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

                                    FORM 10-Q

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

For the quarterly period ended               March 31, 2004
                               -------------------------------------------------

                                       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 of               (IRS Employer Identification No.)
Incorporation or Organization)

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

Registrant's Telephone Number, Including Area Code        (516) 626-0007
                                                   ----------------------------

                                 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 registration is an accelerated filer
 (as  defined  in  Rule  12b-2  of  the  Exchange Act.)    Yes        No  X
                                                             -----     -----

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:


         The number of shares outstanding of the issuer's Common Stock, as of
May 11, 2004 was 4,214,060 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
                  March 31, 2004 (unaudited) and June 30, 2003
                  CONSOLIDATED STATEMENT OF INCOME (unaudited)                                          5
                  for the three months and nine months ended March 31, 2004 and 2003

                  CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)                                      6
                  for the nine months ended March 31, 2004 and 2003

                  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  7


ITEM 2        -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                                    19
                  CONDITION AND RESULTS OF OPERATIONS

ITEM 3        -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT                                       34
                  MARKET RISK

ITEM 4    -       CONTROLS AND PROCEDURES                                                              34

PART II       -   OTHER INFORMATION                                                                    35
-------           -----------------

ITEM 1        -   LEGAL PROCEEDINGS                                                                    35

ITEM 2        -   CHANGES IN SECURITIES AND, USE OF PROCEEDS AND                                       35
                  ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 3        -   DEFAULTS UPON SENIOR SECURITIES                                                      36

ITEM 4        -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  36

ITEM 5        -   OTHER INFORMATION                                                                    38

ITEM 6        -   EXHIBITS AND REPORTS ON FORM 8-K                                                     38


</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.  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  PBM
services, and other factors,  readers are urged to carefully review and consider
various disclosures made by National Medical Health Card Systems,  Inc. ("Health
Card" or the  "Company")  which  attempt  to advise  interested  parties  of the
factors which affect Health Card's business,  including, without limitation, the
disclosures  made  under  the  caption  "Business"  in Item 1 and  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  in
Item 7 of the Company's  Annual Report on Form 10-K, as amended,  for the fiscal
year ended June 30, 2003,  filed with the Securities and Exchange  Commission on
February 17, 2004.



<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>

                                                                                         March 31,             June 30,
                                                                                           2004                  2003
                                                                                       -----------             --------
                                                                                       (Unaudited)
Assets
Current:

Cash and cash equivalents (including cash equivalent investments of $1,190
  and $1,189, respectively)                                                              $29,884                $5,222
Restricted cash                                                                            1,638                 2,383

Accounts receivable, less allowance for doubtful accounts of $2,862 and $2,014,
  respectively                                                                            65,697                52,022
  Rebates receivable                                                                      29,346                24,584
  Inventory                                                                                1,949                     -
  Due from affiliates                                                                          8                 4,165
  Deferred tax asset                                                                       2,110                 2,065
  Other current assets                                                                     2,442                 1,714
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                               133,074                92,155

  Property, equipment and software development costs, net                                 10,047                 8,239
  Intangible assets, net of accumulated amortization of $1,860 and $1,210,
    respectively                                                                           2,233                 2,291
  Goodwill                                                                                58,574                53,669
  Other assets                                                                               323                   386
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
      Total Assets                                                                    $  204,251            $  156,740
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Liabilities, Redeemable Preferred Equity, and Common Stockholders' (Deficiency)
  Equity
Current Liabilities:

  Accounts payable and accrued expenses                                               $  136,155            $  106,675
  Revolving credit facility and loans payable-current                                         36                15,683
  Current portion of capital lease obligations                                               436                   481
  Due to officer/stockholder                                                                   -                 1,117
  Income taxes payable                                                                     3,232                   629
  Other current liabilities                                                                   39                   137
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                           139,898               124,722

  Capital lease obligations, less current portion                                             13                   327
  Long term loans payable and other liabilities                                            2,030                 1,020
  Deferred tax liability                                                                   1,890                 2,245
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                   143,831               128,314
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Redeemable Preferred Equity:

  Redeemable, convertible preferred stock $.10 par value; 15,000,000 and
    10,000,000 shares authorized, 6,956,522 and none issued and outstanding,              75,279                     -
    respectively

Common Stockholders' (Deficiency) Equity:

  Common stock, $.001 par value, 35,000,000 and 25,000,000 shares authorized,
    8,224,011 and 7,812,907 shares issued, 3,584,111 and 7,621,907 outstanding,
    respectively                                                                              4                     8
  Additional paid-in-capital                                                             97,663                15,027
  Retained earnings                                                                     (60,652)               14,135
  Treasury stock at cost, 4,639,900 and 191,000 shares, respectively                    (51,874)                 (744)
 --------------------------------------------------------------------------------------------------------------------------
     Total common stockholders' (deficiency) equity                                     (14,859)               28,426
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total Liabilities, Redeemable Preferred Equity, and Common
       Stockholders' (Deficiency) Equity                                             $  204,251            $  156,740
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
                          See accompanying condensed notes to consolidated financial statements
</TABLE>
<PAGE>

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

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

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


                                                                       Three months ended                 Nine months ended
                                                                              March 31,                       March 31,
                                                                          2004           2003           2004           2003
                                                                          ----           ----           ----           ----

Revenue (includes co-payments collected of $901, $0, $1,061 and $0,
  respectively; and excludes co-payments retained by the pharmacies
  of $52,651, $46,000, $150,171 and $120,333, respectively)            $159,725       $126,538       $474,450       $424,869

Cost of claims (excludes co-payments retained by the
  pharmacies of $52,651, $46,000, $150,171 and $120,333,
  respectively)                                                        $142,909       $114,713       $428,441       $390,509
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                                             16,816         11,825         46,009         34,360

Selling, general and administrative expenses                             14,182          8,672         36,551         25,690
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Operating income                                                          2,634          3,153          9,458          8,670

Other income (expense):
Interest expense                                                           (114)          (310)          (519)          (941)
Interest income                                                             111             60            173            187
Other income, net                                                            10             38             90            115
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
                                                                              7           (212)          (256)          (639)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes                                  2,641          2,941          9,202          8,031
Provision for income taxes                                                1,077          1,206          3,773          3,293
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                              $ 1,564        $ 1,735        $ 5,429        $ 4,738
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Beneficial conversion feature                                            80,000              -         80,000              -
Preferred stock cash dividend                                               199              -            199              -
Accretion of transaction expenses                                            17              -             17              -
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net (loss) income available to common shareholders                     $(78,652)       $ 1,735      $(74,787)       $  4,738
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings per common share:
  Basic                                                                  (11.17)        $ 0.23      $  (9.99)         $ 0.62
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
  Diluted                                                                (11.17)        $ 0.22      $  (9.99)         $ 0.59
-------------------------------------------------------------------- - ----------- -- ----------- -- ----------- -- -----------
-------------------------------------------------------------------- - ----------- -- ----------- -- ----------- -- -----------
Weighted average number of common shares outstanding:
  Basic                                                                   7,044          7,611          7,485          7,582
-------------------------------------------------------------------- - ----------- -- ----------- -- ----------- -- -----------
-------------------------------------------------------------------- - ----------- -- ----------- -- ----------- -- -----------
  Diluted                                                                 7,044          8,067          7,485          8,024
-------------------------------------------------------------------- - ----------- -- ----------- -- ----------- -- -----------
-------------------------------------------------------------------- - ----------- -- ----------- -- ----------- -- -----------
      See accompanying condensed notes to consolidated financial statements

</TABLE>


<PAGE>

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

           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

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

                                                                                               Nine months ended
                                                                                                   March 31,
                                                                                          2004                          2003
Cash flows from operating activities:                                                     ----                          ----
           Net income                                                               $    5,429                      $  4,738
             Adjustments to reconcile net income to net cash
              provided by operating activities:

                Depreciation and amortization                                            4,135                         3,258
                Amortization of deferred gain                                             (333)                         (102)

                Net gain on disposal of capital assets                                     316                           (13)
                Provision for doubtful accounts                                            847                           257
                Compensation expense accrued to officer/stockholder                         37                           418
                Deferred income taxes                                                     (400)                            -
                Interest accrued on stockholders'/affiliate's loans                          -                           (84)
             Changes in assets and liabilities, net of effect from acquisitions:
                Restricted cash                                                            745                           153
                Accounts receivable                                                    (13,633)                        6,258
                Rebates receivable                                                      (4,762)                       (4,426)
                Inventory                                                               (1,410)                            -
                Other current assets                                                      (727)                       (1,028)
                Due to/from affiliates                                                     235                          (380)
                Other assets                                                               (81)                          (19)
                Accounts payable and accrued expenses                                   26,172                        (1,579)
                Income taxes payable and other current liabilities                       2,502                          (377)
                Other long term liabilities                                              1,343                           279
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                               20,415                         7,353
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
             Capital expenditures                                                       (5,550)                       (1,349)
             Repayment of loan from affiliate                                            2,660                             -
             Repayment of loan from officer                                                107                             -
             Proceeds from disposal of capital assets                                        -                            22
             Acquisition of Integrail                                                      (13)                       (1,472)
             Acquisition of PAI                                                              -                        (1,000)
             Acquisition of PPP, net of cash acquired                                   (3,658)                            -
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                   (6,454)                       (3,799)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
             Proceeds from exercise of stock options                                     2,632                           418
             Proceeds from issuance of preferred stock, net of offering costs           75,262                             -
             Purchase of treasury stock in tender offer including related costs        (51,130)                            -
             Repayment of convertible note offering                                          -                        (8,000)
             Proceeds from revolving credit facility                                   624,095                       512,150
             Repayment of revolving credit facility                                   (639,723)                     (504,459)
             Payment of preferred stock dividends                                         (199)                            -
             Deferred financing costs                                                      143                           136
             Repayment of debt and capital lease obligations                              (379)                         (628)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                                     10,701                          (383)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                               24,662                          3,171
Cash and cash equivalents at beginning of period                                         5,222                          1,768
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                           $  29,884                      $   4,939
------------------------------------------------------------------------------------------------------------------------------
      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 per share amounts)
                                   (Unaudited)

1. BASIS OF PRESENTATION

     The unaudited  consolidated  financial  statements  include the accounts of
National Medical Health Card Systems,  Inc. (the "Company" or "Health Card") 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.
("Integrail"),  NMHCRX Mail Order, Inc. ("Mail Order"),  NMHCRX Contracts,  Inc.
("Contracts"),  Ascend Specialty Pharmacy Services, Inc. (See Note 4) ("Ascend")
and PBM Technology Inc. ("PBM Tech").  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 "Health  Card"  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  accounting  principles  generally  accepted in the
United States for interim  financial  information and  substantially in the form
prescribed by the Securities  and Exchange  Commission in  instructions  to Form
10-Q and in Article 10 of Regulation S-X.  Accordingly,  they do 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
March 31,  2004 and 2003  unaudited  interim  financial  statements  include all
adjustments,  consisting of normal recurring  adjustments,  necessary for a fair
presentation  of  results  for these  interim  periods.  In the  opinion  of the
Company's  management,  the disclosures contained in this Form 10-Q are adequate
to make the information  presented not misleading when read in conjunction  with
the Notes to Consolidated  Financial  Statements  included in the Company's Form
10-K,  as amended,  for the year ended June 30, 2003.  The results of operations
for the three and nine month  periods  ended March 31, 2004 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, as amended,  for
the year ended June 30, 2003 (the "Annual Report").

