
    
    134,000
    
    
    162,000Depreciation
    
    
    --
    
    
    2,000Total
      deferred tax assets
    
    
    8,298,000
    
    
    11,705,000**DEFERRED
      TAX LIABILITIES:**As
      of December 31,2004
    
    
    2003Depreciation
    
    
    17,000
    
    
    --Total
      deferred tax liabilities
    
    
    17,000
    
    
    --Net
      deferred tax asset
    
    
    8,281,000
    
    
    11,705,000Less
      valuation allowance
    
    
    --
    
    
    (11,705,000
    )$
    8,281,000
    
    $
    -





SFAS No.
109, Accounting for Income Taxes, requires a valuation allowance to reduce the
deferred tax assets reported if, based on the weight of the evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. After consideration of all the evidence, both positive and negative
(including, among others, projections of future taxable income, current year net
operating loss carryforward utilization and the Company’s profitability in
recent years), the Company determined that future realization of its deferred
tax assets was more likely than not and, accordingly, has eliminated the
valuation allowance against its deferred tax assets as of December 31, 2004. In
the event it is determined that the Company would not be able to realize all or
part of its net deferred tax assets in the future, an adjustment to record a
deferred tax asset valuation allowance would be charged to income in the period
such determination would be made. Changes in deferred tax assets are reflected
in the tax expense (benefit) line of the consolidated statements of
operations.




In 2004,
a net tax benefit of $882,000 was recorded directly to equity as a result of the
exercise of non-qualified options.





At
December 31, 2004, the Company had net operating loss carryforwards of
approximately $18,500,000 expiring in various years through 2022.





**NOTE
7.STOCKHOLDERS'
EQUITY**




As of
December 31, 2004, the Company has designated 10,000,000 preferred shares as
Series A preferred stock, par value $.001, of which 5,000 were issued and
outstanding. Each share of Series A preferred stock has a stated value of $100
and pays dividends equal to 10% of the stated value per annum. At December 31,
2004 and 2003, the aggregate and per share amounts of cumulative dividend
arrearages were approximately $366,667 ($73 per share) and $316,667 ($63 per
share), respectively. Each share of Series A preferred stock is convertible into
shares of common stock at the option of the holder at the lesser of 85% of the
average closing bid price of the common stock for the ten trading days
immediately preceding the conversion or $6.00. The Company has the right to deny
conversion of the Series A preferred stock, at which time the holder shall be
entitled to receive and the Company shall pay additional cumulative dividends at
5% per annum, together with the initial dividend rate to equal 15% per annum. In
the event of any liquidation, dissolution or winding up of the Company, holders
of the Series A preferred stock shall be entitled to receive a liquidating
distribution before any distribution may be made to holders of common stock of
the Company.




F-16
 
 **METROPOLITAN
HEALTH NETWORKS, INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


The
Company has also designated 7,000 shares of preferred stock as Series B
preferred stock, with a stated value of $1,000 per share. At December 31, 2004
and 2003, there were no shares of series B preferred stock issued and
outstanding.




At
December 31, 2004 and 2003, the Company had outstanding warrants to purchase
62,500 and 2,924,775 shares of common stock, respectively. The warrants are
exercisable upon issuance with expiration dates ranging from two to three years
and exercise prices ranging from $0.68 to $1.85 in 2004 and $0.32 to $4.00 in
2003.




In
February 2004, the Company issued an aggregate of 5,004,999 shares of
common stock (the “Private Placement Shares”) at a price of $0.60 per share to
24 accredited investors and 1 non-accredited investor.  The Company
received $2,953,000 in proceeds, net of offering costs of approximately $50,000,
from the sale of these Private Placement Shares.





**NOTE
8.STOCK
OPTIONS**




As of
December 31, 2004, the Company had three nonqualified stock option plans, which
were administered by the Compensation Committee of the Board of Directors, the
2001 Stock Option Plan, the Supplemental Stock Option Plan, and the Omnibus
Equity Compensation Plan. A total of 6,000,000 shares of the Company’s common
stock are authorized for issuance pursuant to awards granted under the Omnibus
Equity Compensation Plan. Under the terms of the Omnibus Equity Compensation
Plan, the options generally expire 10 years after the date of the
grant.





