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                       September 30, 2005
                               ----------------------------------------------

                                       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)

        Delaware                                                    11-2581812
--------------------------------------------------------------------------------
(State or Other Jurisdiction                   (IRS Employer Identification No.)
of 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
                                                   ---------------

                        Not Applicable
-------------------------------------------------------------------------------
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

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

         Indicate by check whether the registrant is a shell company (as
 defined  in  Rule  12b-2  of  the  Exchange Act.)     Yes       No  X

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         The number of shares outstanding of the issuer's Common Stock, as of
November 4, 2005 was 5,001,586 shares.



<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

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

                                                     INDEX                                  Page


                        FORWARD-LOOKING STATEMENTS                                        3

PART I        -   FINANCIAL INFORMATION                                                   4
------            ---------------------

ITEM 1        -   CONDENSED FINANCIAL STATEMENTS:                                         4

                  CONSOLIDATED BALANCE SHEET as of                                        4
                  September 30, 2005 (unaudited) and June 30, 2005

                  CONSOLIDATED STATEMENT OF INCOME (unaudited)                            5
                  for the three months ended September 30, 2005 and 2004

                  CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)                        6
                  for the three months ended September 30, 2005 and 2004

                  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    7

ITEM 2        -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                      17
                  CONDITION AND RESULTS OF OPERATIONS

ITEM 3        -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT                         27
                  MARKET RISK

ITEM 4        -   CONTROLS AND PROCEDURES                                                27

PART II       -   OTHER INFORMATION                                                      28
-------           -----------------

ITEM 1        -   LEGAL PROCEEDINGS                                                      28

ITEM 2        -   UNREGISTERED SALES OF EQUITY SECURITIES AND USE                        28
                  OF PROCEEDS

ITEM 3        -   DEFAULTS UPON SENIOR SECURITIES                                        28

ITEM 4        -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    28

ITEM 5        -   OTHER INFORMATION                                                      28

ITEM 6        -   EXHIBITS                                                               28

</TABLE>

<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES


Forward-Looking Statements

     When  used  herein,  the  words  "may,"  "could,"  "estimate,"   "believe,"
"anticipate,"  "think,"  "intend,"  "expect"  and similar  expressions  identify
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995.  Such  statements  are not  guarantees of future
performance  and involve  known and unknown risks and  uncertainties,  and other
factors, which could cause actual results to differ materially from those in the
forward-looking statements. Readers are cautioned not to place undue reliance on
such  statements,  which  speak  only  as of the  date  hereof.  Forward-looking
statements made by the National Medical Health Card Systems, Inc. ("NMHC" or the
"Company")  are  intended  to apply  only at the  time  they  are  made,  unless
explicitly stated to the contrary. Moreover, whether or not stated in connection
with a forward-looking  statement,  the Company makes no commitment to revise or
update  any   forward-looking   statements   in  order  to  reflect   events  or
circumstances  after the date any such statement is made. If the Company were in
any  particular  instance  to update or  correct  a  forward-looking  statement,
investors and others should not conclude that the Company would make  additional
updates or corrections thereafter.

     For a discussion of such risks and uncertainties,  including risks relating
to pricing,  competition  in the bidding and  proposal  process,  our ability to
consummate  contract  negotiations with prospective  clients,  dependence on key
members of management, government regulation, acquisitions and affiliations, the
market for pharmacy  benefit  management  ("PBM")  services,  and other factors,
readers are urged to carefully review and consider  various  disclosures made by
the Company which attempt to advise investors of the factors which affect NMHC's
business,  including, without limitation, the disclosures made under the caption
"Description of Business - Risk Factors Affecting NMHC's Business" in Item 1 and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  in Item 7 of NMHC's Annual Report on Form 10-K, for the fiscal year
ended June 30, 2005, filed with the U.S.  Securities and Exchange  Commission on
September 22, 2005.



<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1 - CONDENSED FINANCIAL STATEMENTS
         NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                                ($ in thousands)

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


                                                                                          September
                                                                                           30,                      June 30,
                                                                                           2005                      2005
                                                                                        -----------                --------
                                                                                        (Unaudited)
Assets
Current:

  Cash and cash equivalents (including cash equivalent investments of $287
            and $193, respectively)                                                      $     8,531             $   7,272

  Restricted cash
                                                                                               4,997                 3,994
  Accounts receivable, less allowance for doubtful accounts of $2,118 and $1,953,            104,743               103,129
    respectively

  Rebates receivable                                                                          58,256                40,377
  Inventory                                                                                    5,317                 4,119
  Due from affiliates                                                                              -                    31
  Deferred tax assets                                                                          2,013                 2,117
  Other current assets                                                                         4,218                 5,759
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                   188,075               166,798

  Property, equipment and software development costs, net                                     12,448                12,177
  Intangible assets, net of accumulated amortization of $3,555 and $3,273,                     3,719                 3,951
    respectively
  Goodwill                                                                                    99,804                99,710
  Other assets                                                                                 1,327                 1,295
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
      Total Assets                                                                        $  305,373            $  283,931
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

Liabilities, Redeemable Preferred Equity, and Common Stockholders' Equity
Current Liabilities:

  Accounts payable and accrued expenses                                                   $  205,313            $  188,843
  Revolving credit facility and loans payable-current                                          1,860                 1,860
  Current portion of capital lease obligations                                                    30                    29
  Income taxes payable                                                                           112                     -
  Other current liabilities                                                                      202                   503
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                               207,517               191,235

  Capital lease obligations, less current portion                                                  9                    16
  Long term loans payable and other liabilities                                                  994                   998
  Deferred tax liability                                                                       6,071                 5,964
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                       214,591               198,213
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies
Redeemable Preferred Equity:

Redeemable convertible preferred stock $.10 par value; 15,000,000 shares
authorized, 6,956,522 issued and outstanding                                                  75,983                75,864

Common Stockholders' Equity:

  Common stock, $.001 par value, 35,000,000 shares authorized, 9,638,884 and
  9,461,826 shares issued, 4,998,984 and 4,821,926 outstanding, respectively                      10                     9
  Additional paid-in-capital                                                                 118,670               115,061
  Accumulated deficit                                                                        (52,002)              (53,337)
  Treasury stock at cost, 4,639,900 shares                                                   (51,879)              (51,879)
---------------------------------------------------------------------------------------------------------------------------
     Total common stockholders' equity                                                        14,799                 9,854
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total Liabilities, Redeemable Preferred Equity, and Common
       Stockholders' Equity                                                               $  305,373            $  283,931
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
                          See accompanying condensed notes to consolidated financial statements
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

                        CONSOLIDATED STATEMENT OF INCOME
                (Amounts in thousands, except per share amounts)
                                   (Unaudited)

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

                                                                                Three months ended September 30,
                                                                                   2005                  2004
                                                                                   ----                  ----

Revenue (includes co-payments collected of $4,799 and $2,277,
  respectively; and excludes co-payments retained by the pharmacies of
  $77,453 and $53,921, respectively)                                            $      214,692         $     184,842

Cost of claims (excludes co-payments retained by the pharmacies of
  $77,453 and $53,921, respectively)                                                   191,130               165,165
---------------------------------------------------------------------------------------------------------------------
Gross Profit                                                                            23,562                19,677

Selling, general and administrative expenses                                            18,638                15,079
---------------------------------------------------------------------------------------------------------------------

Operating income                                                                         4,924                 4,598

Other income (expense):
Interest expense                                                                          (104)                 (139)
Interest income                                                                            174                    10
Other income, net                                                                           12                    50
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
                                                                                            82                  (79)
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

Income before provision for income taxes                                                 5,006                 4,519
Provision for income taxes                                                               2,139                 1,853
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Net income                                                                               2,867                 2,666
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

Preferred stock cash dividend                                                            1,412                 1,412
Accretion of transaction expenses                                                          120                   119
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Net income available to common stockholders                                     $        1,335         $       1,135
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

Earnings per common share:
  Basic                                                                         $         0.27         $        0.26
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
  Diluted *                                                                     $         0.24         $        0.22
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

Weighted average number of common shares outstanding:
  Basic                                                                                  4,862                 4,400
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
  Diluted *                                                                             12,102                11,904
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

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

           * = The number of weighted average diluted shares was calculated
           using the "as if converted" method for the redeemable preferred
           stock.