2. STOCK-BASED COMPENSATION


     Pro forma information  regarding net loss applicable to common stockholders
is required by SFAS 123,  "Accounting for Stock-Based  Compensation," which also
requires that the  information be determined as if the Company has accounted for
its stock options under the fair value method of that statement. For purposes of
pro forma  disclosures,  the estimated fair value of the options is amortized to
expense over the options'  vesting period.  The fair value for these options was
estimated  using  the  Black-Scholes  option-pricing  model  with the  following
weighted-average  assumptions used for all grants in the nine months ended March
31, 2003 and 2004:  no dividend  yield,  weighted-average  expected  life of the
option of five  years,  risk-free  interest  rate ranges of 2.81% to 2.83% and a
volatility   of  83.2%,   and   76.5%,   respectively   for  all   grants.   The
weighted-average  value of  options  granted  is $8.32,  and $13.21 for the nine
months ended March 31, 2003 and 2004, respectively.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  to SFAS No. 123's fair value method of  accounting  for  stock-based
employee  compensation.  SFAS No. 148 also amends the  disclosure  provisions of
SFAS No. 123 to require  disclosure  in the  summary of  significant  accounting
policies  of the  effects  of an  entity's  accounting  policy  with  respect to
stock-based  employee  compensation  on reported net income.  While SFAS No. 148
does not amend SFAS No. 123 to require  companies to account for employee  stock
options using the fair value method,  the disclosure  provisions of SFAS No. 148
are  applicable  to  all  companies  with  stock-based  employee   compensation,
regardless  of whether they account for that  compensation  using the fair value
method of SFAS No. 123 or the intrinsic  value method of APB No. 25. The Company
adopted SFAS No. 148 effective December 31, 2002.

     The following table illustrates the effect on net income if the Company had
applied the fair value  recognition  provisions  of SFAS No. 123 to  stock-based
compensation:
<TABLE>
                                                        <S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                   Three Months Ended March 31,
                                                              ----------------------------------------
                                                              ----------------------------------------
                                                                  2004                      2003
                                                                  ----                      ----
     Reported net (loss) income available to
       common shareholders                                   $  (78,652)            $      1,735
     Stock compensation expense included in net
       (loss) income available to common
       shareholders                                                 200                        -
     Pro forma compensation expense                                (652)                    (423)
                                                              ---------                    ------
     Pro forma net (loss) income available to
       common shareholders                                  $  (79,104)             $      1,312
     Pro forma (loss) earnings per share:
       Basic                                               $    (11.23)             $       0.17
       Diluted                                             $    (11.23)             $       0.16



                                                                          Nine Months Ended March 31,
                                                          ---------------------------------------------------
                                                          ---------------------------------------------------
                                                                    2004                     2003
                                                                    ----                     ----
     Reported net (loss) income available to
       common shareholders                                   $   (74,787)                $  4,738
     Stock compensation expense included in net
       (loss) income available to common shareholders                200                        -
     Pro forma compensation expense                               (1,636)                  (1,215)
                                                              -----------                ---------
     Pro forma net (loss) income available
       to common shareholders                                $   (76,223)                 $ 3,523
     Pro forma (loss) earnings per share:
       Basic                                                   $  (10.18)                 $  0.46
       Diluted                                                 $  (10.18)                 $  0.44

</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 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 fund the  purchase  price  for a tender  offer of
4,448,900 shares of the Company's  outstanding  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 300,000  options held by Mr.  Brodsky,  which occurred in April 2004), in the
aggregate,  approximately 59% of the Company's  outstanding common stock and had
agreed  to  tender  4,448,900  shares,  or  approximately  54% of the  Company's
outstanding  common  stock,  held by  them,  into  the  tender  offer.  No other
shareholders tendered shares in the offer.

     Following the completion of the tender offer,  and assuming the exercise of
300,000 options 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 Company's 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 the Company's  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 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 PBM acquisition described
in Note 12 - Subsequent Events 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 common stock at a price of
$11.50 per share of common  stock,  or an aggregate of  approximately  7 million
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.

     Upon the closing of the New Mountain  Transaction,  the Company  recorded a
non-recurring,  non-cash  charge  to net  income  available  to  holders  of the
Company's common stock for a beneficial conversion feature related to the series
A preferred  stock,  which is  convertible  into the  Company's  common stock at
$11.50 per share. Such non-cash charge reflects the difference  between the fair
market value of the Company's common stock on the date of the closing of the New
Mountain  Transaction  and the  effective  conversion  price  of  $11.29  (after
deducting  the  closing  payment  of $1,450  payable to New  Mountain  Partners)
multiplied by 6,956,552, the number of shares of the Company's common stock into
which the series A preferred stock held by New Mountain Partners is convertible.
The maximum amount of the beneficial conversion feature is $80,000, which is the
purchase price of the series A preferred stock.

4. BUSINESS ACQUISITIONS

     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")  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.  Funds  for the  PPP  Acquisition  were  supplied  by the  Company's
revolving credit facility that was put in place in January 2002 (see below). The
Company  intends to  position  PPP as a  preferred  provider  with PPP's  target
markets  while  focusing on the  extension  of their  specialty  services to the
Company's PBM division.

     The  purchase  price  for the  stock  of PPP  was  $3,150.  At the  time of
acquisition, PPP had approximately $1,664 of assets which included $177 of cash,
$889  of  accounts  receivable,  $539  of  inventory  and  $59 of  property  and
equipment.  PPP also had approximately $1,423 of liabilities which included $609
of bank debt, which was paid off at closing, and $814 of miscellaneous payables.
The  acquisition  was accounted for under the purchase  method of accounting and
the results of PPP's  operations  were  included in the  consolidated  financial
statements  commencing with the acquisition  date. The excess of the acquisition
costs over the fair value of identifiable net assets acquired was $2,986,  which
consists of the following components: (i) customer relationships valued at $295,
which will be amortized over seven (7) years;  (ii)  employment and  non-compete
agreements  valued at $100 each,  which will be  amortized  over four (4) years;
(iii) the Portland Professional Pharmacy trade name valued at $100 which will be
amortized  over four (4) years;  and (iv) goodwill of $2,391,  which will not be
amortized for book purposes per SFAS 142. For tax purposes, the Company has made
an election  which will allow it to amortize the goodwill and other  intangibles
over  fifteen  years.  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. To date, $499 has been earned and accrued.

     In connection with the PPP Acquisition, several members of PPP's management
team have joined the Company as  employees,  and have been granted stock options
to purchase an aggregate of 150,000 shares of Common Stock,  under the Company's
1999  Stock  Option  Plan,  as  amended.  As of August 1,  2003,  the  Company's
wholly-owned  subsidiary,  Ascend Specialty Pharmacy Services,  Inc.  ("Ascend")
acquired  all of the shares of PPP.  Each of PRXA and PPRX  continues to operate
under their respective names, as subsidiaries of Ascend, in the state of Maine.

     As of  November  1, 2002,  the  Company  and its wholly  owned  subsidiary,
Integrail  Acquisition  Corp.,  entered into an Asset  Purchase  Agreement  with
Health  Solutions,  Ltd.  ("HSL"),  a New York  corporation,  and certain of its
security holders (together with HSL, the "Sellers").  Pursuant to the Agreement,
Health Card acquired  substantially all of the assets of the Integrail  division
of HSL's operations, for a purchase price of $1,400. Integrail provides software
and analytical tools in the area of informatics which allows for the blending of
medical and pharmacy data to predict future outcomes.

     Half of the $1,400  purchase price was paid at the closing  directly to the
Sellers,  and half was deposited into escrow (the "Escrowed Amount") as security
for the performance of certain  indemnification  obligations of the Sellers. The
Company  acquired  approximately  $500 of HSL's  assets which  included  $158 of
property and equipment,  $225 of software,  $76 of prepaid expenses,  and $41 of
accounts  receivable.  The Company also agreed to assume  approximately  $500 of
liabilities  related to  Integrail  which  included  $166 of debt under  capital
leases, $75 of miscellaneous  payables,  and $259 due to HSL for prior equipment
and services  provided to Integrail by HSL. The  acquisition  was  accounted for
under  the  purchase  method  of  accounting  and  the  results  of  Integrail's
operations were included in the  consolidated  financial  statements  commencing
with the  acquisition  date. The excess of the  acquisition  costs over the fair
value of  identifiable  net assets  acquired was $1,719,  which  consists of the
following  components:  (i) software and company know how valued at $797,  which
will be amortized  over three (3) years;  and (ii) goodwill of $922,  which will
not be amortized for book purposes per SFAS 142. For tax purposes,  the goodwill
and other  intangibles  will be  amortized  over fifteen  years.  Funds for this
transaction were supplied by the Company's  revolving credit facility.  With the
achievement of certain operational  milestones for the first 12 months specified
in the  Agreement,  the entire  Escrowed  Amount was  released to the Sellers in
November 2003.

     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. The Company acquired approximately $1,400 of HSL's assets which
included $900 of property and  equipment and $500 of software.  The Company also
agreed  to assume  approximately  $1,400 of HSL's  liabilities  relating  to the
Centrus  business  which  included  $1,100 of rebates due to  sponsors,  $100 of
capital leases, and $200 of miscellaneous  payables. The Centrus Acquisition was
accounted  for under  the  purchase  method of  accounting  and the  results  of
Centrus'  operations  were  included in the  consolidated  financial  statements
commencing with the acquisition  date. The excess of the acquisition  costs over
the fair value of identifiable  net assets acquired was $40,672,  which consists
of the following components:  (i) customer relationships valued at $2,415, which
will be amortized over five (5) years;  (ii) an employment  agreement  valued at
$83, which will be amortized  over two (2) years:  (iii)  non-compete  contracts
valued at $76, which will be amortized over four (4) years; and (iv) goodwill of
$38,098  which will not be  amortized  for book  purposes  per SFAS 142. For tax
purposes,  the goodwill  and other  intangibles  will be amortized  over fifteen
years.  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 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 will be
paid in May 2005.

     On January 29, 2002,  the Company and certain of its  subsidiaries  entered
into a $40,000  secured  revolving  credit  facility (the  "Facility")  with HFG
Healthco-4 LLC, a specialty  finance  company.  In connection with the Facility,
the Company  and certain of its  subsidiaries  have  agreed to  transfer,  on an
on-going basis,  their accounts  receivable to Funding.  Funding  utilizes those
receivables as collateral to secure borrowings under the Facility.  The Facility
has a three year term,  provides for  borrowings  of up to $40,000 at the London
InterBank  Offered  Rate  (LIBOR)  plus 2.40%  (3.49% at March 31,  2004) and is
secured  by  receivables  and other  assets of the  Company  and  certain of its
subsidiaries  as defined.  Borrowings of $28,700 under the Facility were used to
finance part of the purchase price of the Centrus  Acquisition  and will also be
used by the Company and certain of its subsidiaries for working capital purposes
and future acquisitions in support of its business plan. The outstanding balance
as of  March  31,  2004 was  approximately  $34,  which  was all  classified  as
short-term debt. The Facility  requires the Company to remain in compliance with
certain  financial  and other  covenants.  The financial  maintenance  covenants
include:  1) consolidated  net worth (total assets less total  liabilities),  2)
consolidated tangible net worth (consolidated net worth less intangible assets),
3)  quarterly  EBITDA,  4)  accounts  receivable  turnover  (revenue  divided by
accounts  receivable),  5) debt to consolidated  net worth, 6) current assets to
current  liabilities,  7)  consolidated  interest  coverage  ratio  (EBITDA less
capital   expenditures   divided  by  interest   expense,   8)  annual   capital
expenditures,  and 9) debt service  coverage (EBITDA divided by interest expense
plus short-term debt excluding  borrowings under the Facility).  Other covenants
under the Facility restrict the Company's ability to pay dividends, incur senior
debt,  and sell assets  other than in the  ordinary  course.  The Company was in
compliance with all covenants at March 31, 2004.

     The  summarized  unaudited pro forma results of operations  set forth below
for the  three  and nine  months  ended  March  31,  2004 and 2003  assumes  the
Integrail  and PPP  acquisitions  had  occurred  as of the  beginning  of  these
periods.