The
Company 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. For the years ended December 31, 2004, 2003
and 2002, compensation costs and professional services related to stock options
amounted to approximately $-0-, $-0- and $16,800, respectively.





Stock
option activity for the three years ended December 31 was as
follows:




****
    
    **Number
      of******Options****
    
    **Weighted
      AverageExercise Price**Balance,
      December 31, 2001
    
    
    5,736,250
    
    $
    1.81Granted
      during the year
    
    
    200,000
    
    $
    0.40Exercised
      and returned during the year
    
    
    (67
    )
    $
    1.00Forfeited
      during the year
    
    
    (730,466
    )
    $
    2.11Balance,
      December 31, 2002
    
    
    5,205,717
    
    $
    1.46Granted
      during the year
    
    
    2,710,400
    
    $
    0.38Exercised
      and returned during the year
    
    
    (110,000
    )
    $
    0.31Forfeited
      during the year
    
    
    (477,650
    )
    $
    3.67Balance,
      December 31, 2003
    
    
    7,328,467
    
    $
    0.94Granted
      during the year
    
    
    2,449,800
    
    $
    1.76Exercised
      and returned during the year
    
    
    (1,339,957
    )
    $
    0.39Forfeited
      during the year
    
    
    (994,100
    )
    $
    1.25Balance,
      December 31, 2004
    
    
    7,444,210
    
    $
    1.27Exercisable,
      December 31, 2002
    
    
    4,381,946
    
    $
    1.46Exercisable,
      December 31, 2003
    
    
    6,840,134
    
    $
    0.97Exercisable,
      December 31, 2004
    
    
    4,877,678
    
    $
    1.04





F-17
 **METROPOLITAN
HEALTH NETWORKS, INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)**


The
following table summarizes information about stock options outstanding at
December 31, 2004:




**Options
      Outstanding**
    
    **Options
      Exercisable****Weighted
      Average**
    
    
    
    **Weighted
      Average****Remaining**
    
    
    
    **Remaining****Number
      of**
    
    **Contractual
      Life**
    
    **Number
      of**
    
    **Contractual
      Life****Exercise
      Price**
    
    **Options**
    
    **(Years)**
    
    **Options**
    
    **(Years)**$0.250
      - $1.000
    
    
    4,149,410
    
    
    3.19
    
    
    3,882,678
    
    
    2.98$1.140
      - $2.000
    
    
    2,819,800
    
    
    8.19
    
    
    545,000
    
    
    1.28$2.020
      - $3.000
    
    
    200,000
    
    
    2.52
    
    
    175,000
    
    
    1.46$3.250
      - $5.000
    
    
    125,000
    
    
    1.27
    
    
    125,000
    
    
    1.27$5.500
      - $8.000
    
    
    150,000
    
    
    2.34
    
    
    150,000
    
    
    2.347,444,210
    
    
    
    
    
    4,877,678





The
weighted average fair value per option as of grant date was $0.90 for stock
options granted during the year ended December 31, 2004. The determination of
the fair value of all stock options granted during the year ended December 31,
2004 was based on (i) risk-free interest rate ranging from 1.81% to 3.39%, (ii)
expected option lives ranging from two to four and one-half years, depending on
the vesting provisions of each option, (iii) expected volatility in the market
price of the Company's common stock of 75%, and (iv) no expected dividends on
the underlying stock.




The
weighted average fair value per option as of grant date was $0.21 for stock
options granted during the year ended December 31, 2003. The determination of
the fair value of all stock options granted during the year ended December 31,
2003 was based on (i) risk-free interest rate of 2.28%, (ii) expected option
lives of three years, depending on the vesting provisions of each option, (iii)
expected volatility in the market price of the Company's common stock of 100%,
and (iv) no expected dividends on the underlying stock.