<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Amounts in thousands)
                                   (Unaudited)

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

                                                                                                   Three months ended
                                                                                                       September 30,
                                                                                            2005                         2004
                                                                                            -----                       ------
Cash flows from operating activities:
           Net income                                                                    $   2,867                   $  2,666
             Adjustments to reconcile net income to net cash
              provided by operating activities:

                Depreciation and amortization                                                1,807                      1,572
                Employee stock option expense                                                  668                          -
                Amortization of deferred gain                                                  (12)                       (50)
                Amortization of deferred financing costs                                        28                          -
                Provision for doubtful accounts                                                165                        156
                Deferred income taxes                                                          221                         20
             Changes in assets and liabilities, net of effect from acquisitions:
                Restricted cash                                                             (1,003)                         95
                Accounts receivable                                                         (1,779)                       (806)
                Rebates receivable                                                         (17,879)                      2,999
                Inventory                                                                   (1,198)                     (1,622)
                Other current assets                                                         1,541                        (365)
                Due from affiliates                                                             31                           -
                Other assets                                                                   (60)                        374
                Accounts payable and accrued expenses                                       17,166                      (4,382)
                Income taxes payable and other current liabilities                             662                       3,070
                Other long term liabilities                                                      8                        (817)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                    3,233                       2,910
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
       Capital expenditures                                                                 (1,796)                       (945)
       Acquisition of PPP, net of cash acquired                                               (425)                       (358)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                       (2,221)                     (1,303)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
             Proceeds from exercise of stock options                                         1,665                       (120)
             Proceeds from revolving credit facility                                        38,725                    266,349
             Repayment of revolving credit facility                                        (38,725)                  (266,352)
             Payment of preferred stock dividends                                           (1,412)                    (1,412)
             Repayment of debt and capital lease obligations                                    (6)                       (81)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                                            247                    (1,376)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                                    1,259                        231
Cash and cash equivalents at beginning of period
                                                                                             7,272                      3,388
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                $  8,531                  $   3,619
------------------------------------------------------------------------------------------------------------------------------
                                 See accompanying condensed notes to consolidated financial statements

</TABLE>

<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (All $ in thousands, except share and per share amounts)
                                   (Unaudited)

27

1. BASIS OF PRESENTATION

     The unaudited  consolidated  financial  statements  include the accounts of
National  Medical  Health Card Systems,  Inc. (the  "Company" or "NMHC") and its
wholly owned subsidiaries,  Pharmacy Associates, Inc. ("PAI"),  Interchange PMP,
Inc. ("PMP"), Centrus Corporation ("Centrus"), National Medical Health Card IPA,
Inc.  ("IPA"),  Specialty  Pharmacy Care, Inc.  ("Specialty"),  Integrail,  Inc.
("NMHC Integrail"), NMHCRX Mail Order, Inc. ("NMHCmail"), NMHCRX Contracts, Inc.
("Contracts"), Portland Professional Pharmacy and Portland Professional Pharmacy
Associates  (collectively,  "PPP" or "NMHC  Ascend"),  Inteq Corp.  and Inteq TX
Corp.  (collectively,  "Inteq"),  PCN DE Corp. and  Pharmaceutical  Care Network
(collectively,  "PCN") and PBM  Technology  Inc. ("PBM Tech") (See Note 4). Also
included  on a  consolidated  basis  are  the  accounts  of  NMHC  Funding,  LLC
("Funding"),   a  limited  liability  company  of  which  the  Company  and  its
subsidiaries  are the  owners of all of the  membership  interests.  Unless  the
context otherwise  requires,  references herein to the "Company" or "NMHC" refer
to the Company and its  subsidiaries,  on a  consolidated  basis.  All  material
inter-company balances and transactions have been eliminated in consolidation.

     The unaudited  consolidated  financial statements have been prepared by the
Company  in  accordance  with  United  States  generally   accepted   accounting
principles  for interim  financial  information  and  substantially  in the form
prescribed  by the U.S.  Securities  and  Exchange  Commission  (the  "SEC")  in
instructions to Form 10-Q and in Article 10 of Regulation S-X. Accordingly,  the
interim  financial  information  does not  include  all of the  information  and
footnotes  required  by  such  accounting   principles  for  complete  financial
statements.  In the opinion of the Company's management,  the September 30, 2005
and  2004  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 for the year ended June
30, 2005. The results of operations  for the three month period ended  September
30, 2005 are not necessarily  indicative of the operating results to be expected
for the full year.

     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, 2005 (the "Annual Report") filed with the SEC.

2. STOCK-BASED COMPENSATION

     At  September  30,  2005,   the  Company  had  one   stock-based   employee
compensation  plan,  which is more fully  described  in Note 6. Prior to July 1,
2005, the Company  accounted for this plan under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,  and
related Interpretations,  as permitted by FASB Statement No. 123, Accounting for
Stock-Based   Compensation.   No  stock-based  employee  compensation  cost  was
recognized in the Statement of Operations  for the three months ended  September
30, 2004, as all options  granted under this plan had an exercise price equal to
the market value of the underlying common stock on the date of grant.  Effective
July 1, 2005, the Company adopted the fair value recognition  provisions of FASB
Statement     No.      123(R),      Share-Based      Payment,      using     the
modified-prospective-transition    method.   Under   that   transition   method,
compensation  cost  recognized  in the three  months  ended  September  30, 2005
includes:  (a) compensation cost for all share-based  payments granted prior to,
but not yet  vested  as of July 1,  2005,  based on the grant  date  fair  value
estimated in accordance  with the original  provisions of Statement 123, and (b)
compensation  cost for all share-based  payments  granted  subsequent to July 1,
2005,  based on the  grant-date  fair value  estimated  in  accordance  with the
provisions  of  Statement  123(R).  Results  for  prior  periods  have  not been
restated.

     For the three  months  ended  September  30,  2005,  the fair  value of the
options  was  estimated  using a binomial  valuation  model  with the  following
weighted-average assumptions used: no dividend yield,  weighted-average expected
life of the option of 7 years,  risk-free  interest rate of 4.1%,  volatility of
69.5%,  estimated  forfeitures of 21%,  post-vesting  terminations  of 1%, and a
sub-optimal  exercise  factor  of 4.1.  The  weighted-average  value of  options
granted was $18.08 during the three months ended September 30, 2005.

     As a result of adopting  Statement  123(R) on July 1, 2005,  the  Company's
income before  income taxes and net income for the three months ended  September
30,  2005 are $668 and $536 lower,  respectively,  than if it had  continued  to
account  for  share-based  compensation  under  Opinion  25.  Basic and  diluted
earnings per share for the three months ended September 30, 2005 would have been
$0.38 and $0.28, respectively,  if the Company had not adopted Statement 123(R),
compared to reported  basic and diluted  earnings  per share of $0.27 and $0.24,
respectively  (See Part I, Item 2 -  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations  for a net income and net income
available to common stockholders reconciliation).

     Prior to the adoption of Statement  123(R),  the Company  presented all tax
benefits of deductions resulting from the exercise of stock options as operating
cash  flows  in the  Consolidated  Statement  of Cash  Flows.  Statement  123(R)
requires  the cash flows  resulting  from the tax  benefits  resulting  from tax
deductions  in excess of the  compensation  cost  recognized  for those  options
(excess tax benefits) to be classified  as financing  cash flows.  For the three
months  ended  September  30,  2005,  the excess  tax  benefit  classified  as a
financing cash inflow was not material.

     The following  table  illustrates the effect on net income and earnings per
share if the  Company  had  applied  the fair value  recognition  provisions  of
Statement 123 to options  granted  under the Company's  stock option plan in the
three  months  ended  September  30,  2004.  For  purposes  of  this  pro  forma
disclosure,  the value of the  options  is  estimated  using  the  Black-Scholes
option-pricing  model with the following  weighted-average  assumptions used for
all grants in the three months ended  September  30,  2004:  no dividend  yield,
weighted-average expected life of the option of between 4 and 8 years, risk-free
interest  rate  of  3.4%,   and   volatility  of  74.3%  for  all  grants.   The
weighted-average  value of options granted was $17.45 for the three months ended
September 30, 2004.

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

                                                                                    -----------------------
                                                                                       Three Months Ended
                                                                                       September 30, 2004
                                                                                    -----------------------
     Net income available to common stockholders, as reported                         $      1,135
     Less: Total stock-based employee compensation expense determined under fair
       value based method for all awards, net of related tax effect applied using
       the provisions of FAS 123.                                                             (454)
                                                                                       ------------
     Pro forma net income available to common stockholders                            $        681
                                                                                      -------------
    Pro forma earnings per share:
     Basic - as reported                                                              $       0.26
     Basic - pro forma                                                                $       0.15

     Diluted - as reported                                                            $       0.22
     Diluted - pro forma                                                              $       0.13

</TABLE>

3. NEW MOUNTAIN TRANSACTION

     The Company  entered into an amended and restated  preferred stock purchase
agreement,  dated as of November 26, 2003, with New Mountain Partners, L.P. (the
"purchase agreement").  Pursuant to the purchase agreement,  the Company agreed,
subject  to various  conditions,  to issue to New  Mountain  Partners a total of
6,956,522  shares of series A 7%  convertible  preferred  stock  (the  "series A
preferred  stock")  at a  purchase  price of $11.50  per  share,  for  aggregate
proceeds of approximately  $80,000. On March 19, 2004, the Company completed the
sale  of the  series  A  preferred  stock  to New  Mountain  Partners  and  used
approximately  $49,000 of the  proceeds  of the sale of the  series A  preferred
stock to purchase, pursuant to a tender offer, 4,448,900 shares of the Company's
issued and  outstanding  common stock (the  "common  stock") at $11.00 per share
(collectively, the "New Mountain Transaction").  Prior to the closing of the New
Mountain  Transaction,  Bert E.  Brodsky,  the former  chairman  of the board of
directors,  and certain stockholders related to him, held (assuming the exercise
of 330,000  options and warrants held by Mr.  Brodsky,  which  occurred in April
2004), in the aggregate, approximately 59% of the common stock and had agreed to
tender 4,448,900 shares, or approximately 54% of the common stock, held by them,
into the tender offer. No other stockholders tendered shares in the offer.

     Following the completion of the tender offer,  and assuming the exercise of
330,000 options and warrants held by Mr. Brodsky,  which occurred in April 2004,
New Mountain  Partners  owned  securities at March 19, 2004 that were  initially
convertible into  approximately  64% of the common stock and prior to conversion
of the series A preferred  stock were entitled to cast that number of votes that
is equal to approximately 60% of the Company's aggregate voting power. Following
the closing of the New Mountain Transaction,  New Mountain Partners was entitled
to and did  nominate  and elect 60% of the  members  of the  Company's  board of
directors.

