U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934.

For the quarterly period ended  March 31, 2001

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the transition period from           to

Commission file number 000-26749

              NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
     (Exact Name of Registrant as Specified in Its Charter)

          New York                                  11-2581812
(State or Other Jurisdiction of         (IRS Employer Identification No.)
Incorporation or Organization)

26 Harbor Park Drive, Port Washington, NY     11050
(Address of Principal Executive Offices)   (Zip Code)

Registrant's Telephone Number, Including Area Code (516) 626-0007
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.

     Indicate  by check  whether  the  registrant:  (1) has  filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes   No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     The number of shares  outstanding of the issuer's  Common Stock,  as of May
10, 2001 was 7,121,496 shares.


<PAGE>

           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                                      INDEX

                                                                        Page

PART I  -   FINANCIAL INFORMATION

ITEM 1  -   CONDENSED FINANCIAL STATEMENTS:                               3

            CONSOLIDATED BALANCE SHEETS as of June 30, 2000               3
            and March 31, 2001 (unaudited)

            CONSOLIDATED STATEMENTS OF INCOME (unaudited)                 4
            for the three months and nine months ended
            March 31, 2000 and 2001

            CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)             5
            for the nine months ended March 31, 2000 and 2001

            CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          6

ITEM 2  -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL            16
            CONDITION AND RESULTS OF OPERATIONS

ITEM 3  -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT               23
            MARKET RISK

PART II -   OTHER INFORMATION                                            24

ITEM 1  -   LEGAL PROCEEDINGS                                            24

ITEM 2  -   CHANGES IN SECURITIES AND USE OF PROCEEDS                    25

ITEM 3  -   DEFAULTS UPON SENIOR SECURITIES                              26

ITEM 4  -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS          26

ITEM 5  -   OTHER INFORMATION                                            26

ITEM 6  -   EXHIBITS AND REPORTS ON FORM 8-K                             26



<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM I - CONDENSED FINANCIAL STATEMENTS

     CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S>                                                                                        <C>                 <C>

                                                                                               June 30            March 31
ASSETS                                                                                           2000               2001
Current:                                                                                                         (Unaudited)

   Cash and cash equivalents (including cash equivalent investments of $11,181,583          $ 15,724,730          $ 5,290,058
         and $2,031,745 and cash restricted as to its use of $569,760 and $1,501,538)
   Accounts receivable, less allowance for possible losses of $726,551                        13,409,219           28,554,139
         and $1,367,144
   Rebates receivable                                                                          3,685,576            7,204,186
   Due from affiliates                                                                           903,958            1,010,991
   Deferred income tax                                                                           409,000              798,246
   Other current assets                                                                          268,651              592,445
Total current assets                                                                          34,401,134           43,450,065

   Property, equipment and software development costs, net                                     6,424,170            7,837,591
   Due from affiliates                                                                         3,486,996            3,743,391
   Customer relationships, net of accumulated amortization of $8,527                                   -              296,473
   Goodwill, net of accumulated amortization of $210,368                                               -           11,975,828
   Other Assets                                                                                   51,318               48,162

                                                                                            $ 44,363,618          $67,351,510
LIABILITIES AND STOCKHOLDERS'EQUITY
Current:
   Accounts payable and accrued expenses                                                    $ 27,430,684          $48,273,752
   Current portion of capital lease obligations                                                  456,437              532,813
   Loans payable-current                                                                               -              203,732
   Due to officer/stockholder                                                                     60,000              417,880
   Due to affiliates                                                                             311,767                    -
   Income taxes payable                                                                           11,991               11,904
   Other current liabilities                                                                     100,036              356,625
Total current liabilities                                                                     28,370,915           49,796,706

  Capital lease obligations, less current portion                                              1,875,444            1,468,357
  Long term loans payable and other liabilities                                                        -               77,095
  Deferred tax liability                                                                         692,000              970,888
Total liabilities                                                                             30,938,359           52,313,046

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock $.10 par value; 10,000,000 shares authorized, none outstanding                       -                    -
  Common Stock, $.001 par value, 25,000,000 shares authorized, 6,912,496 and                       6,913                7,313
    7,312,496 shares issued 6,721,496 and 7,121,496 outstanding
  Additional paid-in-capital                                                                  12,405,010           13,254,530
  Retained earnings                                                                            2,096,203            2,839,513
  Treasury stock at cost, 191,000 shares                                                        (743,767)            (743,767)
  Notes receivable - stockholders                                                               (339,100)            (319,125)
Total stockholders' equity                                                                    13,425,259           15,038,464
                                                                                             $44,363,618          $67,351,510

                               See accompanying condensed notes to consolidated financial statements
</TABLE>

<PAGE>

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                       <C>                 <C>                      <C>                  <C>
                                                                   Three months ended                        Nine months ended
                                                                        March 31                                 March 31
                                                             2000                 2001                   2000               2001
                                                             ----                 ----                   ----               ----

Revenues                                                  $43,089,755       $72,373,778             $ 126,265,944       $192,513,448
Cost of claims                                             38,770,872        66,221,855               115,414,966        177,107,586

Gross Profit                                                4,318,883         6,151,923                10,850,978         15,405,862

Selling, general and administrative expenses*               3,635,735         5,858,255                 8,768,141         14,583,579

Operating income                                              683,148           293,668                 2,082,837            822,283

Other income, net                                             235,637           253,061                   724,341            671,727

Income before income taxes                                    918,785           546,729                 2,807,178          1,494,010
Provision for income taxes                                    390,000           269,700                 1,193,000            750,700

Net Income                                                  $ 528,785         $ 277,029               $ 1,614,178          $ 743,310

Earnings per common share:
    Basic                                                      $ 0.08            $ 0.04                    $ 0.24             $ 0.10

    Diluted                                                    $ 0.08            $ 0.04                    $ 0.24             $ 0.10

Weighted average number of common shares outstanding:
    Basic                                                   6,871,870         7,121,496                 6,712,871          7,093,759
    Diluted                                                 6,871,870         7,150,501                 6,712,871          7,101,385


* Includes amounts charged by affiliates aggregating:       $ 840,728         1,017,208                $2,138,972        $ 2,992,760


                               See accompanying condensed notes to consolidated financial statements
</TABLE>

<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                                        <C>                          <C>


                                                                                                   Nine months ended
                                                                                                         March 31
                                                                                                2000                      2001
                                                                                                ----                      ----
CASH FLOWS FROM OPERATING ACTIVITIES:
OPERATING ACTIVITIES:
              Net income                                                                   $  1,614,178                 $ 743,310
              Depreciation and amortization                                                     851,561                 1,802,209
              Bad debt expense and allowance for possible losses                                600,000                   377,545
              Compensation expense accrued to officer/stockholder                                30,000                   357,880
              Deferred income taxes                                                             696,000                   (39,803)
              Interest accrued on stockholders' loans                                           (12,750)                  (19,125)
              Changes in assets and liabilities:
                (Increase) decrease in:
                  Accounts receivable                                                        (4,141,246)               (8,154,271)
                  Other current assets                                                         (328,463)                 (149,660)
                  Rebates receivable                                                         (1,606,617)                 (719,047)
                  Due to/from affiliates                                                         (4,656)                 (625,195)
                  Other assets                                                                   11,408                    44,878
              Increase (decrease) in:
                  Accounts payable and accrued expenses                                       1,923,574                10,143,733
                  Due to officer/stockholder                                                   (390,000)                        -
                  Income taxes payable                                                         (352,345)                  (43,868)
                  Other liabilities                                                              52,943                     8,868

Net cash provided by (used in) operating activities                                          (1,056,413)                3,727,454

CASH FLOWS FROM INVESTING ACTIVITIES:
                Capital expenditures                                                         (1,586,124)               (2,542,670)
                Disposal of capital assets                                                            -                    30,500
                Acquisition of PAI, net of cash and cash equivalents                                  -                (4,487,006)
                Acquisition of PMP, net of cash and cash equivalents                                  -                (6,683,788)
                Repayment of note by stockholder                                              1,036,125                         -
                Interest received on notes from stockholders                                          -                    39,100
Net cash used in investing activities                                                          (549,999)              (13,643,864)

CASH FLOWS FROM FINANCING ACTIVITIES:
                Sale of common stock-net                                                      9,538,037                         -
                Proceeds from bank line of credit                                                     -                 4,000,000
                Repayment of bank line of credit                                                      -                (4,000,000)
                Treasury Stock                                                                 (528,358)                        -
                Repayment of debt and capital lease obligations                                 (45,299)                 (518,262)