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


                                                            Three Months Ended                Three Months Ended
                                                              March 31, 2004                    March 31, 2003
                                                              --------------                    --------------
 Revenue                                                     $    159,725                      $       131,184
 Net (loss) income available to common
   shareholders                                              $    (78,652)                     $         1,734
 (Loss) earnings per common share:
   Basic                                                     $     (11.17)                     $          0.23
   Diluted                                                   $     (11.17)                     $          0.21
 Pro forma weighted-average number of common shares outstanding:
   Basic                                                            7,044                                7,611
   Diluted                                                          7,044                                8,067

                                                            Nine Months Ended                 Nine Months Ended
                                                              March 31, 2004                    March 31, 2003
                                                              --------------                    --------------
 Revenue                                                    $     475,789                       $    436,684
 Net (loss) income available to common
   shareholders                                             $     (74,811)                      $      3,036
 (Loss) earnings per common share:
   Basic                                                    $       (9.99)                      $       0.40
   Diluted                                                  $       (9.99)                      $       0.38
 Pro forma weighted-average number of
 common shares outstanding:
   Basic                                                            7,485                              7,582
   Diluted                                                          7,485                              8,024
</TABLE>

     This pro forma financial  information is presented for information purposes
only.  Pro  forma  adjusted  net  (loss)  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.

     The change in the  carrying  amount of goodwill  for the nine months  ended
March 31, 2004 is as follows:



Balance as of July 1, 2003                                        $ 53,669
PPP acquisition                                                      2,391
PPP additional consideration earned                                    499
Centrus additional consideration earned                              2,000
Integrail final valuation                                               15
                                                              -------------

Balance as of March 31, 2004                                      $ 58,574
                                                                  ========

     Approximately   $50,701  of  the  Company's  March  31,  2004  goodwill  is
deductible for income tax purposes on a straight-line basis over 15 years.

5. STOCK OPTIONS

     During the nine months ended March 31, 2004,  the Company  granted  552,029
stock options and 90,614 stock options were cancelled for a net of 461,415 stock
options  under the 1999 Stock  Option Plan (the  "Plan").  The  options  granted
during this period are  exercisable  at prices  ranging from $9.75 to $26.84 and
terminate  five to ten years from the grant date.  The total number of shares of
common stock  reserved by the Company for  issuance  under the Plan is 4,850,000
(the Company's  shareholders  approved on March 18, 2004 the increase in options
under the Plan from  2,850,000 to 4,850,000 - See Part II - Item 4 - No. 4) plus
an  indeterminable  number of shares of common  stock  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.  Shares
issuable  pursuant to options  granted under the Plan as of March 31, 2004 equal
2,076,192, net of 743,253 options exercised to date.


6. EARNINGS PER SHARE

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

<TABLE>

<S>                                                                                                       <C>
                                                                                 Three Months Ended March 31,
                                                                             -------------------------------------
                                                                             -------------------------------------
                                                                                    2004               2003
                                                                                    ----               ----
   Basic                                                                          7,043,809          7,610,907
   Effect of assumed exercise of employee stock options                                   -            455,675
   Effect of assumed exercise of warrants                                                 -                  -
                                                                                 ----------          ----------
                                                                                                             -
   Diluted weighted average number of shares outstanding                          7,043,809          8,066,582
                                                                                  =========          =========

                                                                                 Nine Months Ended March 31,
                                                                             -------------------------------------
                                                                             -------------------------------------
                                                                                      2004             2003
                                                                                      ----             ----
   Basic                                                                          7,484,757          7,581,874
   Effect of assumed exercise of employee stock options                                   -            442,466
   Effect of assumed exercise of warrants                                                 -                  -
                                                                                 ----------          ---------

   Diluted weighted average number of shares outstanding                          7,484,757          8,024,340
                                                                                  =========          =========
</TABLE>

     Basic  net  income   (loss)  per  common   share  is  computed   using  the
weighted-average  number of common shares outstanding during the period. Diluted
net income  (loss) per share is computed  using the  weighted-average  number of
common and dilutive  common  equivalent  shares  (consisting  of employee  stock
options,  warrants and preferred stock) outstanding  during the period.  Diluted
net loss per common  share for the three and nine months ended March 31, 2004 is
computed  using  the  weighted  average  number of common  shares  and  excludes
dilutive  potential  common shares  outstanding of  approximately  2,316,582 and
1,340,654, respectively, as their effect is anti-dilutive.


7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

                                                                        March 31,           June 30,
                                                                           2004               2003
                                                                         -------            -------
Claims payable                                                        $   92,773           $ 76,195
Rebates payable to sponsors                                               32,819             24,082
Trade payables, accrued expenses and other payables                       10,563              6,398
                                                                        --------           ---------
                                                                      $  136,155          $ 106,675
                                                                        ========           ========
</TABLE>


8. RELATED PARTY TRANSACTIONS

     As of January 1, 2002,  the  Company  had  eliminated  the  majority of its
historical related party service  transactions with the exception being rent and
some  administrative  services.  For the  periods  presented,  certain  general,
administrative and other expenses reflected in the financial  statements include
allocations of certain  corporate  expenses from  affiliates,  which  management
believes were made on a reasonable basis.

     General and administrative expenses related to transactions with affiliates
included in the  statement  of income were $190 for the three months ended March
31, 2004 and $269 for the three  months  ended March 31,  2003.  Included in the
statement  of income  for the nine  months  ended  March 31,  2004 and 2003 were
general and  administrative  expenses related to transactions with affiliates of
$668 and $789, respectively.

     Amounts due from affiliates at June 30, 2003 included a note from a company
affiliated by common  ownership.  As of March 31, 2004,  the entire  balance due
from this  affiliate,  including  accrued  interest,  was  paid.  This note bore
interest at 8.5% per annum,  payable  quarterly.  The note was collateralized by
1,022,758  shares of $.001 par value common stock of the Company  registered  in
the name of the  Company's  former  Chairman of the Board and was secured by his
personal guarantee.

     On February 8, 2001, the President gave to the Company his Promissory  Note
in the amount of $34 as evidence of the loan. On April 12, 2002,  the Promissory
Note was amended and the Company  agreed to increase the loan to $100.  The loan
bore  interest  at 8%,  and was due on April 25,  2003.  The  interest  rate was
lowered  effective July 1, 2002 to the rate at which the Company  borrows money.
The repayment  obligation under the Promissory Note,  including accrued interest
has been  satisfied  through a set-off  from the bonus paid to the  President in
July 2003 as part of his annual compensation.

     In  connection  with  a  potential  bonus,  to  be  earned  pursuant  to an
employment  agreement dated September 30, 2002,  between the former president of
the Company's mail order operations and the Company, the Company loaned him $250
as an  advance  against  the  potential  bonus.  The  loan  was  evidenced  by a
promissory note made in favor of the Company.  The loan bore an interest rate of
9% and was due and payable on September  30, 2003 in the event the bonus was not
earned. A bonus has been paid and the loan repaid as of January 2004.

     The Company  currently  occupies office space at 26 Harbor Park Drive, Port
Washington,  New York 11050 (the "Leased  Premises").  The Company subleases the
Leased  Premises  from an  affiliate  of the former  Chairman  of the Board (the
"Affiliate").  The Affiliate has the right to purchase the Leased  Premises from
the landlord upon expiration of this lease in March 2005 for a purchase price of
$1. The Affiliate subleases a portion of the Leased Premises to the Company (the
"Lease"). Additional space is currently being built in the Leased Premises which
will allow the Company to reconfigure  its existing space and to move all of its
employees in Port Washington into contiguous  space. As of October 23, 2003, the
Company and the Affiliate  amended the Lease.  Effective when the space is ready
for occupancy,  the Company will lease  additional  square footage in the Leased
Premises.  The total square  footage  leased by the Company at that time will be
37,108.  The annual  rent will then be $580 per annum plus  expenses  related to
real estate  taxes,  utilities  and  maintenance  which are paid directly to the
entities to whom payment must be made.  Annual rent increases will be based upon
the Consumer  Price Index plus 2.5% subject to a maximum annual cap of 3.5%. The
lease  expires ten years from the occupancy  date. In addition,  the Company has
early  termination  rights  which it may exercise by delivery of a notice to the
landlord  60 days  prior to the end of the  December  31,  2008 lease  year.  In
consideration  of such early  termination  rights,  the Company would pay to the
Affiliate  the rent that  would  otherwise  be  payable  by the  Company  to the
Affiliate for the succeeding 30 months,  subject to adjustments if the Affiliate
is able to lease the Leased  Premises  to  another  party  during  said 30 month
period. Leasehold improvements made to this facility were $1,421 during the nine
months ended March 31, 2004.

9. MAJOR CUSTOMERS AND PHARMACIES

     For the three and nine months ended March 31, 2004,  approximately  42% and
41%, respectively,  of the consolidated revenue of the Company was from two plan
sponsors,   MVP  Health  Plan,   Inc.  and  Boston  Medical  Center   HealthNet,
administering  multiple  plans.  For the three  months  ended  March  31,  2003,
approximately  32% of the consolidated  revenue of the Company was from one plan
sponsor  administering  multiple plans. For the nine months ended March 31, 2003
approximately  39% of the consolidated  revenue of the Company was from two plan
sponsors  administering  multiple plans. Amounts due from the two sponsors as of
March 31, 2004 approximated $12.3 million.

     For the three  months  ended  March 31, 2004  approximately  23% of cost of
claims was from two pharmacy chains.  For the three months ended March 31, 2003,
approximately  18% of the cost of claims was from one  pharmacy  chain.  For the
nine months ended March 31, 2004 and March 31, 2003,  approximately 17% and 21%,
respectively, of cost of claims were from one pharmacy chain. Amounts payable to
the two pharmacy chains at March 31, 2004 were approximately $16.9 million.

10. SUPPLEMENTAL CASH FLOW INFORMATION

     During the nine months ended March 31, 2004 and March 31, 2003, the Company
paid  $519  and  $887 in  interest  and  $1,566  and  $2,611  in  income  taxes,
respectively. In a non-cash transaction, the Company issued 41,668 shares of its
common stock, valued at $250, as additional  compensation to the shareholders of
PAI in August 2002.

11.      LITIGATION

     An action was  commenced  against  the Company on April 30, 2002 by Midwest
Health Plan Inc.  ("MHP" or "Midwest") in the United States  District  Court for
the Eastern District of Michigan.  The amended  complaint  alleges,  among other
things,  that  the  parties  entered  into  a  contract  dated  July  1999  (the
"Agreement"),  and further  alleges that the Company has 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.  MHP is
seeking  $3  million  dollars  in  damages.  The  Company  filed an  answer  and
counterclaim on June 12, 2002. In the counterclaim,  the Company claimed damages
in excess of $2.8 million based on Midwest's failure to pay under a contract. In
late June  2002,  Midwest  agreed to make two  payments  in the  amount of $1.34
million and $1.36  million to  partially  settle the  Company's  claims  against
Midwest.  Midwest has now added a fiduciary duty claim. The Company continues to
have counterclaims  totaling over $200,000 against Midwest for Midwest's failure
to pay the amounts it had agreed to pay Health Card for goods and services.  The
Company argued its motion for partial summary judgment and motion to dismiss the
fiduciary  duty claim in February,  2004 and is  currently  awaiting the court's
decision  on such  motions.  The court  has not set a trial  date.  The  Company
intends to  vigorously  defend the  action.  The Company is unable to provide an
estimate of any particular  loss, if any,  which may be associated  with the MHP
claims.

12. SUBSEQUENT EVENTS

     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 the pharmacy  benefit
management business (the "Inteq  Acquisition").  The aggregate purchase price of
the Inteq  Acquisition was $31,500 in cash. In addition,  the Company has 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 achieves certain financial  performance
targets during the one-year  period  following the closing.  Funds for the Inteq
Acquisition  were supplied from proceeds from the New Mountain  Transaction  and
from the Company's revolving credit facility (See Note 4).