     The Company used the  remaining  proceeds from the issuance and sale of the
series A preferred stock of approximately $24,000, excluding expenses related to
the closing of the New Mountain Transaction, for the Inteq Acquisition described
in Note 4 - Business Acquisitions and for working capital purposes.

     The preferred  stock  provides for an initial annual cash dividend equal to
7% of the investment amount, which decreases to 3.5% after the fifth anniversary
of issuance.  The preferred stock is convertible into the Company's common stock
at a price of $11.50 per share of common stock, or an aggregate of approximately
7,000,000 shares of the Company's common stock.

     The  series A  preferred  stock may be  redeemed  at the  Company's  option
subsequent  to the  fourth  anniversary  of its  issuance,  subject  to  certain
conditions.  After  the  tenth  anniversary  of the  issuance  of the  series  A
preferred  stock,  each holder of shares of series A preferred stock may require
the  Company  to  redeem  all or a part of that  holder's  shares  of  series  A
preferred stock.

4. BUSINESS ACQUISITIONS

     On March 7, 2005,  the Company  acquired  all of the outstanding  stock of
Pharmaceutical  Care  Network,  a California  corporation,  from the  California
Pharmacists Association (the "PCN Acquisition"). The aggregate purchase price of
the PCN Acquisition was $13,000 in cash. In addition,  the Company has agreed to
pay the California  Pharmacists  Association  ("CphA") earn-outs,  as additional
purchase price, up to $30,000 over a period of three years if certain  financial
and performance targets are achieved.  The funds for the payment of the purchase
price in connection with the PCN Acquisition  were obtained out of the Company's
working  capital  and  the  JPMorgan  credit  facility  (See  Note  5).  The PCN
operations  complement the Company's business while  strengthening the Company's
presence in the California  marketplace as well as in the Medicaid  managed care
market.

     In addition to the $13,000  purchase price for the PCN  Acquisition,  there
were $561 of  acquisition  related  expenses  incurred  by the  Company.  Of the
$13,000,  $10,500  was paid to CPhA and  certain  of PCN's  current  and  former
employees  who  participated  in its Long Term  Incentive  Plan,  and $2,500 was
deposited into escrow to secure CPhA's obligations under the purchase agreement.
At the time of the acquisition,  PCN had  approximately  $30,942 of assets which
included  $16,711  of cash,  $2,734  of  restricted  cash,  $3,204  of  accounts
receivable,  $6,090 of rebates receivable, $1,139 of other assets, and $1,064 of
property and equipment. They also had approximately $27,040 of liabilities which
included  $26,848  of  claims  and  accounts  payable,   $97  of  other  current
liabilities  and $95 of other  long-term  liabilities.  As a  result  of the PCN
Acquisition,  $2,842  of  severance  and exit  costs  have  been  accrued  as of
September  30,  2005,  with $1,223  recorded as a deferred  tax asset and $1,619
recorded as additional  goodwill.  Of this amount, $592 was paid as of September
30,  2005.  The  acquisition  was  accounted  for under the  purchase  method of
accounting and the results of PCN's operations were included in the consolidated
financial  statements  commencing as of the closing date of the PCN Acquisition.
The excess of the  acquisition  costs over the fair  value of  identifiable  net
assets acquired was $11,957,  which consists of the following components:  "know
how" and computer software valued at $870, which will be amortized over ten (10)
years,  customer  relationships valued at $380, which will be amortized over ten
(10)  years,  and  goodwill  of $10,707,  which will not be  amortized  for book
purposes per SFAS 142. As of September 30, 2005, $190 of additional earn-out has
been accrued  based upon the  tentative  achievement  of certain  financial  and
performance targets.

     On April 1, 2004, the Company entered into an Asset Purchase Agreement with
Inteq PBM,  LP, a Texas  limited  partnership  (the  "Purchaser"),  The INTEQ-RX
Group,  LLP and certain other owners named therein  (together  with The INTEQ-RX
Group,  LLP,  the "The Inteq  Group"),  pursuant to which the Company  agreed to
acquire certain assets of the The Inteq Group relating to their pharmacy benefit
management business (the "Inteq  Acquisition").  The aggregate purchase price of
the Inteq  Acquisition  was $31,500 in cash. In addition,  the Company agreed to
pay The Inteq Group, as additional purchase price, up to $4,200 over a period of
one year if the acquired PBM business  achieved  certain  financial  performance
targets during the one-year period following the closing.

     In addition,  $3,000,  out of the $4,200  potential to be paid to The Inteq
Group, was placed in escrow to secure the Company's obligations to pay The Inteq
Group  additional  purchase  price if certain  targets were achieved  during the
first  year,  and such  escrowed  amount  is  included  in other  assets  in the
consolidated  balance sheet. To date, $1,024 out of a total potential of $4,200,
of additional consideration has been earned and released from escrow.

     On July 31, 2003, the Company entered into a Stock Purchase  Agreement with
Portland   Professional   Pharmacy  ("PPRX"),   Portland  Professional  Pharmacy
Associates  ("PRXA",  and together  with PPRX,  "PPP" or "NMHC  Ascend") and the
individual  shareholders (the "PPP  Shareholders") to purchase all of the shares
of PPP for  $3,150  (the "PPP  Acquisition").  PPP  provides  specialty-pharmacy
services in a broad range of areas,  including  women's health,  pediatric care,
men's health and transplant.  In addition,  the Company agreed to pay to the PPP
Shareholders up to $7,000 over a three-year  period if the PPP business achieved
certain financial targets.  At the Company's sole discretion,  as much as 50% of
the $7,000 can be paid in the form of  Company  stock.  For the first year ended
July 31,  2004,  $716 was earned and was paid on  September  15,  2004.  Of this
amount,  $358 was  paid in cash  and $358 was paid in the form of the  Company's
common stock (12,650 shares at $28.30 per share). For the second year ended July
31, 2005,  $851 was earned and was paid on September  15, 2005.  Of this amount,
$426 was paid in cash  and  $425  was paid in the form of the  Company's  common
stock (17,127 shares at $24.84 per share). For the third year, through September
30, 2005, $134 has been earned and will be settled in September 2006.

     Each of PRXA and PPRX  continues to operate under their  respective  names,
and also does business under the name NMHC Ascend.

     The Company  entered into an Asset Purchase  Agreement (the "Asset Purchase
Agreement"),  dated as of January 29, 2002, with HSL, HSL  Acquisition  Corp., a
Delaware  corporation and a wholly-owned  subsidiary of the Company ("Sub"), and
the security holders of HSL named therein,  pursuant to which the Company agreed
to acquire  certain  assets of HSL relating to the pharmacy  benefit  management
business  (PBM)  conducted  by  HSL  under  the  name  "Centrus"  (the  "Centrus
Acquisition").  The  aggregate  purchase  price of the Centrus  Acquisition  was
$40,000 in cash.  In addition,  the Company has agreed to pay HSL as  additional
purchase  price up to $4,000  over a period  of three (3) years if the  acquired
Centrus  business  achieves  certain  financial  performance  targets during the
two-year period following the Centrus closing. The financial performance targets
were  achieved  during the first two years and $4,000 has been  earned.  Of this
amount,  $1,000 was paid in May 2003,  $2,000 was paid in May 2004,  and another
$1,000 was paid in May 2005.

     The  summarized  unaudited pro forma results of operations  set forth below
for the  three  months  ended  September  30,  2005  and  2004  assumes  the PCN
Acquisition had occurred as of the beginning of these periods.


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


                                                            Three Months Ended                Three Months Ended
                                                            September 30, 2005                September 30, 2004
                                                            ------------------                ------------------
 Revenue                                                        $       214,692                 $      207,281
 Net income                                                     $         2,867                 $        2,238
 Net income available to common
   Stockholders                                                 $         1,335                 $          707
 Earnings per common share:
   Basic                                                        $          0.27                 $         0.16
   Diluted                                                      $          0.24                 $         0.06
 Pro forma weighted-average number of common shares outstanding:
   Basic                                                                  4,862                          4,400
   Diluted                                                               12,102                         11,904

</TABLE>

     This pro forma financial  information is presented for information purposes
only.  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. In addition, while PCN has traditionally recorded
all revenue on a gross basis, the Company has adjusted the historical amounts to
reflect certain contracts on a revenue basis consistent with NMHC's policies.

     The change in the  carrying  amount of goodwill  for the three months ended
September 30, 2005 is as follows:

Balance as of June 30, 2005                                       $ 99,710
PCN acquisition                                                       (50)
PCN additional consideration earned                                   (46)
PPP additional consideration earned                                    190
                                                                  ---------

Balance as of September 30, 2005                                  $ 99,804
                                                                  ========

     Approximately  $81,323 of the  Company's  September  30,  2005  goodwill is
deductible for income tax purposes on a straight-line basis over 15 years.