Net cash provided by (used in) financing activities                                           8,964,380                  (518,262)

Net increase (decrease) in cash and cash equivalents                                          7,357,968               (10,434,672)
Cash and cash equivalents, beginning of period                                                2,815,863                15,724,730
Cash and cash equivalents, end of period                                                   $ 10,173,831                $5,290,058


                               See accompanying condensed notes to consolidated financial statements

</TABLE>
<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unadudited)


     1. BASIS OF PRESENTATION

     The unaudited  consolidated  financial  statements  include the accounts of
National Medical Health Card Systems,  Inc. (the "Company") and its wholly owned
subsidiaries,  Pharmacy Associates, Inc. ("PAI"), Interchange PMP, Inc. ("PMP"),
National Medical Health Card IPA, Inc. ("IPA") and Specialty Pharmacy Care, Inc.
("Specialty").  Unless the context otherwise requires,  references herein to the
"Company"  refer  to the  Company  and  its  subsidiaries,  PAI,  PMP,  IPA  and
Specialty,  on a consolidated basis. The results of operations and balance sheet
of PAI  have  been  included  in the  consolidation  as of July  20,  2000,  the
effective  date that the Company  acquired  PAI. The results of  operations  and
balance  sheet of PMP have been  included  in the  consolidation  as of March 5,
2001,  the  effective   date  that  the  Company   acquired  PMP.  All  material
intercompany   balances   and   transactions   have  been   eliminated   in  the
consolidation.

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared  by the  Company  in  accordance  with  generally  accepted  accounting
principles  for interim  financial  information  and  substantially  in the form
prescribed by the Securities  and Exchange  Commission in  instructions  to Form
10-Q and Article 10 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles for complete  financial  statements.  In the opinion of the Company's
management,  the March 31, 2001 and 2000 unaudited interim financial  statements
include all adjustments,  consisting of normal recurring adjustments,  necessary
for a fair presentation of results for these interim periods.  In the opinion of
the  Company's  management,  the  disclosures  contained  in this  Form 10-Q are
adequate  to  make  the  information  presented  not  misleading  when  read  in
conjunction with the Notes to Consolidated  Financial Statements included in the
Company's  Form 10-K, as amended,  for the year ended June 30, 2000. The results
of  operations  for the three and nine month period ended March 31, 2001 are not
necessarily  indicative  of the  operating  results to be expected  for the full
year.

     Certain  amounts in the prior period have been  reclassified  to conform to
the current period presentation.  (See Note 10.) For information  concerning the
Company's  significant  accounting policies,  reference is made to the Company's
Annual  Report on Form 10-K,  for the year ended June 30, 2000,  as amended (the
"Annual Report").

     2. BUSINESS ACQUISITIONS

     Pursuant  to the  terms of the  Agreement  and Plan of Merger  between  the
Company and PAI, dated July 20, 2000 (the "PAI Agreement"), the Company acquired
PAI, a regional  prescription  benefit management company operating in Arkansas,
Louisiana,   and  Mississippi.   Under  the  terms  of  the  merger   agreement,
stockholders  of PAI  received  an  aggregate  of $6 million in cash and 400,000
shares of the  Company's  Common  Stock,  which was  valued at  $849,920  on the
acquisition date. The acquisition was accounted for under the purchase method of
accounting and the results of PAI's operations were included in the consolidated
financial  statements  commencing with the  acquisition  date. The excess of the
acquisition  costs over the fair value of  identifiable  net assets acquired was
$6,218,469,   which   consists  of  the  following   components:   (i)  customer
relationships  valued at  $131,000;  which will be amortized  entirely  over the
current  year;  (ii)  non-compete  contracts  valued at  $44,400,  which will be
amortized over five (5) years;  and (iii)  goodwill of $6,043,069  which will be
amortized over twenty (20) years. PAI  stockholders may also receive  additional
consideration  of up to $2 million  payable in a combination  of cash and Common
Stock over a two-year period if certain financial targets of PAI are met.

     The  Company  entered  into an  Employment  Agreement  and a  Stock  Option
Agreement with the former  president of PAI. In addition,  substantially  all of
the former employees of PAI were hired by the Company.

     The Company  assumed all the assets and  liabilities of PAI, as of July 20,
2000,  including two outstanding loans as follows: (i) a note payable to Regions
Bank with a  principal  balance as of March 31,  2001 of  $78,832.  Such note is
payable in monthly  installments in the amount of $2,432,  including interest at
the rate of 7.75% and  principal  through  July 2004.  Repayment of such note is
currently  secured by a lien on and a security  interest in an  automobile;  and
(ii) a loan representing  prepaid rebates from its rebate  administrator  with a
principal balance as of March 31, 2001 of $175,159, payable with interest at the
rate of 8.5% in four quarterly payments of $94,261 commencing  December 31, 2000
and ending September 30, 2001.

     On March 5, 2001, the Company acquired  substantially all of the assets and
certain of the liabilities of Provider Medical  Pharmaceutical,  LLC ("PMP"), an
Oklahoma  limited  liability  company,  pursuant to an Asset Purchase  Agreement
among the  Company,  PMP and the members of PMP.  The assets  acquired  from PMP
included,  among  other  things,  PMP's  accounts  receivable  and  intellectual
property,  PMP's rights under various  contracts and the goodwill value of PMP's
business.

     The purchase  price for the assets  consisted  of: (i)  $4,000,000 in cash,
(ii) the satisfaction by the Company of PMP's bank indebtedness of approximately
$1,300,000, and (iii) cancellation of the $1,500,000 promissory note from PMP to
the Company,  dated  January 16, 2001.  Part of the cash portion of the purchase
price  was  paid  into  an  escrow   account   to  provide   security   for  the
indemnification  obligations  of PMP  and  its  members  to the  Purchaser.  The
acquisition  was accounted for under the purchase  method of accounting  and the
results  of  PMP's  operations  were  included  in  the  consolidated  financial
statements,  commencing with the acquisition date. The excess of the acquisition
costs over the fair value of  identifiable  net assets  acquired was $6,469,670,
which consists of the following components: (i) customer relationships valued at
$305,000,  which  will be  amortized  over  2.5  years;  and  (ii)  goodwill  of
$6,164,670,  which will be amortized over twenty (20) years. The Company will be
required to pay up to  $1,000,000 of additional  cash  consideration  if certain
financial targets relating to PMP's business are met over the next three years.

     The cash  portion  of the  purchase  price  was  obtained  by a loan to the
Company  from The Chase  Manhattan  Bank  pursuant  to a Master Grid Note in the
principal amount of $4,000,000 (the "Note").  The amount borrowed under the Note
was repaid to the Bank on March 9, 2001,  and no  advances  have been made since
that date. Interest on any advances under the Note was payable on March 30, 2001
and the last day of each month  thereafter;  the interest  rate is determined at
the time of each such  advance.  The term of the Note  expires on  December  31,
2001.

     Simultaneously  with  the  consummation  of the  acquisition,  the  Company
entered into an Employment  Agreement and Stock Option agreement with the former
President of PMP,  pursuant to which he will serve as its Senior Vice  President
of Business Development.

     The  summarized  unaudited pro forma results of operations  set forth below
for the three and nine months ended March 31, 2000 and March 31, 2001 assume the
PAI and PMP  acquisitions  had  occurred  as of the  beginning  of each of these
periods.

<TABLE>
<CAPTION>
<S>                                                           <C>                       <C>

                                                                  Three Months Ended March 31
                                                                     2000                  2001

Revenues                                                      $    64,665,102           $77,768,108
Net income                                                    $       206,587           $   433,165
Net income per common share:
   Basic                                                      $          0.03           $      0.06
   Diluted                                                    $          0.03           $      0.06
Pro forma weighted average number of common shares outstanding:
   Basic                                                            7,271,870             7,121,496
   Diluted                                                          7,271,870             7,150,501

                                                                   Nine Months Ended March 31
                                                                     2000                      2001

Revenues                                                      $  186,979,285           $212,923,627
Net income                                                    $    1,098,069           $    538,979
Net income per common share:
   Basic                                                      $         0.15           $       0.08
   Diluted                                                    $         0.15           $       0.08
Pro forma weighted average number of common shares outstanding:
   Basic                                                           7,112,871              7,121,496
   Diluted                                                         7,112,871              7,129,122

</TABLE>

     Pro forma adjusted net income per common share, including acquisitions, may
not be  indicative  of actual  results,  primarily  because  pro forma  earnings
include  historical  results of  operations  of the  acquired  entity and do not
reflect any cost  savings or  potential  sales  erosion that may result from the
Company's integration efforts.