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

Results of Operations

Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

     Revenue increased $33.2 million,  or approximately 26%, from $126.5 million
for the three  months  ended  March 31,  2003,  to $159.7  million for the three
months ended March 31, 2004.  Revenue  recognized  for  contracts  recorded on a
gross revenue basis was $126.1 million for the three months ended March 31, 2003
and $158.9 million for the three months ended March 31, 2004. Revenue recognized
for  contracts  recorded on a net revenue  basis was $0.4  million for the three
months  ended March 31, 2003 and $0.8  million for the three  months ended March
31, 2004.  The specific terms of the contracts that Health Card enters into with
its sponsors will  determine  whether  Health Card  recognizes the gross revenue
related to the cost of the prescriptions filled. For those contracts that Health
Card  recognizes  net revenue,  there is no impact on gross profit since neither
the prescription revenue nor the related costs of the prescriptions is recorded.
Health Card  includes in revenue  only those  co-payments  collected in its mail
order facility in Miramar,  Florida.  For the three months ended March 31, 2004,
there was approximately  $901,000 of co-payments included in revenue versus zero
for the three months ended March 31, 2003. Co-payments retained by pharmacies on
prescriptions filled for Health Card's members and not included in Health Card's
revenue were $52.7 million and $46.0  million,  for the three months ended March
31, 2004 and 2003, respectively.

     Of the $33.2  million  increase in revenue in the three  months ended March
31, 2004, $4.6 million was due to the inclusion of PPP which was included in the
revenue for the quarter ended March 31, 2004, but not in the quarter ended March
31, 2003.  Another  approximate $24.7 million of the increase was due to revenue
related to new sponsors or new services  offered  during the quarter ended March
31, 2004  excluding  contracts  recorded on a net revenue  basis.  An additional
increase of  approximately  $27.9  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 $21.6 million.  In addition,  there was an
approximate  $2.4  million  increase  in the amount of  rebates  paid out to the
Company's customers which has the effect of reducing revenue.

     Cost of claims increased $28.2 million,  or approximately  25%, from $114.7
million for the three  months ended March 31,  2003,  to $142.9  million for the
three  months  ended  March 31,  2004.  PPP  accounted  for $3.9  million of the
increase.  Increases  in cost of claims  totaling  approximately  $47.7  million
related  to the  activity  of new  sponsors  as well as the  growth in  existing
sponsors  were  partially  offset by the loss of sponsors  which reduced cost of
claims by approximately $19.6 million.  In addition,  cost of claims was reduced
by the fact  that  there  was an  increase  of $3.8  million  in  gross  rebates
received,  which is treated as a reduction in cost of claims. As a percentage of
revenue, cost of claims decreased from 90.7% to 89.5% for the three months ended
March 31,  2003 and March 31,  2004,  respectively.  The  contracts  the Company
recognized  on a net revenue  basis  decreased  the overall  Company  costs as a
percentage  of revenue  due to the cost not being  recognized  on the  contracts
recorded on the net revenue basis.  The acquisition of PPP in July 2003 also had
an impact in  reducing  the  Company's  overall  cost of claims as a percent  of
revenue as specialty  pharmacy  distribution  typically  generates lower cost of
claims than a PBM.

     Gross profit  increased from $11.8 million for the three months ended March
31, 2003 to $16.8  million for the three  months  ended March 31,  2004;  a $5.0
million, or 42.2%, increase. In addition to increases in gross profit related to
the increases in revenue,  PPP added approximately  $700,000 to gross profit and
the  Company's  mail order  distribution  facility  in  Miramar,  Florida  added
approximately  $600,000 to gross  profit.  Net  rebates  retained by the Company
added  another  approximate  $1,500,000  to gross  profit.  Gross  profit,  as a
percentage of revenue,  increased  from 9.3% to 10.5% for the three months ended
March 31,  2003 and March 31,  2004,  respectively.  The  contracts  the Company
recognizes  on a net revenue  basis have the effect of improving  the  Company's
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 the  Company  charges  its  sponsors,  have  had the  effect  of  partially
offsetting the increases in gross margin described above.

     Selling,  general,  and administrative  expenses increased $5.5 million, or
approximately  64%,  from $8.7 million for the three months ended March 31, 2003
to $14.2 million for the three months ended March 31, 2004.  Approximately  $2.0
million,  or 36%,  of this  increase  in selling,  general,  and  administrative
expenses is related to new entities  which were part of the Company in the three
months  ended March 31, 2004 but were not part of the Company  during all of the
three  months  ended March 31, 2003.  The  services  provided by these  entities
include specialty pharmacy distribution through the Company's acquisition of PPP
as of July 31, 2003 (see Note 3 of Item 1), and mail order distribution  through
the  Company's  owned  facility in Miramar,  Florida as of July 2003.  The major
components of the $2.0 million increase in expenses related to new services was:
1) salaries and  benefits -  approximately  $826,000,  2) postage and supplies -
approximately  $158,000,  3) equipment rental - approximately  $141,000,  and 4)
depreciation and amortization - approximately $130,000.

     Included in  selling,  general and  administrative  expenses  for the three
months  ended  March 31, 2004 were  approximately  $1,881,500  of  non-recurring
expenses  related to the New  Mountain  Transaction  including:  1)  transaction
bonuses  and  a  severance  payment  totaling  $1,542,500,  and  2)  a  non-cash
compensation  charge of  approximately  $339,000  related to the acceleration of
stock  options  for two  directors  who  resigned  upon the  closing  of the New
Mountain Transaction.

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately  $79,000, or 29%,  year-over-year  from approximately  $269,000 to
approximately  $190,000  for the three months ended March 31, 2003 and March 31,
2004,  respectively.  The decrease reflects the Company's  continuing efforts to
reduce services provided by affiliates.

     Selling,  general,  and  administrative  expenses  as a percent  of revenue
increased  from 6.9% for the three  months  ended March 31, 2003 to 8.9% for the
three months ended March 31, 2004.

     The approximate $1.9 million in  non-recurring  expenses related to the New
Mountain  Transaction,  as  described  above,  led to  1.2% of the  increase  in
expenses as a percent of revenue. In addition,  the new services described above
also led to an increase in expenses as a percent of revenue,  particularly  mail
order  which  led to an  increase  of 0.8% due to the fact that  resources  were
required to be hired in advance of the revenue.

     For the three  months ended March 31, 2003,  the Company  recognized  other
expense,  net, of approximately  $212,000.  For the three months ended March 31,
2004, the Company  recognized  other income,  net of approximately  $7,000.  The
components  of the  approximate  $219,000  increase  in  other  income  were  an
approximate  $196,000  decrease in interest  expense  incurred on the  Company's
revolving  credit  facility (See Note 4 to the Financial  Statements  comprising
Item 1 of Part 1 of this Form 10-Q), an approximate $51,000 increase in interest
income,  and an  approximate  $28,000  decrease in other  income  related to the
disposal of certain assets upon the move into a new facility in Portland,  Maine
for the  Company's  specialty  pharmacy  operations.  The  decrease  in interest
expense  is  primarily  due to  the  Company's  increased  cash  generated  from
operations  and the fact that interest rates on the Company's  revolving  credit
facility have declined year over year.

     Income before the provision for income taxes decreased  approximately  $0.3
million,  or 10%, from approximately  $2.9 million,  for the quarter ended March
31, 2003,  to  approximately  $2.6 million for the quarter ended March 31, 2004.
The main  factor  leading  to the  decrease  in income  was the $1.9  million of
non-recurring  expenses related to the New Mountain  Transaction.  Excluding the
New Mountain transaction expenses,  the primary factors from on-going operations
leading to the increase in income were the gross profit increase described above
and the reduction in interest expense offset by the increase in selling, general
and administrative expenses related to the new activities.

     The effective tax rate was  approximately  41% for both periods  presented.
The tax rate of 41% represents the Company's  current estimated tax rate for the
full fiscal year.

     Net income for the  quarter  ended March 31,  2004 was  approximately  $1.6
million as compared to  approximately  $1.7 million for the quarter  ended March
31, 2003; a 10% decrease. The decline in net income is primarily attributable to
the  non-recurring  expenses related to the New Mountain  Transaction.  The $1.9
million of New Mountain  expenses less an income tax benefit of $0.8 million led
to the decline in net income year-over-year.

     There were three other charges  against  income (loss)  available to common
shareholders  related  to the  New  Mountain  Transaction.  These  include:  (i)
preferred  stock cash dividends -  approximately  $199,000.  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 (See Note 3 of Part 1, Item 1). The dividend of approximately  $199,000
represents the amount accrued and paid for the thirteen days from the closing of
the New Mountain  Transaction  to March 31,  2004,  (ii)  beneficial  conversion
feature - $80  million.  This  non-recurring,  non-cash  charge  represents  the
difference  between the fair market value of the  Company's  common stock on the
date of the closing of the New Mountain Transaction and the effective conversion
price of $11.29,  and which is limited to the $80 million purchase price for the
preferred  stock,  and (iii)  accretion of transaction  expenses - approximately
$17,000.  Certain  transaction costs related to the New Mountain preferred stock
investment of approximately  $4.7 million are 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.  The approximate $17,000 charge for the three months ended March 31,
2004 represents accretion for thirteen days.

     After  deducting  these three  charges from net income there was a net loss
available to common  shareholders of  approximately  $78.7 million for the three
months ended March 31, 2004.  Since there was a loss,  diluted EPS for the three
months ended March 31, 2004 equals basic EPS of ($11.17).

     While net income available to common shareholders  excluding  non-recurring
New Mountain  transaction items is not a measure of financial  performance under
accounting principles generally accepted in the United States, it is provided as
information for investors for analysis  purposes in evaluating the effect of the
New Mountain  transaction on net (loss) income available to common shareholders.
Net income available to common shareholders excluding non-recurring  transaction
items is not meant to be considered a substitute or  replacement  for net income
or net (loss) income available to common  shareholders as prepared in accordance
with  accounting  principles  generally  accepted  in  the  United  States.  The
reconciliation  from net (loss) income  available to common  shareholders to net
income  available to common  shareholders  excluding  non-recurring  transaction
items related to the New Mountain transaction, is as follows (all amounts are in
thousands):


                                                 Three Months Ended
                                      -----------------------------------------
                                      -----------------------------------------
                                        March 31, 2004        March 31, 2003
                                      -------------------   -------------------

Net (loss) income available to
 common shareholders                        $   (78,652)           $     1,735

Add back:
Beneficial conversion feature                    80,000                      -
Transaction bonuses and
  severance payment, net of
  income tax benefit                                910                      -
Compensation charge related to
  the acceleration of directors
  options, net of income tax
  benefit                                           200                      -
                                         ----------------      ----------------
                                         ----------------      ----------------

Net income available to common
  shareholders excluding
  non-recurring New Mountain
  transaction items                          $     2,458           $     1,735
                                             ===========           ===========

Net income per common share excluding non-recurring New Mountain transaction
  items:
  Basic                                      $      0.35           $      0.23
  Diluted                                    $      0.29           $      0.22

Weighted average number of common shares outstanding:
   Basic                                           7,044                 7,611
   Diluted                                         8,366                 8,067


Nine Months Ended March 31, 2004 Compared to Nine Months Ended March 31, 2003

     Revenue increased $49.6 million,  or approximately 12%, from $424.9 million
for the nine months ended March 31, 2003, to $474.5  million for the nine months
ended March 31,  2004.  Revenue  recognized  for  contracts  recorded on a gross
revenue  basis was $424.0  million for the nine months  ended March 31, 2003 and
$472.6 million for the nine months ended March 31, 2004.  Revenue recognized for
contracts  recorded on a net revenue  basis was $0.9 million for the nine months
ended March 31, 2003 and $1.9  million for the nine months ended March 31, 2004.
The  specific  terms of the  contracts  that  Health  Card  enters into with its
sponsors will determine whether Health Card recognizes the gross revenue related
to the cost of the  prescriptions  filled.  For those contracts that Health Card
recognizes  net revenue,  there is no impact on gross  profit since  neither the
prescription  revenue nor the related  costs of the  prescriptions  is recorded.
Health Card  includes in revenue  only those  co-payments  collected in its mail
order  facility.   For  the  nine  months  ended  March  31,  2004,   there  was
approximately  $1,061,000 of co-payments included in revenue versus zero for the
nine  months  ended  March 31,  2003.  Co-payments  retained  by  pharmacies  on
prescriptions filled for Health Card's members and not included in Health Card's
revenue were $150.2 million and $120.3 million,  for the nine months ended March
31, 2004 and 2003, respectively.