Acquired intangible assets subject to amortization consisted of the following:

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


                                     September 30, 2005                            June 30, 2005
                           =======================================    ========================================
                           =======================================    ========================================
                            Gross Carrying        Accumulated          Gross Carrying          Accumulated
                                Amount            Amortization            Amount              Amortization
                            --------------        ------------        ---------------        --------------
Asset Class

Customer
    relationships             $   5,326          $      2,597             $    5,296         $       2,410
Non-compete agreements              220                   168                    220                   156
Employment agreements               186                   139                    186                   133
Trade name                          100                    44                    100                    37
Company know how                  1,442                   607                  1,422                   537
                           -----------------    ------------------    -----------------     ------------------
                           -----------------    ------------------    -----------------     ------------------
                               $  7,274          $       3,555            $    7,224           $     3,273
                           =================    ==================    =================     ==================
</TABLE>


5.      DEBT

     On January 28, 2005,  the Company and certain of its  subsidiaries  entered
into a five-year  $65,000  cash flow based,  line of credit with a syndicate  of
commercial  banks led by JPMorgan  Chase  Bank,  N.A.  ("JPMorgan").  Subject to
certain conditions  including the consent of the existing lenders,  the new line
of credit (the "JPMorgan  credit  facility") may be increased by an aggregate of
$35,000.  Depending on the timing and dollar  amount of each loan  request,  the
Company will either borrow at a spread above LIBOR, the overnight  Federal Funds
rate or  JPMorgan's  prime  rate.  The  initial  spread  was 1.75% for LIBOR and
Federal  Funds  loans and  0.75% for prime  rate  loans.  After  receipt  of the
Company's  consolidated  financial statements for the fiscal year ended June 30,
2005, the spreads  decreased due to a favorable  ratio of debt to annual EBITDA.
The  current  spread is 1.50% for LIBOR and  Federal  Funds  loans and 0.50% for
prime rate loans.  The  JPMorgan  credit  facility  is secured by the  Company's
consolidated  assets. The JPMorgan credit facility requires the Company to be in
compliance  with  financial and other  covenants.  The three  defined  financial
covenants include:  consolidated net worth; consolidated fixed charge ratio; and
consolidated  debt to EBITDA  ratio.  The  Company  was in  compliance  with all
covenants at September 30, 2005.


6. STOCK OPTIONS

     During the three months ended September 30, 2005, the Company granted stock
options under the 1999 Stock Option Plan,  as amended (the "Plan").  The options
granted  during this period are  exercisable  at prices  ranging  from $24.01 to
$27.52 and terminate  ten years from the grant date.  The total number of shares
of common stock of the Company  reserved by the Company for  issuance  under the
Plan is 4,850,000 plus an indeterminable number of shares of common stock of the
Company issuable  pursuant to the  anti-dilution  provisions of the Plan or upon
the exercise of "reload options." There are no options  outstanding that contain
the "reload" provision.  There are 1,389,561 shares issuable pursuant to options
granted under the Plan as of September 30, 2005. The following table  summarizes
information about stock option activity for the three months ended September 30,
2005:
<TABLE>
<S>                                                               <C>    <C>    <C>    <C>    <C>    <C>

                                                                                                  Weighted-Average
                                                                                                   Exercise Price
                                                                         Number of Options           Per Share
-----------------------------------------------------------------------------------------------------------------------
Outstanding options at June 30, 2005                                        1,441,213              $    16.52
Canceled                                                                       (9,749)                  23.04
Granted                                                                       119,931                   26.24
Exercised                                                                    (159,931)                  10.02
----------------------------------------------------------------------------------------------------------------------
Outstanding options at September 30, 2005                                   1,391,464                   18.06
=======================================================================================================================


The following table summarizes information about stock options outstanding at
September 30, 2005:

                                                 Outstanding                                 Exercisable
                              ----------------------------------------------------    ---------------------------
                                                                                                       Weighted-
                                                  Weighted-         Weighted-                          Average
  Option                         Number of         average            average           Number of      Exercise
 Price Range                      Shares         Remaining Life    Exercise Price        Shares          Price
 --------------------------- --------------- ------------------ -----------------    ------------ --------------
  --------------------------- --------------- ------------------ -----------------    ------------ --------------
  $  1.67  to $  2.51                17,000       0.24 years               $1.75          17,000          $1.75
  $  2.52  to $  3.78                 4,105       0.80 years               $3.14           4,105          $3.14
  $  3.79  to $  5.69                 1,800       0.97 years               $4.41           1,800          $4.41
  $  5.70  to $  8.55                47,087       1.97 years               $7.70          44,800          $7.69
  $  8.56  to $ 12.84               454,772       2.16 years               $9.97         397,695          $9.78
  $ 12.85  to $ 19.28               141,485       5.61 years              $13.86          42,690         $13.98
  $ 19.29  to $ 28.94               607,136       8.63 years              $23.89          60,262         $24.89
  $ 28.95  to $ 36.66               118,079       3.65 years              $31.45          72,719         $32.24

  --------------------------- --------------- ------------------ -----------------    ------------ --------------
  --------------------------- --------------- ------------------ -----------------    ------------ --------------
  $ 1.67 to   $36.66              1,391,464       5.42 years              $18.06         641,071         $13.61
  =========================== =============== ================== =================    ============ ==============
</TABLE>


7. EARNINGS PER SHARE

     A reconciliation  of shares used in calculating  basic and diluted earnings
per share follows:

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

                                                                                  Three Months Ended September
                                                                                              30,
                                                                             ---------------------------------------
                                                                             ---------------------------------------
                                                                                      2005                  2004
                                                                                      ----                  ----
   Basic                                                                           4,861,853            4,399,668
   Effect of assumed exercise of employee stock options                              283,863              548,291
   Effect of assumed conversion of redeemable convertible preferred stock
                                                                                   6,956,522            6,956,522
                                                                                  ----------            ---------
   Diluted weighted average number of shares outstanding                          12,102,238           11,904,481
                                                                                  ==========           ==========
</TABLE>



     Basic net income per common  share is computed  by dividing  the net income
available to common stockholders by the weighted-average number of common shares
outstanding during the period. For the three months ended September 30, 2005 and
2004, diluted net income per share is computed by dividing the net income by the
weighted-average   number  of  common  and  dilutive  common  equivalent  shares
(consisting  of employee  stock  options and  redeemable  preferred  stock as if
converted) outstanding during the period.


8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:


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

                                                                        September 30,         June 30,
                                                                             2005               2005
                                                                         -----------          ---------
Claims payable to pharmacies                                             $  130,520        $   118,660
Rebates payable to sponsors                                                  57,547             45,436
Trade and other payables and accrued expenses                                17,246             24,747
                                                                           --------           ---------

                                                                        $   205,313        $   188,843
                                                                            =======            =======

</TABLE>

9. RELATED PARTY TRANSACTIONS

     The Company receives certain services from the Chairman of the Board as per
a consulting  agreement  signed at the end of his  employment  with the Company.
During  the  three  months  ended  September  30,  2005 and  2004,  $31 and $11,
respectively were paid under this agreement.

     In  addition,  the Company  rents two houses from Living in Style,  LLC, an
entity owned partially by an executive  officer and the current  Chairman of the
Board.  During the three months ended  September 30, 2005 and 2004, $36 and $35,
respectively, were paid for rent for these two houses.


10. MAJOR CUSTOMERS AND PHARMACIES

     For the three months ended September 30, 2005 and 2004,  approximately  14%
and 20%,  respectively,  of the consolidated revenue of the Company was from one
plan sponsor, MVP Health Plan, Inc.,  administering  multiple plans. Amounts due
from the sponsor as of September 30, 2005 approximated $9.2 million.

     For the three months ended  September 30, 2005 and 2004, no pharmacy  chain
accounted for more than 10% of the total cost of claims.


11. SUPPLEMENTAL CASH FLOW INFORMATION

     During the three months ended September 30, 2005 and 2004, the Company paid
$84 and $135 in interest, and $8 and $119 in income taxes, respectively.


12.      LITIGATION

     An action was  commenced  against  the Company on April 30, 2002 by Midwest
Health Plan Inc.  ("MHP") in the United  States  District  Court for the Eastern
District of Michigan.  The amended complaint alleged,  among other things,  that
the  parties  entered  into a contract  dated July 1999 (the  "Agreement"),  and
further  alleged  that the Company  overcharged  MHP for the  administration  of
prescription benefit services in contravention to the terms of the Agreement and
breached its fiduciary  duties by making a profit.  In August 2005,  the Company
paid MHP $2,000 in cash in complete settlement of all outstanding claims by both
parties,  and the case was dismissed with prejudice.  This amount was accrued to
selling, general and administrative expenses as of June 30, 2005.


<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES



<PAGE>



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

<TABLE>
<S>                                                      <C>    <C>    <C>    <C>    <C>    <C>
                                              OPERATING INCOME
                                              ($ in thousands)
                                      Three months ended September 30,
                                                                    Increase/
                                               2005                 (Decrease)                2004
                                        --------------------    -------------------    --------------------

   Revenue                                         $214,692                  16.1%                $184,842
   Cost of Claims                                   191,130                  15.7%                 165,165
                                        --------------------                           --------------------
                                        --------------------                           --------------------
   Gross profit                                      23,562                  19.7%                  19,677
   Selling, general, and
     administrative expense                          18,638                  23.6%                  15,079
                                        --------------------                           --------------------
                                        --------------------                           --------------------
   Operating Income                                  $4,924                   7.1%                  $4,598
                                                     ======                                         ======

</TABLE>

Results of Operations

Three Months Ended September 30, 2005
Compared to Three Months Ended September 30, 2004

     Revenue  increased  $29.9  million,  or  approximately  16.1%,  from $184.8
million for the three months ended September 30, 2004, to $214.7 million for the
three months ended September 30, 2005. Revenue recognized for contracts recorded
on a gross revenue basis was $184.0 million for the three months ended September
30, 2004 and $212.4  million for the three  months  ended  September  30,  2005.
Revenue  recognized  for  contracts  recorded  on a net  revenue  basis was $0.8
million for the three months ended  September  30, 2004 and $2.3 million for the
three months ended  September 30, 2005. The specific terms of the contracts that
we enter into with our sponsors  will  determine  whether we recognize the gross
revenue related to the cost of the prescriptions filled (see Critical Accounting
Policies  and  Estimates - Revenue  Recognition).  For those  contracts  that we
recognize  net revenue,  there is no impact on gross  profit  since  neither the
prescription revenue nor the related costs of the prescriptions is recorded.  We
include in revenue only those co-payments collected in our mail service facility
in Miramar,  Florida.  For the three months ended September 30, 2005,  there was
approximately  $4.8  million of  co-payments  included  in revenue  versus  $2.3
million for the three months ended September 30, 2004.  Co-payments  retained by
pharmacies  on  prescriptions  filled for our  members  and not  included in our
revenue  were  $77.5  million  and $53.9  million,  for the three  months  ended
September 30, 2005 and 2004, respectively.