     3. STOCK OPTIONS

     During the nine months ended March 31, 2001,  the total number of incentive
options granted under the 1999 Stock Option Plan (the "Plan"),  net of incentive
options  forfeited  during  the same  period,  were  476,377.  The  options  are
exercisable at prices ranging from $1.67 to $7.50 and terminate between five and
six years from the grant date.  Of these,  533,000 are  currently  in the money,
with  exercise  prices  lower than the  current  stock  price,  and  111,000 are
currently exercisable. None of these options have been exercised to date. During
this  period the  Company  also  granted  nonstatutory  options  to its  outside
Directors  (84,000) and the majority  shareholder of PMP (15,000) under the Plan
to  purchase  up to an  aggregate  of 99,000  shares  of Common  Stock at prices
ranging from $1.67 to $6.00 per share. These options terminate after five years.
Of  these,  44,000  are  currently  in  the  money,  and  14,680  are  currently
exercisable;  the balance are  exercisable  over three years after one year from
the grant date. None of the currently exercisable nonstatutory options have been
exercised to date.  As of March 31, 2001 an  aggregate of 1,231,806  options had
been granted under the Plan, of which 1,102,806 are incentive options. There are
a total of 1,650,000 shares reserved for issuance under the plan.

     On February 20, 2001, the Company granted  500,000  incentive stock options
to Mr. Brodsky under the Plan.  These options are exercisable at $1.84 per share
over a  five-year  period  starting on the grant  date.  The  options  terminate
February 20, 2006. These options are included in the discussion above.

     4. 2000 RESTRICTED STOCK GRANT PLAN

     On October 16, 2000,  the Board of  Directors  approved the adoption of the
Company's 2000 Restricted  Stock Grant Plan (the "Stock Grant Plan").  The Stock
Grant Plan was subsequently  adopted by the Shareholders at the Company's Annual
Meeting on November 20, 2000.  The Stock Grant Plan provides for the issuance of
shares that are subject to both standard restrictions on the sale or transfer of
such shares  (e.g.,  the standard  seven year vesting  schedule set forth in the
Stock  Grant  Plan) and /or  restrictions  that the Board  may  impose,  such as
restrictions  relating to length of  service,  corporate  performance,  or other
restrictions. As of March 31, 2001 no grants had been made under the Stock Grant
Plan; and therefore,  no shares had vested under it. There are 700,000 shares of
Common  Stock  reserved for  issuance in  connection  with grants made under the
Stock Grant Plan.

     5. EARNINGS PER SHARE

     A reconciliation  of shares used in calculating  basic and diluted earnings
per share follows:
<TABLE>
<CAPTION>
<S>                                                                      <C>               <C>

                                                                         Three months ended March 31
                                                                              2000          2001
                                                                              ----          ----

     Basic                                                                 6,871,870      7,121,496
     Effect of assumed conversion of employee stock options                        -         29,005
                                                                           ---------      ---------
     Diluted                                                               6,871,870      7,150,501


                                                                         Nine months ended March 31
                                                                              2000          2001
                                                                              ----          ----

     Basic                                                                 6,712,871      7,093,759
     Effect of assumed conversion of employee stock options                        -          7,626
                                                                           ---------      ---------
     Diluted                                                               6,712,871      7,101,385
</TABLE>

6.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
<S>                                                                      <C>                  <C>

                                                                          June 30        March 31
                                                                            2000          2001
                                                                            ----          ----
     Claims payable                                                      $22,571,928    $39,165,993
     Rebates payable to sponsors                                           3,565,258      5,587,005
     Other payables                                                        1,293,498      3,520,754
                                                                         -----------    -----------
                                                                         $27,430,684    $48,273,752
                                                                         ===========    ===========
</TABLE>

     7. RELATED PARTY TRANSACTIONS

     Certain costs paid to affiliates were  capitalized as software  development
costs.  For the nine  months  ended  March  31,  2001,  the  amount  charged  by
affiliates and capitalized was approximately $500,000.

     The Company purchased  computer  equipment,  furniture and fixtures from an
affiliate  during  the nine  months  ended  March  31,  2001  for  approximately
$373,000.  The price of some of these assets  included a 20% fee for purchasing,
handling and other services.

     For the  periods  presented,  certain  general,  administrative  and  other
expenses reflected in the financial  statements  include  allocations of certain
corporate  expenses from  affiliates  which take into  consideration  personnel,
estimates  of the time spent to provide  services  or other  appropriate  bases.
These  allocations   include  services  and  expenses  for  information  systems
maintenance,  financial  consulting,  employee benefits  administration,  legal,
communications and other miscellaneous services.

     Management  believes the  foregoing  allocations  were made on a reasonable
basis.  Although these allocations do not necessarily  represent the costs which
would  have been or may be  incurred  by the  Company  on a  stand-alone  basis,
management believes that any variance in costs would not be material.

     General and administrative expenses related to transactions with affiliates
included in the  statement of income are:
<TABLE>
<CAPTION>
<S>                                                               <C>             <C>


                                                                    Three months ended March 31
                                                                      2000           2001


     Software maintenance and related services                    $    260,944    $ 291,011
     Management and consulting fees                                    309,423      386,428
     Administrative and bookkeeping services and supplies              186,841      210,311
     Rent and utilities                                                 83,520      129,458
                                                                       -------    ---------
                                                                  $    840,728   $1,017,208


                                                                    Nine months ended March 31
                                                                      2000           2001
                                                                      ----           ----

     Software maintenance and related services                    $    717,944   $  851,316
     Management and consulting fees                                    655,131    1,171,805
     Administrative and bookkeeping services and supplies              496,378      579,181
     Rent and utilities                                                269,519      390,458
                                                                       -------    ---------
                                                                  $  2,138,972   $2,992,760

</TABLE>

     The  Company  has accrued  approximately  $318,000 of interest  income from
affiliates,  arising  from two loans,  for the nine months ended March 31, 2001.
This  compares to  approximately  $263,000  for the nine months  ended March 31,
2000. As of March 31, 2001,  the Company  received cash of $23,750  against this
accrual. The two loans are as follows: (i) as of March 31, 2001, Sandata,  Inc.,
a corporation of which Mr. Brodsky is the Chairman of the Board, Treasurer and a
principal  stockholder  ("Sandata"),  owed the  Company  $511,772  pursuant to a
promissory  note dated May 31, 2000, made payable by Sandata to the order of the
Company in the original  principal  amount of $500,000 plus interest at the rate
of 9-1/2%; interest on such note is payable quarterly;  and such note, which was
originally  due on June 1, 2001,  is now due on March 31, 2002;  (ii) on June 1,
1998,  the Company  assigned  certain  indebtedness  aggregating  $1,636,785  in
principal  and accrued  interest,  if any,  from  certain  persons and  entities
including  Mr.  Brodsky,  to P.W.  Capital,  LLC  ("P.W.  Capital"),  a  company
affiliated  with Mr.  Brodsky.  On June 1, 1998 P.W.  Capital  executed a demand
promissory note made payable to the order of the Company in the principal amount
of $4,254,785  with interest at the rate of 8.5% per annum,  payable  quarterly,
such amount  reflecting the assigned debt and amounts then owed by P.W.  Capital
to the Company. On June 1, 1998, Mr. Brodsky executed an unconditional  guaranty
in favor of the  Company  for the full and prompt  payment to the Company of all
amounts payable under the P.W. Capital  promissory note dated June 1, 1998. Such
note was  secured by  1,022,758  shares of Common  Stock of the  Company  and is
without recourse to the maker.  Such note was restructured by a new non-recourse
promissory note dated July 31, 2000,  made payable by P.W.  Capital to the order
of the  Company  in the  amount of  $3,890,940.  Such note is  payable in annual
installments  of $400,000,  consisting  of principal and interest at the rate of
8-1/2% per annum on each of the first and  second  anniversary  dates,  with the
total  remaining  balance of principal  and interest due and payable on July 31,
2003.  The note is  collateralized  by  1,000,000  shares of Common Stock of the
Company.