The
weighted average fair value per option as of grant date was $0.58 for stock
options granted during the year ended December 31, 2002. The determination of
the fair value of all stock options granted during the year ended December 31,
2002 was based on (i) risk-free interest rate of 5.01%, (ii) expected option
lives ranging from 1 to 4 years, depending on the vesting provisions of each
option, (iii) expected volatility in the market price of the Company's common
stock of 100%, and (iv) no expected dividends on the underlying
stock.




**NOTE
9.** **EMPLOYEE
BENEFIT PLAN**




As of
July 1, 2004, the Company adopted a tax qualified employee savings and
retirement plan covering the Company’s eligible employees, the Metropolitan
Health Network 401(k) Plan (the “401(k) Plan”). The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code (the “Code”) and
contains a feature described in Code Section 401(k) under which a participant
may elect to reduce their compensation by the statutorily prescribed annual
limit of $13,000 (for calendar year ending December 31, 2004) and have the
reduced amount contributed to the 401(k) Plan. Under the 401(k) Plan, new
employees are eligible to participate in the earlier of three consecutive months
of service or one year. The Company may, at its discretion, make a matching
contribution and a non-elective contribution to the 401(k)
Plan. The Company has accrued $75,000 as its matching contributions for the year
ending December 31, 2004. Participants in the 401(k) Plan do not fully vest in
the employer contribution until the end of three years of
service.




**NOTE
10.** **COMMITMENTS
AND CONTINGENCIES**




**Leases**




The
Company leases office and medical facilities under various non-cancelable
operating leases. Approximate future minimum payments under these leases for the
years subsequent to December 31, 2004 are as follows:




F-18


**METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)**






Annual
    
    Sublease
    
    Net
      MinimumAmount
    
    Amount
    
    Payment2005
    
    $
    862,000
    
    $
    207,000
    
    $
    655,0002006
    
    
    708,000
    
    
    126,000
    
    
    582,0002007
    
    
    560,000
    
    
    129,000
    
    
    431,0002008
    
    
    299,000
    
    
    129,000
    
    
    170,0002009
    
    
    200,000
    
    
    133,000
    
    
    67,000Thereafter
    
    
    401,000
    
    
    401,000
    
    
    -Total
    
    $
    3,030,000
    
    $
    1,125,000
    
    $
    1,905,000





In
connection with the sale of the pharmacy division, the Company has subleased
pharmacy facilities to the buyer. In the event of the buyers default, the
Company potentially could be responsible to fulfill these lease
commitments.




The
Company leases various office and medical equipment under non-cancelable
operating leases. Approximate future minimum payments under these leases for the
years subsequent to December 31, 2004 are as follows:




2005
    
    $
    253,0002006
    
    
    200,0002007
    
    
    128,0002008
    
    
    110,0002009
    
    
    91,000Total
    
    $
    782,000




**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 for the years subsequent to December 31, 2004 are as
follows:




2005
    
    $
    2,215,0002006
    
    
    323,000$
    2,538,000


****


**Litigation**




In July
2003 a pharmacy services company (the “Plaintiff”) filed a complaint against the
Company and its pharmacy division, Metropolitan Rx, seeking amounts and damages
of up to $2.5 million related to the acquisition of the Maryland pharmacy
operation in October 2001. On November 6, 2003 the parties reached a settlement
on this complaint in the amount of $500,000, of which the Company had previously
accrued $487,000. Pursuant to the settlement, the Company paid $285,000 in 2003,
with the balance plus accrued interest at 10% payable in monthly installments of
$35,000 until paid in full. This amount was included in accounts payable at
December 31, 2003 and paid in full in 2004.




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




F-19


**METROPOLITAN
HEALTH NETWORKS, INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


****





**Investigation**




In June
2003, the Company was informed that the U.S. Attorneys' Office in Wilmington,
Delaware was conducting an investigation of the Company. The Company fully
cooperated with the U.S. Attorneys' Office and on February 9, 2004 the
investigation was terminated.




**Payroll
Taxes Payable**




In
February 2004, the Company was successful in negotiating a settlement with the
IRS on its outstanding payroll tax liabilities for an amount totaling
approximately $3.4 million, which was accrued for at December 31, 2003. This
amount was paid in full.