     Of the $29.9  million  increase in revenue  during the three  months  ended
September 30, 2005,  $18.9 million was  attributable to the inclusion of revenue
generated by PCN that was not included in the quarter ended  September 30, 2004.
Co-payments received from the mail service operations accounted for $2.5 million
of the increase.  Another approximately $13.8 million of the increase was due to
revenue related to new sponsors or new services offered during the quarter ended
September  30, 2005  excluding  contracts  recorded on a net revenue  basis.  An
additional net increase of approximately  $9.8 million was attributable to other
existing   sponsors   related  to,   among  other   things,   higher  costs  for
pharmaceuticals,  availability  of new  drugs,  plan  participant  growth and an
increase  in the  average  number of  claims  per plan  participant,  as well as
changes in other  miscellaneous  revenue  items.  These revenue  increases  were
offset by revenue  decreases  related to the  termination  of existing  customer
contracts leading to a reduction in revenue of approximately $15.1 million.

     Cost of claims increased $26.0 million, or approximately 15.7%, from $165.2
million for the three months ended  September 30, 2004 to $191.1 million for the
three months ended  September 30, 2005.  PCN accounted for $16.3 million of this
increase.  Increases  in cost of claims  totaling  approximately  $13.3  million
related  to  the  activity  of new  sponsors,  and  another  $10.7  million  was
attributable  to the growth in  existing  sponsors.  These cost  increases  were
partially  offset  by the loss of  sponsors  which  reduced  cost of  claims  by
approximately  $14.3  million.  As a  percentage  of  revenue,  cost  of  claims
decreased from 89.4% to 89.0% for the three months ended  September 30, 2004 and
September 30, 2005,  respectively.  The contracts we recognized on a net revenue
basis decreased our overall costs as a percentage of revenue due to the cost not
being recognized on the contracts recorded on the net revenue basis.

     Gross  profit  increased  from $19.7  million  for the three  months  ended
September  30, 2004 to $23.6  million for the three months ended  September  30,
2005,  representing a $3.9 million, or 19.7%,  increase.  PCN accounted for $2.6
million of this increase, while another $1.3 million of incremental gross profit
was generated by the  expanding  mail service and  specialty  operations.  Gross
profit, as a percentage of revenue,  increased from 10.6% to 11.0% for the three
months  ended  September  30, 2004 and  September  30, 2005,  respectively.  The
contracts  that we recognize on a net revenue basis have the effect of improving
our gross  margin  as a  percentage  of  revenue  due to the fact that  recorded
revenue and cost is lower since only the  administrative  fees  related to these
contracts are  recorded.  Competitive  pressures  which have led to a decline in
some  prices  that we charge to our  sponsors  have had the effect of  partially
offsetting the increases in gross margin described above.

     Selling,  general,  and administrative  expenses increased $3.6 million, or
approximately 23.6%, from $15.1 million for the three months ended September 30,
2004  to  $18.6  million  for  the  three  months  ended   September  30,  2005.
Approximately   $2.4  million  of  this  increase  in  selling,   general,   and
administrative  expenses  is  related  to the  acquisition  of  PCN.  The  major
components of the $2.4 million  increase in expenses related to the acquisition:
1)  salaries  and  benefits  -  approximately   $1.4  million,   2)  IT  related
expenditures -  approximately  $0.3 million,  3) office  related  expenditures -
approximately  $0.2 million,  4) depreciation  and  amortization - approximately
$0.2 million,  and 5) other related  expenditures - approximately  $0.3 million.
Another $0.3 million  relates to costs  incurred as a result of compliance  with
the Sarbanes-Oxley  Act and higher audit fees. In addition,  $0.7 million of the
increase  is the result of  compensation  expense  relating  to  employee  stock
options,  which were required to be included in SG&A expenses beginning with the
quarter ended September 30, 2005.

     Selling,  general,  and  administrative  expenses  as a percent  of revenue
increased  from 8.2% for the three months ended  September  30, 2004 to 8.7% for
the three months ended September 30, 2005. Selling,  general, and administrative
expenses as a percent of revenue for the three months ended  September  30, 2005
would have been 8.4%  excluding the  compensation  expense  relating to employee
stock options, which was included in the current quarter, in accordance with FAS
123(R), which was adopted effective July 1, 2005 but not in the prior quarter.

     For the three months ended September 30, 2005, we earned other income, net,
of  approximately  $82,000.  For the three months ended  September  30, 2004, we
incurred other expense,  net, of  approximately  $79,000.  The components of the
approximate  $161,000 increase in other income, net were an approximate  $35,000
decrease in  interest  expense,  an  approximate  $164,000  increase in interest
income,  offset by an  approximate  $38,000  reduced  gain on assets  sold.  The
primary  reasons for the net increase in income were higher cash balances due to
increasing  profitability  and  additional  cash  flow  from  operations,  which
resulted in a  reduction  of  borrowings  and  related  interest  expense and an
increase in interest income on excess cash balances. In addition the gain on one
of our two sales leaseback transactions was fully recognized as of September 30,
2004, resulting in a reduction of other income for the current period.

     Income before the provision for income taxes increased  approximately  $0.5
million,  or  11%,  from  approximately  $4.5  million,  for the  quarter  ended
September  30,  2004,  to  approximately  $5.0  million  for the  quarter  ended
September 30, 2005. The primary factor leading to this increase in income before
income  taxes was the rise in gross  profit,  offset by the increase in selling,
general  and  administrative  expenses  related to the new  acquisition  and the
initial expensing of employee stock options.

     The  effective  tax rate was  approximately  42.7%  for the  quarter  ended
September 30, 2005,  compared to 41% for the quarter  ended  September 30, 2004.
The increase in the effective tax rate for the three months ended  September 30,
2005 was the result of the  expensing  of employee  incentive  stock  options in
accordance with FAS 123(R). This compensation  expense,  which is not deductible
for tax purposes,  increased  our  effective  tax rate by 2.7%.  The tax rate of
42.7% represents our current estimated tax rate for the full 2006 fiscal year.

     Net income for the quarter ended September 30, 2005 was approximately  $2.9
million  as  compared  to  approximately  $2.7  million  for the  quarter  ended
September  30,  2004,  which is an 8%  increase.  The  increase in net income is
attributable  to the same factors  causing the increase in income  before income
taxes,  offset by the increase in the effective  tax rate.  For the three months
ended  September  30,  2005,  net income  excluding  the  effect of  stock-based
compensation expense would have been $3.4 million.

     In  addition,  there were two charges  against  income  available to common
stockholders related to the New Mountain Transaction (See Note 3 of Part 1, Item
1). The first of these charges relates to preferred stock cash dividends,  which
amounted to approximately $1.4 million for both the three months ended September
30, 2005 and the three months ended  September  30, 2004.  The  preferred  stock
provides  for an initial  cash  dividend  equal to 7% of the  investment  amount
(currently $80 million),  which decreases to 3.5% after the fifth anniversary of
issuance.  The  dividends of  approximately  $1.4 million  represent  the amount
accrued and paid for the three months ended September 30, 2005 and September 30,
2004,  respectively.  The  second  charge is for the  accretion  of  transaction
expenses which were approximately  $120,000 for the three months ended September
30, 2005,  and $119,000 for the three months ended  September 30, 2004.  Certain
transaction  costs  related to the New Mountain  preferred  stock  investment of
approximately  $4.7  million  were  deducted  from net proceeds and the carrying
value of the  preferred  stock.  These  transaction  costs are  accreted  to the
preferred  stock  carrying  value over the ten-year life of the preferred  stock
investment.

     After deducting these two charges from net income there remained net income
available to common  stockholders  of  approximately  $1.3 million for the three
months  ended  September  30,  2005,  as compared to $1.1  million for the three
months ended September 30, 2004.