     The Company occupies approximately 15,500 square feet of space at 26 Harbor
Park Drive,  Port Washington,  New York under an amended lease at a monthly cost
of $46,999 (including  utilities).  The lessor is BFS Realty, LLC ("BFS"), which
is affiliated  with Mr.  Brodsky.  The lease expires as of March 30, 2004.  Rent
under the lease increases by 5% annually.  The BFS lease was assigned by Sandata
to BFS in November 1996.  Mr.  Brodsky is the Operating  Manager and holder of a
majority of the membership interests of BFS. The Company believes that the terms
of the  lease  are as  fair to it as  those  which  could  be  obtained  from an
unaffiliated third party, although no independent fee quotes have been obtained.
During the fiscal  years ended June 30 1999 and 2000,  the Company  paid another
affiliated party approximately $15,833 and $10,200,  respectively, in connection
with improvements to the building in which the Company's offices are located. In
October,  2000, an oral agreement was reached among BFS, Sandata and the Company
as to a reallocation of the common space at 26 Harbor Park Drive, which resulted
in an  increase  of $6,400 per month in the rent  payable by the  Company.  This
increase was  retroactive to June 1, 2000,  resulting in an aggregate  increase,
over the term of the lease, of $294,000. Furthermore, in March 2001, the Company
took over approximately 900 additional square feet as part of renovations to the
building and further reallocation of the common space. This additional space and
the unamortized  cost of the  renovations  led to a monthly  increase in rent of
$7,000. This increase will result in an aggregate increase, over the term of the
lease,  of  $252,000.  The  Company  anticipates  that  negotiations  for  a new
long-term  lease,  reflecting the revised  square  footage and on  substantially
similar terms  (except for market value  adjustments  in rent,  expenses and the
like) as the present lease, will begin in the near future. Sandata also occupies
space at 26 Harbor Park Drive. Except for certain common areas,  Sandata and the
Company do not share space in such facility.

     8. MAJOR CUSTOMERS AND PHARMACIES

     For the three months ended March 31, 2000, approximately 38% of revenues of
the Company were from two plan sponsors  administering  multiple plans.  For the
three  months  ended  March  31,  2001,  approximately  17% of the  consolidated
revenues of the Company were from one plan sponsor administering multiple plans.
For the nine months ended March 31, 2000, approximately 47% of the revenues were
from three plan sponsors,  two of which were administering multiple plans, while
19% of the  revenues for the nine months ended March 31, 2001 were from one plan
sponsor administering multiple plans. Amounts due from this sponsor at March 31,
2001 approximated $2,035,000.

     During the nine months ended March 31, 2001,  the Company  settled  certain
fees due from a major sponsor  related to a capitation  arrangement for calendar
year 1999,  which reduced  revenue by $733,000.  The calendar year 2000 contract
with this sponsor is no longer a capitation arrangement. During the three months
ended March 31, 2001,  the Company also  reached  agreement  with a former major
sponsor to settle amounts due. This settlement  increased  selling,  general and
administrative expenses by $588,000 (See Note 12 Subsequent Events).

     For the three months ended March 31, 2000 and 2001,  approximately  43% and
28% of the cost of claims were from two pharmacy chains,  respectively.  For the
nine months ended March 31, 2000 and 2001, approximately 42% and 25% of the cost
of claims were from these same two pharmacy chains. Amounts payable to these two
pharmacy chains at March 31, 2001 were approximately $8,143,000.

     9. LITIGATION

     On February 9, 1999, the Company was informed by counsel that an action had
been commenced  against the Company on December 8, 1998 by the West Contra Costa
Unified School District (the "School  District") and an individual  plaintiff in
the State of California.  The case was subsequently removed to the U.S. District
Court for the Northern  District of  California.  The complaint  alleges,  among
other things, (i) that the Company unilaterally terminated its contract with the
School  District  in  violation  of the  terms of the  contract;  (ii)  that the
termination resulted in the School District incurring  approximately $150,000 in
additional  costs;  and  (iii)  that,  due to the  wrongful  termination  of the
contract,  the  School  District  was  forced  to secure a  replacement  for the
benefits  and the  services  that were to have  been  provided  by the  Company,
thereby incurring  approximately  $867,000 in additional expenses. The complaint
also seeks treble damages, attorneys' fees, costs, interest to date and punitive
damages.  If treble  damages were  allowable  and a judgment  were to be entered
against  the  Company,  the  Company  would be liable  for  damages in excess of
$1,500,000.  Since the School  District  and the Company have  recently  begun a
mediation process, the initial results of which have been positive,  the Company
has decided to postpone the  deposition and the  dispositive  motion it has been
contemplating.  A second mediation session has been scheduled for June 14, 2001.
The Company denies the  allegations  and intends to defend this action should it
come to trial. In the opinion of management, the outcome of this matter will not
have a  material  adverse  effect on the  Company's  financial  position  or its
results of operations.

     On October 23,  2000,  the  Company  was served  with a complaint  filed by
Allcare  Health  Management  Systems,  Inc.  ("Allcare")  in the  United  States
District Court for the Northern  District of Texas alleging that the Company and
numerous other  defendants  infringe  certain patent rights  allegedly  owned by
Allcare.

     On April 10, 2001, the Company settled the lawsuit with Allcare, and all of
the  claims  were  dismissed  by the  Court on April  17,  2001.  As part of the
settlement,  the Company,  and its  subsidiaries  were released from any and all
claims  that were or could be brought in the  lawsuit.  The  release  covers all
prior  periods as well as all future  periods as long as the  Company  continues
licensing its pharmacy benefit  management  information  technology systems (the
"NMHCS Systems") from a licensee of Allcare.  Furthermore, the future activities
of entities  acquired  by the  Company are covered  under the release as long as
such  entities'  systems are converted to the NMHCS Systems within six months of
acquisition.  The settlement  provides Allcare the right to audit the Company in
the future to insure the NMHCS  Systems are still  covered by the  release.  The
Company also has the option to extend the duration of the release, for a fee, if
it licenses its NMHCS Systems from a different vendor in the future.

     On January 11,  2001,  Mary T.  Casale,  a former  employee of the Company,
filed a Charge of Discrimination  against the Company with the New York District
Office of the U.S. Equal Employment  Opportunity Commission ("EEOC"). Ms. Casale
alleges, among other things, that she was constructively  discharged as a result
of  discriminatory  age and  gender  practices  and  that she was  subjected  to
repeated  discriminatory  comments  regarding her age and gender.  The matter is
presently  pending  before the EEOC,  which is  expected  to explore a voluntary
resolution  of the dispute  and to  investigate  Ms.  Casale's  allegation.  The
Company  believes that is has not violated any applicable laws, and is defending
the charges through its attorneys.  The matter remains in its early stages,  and
the EEOC has made no findings for or against any party. In addition, the Company
is being defended pursuant to an employment  practices liability policy, and has
no reason to believe that coverage does not exist for the within claim.

     10. RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements". In
June  2000,  the SEC  delayed  the  required  implementation  date to the fourth
quarter of fiscal years  beginning  after December 15, 1999. The Company adopted
SAB 101 which did not have a material  effect on its results of  operations  and
financial position.

     The consolidated  financial  statements reflect, for all periods presented,
the adoption of the classification requirements pursuant to Emerging Issues Task
Force ("EITF") 00-14, Accounting for Certain Sales  Incentives-Coupons,  Rebates
and  Discounts,  which was  effective in the  Company's  third  quarter of 2001.
Accordingly,  the Company  reduced cost of claims for the periods  presented for
rebates received from pharmaceutical  manufacturers and reduced revenues for the
rebates which are shared with the Company's customers. Historically, the Company
recorded  the net  difference  between  the rebates  received  and paid out as a
reduction to cost of claims.

     11. SUPPLEMENTAL CASH FLOW INFORMATION

     During the nine months ended March 31, 2000 and March 31, 2001, the Company
paid $23,488 and $178,489 in interest and $265,000 and $838,210 in income taxes,
respectively.  In a non-cash  transaction,  the Company issued 400,000 shares of
its Common Stock,  valued at $849,920,  as part of the  acquisition of PAI. (See
Note 2 above for additional information about the PAI agreement).

     12. SUBSEQUENT EVENTS

     The Company has reached  agreement  with a former major sponsor  concerning
the amounts due to them for  rebates  and other  contractual  terms based on the
close out of the contract.  The Company has reserved an  additional  $588,000 in
the  quarter  ended March 31,  2001 to account  for this  settlement.  The total
amount to be paid to this sponsor is $1,750,000.