**NOTE
11.SEGMENTS**




In 2004,
the Company operated in two segments for purposes of presenting financial
information and evaluating performance, the Provider Service Network (the “PSN”)
(managed care and direct medical services) and the HMO. The HMO division is in
the development stage. During 2003, the Company also operated in two segments,
the PSN and the pharmacy. During 2002, the Company also operated a third
segment, a clinical laboratory. The Company allocated corporate overhead to the
pharmacy and clinical laboratory during the periods they were operational.
However, the overhead allocation is not included in the losses from operations
of the discontinued business segments shown in the consolidated statements of
operations.




The
Company has filed all required state and federal regulatory applications to be
licensed and contracted as a Medicare Advantage HMO in the State of Florida. The
requisite applications are presently under review. It is anticipated that the
HMO will be licensed and operational in 2005, however no assurances can be given
that the Company will be approved as a Medicare Advantage HMO.




YEAR
      ENDED DECEMBER 31, 2004
    
    **PSN**
    
    **Pharmacy**
    
    **HMO**
    
    **Total**Revenues
      from external customers
    
    $
    158,070,000
    
    $
    -
    
    $
    -
    
    $
    158,070,000Interest
      (expense) income
    
    
    (24,000
    )
    
    13,000
    
    
    27,000
    
    
    16,000Depreciation
      and amortization
    
    
    108,000
    
    
    -
    
    
    -
    
    
    108,000Segment
      gain (loss) before allocated overhead
    
    
    17,242,000
    
    
    (31,000
    )
    
    (433,000
    )
    
    16,778,000Allocated
      corporate overhead
    
    
    5,133,000
    
    
    -
    
    
    203,000
    
    
    5,336,000Segment
      assets
    
    
    16,277,000
    
    
    1,000
    
    
    2,727,000
    
    
    19,005,000Segment
      gain (loss) after allocated overhead and before income
    taxes
    
    
    12,109,000
    
    
    (31,000
    )
    
    (636,000
    )
    
    11,442,000


Included
in allocated corporate overhead in 2004 were expenses of $4,927,000, inclusive
of depreciation and amortization of $262,000. In addition, interest revenue was
$73,000, interest expense was $296,000, and corporate assets were
$9,032,000,


inclusive
of a deferred tax asset of $8,281,000.


YEAR
      ENDED DECEMBER 31, 2003
    
    **PSN**
    
    **Pharmacy**
    
    **Laboratory**
    
    **Total**Revenues
      from external customers
    
    $
    143,874,000
    
    $
    -
    
    $
    -
    
    $
    143,874,000Intersegment
      revenues from discontinued business segments
    
    
    -
    
    
    1,216,000
    
    
    -
    
    
    1,216,000Interest
      expense and penalties
    
    
    107,000
    
    
    174,000
    
    
    -
    
    
    281,000Depreciation
      and amortization
    
    
    149,000
    
    
    85,000
    
    
    -
    
    
    234,000Revenues
      from discontinued business segments
    
    
    -
    
    
    12,906,000
    
    
    -
    
    
    12,906,000Segment
      gain (loss) before allocated overhead
    
    
    11,522,000
    
    
    (1,488,000
    )
    
    -
    
    
    10,034,000Allocated
      corporate overhead
    
    
    3,686,000
    
    
    1,946,000
    
    
    -
    
    
    5,632,000Segment
      assets
    
    
    8,214,000
    
    
    83,000
    
    
    -
    
    
    8,297,000Segment
      gain (loss) after allocated overhead
    
    
    7,836,000
    
    
    (3,434,000
    )
    
    -
    
    
    4,402,000


Included
in allocated corporate overhead in 2003 were expenses of $4,419,000, inclusive
of depreciation and amortization of $506,000.


In
addition, interest revenue was $27,000, interest expense was $1,216,000 and
corporate assets were $927,000.