     Of the $49.6 million increase in revenue in the nine months ended March 31,
2004,  $11.9  million was due to the  inclusion of PPP which was included in the
revenue for the nine months  ended  March 31,  2004,  but not in the nine months
ended March 31, 2003. Another  approximate $57.1 million of the increase was due
to revenue  related to new  sponsors  or new  services  offered  during the nine
months ended March 31, 2004 excluding contracts recorded on a net revenue basis.
An additional  increase of approximately $53.9 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
partially offset by revenue decreases related to: 1) the termination of existing
customer contracts including a major sponsor, which terminated its contract with
Health Card  effective  December 31, 2002,  leading to a reduction in revenue of
approximately  $58.3 million,  2) the Company  recognized on a net revenue basis
one contract  during the nine months ended March 31, 2004 that was recognized on
a gross  revenue  basis for four months  during the nine months  ended March 31,
2003.  Due to a change in  contract  terms  effective  November  1,  2002,  this
customer's  revenue was  recognized on a net basis from that point.  The revenue
impact of this change was a reduction  in gross  revenue of  approximately  $9.1
million,  and 3) rebates  payable to the  Company's  sponsors  increased by $5.9
million for the nine months  ended March 31, 2004 as compared to the nine months
ended March 31, 2003. Since these rebates are treated as a reduction in revenue,
this led to a reduction in the overall year-over-year revenue increase.

     Cost of claims increased $37.9 million,  or approximately  10%, from $390.5
million for the nine months ended March 31, 2003, to $428.4 million for the nine
months ended March 31, 2004.  PPP  accounted  for $9.9 million of the  increase.
Increases in cost of claims totaling approximately $102.7 million related to the
activity  of new  sponsors  as well as the  growth  in  existing  sponsors  were
partially offset by the factors described in the previous paragraph, namely, the
loss of sponsors which reduced cost of claims by approximately $57.2 million and
the recognizing of a certain  contract on a net revenue basis which reduced cost
of claims by approximately $9.1 million. In addition, cost of claims was reduced
by the fact  that  there  was an  increase  of $8.4  million  in  gross  rebates
received,  which is treated as a reduction in cost of claims. As a percentage of
revenue,  cost of claims decreased from 91.9% to 90.3% for the nine months ended
March 31, 2003 and March 31, 2004, respectively.  These same factors contributed
to the declining costs as a percentage of revenue.  The terminated major sponsor
is a managed  care  organization.  Industry-wide,  managed  care  clients have a
greater cost of claims, and consequently a lower gross margin,  than other types
of business in the PBM industry.  While not all of the revenue  associated  with
this sponsor was replaced by new business,  the new business,  for the most part
was not managed care, so consequently the cost of claims on the new business was
lower than on the business it replaced. In addition, the contracts recognized on
a net revenue  basis  decrease  the overall  Company  costs as a  percentage  of
revenue due to the cost not being  recognized on the  contracts  recorded on the
net revenue  basis.  The  acquisition  of PPP in July 2003 also had an impact in
reducing  the cost of claims as a  percent  of  revenue  as  specialty  pharmacy
distribution typically generates lower cost of claims than a PBM.

     Gross profit  increased  from $34.4 million for the nine months ended March
31, 2003 to $46.0  million for the nine months  ended March 31,  2004,  an $11.6
million, or 33.9%, increase. In addition to increases in gross profit related to
the  increases  in  revenue,  PPP added  $2.0  million  to gross  profit and the
Company's mail order distribution  facility added  approximately $0.8 million to
gross profit. Net rebates retained by the Company added another approximate $2.8
million to gross profit.  The  replacement of the terminated  major sponsor with
new greater  margin  business also led to greater gross profits for the Company.
Gross profit,  as a percentage of revenue,  increased  from 8.1% to 9.7% for the
nine months ended March 31, 2003 and March 31, 2004, respectively. The contracts
the Company  recognizes  on a net revenue basis have the effect of improving the
Company's  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 the  Company  charges  its  sponsors  has had the  effect  of
partially offsetting the increases in gross margin described above.

     Selling,  general, and administrative  expenses increased $10.9 million, or
approximately  42%,  from $25.7 million for the nine months ended March 31, 2003
to $36.6  million for the nine months ended March 31, 2004.  Approximately  $4.1
million,  or 55%,  of this  increase  in selling,  general,  and  administrative
expenses is related to new  entities  which were part of the Company in the nine
months ended March 31, 2004 which were not part of the Company during all of the
nine months  ended  March 31,  2003.  The  services  provided by these  entities
include specialty  pharmacy  distribution  through the Company's  acquisition of
PPP,   predictive   modeling  and  consulting  services  through  the  Company's
acquisition  of  Integrail,  and mail order  distribution  through the Company's
owned  facility in Miramar,  Florida.  The major  components of the $4.1 million
increase in expenses  related to new  services  was: 1) salaries  and benefits -
approximately  $2,107,000,  2) postage and supplies - approximately $467,000, 3)
equipment  rental  -  approximately   $320,000,  4)  insurance  -  approximately
$232,000,  5)  marketing  -  approximately  $195,000  and  6)  depreciation  and
amortization - approximately $323,000.

     Included  in  selling,  general and  administrative  expenses  for the nine
months  ended  March 31, 2004 were  approximately  $1,881,500  of  non-recurring
expenses  related to the New  Mountain  Transaction  including:  1)  transaction
bonuses  and  a  severance  payment  totaling  $1,542,500,  and  2)  a  non-cash
compensation  charge of  approximately  $339,000  related to the acceleration of
stock  options  for two  directors  who  resigned  upon the  closing  of the New
Mountain Transaction.

     Of the remaining approximate $4.9 million increase in selling,  general and
administrative  expenses  during  the nine  months  ended  March 31,  2004,  the
majority of the increase is related to the  increased  revenue and volume in the
PBM.  Salary  and  benefits  related to new hires,  temporary  help,  travel and
entertainment,  and  commissions  to internal  sales  people as well as external
brokers  have all  increased  year  over  year due to the  increased  volume  of
activity.

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately  $121,000, or 15%,  year-over-year from approximately  $789,000 to
approximately  $668,000  for the nine months  ended March 31, 2003 and March 31,
2004,  respectively.  The decrease  reflects the fact that these  related  party
services are continuing to be replaced by Company employees.

     Selling,  general,  and  administrative  expenses  as a percent  of revenue
increased  from 6.0% for the nine  months  ended  March 31, 2003 to 7.7% for the
nine months ended March 31, 2004. The approximate  $1.9 million in non-recurring
expenses  related to the New Mountain  Transaction,  as described  above, led to
0.4% of the increase in expenses as a percent of revenue. In addition, the three
new services described above also accounted for 0.9% of the increase in expenses
as a  percentage  of  revenue  particularly  mail  order  due to the  fact  that
resources were required to be hired in advance of the revenue.

     For the nine months  ended March 31, 2003 and March 31,  2004,  the Company
recognized  other  expense,   net,  of  approximately   $639,000  and  $256,000,
respectively.  The main component of the approximate  $383,000 decrease in other
expense was an approximate $422,000 decrease in interest expense incurred on the
Company's  revolving  credit  facility  (See  Note 4 of Part 1,  Item  1).  This
decrease was partially  offset by an  approximate  $14,000  decrease in interest
income due to the affiliated  company note being repaid as of July 31, 2003 (See
Note 8 of Part 1, Item 1) and an  approximate  $25,000  decrease in other income
related to the  disposal of certain  assets upon the move into a new facility in
Portland, Maine for the Company's specialty pharmacy operations. The decrease in
interest expense is primarily due to the Company's increased cash generated from
operations  and the fact that interest rates on the Company's  revolving  credit
facility have declined year over year.

     Income before the provision for income taxes increased  approximately  $1.2
million,  or 15%, from  approximately  $8.0  million,  for the nine months ended
March 31, 2003,  to  approximately  $9.2 million for the nine months ended March
31, 2004. Excluding the New Mountain transaction  expenses,  the primary factors
from on-going operations leading to the increase in income were the gross profit
increase  described  above and the reduction in interest  expense  offset by the
increase in  selling,  general and  administrative  expenses  related to the new
activities.

     The effective tax rate was  approximately  41% for both periods  presented.
The tax rate of 41% represents the Company's  current estimated tax rate for the
full fiscal year.

     Net income for the nine months ended March 31, 2004 was approximately  $5.4
million as  compared to  approximately  $4.7  million for the nine months  ended
March 31, 2003; a 15% increase. This overall increase in net income was impacted
by the $1.9 million  non-recurring  expenses  less an income tax benefit of $0.8
million related to the New Mountain Transaction.

     There were three other charges  against  income (loss)  available to common
shareholders  related  to the  New  Mountain  Transaction.  These  include:  (i)
preferred  stock cash dividends -  approximately  $199,000.  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 (See Note 3 of Part 1, Item 1). The dividend of approximately  $199,000
represents the amount accrued and paid for the thirteen days from the closing of
the New Mountain  Transaction  to March 31,  2004,  (ii)  beneficial  conversion
feature - $80  million.  This  non-recurring,  non-cash  charge  represents  the
difference  between the fair market value of the  Company's  common stock on the
date of the closing of the New Mountain Transaction and the effective conversion
price of $11.29,  and which is limited to the $80 million purchase price for the
preferred  stock,  and (iii)  accretion of transaction  expenses - approximately
$17,000.  Certain  transaction costs related to the New Mountain preferred stock
investment of approximately  $4.7 million are 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.  The approximate $17,000 charge for the three months ended March 31,
2004 represents accretion for thirteen days.

     After  deducting  these three  charges from net income there was a net loss
available to common  shareholders  of  approximately  $74.8 million for the nine
months  ended March 31, 2004.  Since there was a loss,  diluted EPS for the nine
months ended March 31, 2004 equals basic EPS of ($9.99).

     While net income available to common shareholders  excluding  non-recurring
New Mountain  transaction items is not a measure of financial  performance under
accounting principles generally accepted in the United States, it is provided as
information for investors for analysis  purposes in evaluating the effect of the
New Mountain  transaction on net (loss) income available to common shareholders.
Net income available to common shareholders excluding non-recurring  transaction
items is not meant to be considered a substitute or  replacement  for net income
or net (loss) income available to common  shareholders as prepared in accordance
with  accounting  principles  generally  accepted  in  the  United  States.  The
reconciliation  from net (loss) income  available to common  shareholders to net
income  available to common  shareholders  excluding  non-recurring  transaction
items related to the New Mountain transaction, is as follows (all amounts are in
thousands):

                                                 Nine Months Ended
                                      -----------------------------------------
                                      -------------------   -------------------
                                        March 31, 2004        March 31, 2003
                                      -------------------   -------------------

Net (loss) income available to
 common shareholders                       $   (74,787)          $     4,738

Add back:
Beneficial conversion feature                   80,000                     -
Transaction bonuses and
  severance payment, net of
  income tax benefit                               910                     -
Compensation charge related to
  the acceleration of directors
  options, net of income tax
  benefit                                          200                     -
                                      -------------------   -------------------
                                      -------------------   -------------------
Net income available to common
  shareholders excluding
  non-recurring New Mountain
  transaction items                          $     6,323           $     4,738
                                             ===========           ===========

Net income per common share excluding non-recurring New Mountain transaction
 items:
  Basic                                      $      0.84           $      0.62
  Diluted                                    $      0.74           $      0.59

Weighted average number of common shares outstanding:
   Basic                                           7,485                 7,582
   Diluted                                         8,578                 8,024

Liquidity and Capital Resources

     The Company's  primary cash  requirements are for capital  expenditures and
operating  expenses,  including cost of  pharmaceuticals,  software and hardware
upgrades  and the  funding of  accounts  receivable.  Effective  July 2003,  the
Company  requires  cash to carry  inventory  in its  mail  order  and  specialty
pharmacy facilities.  Also, the Company requires cash to execute its strategy of
pursuing  acquisitions of other PBM companies or of companies  providing related
services.  As of March 31, 2004,  the Company had a working  capital  deficit of
$6.8  million as compared to a working  capital  deficit of $32.6  million as of
June 30, 2003. The primary reason for the  improvement in working capital during
the three  months  ended  March 31,  2004 was the  remaining  proceeds  from the
issuance and sale of the series A preferred stock to New Mountain  Partners,  LP
of  approximately  $24 million  (See Note 3 of Item 1). These funds were used on
April 1,  2004 to  complete  the Inteq  acquisition  (See Note 12 of Item 1) and
consequently working capital has declined immediately after the acquisition.  In
addition,  the  profitability  generated  by the Company  during the nine months
ended March 31, 2004 is the other reason for the improvement in working capital.
This  improvement  was achieved even after the $3.7 million in cash paid for the
acquisition  of  PPP  and  the  $2.5  million  current  liability  incurred  for
additional  consideration  to be paid in  connection  with the  Centrus  and PPP
acquisitions.  These transactions increased goodwill and other intangible assets
which are long-term assets,  while decreasing  working capital.  The Company has
now acquired six companies  since July 2000 utilizing  primarily  cash. This has
had the effect of  increasing  the  Company's  working  capital  deficits  until
sufficient profitability is generated to pay back the cost of the acquisitions.