<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


Results of Operations

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000

Revenues  increased $29.3 million,  or approximately 68%, from $43.1 million for
the three  months ended March 31,  2000,  to $72.4  million for the three months
ended March 31, 2001. Of the  increase,  $20.2  million,  or 69%, was due to the
inclusion of revenues from PAI and PMP in the quarter ended March 31, 2001. $5.1
million of the  increase  was due to  revenues  related to new  sponsors  or new
services offered. The majority of the balance of the year-over-year increase, or
$4.4  million,  was due  primarily to  increased  revenues  from other  existing
sponsors as a result of several  factors  including  higher charges  relating to
increased cost of  pharmaceuticals,  new drugs,  plan participant  growth and an
increase in the average number of claims per plan participant.

Revenues  for the  quarter  for both years were  adjusted  based on EITF  00-14,
Accounting  for Certain Sales  Incentives - Coupons,  Rebates and Discounts (See
Note 10). The  financial  impact of this is to reduce  revenues by the amount of
rebates to be paid to customers and reduce cost of claims by the gross amount of
rebates received by the Company. Previously the net difference between the gross
amount received by the Company and the amount paid to customers was treated as a
reduction in cost of claims with no effect on revenue. The impact of this change
was to reduce  revenue and cost of claims by $1.4  million and $1.0  million for
the quarters ended March 31, 2001 and 2000, respectively.

Cost of claims increased $27.4 million, or approximately 71%, from $38.8 million
for the three months ended March 31, 2000, to $66.2 million for the three months
ended March 31, 2001.  PAI and PMP  accounted for $17.7  million,  or 65% of the
increase.  As a percentage of revenues,  cost of claims  increased from 90.0% to
91.5%  for  the  three   months  ended  March  31,  2000  and  March  31,  2001,
respectively.  The 90.0% for the  quarter  ended  March 31,  2000 was  favorably
impacted by a one-time  adjustment  due to a more favorable  arrangement  with a
sponsor.  The  91.5%  for  the  quarter  ended  March  31,  2001  is  much  more
representative of the Company's historical performance.  The acquisitions of PAI
and PMP have aided in starting to drive this percentage down.

Gross profit  increased from $4.3 million,  for the three months ended March 31,
2000, to $6.1 million for the three months ended March 31, 2001; a $1.8 million,
or 42%  increase.  PAI and PMP  accounted  for $2.5  million,  or  135%,  of the
increase. Gross profit, as a percentage of revenue, decreased from 10.0% to 8.5%
for the three months ended March 31, 2000 and March 31, 2001, respectively.  The
decline year-over-year is principally related to the one time adjustment to cost
of claims taken in the three months ended March 31, 2000.  However,  the Company
has also seen a decline in profit margins due to competitive pressures.

Selling,  general, and administrative expenses, which include amounts charged by
affiliates,  increased $2.2 million,  or approximately 61% from $3.6 million for
the three months ended March 31, 2000 to $5.8 million for the three months ended
March 31, 2001.  Approximately 45% of the increase, or $1.0 million, was related
to the inclusion of PAI and PMP in the consolidated  numbers. The balance of the
growth  in  these  expenses  was  principally  related  to  four  areas:  (i) an
approximate   $409,000   increase  in  expenditures   related  to  increases  in
compensation  and benefits,  primarily  associated  with new employees;  (ii) an
approximate $204,000 increase in depreciation and amortization  expenses related
to increased hardware procurement and software development; (iii) an approximate
$80,000  increase in data processing  charges  related to increased  information
technology services; and (iv) an approximate $628,000 reserve accrued related to
the settlement of the Allcare patent  infringement (see Note 9 - Litigation) and
the  reconciliation  and settlement of amounts due to a former sponsor (See Note
12 - Subsequent Events).

General   and   administrative   expenses   charged  by   affiliates   increased
approximately $176,000 or 21% year-over-year from $841,000 to $1,017,000 for the
three months ended March 31, 2000 and March 31, 2001, respectively. The majority
of the  increase  related to  increased  information  technology  services,  and
additional administrative support services and supplies to support the continued
expansion of the business.

Other net income increased by approximately $17,000, or 7%, for the three months
ended March 31, 2001, as compared to the three months ended March 31, 2000.  The
reason for the net increase was a $52,000 increase in interest income related to
cash balances from PAI, offset by a $35,000 increase in interest expense because
the Company  entered into a capital  lease  agreement  with Hewlett  Packard for
computer hardware and related software that went into effect March, 2000.

Income before income taxes declined $372,000, from $919,000 to $547,000, or 40%,
for the three  months ended March 31, 2001 as compared to the three months ended
March 31,  2000.  The primary  reason for the decline was the  $628,000  accrued
reserve for  settlements,  offset by the  profitability  of PAI and PMP.  EBITDA
(earnings before interest,  taxes, depreciation and amortization) for these same
periods  showed a decline of $35,000,  or 4%, from $999,000 for the three months
ended March 31, 2000 to $964,000 for the three months ended March 31, 2001. This
was due to the  inclusion in the period ended March 31, 2001 of: (i) $141,000 of
goodwill  amortization related to the PAI and PMP acquisitions;  (ii) $10,000 of
depreciation  of PAI's  and PMP's  assets;  and (iii)  $203,000  of  incremental
depreciation related to new assets procured during the last year.

The effective tax rate  increased  from 42% for the three months ended March 31,
2000 to 50% for the three  months ended March 31,  2001.  The  increase  stemmed
primarily  from  the  non-deductibility,  for  tax  purposes,  of  the  goodwill
amortization related to the acquisition of PAI.

Nine Months Ended March 31, 2001 Compared to Nine Months Ended March 31, 2000

Revenues increased $66.2 million,  or approximately 52%, from $126.3 million for
the nine months  ended  March 31,  2000,  to $192.5  million for the nine months
ended March 31, 2001.  Of the  increase,  $49.6  million,  or 75% was due to the
inclusion of revenues from PAI, subsequent to July 20, 2000, and PMP, subsequent
to March 5, 2001.  $8.4 million of the  increase was due to revenues  related to
new  sponsors  or new  services  offered.  The  majority  of the  balance of the
year-over-year  increase,  or $9.0  million,  was  due  primarily  to  increased
revenues from other existing  sponsors as a result of several factors  including
higher charges relating to increased cost of  pharmaceuticals,  new drugs,  plan
participant  growth,  and an increase  in the average  number of claims per plan
participant.  Both  periods  were  negatively  impacted  by a net  reduction  in
revenues  that  arose when the  Company  settled  certain  fees due from a major
sponsor related to a capitation  arrangement for calendar years 1997 - 1999. The
net  reduction in revenues was $821,000 for the nine months ended March 31, 2000
and $733,000 for the nine months  ended March 31, 2001.  The calendar  year 2000
contract with this sponsor is no longer a capitation arrangement.

Revenues for the nine months for both years were  adjusted  based on EITF 00-14,
Accounting for Certain Sales  Incentives - Coupons,  Rebates and Discounts.  The
financial  impact of this is to reduce  revenues  by the amount of rebates to be
paid to  customers  and  reduce  cost of claims by the gross  amount of  rebates
received by the Company.  Previously the net difference between the gross amount
received  by the  Company,  and the amount  paid to  customers  was treated as a
reduction in cost of claims with no change to revenue. The impact of this change
was to reduce  revenue and cost of claims by $3.9  million and $3.1  million for
the nine months ended March 31, 2001 and 2000, respectively.

Cost of claims  increased  $61.7  million,  or  approximately  53%,  from $115.4
million for the nine months ended March 31, 2000, to $177.1 million for the nine
months ended March 31, 2001. PAI and PMP accounted for $44.7 million,  or 72% of
the increase.  As a percentage of revenues,  cost of claims increased from 91.4%
to  92.0%  for the  nine  months  ended  March  31,  2000 and  March  31,  2001,
respectively.  The  percentage  for the nine  months  ended  March 31,  2000 was
favorably  impacted by two items:  (i) a $736,000  reduction in rebates  payable
which arose when the Company reevaluated its liabilities to a plan sponsor;  and
(ii) the one-time adjustment due to a more favorable arrangement with a sponsor.

Gross profit  increased  from $10.8  million for the nine months ended March 31,
2000 to $15.4  million for the nine months ended March 31, 2001; a $4.6 million,
or 43%,  increase.  PAI and PMP  accounted  for $4.9  million,  or 107%,  of the
increase. Gross profit as a percentage of revenue declined from 8.6% to 8.0% for
the nine  months  ended  March 31, 2000 and March 31,  2001,  respectively.  The
decline is attributable to the impact of the two one-time adjustments, described
in the explanation for the change in cost of claims above.  The Company has also
seen a decline in profit margins due to competitive pressures.