F-20


**METROPOLITAN HEALTH NETWORKS, INC. AND
SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)**








YEAR
      ENDED DECEMBER 31, 2002
    
    **PSN**
    
    **Pharmacy**
    
    **Laboratory**
    
    **Total**Revenues
      from external customers
    
    $
    140,064,000
    
    $
    -
    
    $
    -
    
    $
    140,064,000Intersegment
      revenues from discontinued business segments
    
    
    -
    
    
    1,174,000
    
    
    -
    
    
    1,174,000Interest
      expense and penalties
    
    
    16,000
    
    
    24,000
    
    
    -
    
    
    40,000Depreciation
      and amortization
    
    
    397,000
    
    
    95,000
    
    
    10,000
    
    
    502,000Revenues
      from discontinued business segments
    
    
    -
    
    
    12,875,000
    
    
    886,000
    
    
    13,761,000Segment
      gain (loss) before allocated overhead
    
    
    (4,996,000
    )
    
    (1,767,000
    )
    
    (1,448,000
    )
    
    (8,211,000
    )Allocated
      corporate overhead
    
    
    5,446,000
    
    
    2,970,000
    
    
    454,000
    
    
    8,870,000Segment
      assets
    
    
    5,662,000
    
    
    3,419,000
    
    
    -
    
    
    9,081,000Segment
      gain (loss) after allocated overhead
    
    
    (10,442,000
    )
    
    (4,737,000
    )
    
    (1,902,000
    )
    
    (17,081,000
    )


Included
in allocated corporate overhead in 2002 were expenses of $3,788,000, inclusive
of depreciation and amortization of $549,000.


In
addition, interest revenue was $23,000, interest expense was $2,405,000 and
corporate assets were $1,078,000.







**NOTE
12.SUBSEQUENT
EVENTS**




In
January 2005 the Company repaid the remaining balance of $850,000 on a
Promissory Note payable to a venture capital group. Under the terms of the terms
of the Note, the Company had been required to make monthly payments of $50,000
plus interest at 12%.





**NOTE
13.VALUATION AND
QUALIFYING ACCOUNTS**




Activity
in the Company's Valuation and Qualifying Accounts consists of the
following:




Year
      Ended December 31,2004
    
    2003
    
    2002**Allowance
      for doubtful trade accounts-continuing
operations:**Balance
      at beginning of period
    
    $
    2,539,000
    
    $
    4,648,000
    
    $
    4,734,000Charged
      to costs and expenses
    
    
    --
    
    
    100,000
    
    
    770,000Increases
      (Deductions)
    
    
    382,000
    
    
    (2,209,000
    )
    
    (856,000
    )Balance
      at end of period
    
    $
    2,921,000
    
    $
    2,539,000
    
    $
    4,648,000**Allowance
      for doubtful accounts-discontinued operations:**Balance
      at beginning of period
    
    $
    --
    
    $
    314,756
    
    $
    13,925Charged
      to costs and expenses
    
    
    --
    
    
    786,576
    
    
    300,831Deductions
    
    
    --
    
    
    (1,101,332
    )
    
    --Balance
      at end of period
    
    $
    --
    
    $
    --
    
    $
    314,756**Allowance
      for note receivable:**Balance
      at beginning of period
    
    $
    --
    
    $
    --
    
    $
    --Charged
      to costs and expenses
    
    
    200,000
    
    
    --
    
    
    --Increases
      (Deductions)
    
    
    --
    
    
    --
    
    
    --Balance
      at end of period
    
    $
    200,000
    
    $
    --
    
    $
    --**Deferred
      tax asset valuation allowance:**Balance
      at beginning of period
    
    $
    11,705,000
    
    $
    13,154,000
    
    $
    6,765,000Additions
    
    
    --
    
    
    --
    
    
    6,389,000Deductions
    
    
    (11,705,000
    )
    
    (1,449,000
    )
    
    --Balance
      at end of period
    
    $
    --
    
    $
    11,705,000
    
    $
    13,154,000










F-21





(2) Financial
Statement Schedules





All
financial statement schedules have been omitted as the required information is
inapplicable or has been included in the Notes to Consolidated Financial
Statements.





(3) 
Exhibits





Certain
exhibits have been previously filed with the Commission and are incorporated
herein by reference.