     Net cash  provided by operating  activities  was $20.4 million for the nine
months ended March 31, 2004. Net cash provided by operating  activities was $7.4
million for the nine months  ended March 31,  2003.  The main factor that led to
the $13.0 million  increase in cash provided by operations was the $27.8 million
increase  in the change in accounts  payables  and  accrued  expenses  which was
partially  offset  by  the  $16.6  million  increase  in  accounts  and  rebates
receivables.

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

     Net cash used in investing  activities was $6.5 million for the nine months
ended March 31,  2004,  as compared  to $3.8  million for the nine months  ended
March 31, 2003. The primary  differences in the two periods were the acquisition
of PPP and the repayment of affiliate  loans in the period ended March 31, 2004,
and a $4.2 million  increase in capital  expenditures  for the nine months ended
March 31, 2004 as compared to the nine months ended March 31, 2003. The net cash
outlay  for PPP was $3.7  million,  representing  the  initial  payment  of $3.2
million to the  Sellers,  $609,000  to pay off PPP's  bank debt plus  $77,000 of
related  expenses.  Cash in the amount of approximately  $177,000 was assumed in
the acquisition.  In addition,  approximately  $499,000 has been accrued through
March 31, 2004 as additional purchase price related to an earn-out provision.

     During the nine months  ended March 31, 2004,  the Company  repaid a net of
approximately  $15.6 million under its revolving credit facility.  The repayment
of the affiliated  note plus the increased  profitability  and related cash flow
enabled the Company to borrow less during the nine  months.  The issuance of the
Company's  series A preferred stock net of the purchase of the Company's  shares
in the tender offer provided net cash of  approximately  $24 million (See Note 3
of Part 1, Item 1). In addition employees of the Company exercised stock options
which  generated  $2.6  million of cash for the  Company  during the nine months
ended March 31, 2004.

     On January 29,  2002,  the  Company  entered  into a $40 million  revolving
credit  facility (the  "Facility"),  details of which are set forth in Note 4 to
the  financial  statements  in Part 1.  Borrowings  of $28.7  million  under the
Facility  were  used to  finance  part of the  purchase  price of the  Company's
acquisition of Centrus.  The Facility  contains  various  covenants that,  among
other things,  require the Company to maintain certain  financial  ratios. As of
May 3, 2004 approximately  $4.6 million was outstanding under the Facility,  and
the Company was in compliance with its financial covenants.

     Three of these  financial  covenants  are based upon the  EBITDA  (earnings
before interest,  taxes, depreciation and amortization) generated by the Company
over specified  periods of time. These covenants,  EBITDA for the current fiscal
quarter,  interest  coverage ratio,  and debt service  coverage for the previous
twelve  months,  are  evaluated  by the  Lender  as a measure  of the  Company's
liquidity  and its ability to meet all of its  obligations  under the  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  nor liquidity under generally
accepted accounting principles,  it is provided as information for investors for
analysis 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  accounting  principles  generally  accepted in the
United  States.  EBITDA,  including the $1.9 million of  non-recurring  expenses
related to the New Mountain  Transaction,  which increased by approximately $1.7
million or 14%,  from $12.0  million for the nine months ended March 31, 2003 to
$13.7 million for the nine months ended March 31, 2004, 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>

                                                       Nine Months Ended March 31,
                                                   2004                      2003
                                         ------------------------- --------------------------
                                         ------------------------- --------------------------
Cash flow from operations                        $   20,415                $   7,353
Provision for income taxes                            3,773                    3,293
Interest (income) expense, net                          346                      754
Net change in assets and
  liabilities                                       (10,384)                   1,119
Non-cash items to reconcile
  net cash from operations to
  net income                                           (467)                    (476)
                                         ------------------------- --------------------------
                                         ------------------------- --------------------------
EBITDA                                           $   13,683               $   12,043
                                         ========================= ==========================
</TABLE>

     The  Company  has entered  into  various  capital  lease  transactions  for
hardware and  software.  The Company has also  assumed  various  capital  leases
through its  acquisitions.  The  principal  balance of all capital  leases as of
March 31, 2004 was approximately $449,000.

     The Company has entered into various real estate operating leases with both
related and unrelated  parties.  The Company has entered into various  operating
leases and a sale-leaseback  with unrelated third parties for office  equipment.
These leases have different payment terms and expiration dates. The Company also
entered  into  a   sale-leaseback   operating  lease  of  certain  fixed  assets
(principally  computer  hardware  and  externally  developed  software)  with an
affiliate of the Company's former Vice Chairman.  See Note 9 to the Consolidated
Financial  Statements  comprising Item 8 of Form 10-K, as amended,  for the year
ended June 30, 2003 for a further description of these various leases.

     The total future payments under these  contractual  obligations as of March
31, 2004, are as follows:
<TABLE>
                                                <S>     <C>    <C>    <C>    <C>    <C>    <C>

Contractual Obligations                            Payments Due by Period
                                                     ($ in thousands)

                                          Total           Less than         1-3 Years          3-5            After
                                                           1 Year                             Years          5 Years
                                        -----------     --------------      ----------      ----------      ----------
                                        -----------     --------------      ----------      ----------      ----------
Long Term Debt                          $       36      $          36       $       -       $       -               -
Capital Lease Obligations                      449                436              13               -               -
Operating Leases                            16,928              4,302           7,908           2,704           2,014
Sale-leasebacks                                644                399             245               -               -
                                        -----------     --------------      ----------      ----------      ----------
                                        -----------     --------------      ----------      ----------      ----------
   Total Contractual Cash
        Obligations                     $   18,057      $       5,173       $   8,166       $   2,704           2,014
                                        ===========     ==============      ==========      ==========      ==========
</TABLE>

     The members of PMP are eligible to receive  additional  consideration of up
to  $1,000,000  if certain PMP clients are  retained  over the first three years
after  acquisition.  These  targets  were not met in the  first  two years so no
additional  consideration was due and payable.  It is the Company's  expectation
that these amounts will not be earned in the third year either as the identified
clients were not generally retained directly, although they were replaced.

     The   shareholders   of  Centrus  are   eligible   to  receive   additional
consideration  of up  to  $4,000,000,  payable  over  three  years,  if  certain
financial  targets  are met over the  first  two years  after  acquisition.  The
financial  performance  targets  were  achieved  during  the first two years and
$4,000,000  has been earned.  Of this amount,  $1,000,000  was paid in May 2003,
$2,000,000  was paid in May 2004,  and  another  $1,000,000  will be paid in May
2005.

     The shareholders of PPP are eligible to receive additional consideration of
up to  $7,000,000,  if certain  financial  targets  are met over the first three
years.  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 the
Company,  up to 50% of any amounts earned can be paid in the Company's  stock in
lieu of cash.  To date,  $498,663  has been  earned and  accrued  as  additional
purchase price.

     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 preferred  stock at a purchase price of $11.50 per
share, for aggregate  proceeds of approximately $80 million.  On March 19, 2004,
the Company  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 fund the  purchase  price  for a tender  offer of
4,448,900 shares of the Company's  outstanding common stock at $11.00 per share.
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 300,000  options held by Mr.  Brodsky which
occurred in April 2004),  in the aggregate,  approximately  59% of the Company's
outstanding  common  stock  and  had  agreed  to  tender  4,448,900  shares,  or
approximately 54% of the Company's  outstanding common stock, held by them, into
the tender offer. No other shareholders tendered shares in the offer.

     Following the completion of the tender offer,  and assuming the exercise of
300,000  options 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 Company's 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 the Company's  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 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  million,  excluding  expenses
related  to  the  closing  of  the  New  Mountain  Transaction,  for  the  Inteq
Acquisition. (See Note 12 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 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.

     The  Company  anticipates  that  current  cash  positions,  after  its  six
acquisitions  together  with  anticipated  cash  flow from  operations,  will be
sufficient to satisfy the Company's  contemplated cash requirements for at least
24  months.  This is based  upon  current  levels of  capital  expenditures  and
anticipated operating results for the next 24 months.  However, it is one of the
Company's  stated goals to acquire other pharmacy benefit  management  companies
and companies providing related services.  Depending on the Company's evaluation
of future  acquisitions,  additional  cash may be  required  to  complete  these
acquisitions.  In addition,  the Company will require cash to acquire  inventory
for its mail order and specialty distribution operations.  In the event that the
Company's  plans  change  or its  assumptions  prove  to be  inaccurate,  or the
proceeds  from  the  Facility  and  the New  Mountain  Transaction  prove  to be
insufficient to fund operations and acquisitions,  the Company could be required
to seek additional financing sooner than anticipated.  There can be no assurance
that such  financing  could be obtained at rates or on terms  acceptable  to the
Company, if at all.

Other Matters

Inflation

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

Critical Accounting Policies and Estimates

General

     Health  Card's  discussion  and  analysis of its  financial  condition  and
results  of  operations  are based upon  Health  Card's  unaudited  consolidated
financial  statements,  which have been prepared in accordance  with  accounting
principles  generally  accepted in the United States.  The  preparation of these
financial  statements  requires Health Card 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,  Health Card  evaluates  its  estimates and
judgments,  including those related to revenue recognition, bad debt, intangible
assets, income taxes, and financing operations.  Health Card bases its 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.

     The Company believes that of its significant  accounting policies (See Note
1 to the Consolidated  Financial  Statements  comprising Item 8 of Form 10-K, as
amended,  for the year ended June 30, 2003),  the following may involve a higher
degree of judgment and complexity than others:

Revenue Recognition

     (a) The Company has historically entered into two types of arrangements for
the payment of  administrative  fees:  fee for service  (per claim  charges) and
capitation  (per  member  per  month   charges).   Under  the  fee  for  service
arrangement, the Company is paid by its sponsors for the Company's contractually
agreed upon rates based upon actual claims adjudicated, plus a fixed transaction
fee.  Under  the  capitation  arrangement,  the fee is  based on the  number  of
participants per month;  the Company pays for the cost of  prescriptions  filled
and thus shares the risk of  operating  profit or loss with these  plans.  Since
January 1, 2000,  all  services  have been  provided on a fee for service  basis
only.

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

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

     (c) Health Card includes in revenue only those  co-payments  collected from
individual members by its mail order facility in Miramar,  Florida.  Co-payments
retained by pharmacies on the remainder of the  prescriptions  filled for Health
Card's members are not included in Health Card's reported  revenue.  Health Card
discloses  these  amounts  parenthetically  on  the  face  of  its  Consolidated
Statement of Income.

     (d)  Rebates  are  recognized  when  the  Company  is  entitled  to them in
accordance with the terms of its  arrangements  with drug  manufacturers,  third
party rebate administrators, and sponsors, and when the amount of the rebates is
determinable.   The  Company  records  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 the
Company's rebate experience,  and are adjusted as additional information becomes
available.

Bad Debt

     Health Card maintains allowances for doubtful accounts for estimated losses
resulting from the liability of its sponsors to make required  payments.  If the
financial condition of Health Card's 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 the  Company's  goodwill  and  other
intangibles,  the Company 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, the Company
may be required to record  impairment  charges for these  assets not  previously
recorded.  On July 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible  Assets," and will be required
to analyze its goodwill for impairment issues on a periodic basis thereafter. To
date, the Company has not recorded any impairment losses related to goodwill and
other intangible assets.