Selling,  general, and administrative expenses, which include amounts charged by
affiliates,  increased $5.8 million, or approximately 66%, from $8.8 million for
the nine months ended March 31, 2000 to $14.6  million for the nine months ended
March 31, 2001.  Approximately 45% of the increase, or $2.6 million, was related
to the inclusion of PAI and PMP in the consolidated  numbers. The balance of the
growth  in  these  expenses  was  principally  related  to  five  areas:  (i) an
approximate   $1,354,000  increase  in  expenditures  related  to  increases  in
compensation  and benefits,  primarily  associated  with new employees;  (ii) an
approximate $620,000 increase in depreciation and amortization  expenses related
to increased hardware procurement and software development; (iii) an approximate
$314,000  increase in data processing  charges related to increased  information
technology services; (iv) an approximate $628,000 reserve accrued related to the
settlement of the Allcare patent  infringement (See Note 9 - Litigation) and the
reconciliation  and settlement of amounts due to a former sponsor (See Note 12 -
Subsequent  Events);  and (v) an  approximate  $266,000  increase  in legal fees
related to the defense of the items discussed in Note 9 - Litigation.

General   and   administrative   expenses   charged  by   affiliates   increased
approximately $854,000, or 40%, year-over-year from $2,139,000 to $2,993,000 for
the nine  months  ended  March 31, 2000 and March 31,  2001,  respectively.  The
majority of the increase related to increased  information  technology  services
and  additional  administrative  support  services  and  supplies to support the
continued expansion of the business.

Other net income declined by approximately  $53,000,  or 7%, for the nine months
ended March 31, 2001,  as compared to the nine months ended March 31, 2000.  The
main  factor  in the  decline  was a  $155,000  increase  in  interest  expense,
primarily  because the  Company  entered  into a capital  lease  agreement  with
Hewlett Packard for computer hardware and related software that went into effect
in March  2000.  The  increase in interest  expense  was  partially  offset by a
$102,000 increase in interest income related to the inclusion of PAI.

Income  before  income taxes  declined  $1,313,000,  or 47%, for the nine months
ended March 31, 2001,  as compared to the nine months ended March 31, 2000.  The
primary reasons for the decline were the one-time  adjustments  noted above: (i)
the $733,000 revenue reduction in the nine months ended March 31, 2001; (ii) the
$628,000  accrued  reserve for  settlements  in the nine months  ended March 31,
2001;  (iii) the $736,000  reduction in rebates payable in the nine months ended
March  31,  2000;  and  (iv) the  one-time  adjustment  due to a more  favorable
arrangement  with a sponsor in the nine months ended March 31, 2000.  EBITDA for
these same periods showed a decline of $237,000, or 8%, from $2,934,000, for the
nine months ended March 31, 2000, to $2,697,000, for the nine months ended March
31, 2001.  This was due to the  inclusion  of $334,000 of goodwill  amortization
related to the PAI and PMP  acquisitions  in the period  ended  March 31,  2001,
$66,000  of  depreciation  of PAI's and PMP's  assets,  as well as  $620,000  of
incremental depreciation of new assets procured during the last year.

The effective tax rate increased from 42.5%, for the nine months ended March 31,
2000, to 50.2%,  for the nine months ended March 31, 2001. The increase  stemmed
primarily  from  the  non-deductibility,  for  tax  purposes,  of  the  goodwill
amortization related to the PAI acquisition.

Liquidity and Capital Resources

The  Company's  primary  cash  requirements  are for  capital  expenditures  and
operating  expenses,  including cost of  pharmaceuticals,  software and hardware
upgrades and the funding of accounts receivable.  The Company also requires cash
for potential acquisitions of other prescription benefit management companies or
of companies providing related services. As of March 31, 2001, the Company had a
working capital deficit of $6.3 million,  as compared to working capital of $6.0
million  as of June 30,  2000.  The  primary  reasons  for the change in working
capital were the  acquisitions  of PAI and PMP.  $11.2  million of cash and cash
equivalents,  net of cash  received,  was  utilized to acquire  these  companies
during the nine months ended March 31, 2001. These funds came from the Company's
working  capital,  thus a long term asset,  goodwill,  was acquired with a short
term asset, cash.

Net cash provided by operating  activities  was $3.7 million for the nine months
ended March 31, 2001,  as compared to net cash used in operating  activities  of
$1.1 million for the nine months ended March 31, 2000. For the nine months ended
March 31, 2001,  accounts  payable  increased by $2.0 million more than accounts
receivable,  thus providing  cash. This differs from the nine months ended March
31, 2000 where accounts receivable  increased by $2.2 million more than accounts
payable, thus using cash. There was also $1 million more, during the nine months
ended March 31, 2001, of non-cash  depreciation and amortization  related to the
acquisitions and increased fixed assets.

Historically,  the timing of the  Company's  accounts  receivable  and  accounts
payable has generally been a net source of cash from operating activities.  This
is the  result of the terms of trade in place  with  plan  sponsors,  on the one
hand,  and the  Company's  pharmacy  network,  on the other  hand.  These  terms
generally  lead to the  Company's  payments to  participating  pharmacies  being
slower  than its  corresponding  collections  from plan  sponsors.  The  Company
believes that this situation is not unusual in the pharmacy  benefit  management
industry  and expects to operate on similar  terms for the  foreseeable  future.
However, there can be no assurance that such terms of trade will continue in the
future;  and if they  were to  change  materially,  the  Company  could  require
additional  working  capital  financing.  There  can be no  assurance  that such
financing could be obtained at rates or on terms  acceptable to the Company,  if
at all. If such terms of trade were to change materially,  and/or if the Company
were unable to obtain  additional  working capital  financing,  there could be a
material  adverse  effect on the  Company's  business,  financial  condition  or
results of operations.

Net cash used in  investing  activities  was $13.6  million  for the nine months
ended March 31, 2001. The net cash outlay for PAI was $4.5 million, representing
the initial payment of $6.0 million plus $0.2 million of related expenses,  less
PAI's cash balance at July 20, 2000 of $1.7 million. The net cash outlay for PMP
was $6.7  million,  representing  the initial  payment of $6.8 million plus $0.2
million of related  expenses,  less PMP's cash  balance at March 5, 2001 of $0.3
million. In addition,  there were $2.5 million of capital asset additions during
the period.

Net cash used in  financing  activities  was  $518,000 for the nine months ended
March 31, 2001,  reflecting  repayments against capital leases. The Company also
borrowed  $4.0 million on March 5, 2001 under the Note to acquire PMP and repaid
the $4.0 million on March 9, 2001.  This  compares to $9.0  million  provided by
financing  activities  for the nine months ended March 31, 2000,  reflecting the
cash received from the Public Offering described in the Annual Report.

During  fiscal  year  2000,  the  Company   entered  into  three  capital  lease
transactions  for hardware and  software.  The purchase  price of these  capital
assets was  $2,537,730.  One  hardware  lease is for a term of 57  months,  with
monthly payments of $40,322.  Another hardware lease is for a term of 60 months,
with monthly payments of $3,245.  The software lease is for a term of 33 months,
with monthly payments of $13,662.  The principal  balance of these three capital
leases as of March 31, 2001 was $2,001,170.

The Company  assumed all the assets and liabilities of PAI, as of July 20, 2000,
including two outstanding  loans as follows:  (i) a note payable to Regions Bank
with a principal  balance as of March 31, 2001 of $78,832.  Such note is payable
in monthly installments in the amount of $2,432,  including interest at the rate
of 7.75% and  principal  through July 2004.  Repayment of such note is currently
secured by a lien on and a security  interest in an automobile;  and (ii) a loan
representing  prepaid  rebates  from its rebate  administrator  with a principal
balance as of March 31, 2001 of $175,159,  payable with  interest at the rate of
8.5% in four  quarterly  payments of $94,261  commencing  December  31, 2000 and
ending September 30, 2001.

PAI  stockholders  are  eligible  to  receive  up to  $1,000,000  in  additional
consideration  payable  in  combination  of cash and  Common  Stock  if  certain
financial  targets of PAI are met for the fiscal year ended June 30, 2001. Based
on  performance  through  March 31, 2001,  it is highly likely that most, if not
all, of these funds will be earned and will be paid following the fiscal year.