     While net income and net income available to common stockholders  excluding
the effect of  stock-based  compensation  expense are not  measures of financial
performance under U.S. generally accepted accounting principles,  such items are
provided as  information  for investors for analysis  purposes in evaluating the
effect of the  stock-based  compensation  expense  on net  income and net income
available to common stockholders.  Net income and net income available to common
stockholders  excluding the effect of stock-based  compensation  expense are not
meant to be considered a substitute or replacement  for net income or net income
available to common  stockholders as prepared in accordance with U.S.  generally
accepted accounting principles. The reconciliation from net income to net income
available  to  common   stockholders   excluding   the  effect  of   stock-based
compensation  expense is as follows  (all amounts are in  thousands,  except per
share amounts):
<TABLE>
<S>                                                                        <C>    <C>    <C>    <C>    <C>    <C>

                                                                                   Three Months Ended
                                                                       -------------------------------------------
                                                                       September 30, 2005      September 30, 2004
                                                                       -------------------     -------------------


Net income, as reported                                                         $   2,867              $    2,666

Add:  Stock-based compensation expense, as per FAS 123(R)                             668                       -
Less:  Tax benefit of stock-based compensation expense, as per FAS
123(R)                                                                               (132)                      -
                                                                       -------------------     -------------------
                                                                       -------------------     -------------------

Net income excluding effect of stock-based compensation expense ( C )               3,403                   2,666

Less:
Preferred dividends                                                                 1,412                   1,412
Accretion of transaction expenses                                                     120                     119
                                                                       -------------------     -------------------
                                                                       -------------------     -------------------

Net income available to common shareholders excluding stock-based
compensation expense ( A )                                                     $    1,871              $    1,135
                                                                       ===================     ===================
                                                                       ===================     ===================

Earnings per share excluding effect of stock-based compensation expense:
  Basic ( ( A ) / ( B ) )                                                       $    0.38               $    0.26
  Diluted ( ( C ) / ( D ) )                                                     $    0.28               $    0.22

Weighted average number of shares outstanding:
  Basic ( B )                                                                       4,862                   4,400
                                                                       ===================     ===================
                                                                       ===================     ===================

  Diluted, as reported *                                                           12,102                 11,904

  Add: Adjustment to weighted average number of diluted shares
  outstanding to exclude effects of stock-based compensation                           87                      -
                                                                       -------------------     -------------------
                                                                       -------------------     -------------------

  Diluted, excluding effects of stock-based compensation ( D ) *                   12,189                 11,904
                                                                       ===================     ===================

</TABLE>


     * The number of weighted  average  diluted shares was calculated  using the
"as if converted" method for the redeemable preferred stock.


Liquidity and Capital Resources

     Our primary cash  requirements  are for capital  expenditures and operating
expenses, including cost of pharmaceuticals,  software and hardware upgrades and
the  funding of  accounts  receivable  and  inventory  in our mail  service  and
specialty pharmacy facilities.  Also, we require cash to execute our strategy of
pursuing  acquisitions of other PBM companies or of companies  providing related
services.  As of September 30, 2005, we had a working  capital  deficit of $19.4
million as compared to a working capital deficit of $24.4 million as of June 30,
2005. The primary reason for the  improvement in working capital was the profits
generated by NMHC during the three months ended  September 30, 2005. We have now
acquired seven companies since July 2000 utilizing  primarily cash. This has had
the  effect  of  increasing  our  working  capital   deficits  until  sufficient
profitability is earned to offset these deficits.

     Net cash  provided by operating  activities  was $3.2 million for the three
months ended  September 30, 2005,  compared to $2.9 million for the three months
ended  September 30, 2004.  Cash flows from operating  activities  were impacted
negatively  in the fiscal  2006  period as a result of the  increase  in rebates
receivable.  This temporary  increase was caused by a delay in the submission of
our quarterly  rebate billings to the  pharmaceutical  manufacturers  due to the
integration of PCN claims into our rebate billing process.

     Historically,  the timing of our 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
our  pharmacy  network on the other  hand.  These  terms  generally  lead to our
payments  to  participating  pharmacies  being  slower  than  its  corresponding
collections from plan sponsors. We believe 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,  we
could require additional working capital financing.  Furthermore,  if such terms
of  trade  were to  change  materially,  and/or  if we  were  unable  to  obtain
additional working capital  financing,  there could be a material adverse effect
on our business, financial condition, or results of operations.

     Net cash used in investing activities was $2.2 million for the three months
ended September 30, 2005, as compared to $1.3 million for the three months ended
September 30, 2004.  This increase of $0.9 million in net cash used in investing
activities was the result of an increase in capital expenditures of $0.8 million
along with an increase in the cash paid for the PPP  Acquisition of $0.1 million
compared to the three months ended  September  30,  2004.  The cash  payments of
$426,000  during the three months ended  September 30, 2005 and $358,000 for the
three months ended September 30, 2004 for the PPP Acquisition are for additional
payments  due under the  earn-out  provision  (See Note 4 of Part 1, Item 1). We
have accrued  $134,000 through  September 30, 2005 as additional  purchase price
related to the earn-out provision, which will be paid in September 2006.

     During the three months ended September 30, 2005, we generated $0.2 million
from financing  activities compared to $1.4 million used by financing activities
in the three months ended  September 30, 2004.  This increase of $1.6 million is
the result of a $1.5  million  increase  in the  proceeds  from the  exercise of
employee  stock  options and a reduction  of $0.1  million in the  repayment  of
capital leases as all but two of our capital leases have ended.

     On January 28, 2005,  we entered into a five-year  $65.0  million cash flow
based, line of credit with a syndicate of commercial banks led by JPMorgan Chase
Bank, N.A. ("JPMorgan"). Subject to certain conditions, including the consent of
existing  lenders,  the new line of credit may be  increased  by an aggregate of
$35.0 million.  The JPMorgan credit facility  contains  various  covenants that,
among other things,  require us to maintain certain financial ratios,  which are
consolidated net worth, consolidated fixed charge ratio and consolidated debt to
EBITDA  ratio.  As  of  September  30,  2005  there  was  no  principal  balance
outstanding  under the JPMorgan credit facility,  and we were in compliance with
our financial covenants.

     Two of these financial covenants are based upon the EBITDA (earnings before
interest, taxes, depreciation and amortization) generated by NMHC over specified
periods  of  time.  These  covenants,   consolidated   fixed  charge  ratio  and
consolidated debt to EBITDA ratio, are evaluated by JPMorgan as a measure of our
liquidity  and our  ability  to meet all of our  obligations  under  the  credit
facility. EBITDA is presented as cash flow from operations plus or minus the net
changes  in  assets  and  liabilities  and  the  changes  in  certain   non-cash
reconciling  items from net cash from operations to net income over the reported
periods.  While  EBITDA is not a measure of financial  performance  or liquidity
under generally accepted  accounting  principles,  it is provided as information
for  investors  for  analytical  purposes  in light of the  financial  covenants
referred  to  above.  EBITDA  is not  meant to be  considered  a  substitute  or
replacement  for net  income  as  prepared  in  accordance  with  United  States
generally   accepted   accounting   principles.   EBITDA,   which  increased  by
approximately  $0.5  million or 8%, from $6.2 million for the three months ended
September  30, 2004 to $6.7  million for the three months  ended  September  30,
2005,  is  calculated  as  follows  (see  Consolidated  Statement  of Cash Flows
comprising Item 1 hereof for more details):

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

                                                   Three Months Ended September 30,
                                                   2005                      2004
                                         ------------------------- --------------------------
                                         ------------------------- --------------------------
Cash flow from operations                         $   3,233                $   2,910
Provision for income taxes                            2,139                    1,853
Interest (income) expense, net                          (70)                     129
Net change in assets and
  Liabilities                                         2,511                    1,454
Non-cash items to reconcile
  net cash from operations to
  net income                                         (1,070)                    (126)
                                         ------------------------- --------------------------
                                         ------------------------- --------------------------

EBITDA                                            $   6,743                $   6,220
                                         ========================= ==========================
</TABLE>

     We have entered into various  capital lease  transactions  for hardware and
software.  We have also assumed various capital leases through our acquisitions.
As of September 30, 2005, there are two capital leases remaining in effect.

     We have entered into various real estate operating leases with both related
and unrelated parties.  We have entered into various equipment  operating leases
and a  sale-leaseback  with unrelated  third parties for office and mail service
equipment.  These leases have different  payment terms and expiration dates. See
Note 11 to the Consolidated  Financial Statements comprising Item 8 of Form 10-K
for the year  ended June 30,  2005 for a further  description  of these  various
leases.

     The  total  future  payments  under  these  contractual  obligations  as of
September 30, 2005, are as follows:

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


Contractual Obligations                     Payments Due by Period
                                             ($ in thousands)

                                                                                                            More than
                                                          Less than         1-3 Years          4-5           5 Years
                                          Total            1 Year                             Years
                                        -----------     --------------      ----------      ----------      ----------
                                        -----------     --------------      ----------      ----------      ----------
Long Term Debt                         $         -      $           -      $        -      $        -      $        -
Capital Lease Obligations                       39                 30               9               -               -
Operating Leases                            23,722              7,245           9,870           4,030           2,577
Sale-leasebacks                                175                140              35               -               -
                                        -----------     --------------      ----------      ----------      ----------
                                        -----------     --------------      ----------      ----------      ----------
   Total Contractual Cash
        Obligations                     $   23,936      $       7,415      $    9,914      $    4,030      $    2,577
                                        ===========     ==============      ==========      ==========      ==========
</TABLE>

     The shareholders of PCN are eligible to receive additional consideration of
up to $30.0 million,  if certain financial and performance  targets are met over
the three  year  period  beginning  March 1, 2005.  As of  September  30,  2005,
$190,000  has been  accrued  based  upon the  tentative  achievement  of certain
financial and performance targets.

     The  shareholders  of the Inteq Group were  eligible to receive  additional
consideration  of up to $4.2  million,  if certain  financial  targets  were met
during the year ending April 1, 2005. Of this potential amount, $3.0 million was
deposited  in escrow at the time of closing.  As of  September  30,  2005,  $1.0
million was earned and paid.