Deferred Taxes

     Health  Card  periodically  considers  whether  or not it  should  record a
valuation allowance to reduce its deferred tax assets to the amount that is more
likely than not to be realized.  While Health Card has considered future taxable
income  and  ongoing  tax  planning  strategies  in  assessing  the need for the
valuation allowance, in the event Health Card were to determine that it would be
able to  realize  its  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  Health  Card
determine  that it would not be able to realize all or part of its 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 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.


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 the  Company is  required  to disclose in its
reports under the 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 the
Company's  principal  executive  officer and the Company's  principal  financial
officer,  Health Card evaluated the effectiveness of the design and operation of
its disclosure controls and procedures within 90 days of the filing date of this
quarterly report.  Based on that evaluation,  the Company's  principal executive
officer and the Company's  principal financial officer have concluded that these
controls and procedures are effective. There have been no significant changes in
the  Company's   internal  controls  including  those  controls  over  financial
reporting in this period,  or in other factors that could  significantly  affect
these controls, subsequent to the date of the evaluation.

<PAGE>
                           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 9 to the consolidated  financial  statements of Health Card's Annual Report
on From 10-K,  as amended,  for the year ended June 30, 2003 and Part II, Item 1
of Health Card's  Quarterly  Report on Form 10-Q for the quarter ended  December
31, 2004.

     An action was  commenced  against  the Company on April 30, 2002 by Midwest
Health Plan Inc.  ("MHP" or "Midwest") in the United States  District  Court for
the Eastern District of Michigan.  The amended  complaint  alleges,  among other
things,  that  the  parties  entered  into  a  contract  dated  July  1999  (the
"Agreement"),  and further  alleges that the Company has 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.  MHP is
seeking  $3  million  dollars  in  damages.  The  Company  filed an  answer  and
counterclaim on June 12, 2002. In the counterclaim,  the Company claimed damages
in excess of $2.8 million based on Midwest's failure to pay under a contract. In
late June  2002,  Midwest  agreed to make two  payments  in the  amount of $1.34
million and $1.36  million to  partially  settle the  Company's  claims  against
Midwest.  Midwest has now added a fiduciary duty claim. The Company continues to
have counterclaims  totaling over $200,000 against Midwest for Midwest's failure
to pay the amounts it had agreed to pay Health Card for goods and services.  The
Company argued its motion for partial summary judgment and motion to dismiss the
fiduciary  duty claim in February,  2004 and is  currently  awaiting the court's
decision  on such  motions.  The court  has not set a trial  date.  The  Company
intends to  vigorously  defend the  action.  The Company is unable to provide an
estimate of any particular  loss, if any,  which may be associated  with the MHP
claims.


ITEM 2 - CHANGES IN SECURITIES, AND USE OF PROCEEDS AND ISSUER
               PURCHASES OF EQUITY SECURITIES


     For  information  concerning  the Company's 1999 Stock Option Plan, and the
options currently issued and outstanding thereunder, see Note 5 to the Financial
Statements comprising Item 1 of Part I of this Form 10-Q.

Issuer Sale of Securities

     On March 19, 2004, the Company  entered into a transaction in which it sold
a total of 6,956,522  shares of series A 7% convertible  preferred  stock of the
Company to New Mountain Partners,  L.P. and New Mountain  Affiliated  Investors,
L.P., at a price of $11.50 per share,  for aggregate  proceeds of  approximately
$80 million.  The  transaction  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  connection  with the sale of these
securities.  The Company used  approximately  $49 million of the proceeds of the
sale of  these  securities  to fund the  purchase  price  for a tender  offer of
4,448,900 shares of the Company's  outstanding common stock at $11.00 per share.
The tender offer closed and the 4,448,900  shares of the Company's  common stock
were purchased on March 19, 2004. For additional information concerning the sale
of securities by the Company, see Note 3 to the Financial Statements  comprising
Item 1 of Part I of this Form 10-Q.

Issuer Purchases of Equity Securities

     The following  table provides  information  about  purchases by the Company
during the quarter ended March 31, 2004 of equity securities that are registered
by the Company pursuant to Section 12 of the Exchange Act:
<TABLE>
                                                                <S>     <C>    <C>    <C>    <C>    <C>    <C>


------------------------- ---------------------- ----------------------- ---------------------- ----------------------
                                  (a)                 (b)                       (c)                      (d)
                                                                                                   Maximum Number (or
                                                                                                  Approximate Dollar
                                                                            Total Number of       Value) of Shares (or
                                                                           Shares (or Units)       Units) that May Yet
                               Total Number of                            Purchased as Part of      Be Purchased Under
                              Shares (or Units)    Average Price Paid     Publicly Announced          the Plans or
Period                         Purchased (1)       per share (or Unit)     Plans or Programs (2)        Programs
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
01/01/04-                          --                  $   --                     --                        --
01/31/04
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
02/01/04-                          --                      --                     --                        --
02/29/04
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
03/01/04-                       4,448,900                11.00              4,448,900                       --
03/31/04
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total:                          4,448,900               $11.00              4,448,900                       --
------------------------- ---------------------- ----------------------- ---------------------- ----------------------

</TABLE>
     (1) The  Company  repurchased  an  aggregate  of  4,448,900  shares  of the
Company's  outstanding  common stock pursuant to a tender offer that the Company
publicly announced on February 19, 2004 (the "Tender Offer").

     (2) The Company's board of directors approved the repurchase by the Company
of up to an aggregate of 4,545,455 shares of the Company's common stock having a
value of  approximately  $50  million in the  aggregate  pursuant  to the Tender
Offer. The Tender Offer expired on March 19, 2004.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

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

The Company held its 2004 annual meeting of stockholders on March 18, 2004. Each
of the matters described below were voted upon and approved at the annual
meeting.

     1) The issuance and sale of the Company's  newly created series A preferred
stock, par value $0.10 per share.

    Votes For          Votes Against          Abstention         Not Voted
    ---------          -------------          ----------         ---------
     5,855,915             123,420              168,300          1,680,375

     2) An amendment to the  Company's  certificate  of  incorporation  to among
other actions:

     (i) increase the authorized number of shares of common stock
to 35,000,000 shares:

   Votes For         Votes Against          Abstention         Not Voted
   ---------          -------------         ----------         ---------
   6,051,765              38,270              57,600           1,680,375

     (ii)  increase  the  authorized  number  of shares  of  preferred  stock to
15,000,000 shares:

   Votes For          Votes Against        Abstention          Not Voted
   ---------          -------------        ----------          ---------
   5,784,460             144,675              218,500          1,680,375

     (iii)  eliminate  the  classified  structure  of  the  Company's  board  of
directors:

   Votes For          Votes Against        Abstention          Not Voted
  ---------           -------------        ----------          ---------
  5,908,995               181,040            57,600            1,680,375

     (iv) enable the  holders of Series A preferred  stock to appoint a majority
of the members of the Company's board of directors in the event that the Company
fails to pay the  redemption  price upon  redemption  of the series A  preferred
stock made at the request of the holders of series A preferred stock:

  Votes For            Votes Against       Abstention          Not Voted
  ---------            -------------       ----------          ---------
  5,960,355                129,780            57,500           1,680,375

     (v) provide that the terms of the series A preferred stock set forth in the
Company's   Certificate  of   Incorporation   (including   the   Certificate  of
Designations  relating to such series of preferred  stock) may be amended solely
by a vote of a majority  of the  holders of the  outstanding  series A preferred
stock,  and not the holders of common  stock,  provided  that such  amendment is
approved by a majority of the independent directors then in office:

 Votes For             Votes Against      Abstention           Not Voted
 ---------             -------------      ----------           ---------
 5,959,255                  130,780          57,600            1,680,375

     (vi)  enable the  authorized  shares of the  Company's  common  stock to be
increased or decreased by the holders of a majority of our voting power, without
requiring a separate common stock class vote:

 Votes For             Votes Against      Abstention            Not Voted
 ---------             -------------      ----------            ---------
 5,959,375                  130,560          57,700             1,680,375

     3) The election of two Class II directors:

   Name                       Votes For                       Votes Withheld
   ----                       ---------                        --------------
  Gerald Angowitz             7,544,634                          283,376
  Kenneth J. Daley            7,538,334                          289,676

     4) To approve an amendment to the  Company's  1999 Stock Option Plan to (i)
increase the number of shares of common stock available for issuance pursuant to
the Plan by  2,000,000  and (ii) limit the number of shares of common stock with
respect to which options and stock  appreciation  rights may be granted pursuant
to the Plan to any employee during any fiscal year to 600,000.

 Votes For            Votes Against        Abstention             Not Voted
 ---------            -------------        ----------             ---------
 5,894,543                 195,292            57,800             1,680,375

     A detailed  description  of the matters  voted upon at the  Company's  2003
annual meeting of  shareholders  has been  previously  reported in the Company's
Definitive Proxy Statement as filed with the SEC on March 8, 2004.


ITEM 5 - OTHER INFORMATION

None.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
<TABLE>
                                                        <S>     <C>    <C>    <C>    <C>    <C>    <C>