In February  1998, the Company  entered into an agreement  with an  unaffiliated
third party for  computer  software  products  and  professional  services.  The
agreement  required the Company to pay an initial  license fee. In addition,  if
certain  milestones are met, based on the number of processed  claims as defined
in the agreement, the initial license fee increases in specified increments.  To
date,  three such milestones  have been met,  resulting in a 75% increase in the
license fee. The  agreement  also  provides for the annual  payment of a fee for
maintenance  and updating  services equal to 18% of the initial  license fee, as
defined.  It is anticipated  that,  based on internal growth and the PAI and PMP
acquisitions, at least one additional milestone will be met during calendar year
2001. If the remaining  milestones  are reached,  the cash outlay by the Company
would be $200,000.

The Company  anticipates  that  current  cash  positions,  after the PAI and PMP
acquisitions  and the  repayment  of certain  affiliate  and  shareholder  debt,
together  with  anticipated  cash flow from  operations,  will be  sufficient to
satisfy the Company's  contemplated  cash  requirements  for at least 24 months.
This is based  upon  current  levels of  capital  expenditures  and  anticipated
operating  results for the next 24 months.  However,  it is one of the Company's
stated goals to acquire other pharmacy benefit management  companies,  evidenced
by the two acquired during this fiscal year.  This will require cash.  Depending
on the  Company's  evaluation  of future  acquisitions,  additional  cash may be
required.  Therefore, the Company has put in place a $4,000,000 revolving credit
line for  acquisitions  with its bank.  The  Company  has no current  borrowings
against this credit line.  The Company is also  currently  negotiating  a larger
amount, based on anticipated future earnings,  to meet anticipated future needs.
In the event that the  Company's  plans  change or its  assumptions  prove to be
inaccurate,  or that the additional  bank financing is not  consummated,  or the
proceeds of the bank financing  prove to be  insufficient to fund operations and
acquisitions,  the Company could be required to seek additional financing sooner
than  anticipated.  There  can be no  assurance  that  such  financing  could be
obtained at rates or on terms acceptable to the Company, if at all.

Recently Issued Accounting Standards

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements".  In June
2000, the SEC delayed the required  implementation date to the fourth quarter of
fiscal years beginning after December 15, 1999. The Companyadopted SAB 101 which
did not have a  material  effect on its  results  of  operations  and  financial
position.

The consolidated  financial statements reflect,  for all periods presented,  the
adoption of the  classification  requirements  pursuant to Emerging  Issues Task
Force ("EITF") 00-14, Accounting for Certain Sales  Incentives-Coupons,  Rebates
and  Discounts,  which was  effective in the  Company's  third  quarter of 2001.
Accordingly,  the Company  reduced cost of claims for the periods  presented for
rebates received from pharmaceutical  manufacturers and reduced revenues for the
rebates which are shared with the Company's customers. Historically, the Company
recorded  the net  difference  between  the rebates  received  and paid out as a
reduction to cost of claims.

Other Matters

NASDAQ Compliance

By letter dated December 7, 2000, NASDAQ notified the Company that the Company's
Common  Stock had failed to maintain a minimum  market  value of public float of
$5,000,000 over the preceding 30 consecutive trading days, as required by NASDAQ
rules (the "MVPF Rule"). The market value of public float ("MVPF") is the dollar
amount  determined  by  multiplying  the  closing  bid  price by the  number  of
outstanding  shares of the Company's  Common Stock excluding  shares held by the
Company's  directors,  officers  and  beneficial  owners  of 10% or  more of the
Company's shares. The Company regained compliance with the MVPF rule in the time
allotted by NASDAQ and continues to this date to be in compliance.

Inflation

Management does not believe that inflation has had a material adverse impact on
the Company's net income.

Forward-Looking Statements

This report contains forward-looking  statements which involve known and unknown
risks  and  uncertainties  or other  factors  that  may  cause  actual  results,
performance or achievements to be materially  different from any future results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements. When used herein, the words "may", "could", "estimate",  "believes",
"anticipates",   "thinks",   "intends",   "will  be",  "expects",   and  similar
expressions  identify  forward-looking  statements  within  the  meaning  of the
Private Securities Litigation Reform Act of 1995. For a discussion of such risks
and  uncertainties,  including  but not  limited  to risks  relating  to demand,
pricing,  government regulation,  acquisitions and affiliations,  the market for
PBM  services,  competition  and other  factors,  readers are urged to carefully
review and consider  various  disclosures  made by the Company in the  Company's
Annual Report for the most recently ended fiscal year, and other  Securities and
Exchange Commission filings.

For more information, visit the Company's website at www.NMHC.com.

Item 3   -  Quantitative and Qualitative Disclosures
            about Market Risk

Not applicable.


<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION


ITEM 1   -  LEGAL PROCEEDINGS

On February 9, 1999, the Company was informed by counsel that an action had been
commenced  against the  Company on  December  8, 1998 by the West  Contra  Costa
Unified School District (the "School  District") and an individual  plaintiff in
the State of California.  The case was subsequently removed to the U.S. District
Court for the Northern  District of  California.  The complaint  alleges,  among
other things, (i) that the Company unilaterally terminated its contract with the
School  District  in  violation  of the  terms of the  contract;  (ii)  that the
termination resulted in the School District incurring  approximately $150,000 in
additional  costs;  and  (iii)  that,  due to the  wrongful  termination  of the
contract,  the  School  District  was  forced  to secure a  replacement  for the
benefits  and the  services  that were to have  been  provided  by the  Company,
thereby incurring  approximately  $867,000 in additional expenses. The complaint
also seeks treble damages, attorneys' fees, costs, interest to date and punitive
damages.  If treble  damages were  allowable  and a judgment  were to be entered
against  the  Company,  the  Company  would be liable  for  damages in excess of
$1,500,000.  Since the School  District  and the Company have  recently  begun a
mediation process, the initial results of which have been positive,  the Company
has decided to postpone the  deposition and the  dispositive  motion it has been
contemplating.  A second mediation session has been scheduled for June 14, 2001.
The Company denies the  allegations  and intends to defend this action should it
come to trial. In the opinion of management, the outcome of this matter will not
have a  material  adverse  effect on the  Company's  financial  position  or its
results of operations.

On October 23,  2000,  the Company was served with a complaint  filed by Allcare
Health Management Systems,  Inc. ("Allcare") in the United States District Court
for the Northern  District of Texas alleging that the Company and numerous other
defendants infringe certain patent rights allegedly owned by Allcare.

On April 10, 2001, the Company settled the lawsuit with Allcare,  and all of the
claims were dismissed by the Court on April 17, 2001. As part of the settlement,
the Company and its subsidiaries were released from any and all claims that were
or could be brought in the lawsuit. The release covers all prior periods as well
as all future  periods as long as the Company  continues  licensing its pharmacy
benefit management  information  technology systems (the "NMHCS Systems") from a
licensee of Allcare.  Furthermore, the future activities of entities acquired by
the Company are covered under the release as long as such entities'  systems are
converted to the NMHCS Systems within six months of acquisition.  The settlement
provides  Allcare  the right to audit the  Company  in the  future to insure the
NMHCS Systems are still covered by the release.  The Company also has the option
to extend the  duration of the  release,  for a fee,  if it  licenses  its NMHCS
Systems from a different vendor in the future.

On January 11, 2001, Mary T. Casale,  a former employee of the Company,  filed a
Charge of  Discrimination  against the Company with the New York District Office
of the  U.S.  Equal  Employment  Opportunity  Commission  ("EEOC").  Ms.  Casale
alleges, among other things, that she was constructively  discharged as a result
of  discriminatory  age and  gender  practices  and  that she was  subjected  to
repeated  discriminatory  comments  regarding her age and gender.  The matter is
presently  pending  before the EEOC,  which is  expected  to explore a voluntary
resolution  of the dispute  and to  investigate  Ms.  Casale's  allegation.  The
Company  believes that is has not violated any applicable laws, and is defending
the charges through its attorneys.  The matter remains in its early stages,  and
the EEOC has made no findings for or against any party. In addition, the Company
is being defended pursuant to an employment  practices liability policy, and has
no reason to believe that coverage does not exist for the within claim.