     The shareholders of PPP are eligible to receive additional consideration of
up to $7.0  million,  if certain  financial  targets are met over the three year
period  beginning August 1, 2003. Such amounts earned are payable within 45 days
after the first,  second,  and third anniversary of the date of acquisition.  In
the sole  discretion of NMHC, up to 50% of any amounts earned can be paid in the
form of our stock in lieu of cash.  For the year ended July 31,  2004,  $716,000
has been earned and was paid on September 15, 2004. Of this amount, $358,000 was
paid in cash and $358,000 was  satisfied by the issuance of 12,650 shares of our
common stock. For the year ended July 31, 2005, $851,000 has been earned and was
paid on  September  15,  2005.  Of this  amount,  $426,000  was paid in cash and
$425,000 was satisfied by the issuance of 17,127 shares of our common stock.  As
of September 30, 2005,  $134,000 has been accrued as additional  purchase  price
and will be paid in September 2006.

     We entered into an amended and restated preferred stock purchase agreement,
dated as of November 26, 2003, with New Mountain  Partners,  L.P. (the "purchase
agreement").  Pursuant to the purchase agreement,  we agreed, subject to various
conditions,  to issue to New Mountain  Partners a total of  6,956,522  shares of
series A preferred stock at a purchase price of $11.50 per share,  for aggregate
proceeds of approximately $80 million.  On March 19, 2004, we completed the sale
of the series A preferred stock to New Mountain Partners and used  approximately
$49  million  of the  proceeds  of the sale of the series A  preferred  stock to
purchase, pursuant to a tender offer, 4,448,900 shares of our outstanding common
stock at $11.00 per share..

     Following the completion of the tender offer,  New Mountain  Partners owned
securities at March 19, 2004 that were initially  convertible into approximately
64% of our issued and  outstanding  common stock and prior to  conversion of the
series A  preferred  stock were  entitled  to cast that  number of votes that is
equal to approximately 60% of our aggregate voting power.  Following the closing
of the New Mountain Transaction,  New Mountain Partners were entitled to and did
nominate and elect 60% of the members of our board of directors.

     We used the  remaining  proceeds from the issuance and sale of the series A
preferred stock of approximately $24 million,  excluding expenses related to the
closing of the New Mountain  Transaction,  for the Inteq Acquisition (See Note 4
of Part 1, Item 1) and working capital purposes.

     The preferred  stock  provides for an initial annual cash dividend equal to
7% of the investment amount, which decreases to 3.5% after the fifth anniversary
of issuance.  The preferred stock is convertible into common stock at a price of
$11.50 per share of common  stock,  or an aggregate of  approximately  7 million
shares of our common stock.

     The series A preferred  stock may be redeemed at our option  subsequent  to
the fourth anniversary of its issuance, subject to certain conditions. After the
tenth  anniversary of the issuance of the series A preferred stock,  each holder
of shares of series A preferred  stock may require us to redeem all or a part of
that holder's shares of series A preferred stock.

     We anticipate that current cash positions and available credit  facilities,
after  our  seven   acquisitions   together  with  anticipated  cash  flow  from
operations, will be sufficient to satisfy our 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
our stated goals to acquire  other  pharmacy  benefit  management  companies and
companies  providing  related  services.  Depending on our  evaluation of future
acquisitions, additional cash may be required to complete these acquisitions. In
addition,  we will require  cash to acquire  additional  inventory  for our mail
service  and   specialty   distribution   divisions  to  service  our  expanding
operations.  In the event that our plans change or our  assumptions  prove to be
inaccurate,  or the proceeds from the new revolving  credit facility and the New
Mountain   Transaction   prove  to  be   insufficient  to  fund  operations  and
acquisitions,  we 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 us, if at all.

Other Matters

Inflation

     Management  does not  believe  that  inflation  has had a material  adverse
impact on our net income.

Critical Accounting Policies and Estimates

General

     Our  discussion and analysis of NMHC's  financial  condition and results of
operations are based upon our unaudited consolidated financial statements, which
have  been  prepared  in  accordance  with  United  States  generally   accepted
accounting principles. The preparation of these financial statements requires us
to make  estimates  and  judgments  that affect the reported  amounts of assets,
liabilities,  revenue and expenses;  these  estimates and judgments  also affect
related disclosures of contingent assets and liabilities.  On an on-going basis,
we evaluate our  estimates  and  judgments,  including  those related to revenue
recognition, bad debt, intangible assets, income taxes, software capitalization,
and  share-based  payments.  We base our estimates on experience  and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Actual  results  may  differ  from  these  estimates  under  different
assumptions or conditions.

     We believe that of our significant  accounting  policies (See Note 1 to the
Consolidated  Financial  Statements  comprising Item 8 of Form 10-K for the year
ended June 30, 2005),  the following may involve a higher degree of judgment and
complexity than others:

Revenue Recognition

(a)      Since January 1, 2000, all services provided by NMHC have been on a fee
         for service basis. Under the fee for service arrangement, we are paid
         by our sponsors for our contractually agreed upon rates based upon
         actual claims adjudicated, plus a fixed transaction fee.

         Revenue under the fee for service arrangement is recognized when the
         claims are adjudicated. Included as revenue are our administrative fees
         and charges relating to pharmaceuticals dispensed by our network of
         pharmacies. Revenue is reduced by the amount of rebates paid to our
         sponsors.

(b)      The specific terms of the contracts that we enter into with our
         sponsors will determine whether we recognize the gross revenue related
         to the cost of the prescriptions filled. There are several factors from
         EITF 99-19 that led us to recognize the majority of our revenue on a
         gross basis. These include: we act as a principal and not an agent and
         are the primary obligor in the relationship among the pharmacies, the
         sponsors and NMHC, we have credit risk, we have certain latitude in
         establishing price, and we have discretion in supplier selection. In
         certain cases, primarily because the amount we earn is fixed, we have
         not recognized the gross revenue or cost related to prescriptions
         filled for a specific sponsor. This has no impact on our gross profit
         since neither the prescription revenue nor the related cost of the
         prescriptions is recorded.

(c)      We include in revenue only those co-payments collected from individual
         members by our mail service facility in Miramar, Florida. Co-payments
         retained by pharmacies on the remainder of the prescriptions filled for
         our members are not included in our reported revenue. We disclose these
         amounts parenthetically on the face of our Consolidated Statement of
         Income.

 (d)     Rebates are recognized when we are entitled to them in accordance with
         the terms of our arrangements with drug manufacturers, third party
         rebate administrators, and sponsors, and when the amount of the rebates
         is determinable. We record the gross rebate receivable and the
         appropriate payable to the sponsors based on estimates, which are
         subject to final settlement. The estimates are based upon the claims
         submitted and our rebate experience, and are adjusted as additional
         information becomes available.

Bad Debt

     We maintain allowances for doubtful accounts for estimated losses resulting
from the liability of our sponsors to make required  payments.  If the financial
condition of our sponsors  were to  deteriorate,  resulting in an  impairment of
their ability to make payments, additional allowances may be required.

Goodwill and Intangible Asset Impairment

     In assessing the recoverability of our goodwill and other  intangibles,  we
must make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective  assets.  If these estimates or their
related  assumptions  change  in  the  future,  we  may be  required  to  record
impairment charges for these assets not previously recorded.  On July 1, 2001 we
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible  Assets," and are  required to analyze our  goodwill  for  impairment
issues  on a  periodic  basis  thereafter.  To date,  we have not  recorded  any
impairment losses related to goodwill and other intangible assets.

Deferred Taxes

     We periodically  consider whether or not to record a valuation allowance to
reduce our  deferred tax assets to the amount that is more likely than not to be
realized.  While we have  considered  future  taxable  income  and  ongoing  tax
planning  strategies in assessing the need for the valuation  allowance,  in the
event we were to  determine  that we would be able to realize our  deferred  tax
assets in the future in excess of its net recorded amount,  an adjustment to the
deferred tax asset would increase  income in the period such  determination  was
made. Likewise,  should we determine that we would not be able to realize all or
part of our net deferred tax asset in the future,  an adjustment to the deferred
tax asset would be charged to income in the period such determination was made.

Capitalized Software

     The costs of  software  developed  for  internal  use  incurred  during the
preliminary project stage are expensed as incurred. Direct costs incurred during
the application  development  stage which provide  additional  functionality are
capitalized. Costs incurred during the  post-implementation/operation  stage are
expensed as incurred.  Capitalized software development costs are amortized on a
straight-line  basis over their estimated  useful lives,  commencing on the date
the software is placed into use, primarily three years.

Share-Based Payments

     Following the adoption of FASB Statement No. 123(R),  Share-Based  Payment,
we now  include  in our  consolidated  statement  of income an  estimate  of the
compensation  cost resulting  from the issuance of employee  stock options.  The
calculation  of this  compensation  cost is  dependent  upon  various  valuation
assumptions such as expected option life, volatility,  risk-free interest rates,
expected forfeiture rates, and post-vesting terminations.  While we believe that
our employee stock option related assumptions are reasonable, actual vesting and
exercise patterns may be significantly different.


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.


ITEM 4 - CONTROLS AND PROCEDURES

     Disclosure controls and procedures are the controls and procedures designed
to ensure that information that we are required to disclose in our reports under
the Securities  Exchange Act of 1934, as amended  ("Exchange  Act") is recorded,
processed,  summarized  and  reported  within the time  periods  required.  They
include,  without  limitation,  controls and procedures  designed to ensure that
information  is  accumulated  and  communicated  to management in order to allow
timely decisions regarding required disclosure.