Exhibit
Number       Description of Exhibit


2.1      Asset  Purchase Agreement dated as of November 1, 2002, by and between  Health Card,
         Integrail  Acquisition  Corp.,  Health Solutions, Ltd., and certain security
         holders of Health Solutions, Ltd. (10)
2.2      Asset Purchase  Agreement dated January 29, 2002 by and among the Company,
         Health Solutions Limited ("HSL"),  HSL Acquisition Corp., a wholly-owned
         subsidiary of the Company, and the security holders of HSL (8)
2.3      Stock Purchase Agreement dated July 31, 2003, among Health Card and Portland
         Professional Pharmacy, Portland Professional Pharmacy Associates and the individuals
         listed on Schedule I thereto (12)
2.4      Acquisition and Merger Agreement, dated as of June 27, 2000, between
         Health Card and Pharmacy Associates, Inc. (3)
2.5      Asset Purchase Agreement dated as of March 5, 2001 among National Medical Health
         Card Systems, Inc., PMP Acquisition Corp., Provider Medical Pharmaceutical, LLC
         and Members of PMP (5)
2.6      Stock Purchase Agreement dated October 30, 2003 by and between Health Card and New
         Mountain Partners, L.P. (13)
2.7      Asset Purchase Agreement among Health Card, Inteq PBM, LP, Inteq-RX Group,
         LLP, and the individuals named therein dated April 1, 2004 (15)
3.1      Certificate of Incorporation of Health Card (7)
3.2      Certificate of Amendment to the Certificate of Incorporation of Health Card
3.3      Amended and Restated By-Laws of Health Card
3.4      Amended and Restated Audit Committee Charter
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 Health Card
10.1     Mail Service Provider Agreement, dated July 1, 1996, between Health Card and
         Thrift Drug, Inc. d/b/a Express Pharmacy Services (1)
10.2     Amendment to Mail Service Provider Agreement, dated January 1, 1997, between
         Health Card and Thrift Drug, Inc. d/b/a Express Pharmacy Services (1)
10.3     Software License Agreement and Professional Service Agreement, dated February
         18, 1998, between Health Card and Prospective Health, Inc. (1)
10.4     1999 Stock Option Plan, as amended (1)
10.5     Employee Covenant Agreement, dated June 16, 1998, between Health Card
         and Ken Hammond (1)
10.6     Stock Option Agreement, dated August 3, 1999, between Health Card and Ken
         Hammond (4)
10.7     Employment Agreement, dated March 27, 2000, between Health Card and
         David Gershen (4)
10.8     Stock Option Agreement, dated May 1, 2000, between Health Card and David
         Gershen (4)
10.9     Employment Agreement, dated May 3, 2000, between Health Card and James
         Bigl (4)
10.10    Stock Option Agreement, dated June 12, 2000, between Health Card and James
         Bigl (4)
10.11    Stock Option Agreement, dated August 3, 1999, between Health Card and
         Kenneth J. Daley (4)
10.12    Stock Option Agreement, dated August 3, 1999, between Health Card and
         Gerald Angowitz (4)
10.13    Lease, dated August 10, 1998, between 61 Manorhaven Boulevard, LLC and
         Health Card (1)
10.16    Employment Agreement, dated June 4, 2001, between National Medical Health Card
         Systems, Inc. and Tery Baskin (6)
10.17    Stock Option Agreement, dated June 4, 2001, between National Medical Health Card
         Systems, Inc. and Tery Baskin (6)
10.18    Stock Option Agreement, dated June 12, 2001, between National Medical Health Card
         Systems, Inc. and James Bigl (6)
10.19    Assignment  Agreement  dated as of November 1, 2002,  by and between  Health Card,
         Integrail  Acquisition  Corp.,  and Health
         Solutions, Ltd. (10)
10.20    Receivables  Purchase and Transfer  Agreement dated January 29, 2002 by and among
         the Company and certain of its  subsidiaries and NMHC Funding, LLC (8)
10.21    Amendment No. 1 dated September 25, 2002 to Receivables  Purchase and Transfer
         Agreement by and among the Company and certain of its subsidiaries and NMHC Funding, LLC (14)
10.22    Amendment  No. 2 dated June 30, 2003 to  Receivables  Purchase and Transfer
         Agreement by and among the Company and certain of its subsidiaries and NMHC Funding, LLC (14)
10.23    Amendment No. 3 dated  October 30, 2003 to  Receivables  Purchase and Transfer
         Agreement by and among the Company and certain of its subsidiaries and NMHC Funding, LLC (14)
10.24    Loan and Security  Agreement dated January 29, 2002, by and between NMHC Funding,
         LLC and HFC  Healthco-4,  LLC, an affiliate of Healthcare Finance Group, Inc. (8)
10.25    Lease Agreement dated as of August 1, 2001, between National Medical Health Card
         Systems, Inc. and BFS Realty, LLC (6)
10.26    Amended Lease Agreement dated as of August 1, 2001,  between  National Medical Health
         Card Systems,  Inc. and BFS Realty,  LLC (6)
10.27    2003 Employee Stock Purchase Plan (11)
10.28    Amendment No. 2 dated April 15, 2002 to Employment Agreement between Health Card
         and James Bigl (12)
10.29    Amendment No. 3 dated October 14, 2002 to Employment Agreement between Health Card and James Bigl (12)
10.30    Amendment No. 4 dated November 6, 2002 to Employment Agreement between Health Card and James Bigl (12)
10.31    Stock Option Agreement between Health Card and James Bigl dated February 20, 2001 (12)
10.32    Stock Option Agreement between Health Card and James Bigl dated April 30. 2002  (12)
10.33    Stock Option Agreement between Health Card and James Bigl dated June 26, 2002 (12)
10.34    Stock Option Agreement between Health Card and James Bigl dated July 22, 2003 (12)
10.35    Employment Agreement dated October 14, 2002 between Health Card and Bert Brodsky  (12)
10.36    Employment Agreement dated November 20, 2002 between Health Card and Agnes Hall (12)
10.37    Stock Option Agreement between Health Card and Agnes Hall dated January 8, 2001 (12)
10.38    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated January 8, 2001 (12)
10.39    Stock Option Agreement between Health Card and Agnes Hall dated August 10, 2001 (12)
10.40    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated August 10, 2001 (12)
10.41    Stock Option Agreement between Health Card and Agnes Hall dated December 4, 2001 (12)
10.42    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated December 4, 2001 (12)
10.43    Stock Option Agreement between Health Card and Agnes Hall dated July 31, 2002 (12)
10.44    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated July 31, 2002 (12)
10.45    Stock Option Agreement between Health Card and Agnes Hall dated August 1, 2003 (12)
10.46    First Amendment dated November 6, 2002 to Employment Agreement between Health Card and David Gershen (12)
10.47    Stock Option Agreement between Health Card and David Gershen dated February 20, 2001 (12)
10.48    Stock Option Agreement between Health Card and David Gershen dated September 24, 2001 (12)
10.49    Stock Option Agreement between Health Card and David Gershen dated August 1, 2002 (12)
10.50    Stock Option Agreement between Health Card and David Gershen dated August 1, 2003 (12)
10.51    First Amendment dated November 6, 2002 to Employment Agreement between Health Card and Tery Baskin (12)
10.52    Stock Option Agreement between Health Card and Tery Baskin dated July 20, 2000 (12)
10.53    Stock Option Agreement between Health Card and Tery Baskin dated August 10, 2001 (12)
10.54    Stock Option Agreement between Health Card and Tery Baskin dated August 1, 2002 (12)
10.55    Stock Option Agreement between Health Card and Tery Baskin dated September 19, 2002 (12)
10.56    Stock Option Agreement between Health Card and Tery Baskin dated August 1, 2003 (12)
10.57    Employment Agreement between Health Card and Patrick McLaughlin dated January 29, 2002  (12)
10.58    Stock Option Agreement between Health Card and Patrick McLaughlin dated January 29, 2002 (12)
10.59    Stock Option Agreement between Health Card and Patrick McLaughlin dated August 1, 2003 (12)
10.60    Amendment to Stock Option Agreement dated January 29, 2002 between Health Card and Patrick McLaughlin (12)
10.61    Stock Option Agreement between Health Card and Gerald Angowitz dated November 20, 2000 (12)
10.62    Stock Option Agreement between Health Card and Gerald Angowitz dated February 20, 2001 (12)
10.63    Stock Option Agreement between Health Card and Gerald Angowitz dated April 9, 2003 (12)
10.64    Stock Option Agreement between Health Card and Kenneth J. Daley dated November 20, 2000 (12)
10.65    Stock Option Agreement between Health Card and Kenneth J. Daley dated February 20, 2001 (12)
10.66    Stock Option Agreement between Health Card and Kenneth J. Daley dated April 9, 2003 (12)
10.67    Stock Option Agreement between Health Card and Ronald L. Fish dated November 20, 2000 (12)
10.68    Stock Option Agreement between Health Card and Ronald L. Fish dated February 20, 2001 (12)
10.69    Stock Option Agreement between Health Card and Ronald L. Fish dated April 9, 2003 (12)
10.70    Stock Option Agreement between Health Card and Paul J. Konigsberg dated November 20, 2000 (12)
10.71    Stock Option Agreement between Health Card and Paul J. Konigsberg dated February 20, 2001 (12)
10.72    Stock Option Agreement between Health Card and Paul J. Konigsberg dated April 9, 2003 (12)
10.73    Stock Option Agreement between Health Card and Bert E. Brodsky dated February 20, 2001 (12)
10.74    Stock Option Agreement between Health Card and Gerald Shapiro dated February 20, 2001 (12)
10.75    Sixth Amendment to Employment  Agreement,  dated October 30, 2003, by and between National
         Medical Health Card Systems,  Inc. and James J. Bigl  (14)
10.76    Lease dated November 1, 2002 between B/A Airport Park Solutions, LLC and
         Health Card (12)
10.77    Lease Addendum dated March 10, 2003 between B/A Airport Park Solutions,
         LLC and Health Card (12)
10.78    Lease Agreement dated November 18, 2002 between Sunbeam Development Corporation and
         NMHCRx Mail Order, Inc. (12)
10.79    Lease Expansion and Modification Agreement dated July 31, 2003 between Sunbeam Development
         Corporation and NMHCRx Mail Order, Inc. (12)
10.80    AmerisourceBergen  Prime  Vendor  Agreement, dated July 21, 2003 between NMHCRx Mail
         Order, Inc. d/b/a  NMHCmail and AmerisourceBergen Drug Corporation (12)
10.81    Release, dated October 30, 2003, by Sandata Technologies, Inc. and Sandsport, Inc. (14)
10.82    Amendment to Lease Agreement, dated as of October 23, 2003, by and among BFS Realty,
         LLC and National  Medical  Health Card Systems, Inc. (14)
10.83    Lease Agreement, dated August 1, 2001, between Brodsky Sibling Realty Juniper Road,
         LLC and National  Medical Health Card Systems, Inc. (14)
10.84    Lease Agreement (30 Sea Cliff), dated May 1, 2002, between Living in Style, LLC and National
         Medical Health Card Systems, Inc. (14)
10.85    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. (14)
10.86    Lease Agreement (32 Sea Cliff), dated May 1, 2002, between Living in Style, LLC and
         National  Medical Health Card Systems, Inc. (14)
10.87    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. (14)
10.88    Second Amendment to Employment  Agreement,  dated October 30, 2003, by and between
         National Medical Health Card Systems,  Inc. and Bert E. Brodsky (14)
14.      Code of Ethics (12) 21. List of Subsidiaries (12)
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 Health  Card's  Registration
Statement on Form S-1 (Registration  Number:  333-72209) and incorporated herein
by reference.

     (2) Denotes  documentation  filed as an Exhibit to Health  Card's Report on
Form 10-K for the fiscal  year ended June 30,  1999 and  incorporated  herein by
reference.

     (3) Denotes  document  filed as an Exhibit to Health Card's Form 8-K for an
event dated July 20, 2000 and incorporated herein by reference.

     (4) Denotes  documentation  filed as an Exhibit to Health  Card's Report on
Form 10-K for the year ended June 30, 2000 and incorporated herein by reference.

     (5) Denotes  document  filed as an Exhibit to Health Card's Form 8-K for an
event dated March 5, 2001 and incorporated herein by reference.

     (6) Denotes  document  filed as an Exhibit to Health  Card's Report on Form
10-K for the year ended June 30, 2001 and incorporated herein by reference.

     (7) Denotes document filed as an Exhibit to Health Card's  Definitive Proxy
Statement on Schedule 14-A filed on December 21, 2001 and incorporated herein by
reference.

     (8) Denotes document filed as an Exhibit to Health Card's Current Report on
Form 8-K for events dated January 29, 2002 and incorporated herein by reference.

     (9) Denotes  document filed as an Exhibit to Health Card's Amendment number
1 on Form 8-K/A filed with the  Securities  and Exchange  Commission  on May 21,
2002 and incorporated herein by reference.

 (10) Denotes document filed as an Exhibit to
Health Card's Form 10-Q for the quarter ended December 31, 2002 and incorporated
herein by reference.

     (11) Denotes document filed as an Exhibit to Health Card's Definitive Proxy
Statement  on  Schedule  14-A on October  25,  2002 and  incorporated  herein by
reference.

     (12) Denotes  document  filed as an Exhibit to Health Card's Report on Form
10-K for the year ended June 30, 2003 and incorporated herein by reference.

     (13) Denotes  document  filed as an Exhibit to Health Card's Form 8-K filed
on November 13, 2003 and incorporated herein by reference.

     (14) Denotes  document  filed as an Exhibit to Health Card's Report on Form
10-K/A  Amendment  Number 2 for the year  ended June 30,  2003 and  incorporated
herein by reference.

     (15) Denotes  document  filed as an Exhibit to Health Card's Form 8-K filed
on April 14, 2004 and incorporated herein by reference.

     (b) Reports on Form 8-K

     1. A Current  Report on Form 8-K was filed with the Securities and Exchange
Commission on February 2, 2004 reporting the Company's Press Release of February
2, 2004.

     2. A Current  Report on Form 8-K was filed with the Securities and Exchange
Commission on February 4, 2004 reporting a transcript of a conference  call made
on February 3, 2004.

     3. A Current  Report on Form 8-K was filed with the Securities and Exchange
Commission on March 15, 2004 reporting the Company's  Press Release of March 12,
2004.

     4. A Current  Report on Form 8-K was filed with the Securities and Exchange
Commission on March 23, 2004 reporting the Company's  Press Release of March 19,
2004.


<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



                   NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
                                  (Registrant)



Date:    May 14, 2004                       By: /s/ James J. Bigl
                                                    James J. Bigl,
                                                    Chief Executive Officer




                                            By: /s/ Stuart F. Fleischer
                                                    Stuart F. Fleischer
                                                    Chief Financial Officer