ITEM 2    -       CHANGES IN SECURITIES AND USE OF PROCEEDS

During the nine  months  ended March 31,  2001,  the total  number of  incentive
options granted under the 1999 Stock Option Plan (the "Plan"),  net of incentive
options  forfeited  during  the same  period,  were  476,377.  The  options  are
exercisable at prices ranging from $1.67 to $7.50 and terminate between five and
six years from the grant date.  Of these,  533,000 are  currently  in the money,
with  exercise  prices  lower than the  current  stock  price,  and  111,000 are
currently exercisable. None of these options have been exercised to date. During
this  period the  Company  also  granted  nonstatutory  options  to its  outside
Directors  (84,000) and the majority  shareholder of PMP (15,000) under the Plan
to  purchase  up to an  aggregate  of 99,000  shares  of Common  Stock at prices
ranging from $1.67 to $6.00 per share. These options terminate after five years.
Of  these,  44,000  are  currently  in  the  money,  and  14,680  are  currently
exercisable;  the balance are  exercisable  over three years after one year from
the grant date. None of the currently exercisable nonstatutory options have been
exercised to date.  As of March 31, 2001 an  aggregate of 1,231,806  options had
been granted under the Plan, of which 1,102,806 are incentive options. There are
a total of 1,650,000 shares reserved for issuance under the plan.

On February 20, 2001, the Company granted 500,000 incentive stock options to Mr.
Brodsky under the Plan.  These options are exercisable at $1.84 per share over a
five-year period starting on the grant date. The options terminate  February 20,
2006. These options are included in the discussion above.

Pursuant to the terms of the PAI Agreement, the Company issued 400,000 shares of
unregistered Common Stock of the Company to certain PAI stockholders.  The stock
issued to the PAI  stockholders was valued at $849,920.  Information  concerning
the PAI Agreement,  including the type and amount of  consideration  received by
the  Company,  is  provided  in Note 2 of the  Condensed  Notes to  Consolidated
Financial Statements in Part I hereof. The Company was advised that the issuance
of such shares was exempt from  registration  under the Securities Act by virtue
of Section 4(2) thereof.

On  October  16,  2000 the  Board of  Directors  approved  the  adoption  of the
Company's 2000 Restricted  Stock Grant Plan (the "Stock Grant Plan").  The Stock
Grant Plan was subsequently  adopted by the Shareholders at the Company's Annual
Meeting on November 20, 2000.  The Stock Grant Plan provides for the issuance of
shares that are subject to both standard restrictions on the sale or transfer of
such shares  (e.g.,  the standard  seven year vesting  schedule set forth in the
Stock  Grant  Plan)  and/or  restrictions  that the  Board may  impose,  such as
restrictions  relating  to length of  service,  corporate  performance  or other
restrictions.  As of March 31,  2001,  no grants  had been made  under the Stock
Grant Plan;  and  therefore,  no shares had vested  under it.  There are 700,000
shares of Common  Stock  reserved for  issuance in  connection  with grants made
under the Stock Grant Plan.

Item 3  -  Defaults Upon Senior Securities

None.


Item 4  -  Submission of Matters to a Vote of Security Holders

None.


Item 5  -  Other Information

None.


Item 6  -  Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
Number     Description of Exhibit
<TABLE>
<CAPTION>
<S>                                                                                <C>

3.3   Restated Certificate of Incorporation of Health Card, as amended(2)
3.4   Amended and Restated By-Laws of Health Card(1)
4.1   Form of Specimen Common Stock Certificate(1)
4.2   Form of Warrant Agreement, including form of Representatives' Warrants(1)
10.1  Software License Agreement and Professional Service Agreement, dated February 18, 1998, between Health Card and
      Prospective Health Inc.(1)
10.2  1999 Stock Option Plan(1)
10.3  Stock Option Agreement, dated August 3, 1999, between Health Card and John Ciufo(4)
10.4  Letter, dated February 1, 2000, from John Ciufo to Bert E. Brodsky(4)
10.5  Stock Option Agreement, dated February 1, 2000, between Health Card and John Ciufo(4)
10.6  Stock Option Agreement, dated August 3, 1999, between Health Card and Ken Hammond(4)
10.7  Employee Covenant Agreement, dated June 1, 1998, between Health Card and Linda Portney(1)
10.8  Employment Agreement, dated March 27, 2000, between Health Card and David Gershen(4)
10.9  Stock Option Agreement, dated May 1, 2000, between Health Card and David Gershen(4)
10.10 Employment Agreement, dated May 3, 2000, between Health Card and James Bigl(4)
10.11 Stock Option Agreement, dated June 12, 2000, between Health Card and James Bigl(4)
10.12 Stock Option Agreement, dated August 3, 1999, between Health Card and Kenneth J. Daley(4)
10.13 Stock Option Agreement, dated August 3, 1999, between Health Card and Gerald Angowitz(4)
10.14 Lease, dated January 1, 1996, between Sandata, Inc. and Health Card(1)
10.15 Assignment, dated November 1, 1996, from Sandata, Inc., to BFS Realty, LLC(1)
10.16 First Amendment to BFS Realty, LLC Lease, dated June 1, 1998, between BFS Realty, LLC and Health Card(1)
10.17 Second  Amendment  to BFS Realty,  LLC Lease,  dated April 1, 1999,  between BFS Realty,  LLC and Health
      Card(1)
10.18 Lease, dated August 10, 1998, between 61 Manor Haven Boulevard, LLC and Health Card(1)
10.19 Promissory Note, dated July 1, 1997, made payable by Bert Brodsky to the order of Health Card in the original principal
      amount of $1,000,000(1)
10.20 Letter, dated June 3, 1999, from Bert Brodsky to Health Card(1)
10.21 Promissory  Note,  dated  July 1,  1997,  made  payable  by Gerald  Shapiro  to the order of Health  Card in the original
      principal amount of $300,000(1)
10.22 Letter, dated June 3, 1999, from Gerald Shapiro to Health Card(1)
10.23 Promissory  Note,  dated June 1, 1998,  made  payable by P.W.  Capital,  LLC to the order of Health  Card in the original
      principal amount of $4,254,785(1)
10.24 Agreement of Guaranty, dated June 1, 1998, by Bert E. Brodsky in favor of Health Card(1)
10.25 Demand  Promissory Note, dated January 2, 1999, made payable by P.W.  Capital,  LLC to the order of Health Card,
      in the original principal amount of $90,100(1)
10.26 Promissory  Note,  dated July 31, 2000,  made payable by P.W.  Capital,  LLC to the order of Health Card, in the amount of
      $3,890,940(4)
10.27 Letter, dated June 9, 1999, from Bert E. Brodsky to Health Card(1)
10.28 Letter, dated June 8, 1999, from the Bert E. Brodsky Revocable Trust to Health Card(1)
10.29 Employment Agreement, dated July 1, 1999, between Health Card and Bert E. Brodsky(1)
10.30 Letter, dated June 8, 1999, from Bert E. Brodsky to Health Card(1)
10.31 Acquisition and Merger Agreement,  dated as of June 27, 2000, between Health Card and Pharmacy Associates, Inc.(3)
10.32 Lease Agreement, dated March 4, 1996, between Pharmacy Associates, Inc. and Executive Park Partnership(4)
10.33 Amendment to Lease, dated November 2, 1998, between Pharmacy Associates, Inc. and Executive Park Partnership(4)
10.34 Amendment  to  Lease,  dated  November  19,  1998,  between  Pharmacy   Associates,   Inc.  and  Executive Park Partnership(4)
10.35 Lease Agreement, dated July 8, 1999, between Pharmacy Associates, Inc. and Executive Park Partnership(4)
10.36 Settlement Agreement regarding capitation arrangement between the Company and Vytra, dated 12/1/00

-------------------
(1)   Denotes  document  filed as an  exhibit  to  Health  Card's  Registration  Statement  on Form S-1
      (Registration  Number:333-72209) and incorporated herein by reference.
(2)   Denotes documentation filed as an Exhibit to Health Card's Report on Form 10-K for the fiscal year ended June 30, 1999.
(3)   Denotes document filed as an exhibit to Health Card's Form 8-K for an event dated July 20, 2000.
(4)   Denotes  documentation  filed as an Exhibit to Health  Card's  Report on Form 10-K,  as amended,  for the fiscal year ended
      June 30, 2000.

(b)   Reports on Form 8-K

Current Report on Form 8-K for an event dated March 5, 2001.


</TABLE>
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities 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.



                   NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
                                  (Registrant)



Date:    May 14, 2001                          By:   /s/ Bert E. Brodsky
                                                     Bert E. Brodsky
                                                     Chairman of the Board
                                                     and Chief Executive Officer