-48-





**METROPOLITAN
HEALTH NETWORKS, INC.**


**EXHIBIT
INDEX**


**Year
Ended December 31, 2004**





3.1
    Articles
      of Incorporation, as amended (1)3.2
    Amended
      and Restated Bylaws (2)10.1
    Physician
      Practice Management Participation Agreement, dated August 2, 2001, between
      Metropolitan of Florida, Inc. and Humana, Inc. (3)10.2
    Letter
      of Agreement, dated February 2003, between Metropolitan of Florida, Inc.
      and Humana, Inc. (4)10.3
    Supplemental
      Stock Option Plan (5)10.4
    Omnibus
      Equity Compensation Plan (6)10.5
    Amended
      and Restated Employment Agreement between Metropolitan and Michael M.
      Earley dated January 3, 2005*10.6
    Amended
      and Restated Employment Agreement between Metropolitan and David S.
      Gartner dated January 3, 2005*10.7
    Amended
      and Restated Employment Agreement between Metropolitan and Roberto L.
      Palenzuela dated January 3, 2005*10.8
    Amended
      and Restated Employment Agreement between Metropolitan and Debra A. Finnel
      dated January 3, 2005*10.9
    Description
      of Non-Employee Director Compensation Arrangement for
  2005*21.1
    List
      of Subsidiaries (7)23.1
    Consent
      of Independent Auditors*31.1
    Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*31.2
    Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*32.1
    Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002*32.2
    Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002*





* filed
herewith


(1)
    Incorporated
      by reference to Metropolitan's Registration Statement on Form 8-A12B filed
      with the Commission on November 19, 2004 (No.
  001-32361).(2)
    Incorporated
      by reference to Metropolitan’s Current Report on Form 8-K filed with the
      Commission on September 30, 2004.(3)
    Incorporated
      by reference to Metropolitan’s Amendment to Registration Statement on Form SB-2/A filed
      with the Commission on August 2, 2001 (No. 333-61566).Portions
      of this document were omitted and were filed separately with the SEC on or
      about August 2, 2001 pursuant to a request for confidential
      treatment.(4)
    Incorporated
      by reference to Metropolitan’s Amendment to Annual Report for the fiscal
      year ended December 31, 2003 on Form 10-K/A filed with the Commission on
      July 28, 2004.Portions
      of this document have been omitted and were filed separately with the SEC
      on July 28, 2004 pursuant to a request for confidential
      treatment.(5)
    Incorporated
      by reference to Metropolitan’s Amendment to Annual Report for the fiscal
      year ended December 31, 2003 on Form 10-K/A filed with the Commission on
      July 28, 2004.(6)
    Incorporated
      by reference to Metropolitan's Registration Statement on Form S-8 filed
      with the Commission on February 24, 2005 (No.
  333-122976).(7)
    Incorporated
      by reference to the Company’s Annual Report on Form 10-K for the fiscal
      year ended December 31, 2003, as filed with the Commission on March 22,
      2004.





-49-





**SIGNATURES**




Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, this 22 nd day of
March 2005.





**METROPOLITAN
      HEALTH NETWORKS, INC.**By:
    /s/ MICHAEL M.
    EARLEYMichael M. EarleyChairman and Chief Executive
      Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons in the capacities and on
the dates indicated.




****Date: March 22,
2005
    By:
    /s/ MICHAEL M.
    EARLEYMichael M. EarleyChairman and Chief Executive
      Officer





****Date: March 22,
2005
    By:
    /s/ DAVID S.
  GARTNERDavid S. GartnerChief Financial
  Officer





****Date: March 22,
2005
    By:
    /s/ DEBRA A.
  FINNELDebra A. FinnelPresident, Chief Operating Officer
      and Director





****Date: March 22,
2005
    By:
    /s/ KARL M.
SACHSKarl M. SachsDirector





****Date: March 22,
2005
    By:
    /s/ MARTIN W.
    HARRISONMartin W. HarrisonDirector





****Date: March 22,
2005
    By:
    /s/ ERIC HASKELLEric HaskellDirector





****Date: March 22,
2005
    By:
    /s/ BARRY T.
  ZEMANBarry T. ZemanDirector





****Date: March 22,
2005
    By:
    /s/ DOUGLAS R. CARLISLEDouglas R. CarlisleDirector







-50-