     Under the supervision and with the participation of management, chiefly our
principal  executive officer and our principal  financial officer,  we evaluated
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act),
as of September 30, 2005.  Based on that  evaluation,  our  principal  executive
officer and our principal  financial  officer have concluded that these controls
and  procedures  are  effective in alerting them to material  information,  on a
timely basis,  required to be included in our periodic  Securities  and Exchange
Commission  filings.  There have been no changes in our internal  controls  over
financial  reporting  (as defined in Rules  13a-15(f)  and  15d-15(f)  under the
Exchange Act) that occurred in this period that have materially affected, or are
reasonably  likely to materially  affect,  our internal  controls over financial
reporting.


<PAGE>


30

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

     The legal proceeding described below should be read in conjunction with the
legal proceeding disclosure in the following earlier reports: Part I, Item 3 and
Note 11 to the  consolidated  financial  statements of our Annual Report on Form
10-K for the year ended June 30, 2005.

     An action was commenced against us on April 30, 2002 by Midwest Health Plan
Inc.  ("MHP") in the United States  District  Court for the Eastern  District of
Michigan.  The amended complaint alleged,  among other things,  that the parties
entered into a contract dated July 1999 (the  "Agreement"),  and further alleged
that we overcharged MHP for the administration of prescription  benefit services
in contravention to the terms of the Agreement and breached our fiduciary duties
by making a profit.  On  August  10,  2005,  we paid MHP $2  million  in cash in
complete settlement of all outstanding claims by both parties,  and the case was
dismissed with prejudice.


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

     We agreed to pay the shareholders of PPP up to $7 million over a three-year
period if the PPP business  achieved  certain  financial  targets (See Note 4 of
Part 1, Item 1). For the year ended July 31, 2005,  $851,000 has been earned and
was paid on September  15, 2005.  Of this amount,  $426,000 was paid in cash and
$425,000 was satisfied by the issuance of 17,127 shares of our common stock. The
issuance  of  common  stock was  intended  to be  exempt  from the  registration
requirements  of the  Securities  Act of 1933, as amended,  by virtue of Section
4(2) under the  Securities  Act because the  securities  were not offered to the
public.  No  underwriters  were involved in the connection  with the issuance of
these securities.


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

Exhibits


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


3.1       Certificate of Incorporation of NMHC (2)
3.2       Certificate of Amendment to the Certificate of Incorporation of NMHC (5)
3.3       Amended and Restated Bylaws of NMHC (5)
3.4       Amended and Restated Audit Committee Charter (5)
3.5       Amendment No. 1 to Amended and Restated By-Laws of NMHC
3.6       Nominating and Corporate Governance Committee Charter (6)
4.1       Form of Warrant Agreement, including form of Representatives' Warrants (1)
4.2       Certificate of Designation, Preferences and Rights of Series A 7%
          Convertible Preferred Stock of NMHC (5) 10.1 Credit Agreement dated January 28,
          2005 among NMHC, the Lenders party thereto and JPMorgan Chase, as Administrative Agent (7)
10.2      Lease Expansion and Modification Agreement dated July 31, 2003 between Sunbeam Development Corporation and NMHCRx Mail
          Order, Inc. (3)
10.3      AmerisourceBergen Prime Vendor Agreement, dated July 21, 2003 between NMHCRx Mail Order, Inc. d/b/a  NMHCMail and
          AmerisourceBergen Drug Corporation (3)
10.4      Amendment to Lease Agreement, dated as of October 23, 2003, by and among BFS Realty, LLC and National Medical Health Card
          Systems, Inc. (4)
10.5      Amendment to Lease Agreement (30 Sea Cliff), dated as of October 30, 2003, between Living in Style, LLC and National
          Medical Health Card Systems, Inc. (4)
10.6      Amendment to Lease Agreement (32 Sea Cliff), dated as of October 30, 2003, between Living in Style,  LLC and National
          Medical Health Card Systems, Inc. (4)
14.       Amended and Restated Code of Ethics (8)
31.1      Rule 13a-14(a)/15d-14(a) Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
31.2      Rule 13a-14(a)/15d-14(a) Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act
32.1      Section 1350 Certification of CEO as adopted by Section 906 of the Sarbanes-Oxley Act
32.2      Section 1350 Certification of CFO as adopted by Section 906 of the Sarbanes-Oxley Act

</TABLE>


(1) Denotes document filed as an Exhibit to NMHC's Registration Statement on
    Form S-1 (Registration Number: 333-72209) and incorporated herein by
    reference.
(2) Denotes document filed as an Exhibit to NMHC's Definitive Proxy Statement
    on Schedule 14-A filed on December 21, 2001 and incorporated herein by
    reference.
(3) Denotes document filed as an Exhibit to NMHC's Report on Form 10-K for the
    year ended June 30, 2003 and incorporated herein by reference.
(4) Denotes document filed as an Exhibit to NMHC's Report on Form 10-K/A
    Amendment Number 2 for the year ended June 30, 2003 and incorporated herein
    by reference.
(5) Denotes document filed as an Exhibit to NMHC's Form 10-Q for the quarter
    ended March 31, 2004 and incorporated herein by reference.
(6) Denotes document filed as an appendix to NMHC's Definitive Proxy Statement
    on Schedule 14-A filed on October 28, 2005 and incorporated herein by
    reference.
(7) Denotes document filed as an exhibit to NMHC's Form 8-K filed on February 3,
    2005 and incorporated herein by reference.
(8) Denotes document filed on October 28, 2004 as an exhibit to NMHC's
    Definitive Proxy Statement on Schedule 14-A and incorporated herein by
    reference.


                                   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:     November 9, 2005     By: /s/James F. Smith
                                      James F. Smith
                                      President and Chief Executive Officer
                                      (Principal Executive Officer)




                                By: /s/ Stuart F. Fleischer
                                        Stuart F. Fleischer
                                        Chief Financial Officer
                                        (Principal Financial Officer)



<PAGE>



                                                                    EXHIBIT 31.1

             CERTIFICATION PURSUANT TO RULES 13a-14(a) and 15d-14(a)
                   UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, James F. Smith, President and Chief Executive Officer, certify that:

         1.       I have reviewed this quarterly report on Form 10-Q of National
                  Medical Health Card Systems, Inc. and its subsidiaries (the
                  "Registrant");

         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  quarterly report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  Registrant as of, and for, the periods presented in this
                  quarterly report;

         4.       The Registrant's other certifying officer(s) and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e) and 15d-15(e)) and internal control over financial
                  reporting (as defined in Exchange Act Rules 13a-15(f) and
                  15d-15(f)) for the Registrant, and we have:

                  a) designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the Registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this quarterly report is being
                  prepared;

                  b) designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

                  c) evaluated the effectiveness of the Registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  d) disclosed in this report any change in the Registrant's
                  internal control over financial reporting that occurred during
                  the Registrant's most recent fiscal quarter (the Registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the Registrant's internal control over financial
                  reporting; and

         5.       The Registrant's other certifying officer(s) and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the Registrant's auditors
                  and the audit committee of the Registrant's board of directors
                  (or persons performing the equivalent functions):

                  a) all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonable likely to adversely affect the
                  Registrant's ability to record, process, summarize and report
                  financial information; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the Registrant's internal control over financial reporting.

         Date: November 9, 2005
                                         /s/ James F. Smith
                                         James F. Smith
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)

<PAGE>



                                                                   EXHIBIT 31.2

             CERTIFICATION PURSUANT TO RULES 13a-14(a) and 15d-14(a)
                    UNDER THE SECURITIES EXCHANGE ACT OF 1934


I, Stuart F. Fleischer, Chief Financial Officer, certify that:

         1.       I have reviewed this quarterly report on Form 10-Q of National
                  Medical Health Card Systems, Inc. and its subsidiaries (the
                  "Registrant");

         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  quarterly report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  Registrant as of, and for, the periods presented in this
                  quarterly report;

         4.       The Registrant's other certifying officer(s) and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-15(e) and 15d-15(e)) and internal control over financial
                  reporting (as defined in Exchange Act Rules 13a-15(f) and
                  15d-15(f)) for the Registrant, and we have:

                  a) designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the Registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this quarterly report is being
                  prepared;

                  b) designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

                  c) evaluated the effectiveness of the Registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  d) disclosed in this report any change in the Registrant's
                  internal control over financial reporting that occurred during
                  the Registrant's most recent fiscal quarter (the Registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the Registrant's internal control over financial
                  reporting; and

         5.       The Registrant's other certifying officer(s) and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the Registrant's auditors
                  and the audit committee of the Registrant's board of directors
                  (or persons performing the equivalent functions):

                  a) all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.

         Date:  November 9, 2005

                                     /s/Stuart F. Fleischer
                                     Stuart F. Fleischer
                                     Chief Financial Officer
                                     (Principal Financial Officer)

<PAGE>


                                                                   EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Quarterly  Report of National  Medical  Health Card
Systems,  Inc. (the "Company") on Form 10-Q for the period ending  September 30,
2005 as filed with the  Securities  and Exchange  Commission  on the date hereof
(the "Report"),  I, James F. Smith, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

     (1) the Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  the  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.


/s/ James F. Smith
James F. Smith
President and Chief Executive Officer
(Principal Executive Officer)
November 9, 2005



<PAGE>



                                                                   EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection  with the Quarterly  Report of National  Medical  Health Card
Systems,  Inc. (the "Company") on Form 10-Q for the period ending  September 30,
2005, as filed with the  Securities  and Exchange  Commission on the date hereof
(the "Report"), I, Stuart F. Fleischer,  Chief Financial Officer of the Company,
certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:

     (1) the Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and

     (2)  the  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/Stuart F. Fleischer
Stuart F. Fleischer
Chief Financial Officer (Principal Financial Officer)
November 9, 2005