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

                                    FORM 10-Q
<TABLE>
<S>                                                              <C>    <C>    <C>    <C>    <C>    <C>

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

For the quarterly period ended    September 30, 2002
                               --------------------------------------------

                                       OR

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

For the transition period from                        to
                               ----------------------    -----------------------
</TABLE>


                        Commission file number 000-26749

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

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

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

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


-------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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


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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         The number of shares outstanding of the issuer's Common Stock, as of
November 4, 2002 was 7,610,907 shares.


<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

<TABLE>
<S>                                                              <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 June 30, 2002                  4
                  and September 30, 2002 (unaudited)

                  CONSOLIDATED STATEMENT OF INCOME (unaudited)                    5
                  for the three months ended September 30, 2001 and 2002

                  CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)                6
                  for the three months ended September 30, 2001 and 2002

                  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS            7

ITEM 2        -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL              15
                  CONDITION AND RESULTS OF OPERATIONS

ITEM 3        -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT                 22
                  MARKET RISK

ITEM 4    -       CONTROLS AND PROCEDURES                                        22

PART II       -   OTHER INFORMATION                                              23

ITEM 1        -   LEGAL PROCEEDINGS                                              23

ITEM 2        -   CHANGES IN SECURITIES AND USE OF PROCEEDS                      23

ITEM 3        -   DEFAULTS UPON SENIOR SECURITIES                                23

ITEM 4        -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            24

ITEM 5        -   OTHER INFORMATION                                              24

ITEM 6        -   EXHIBITS AND REPORTS ON FORM 8-K                               24

</TABLE>

<page>
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 for the fiscal  year ended
June 30, 2002, filed with the SEC on September 30, 2002.


<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>

                                                                                  June 30,      September 30,
Assets                                                                              2002            2002
                                                                                    ----            ----
Current:                                                                                        (Unaudited)
Cash and cash equivalents (including cash equivalent investments of $1,187 and
      $1,189, respectively)                                                     $   1,768       $    2,620
Restricted cash                                                                     2,653            2,410
Accounts receivable, less allowance for doubtful accounts of $2,248 and            59,285           60,940
     $2,400, respectively
Rebates receivable                                                                 15,775           17,836
Due from affiliates                                                                   504            3,812
Deferred tax asset                                                                  1,542            1,542
Other current assets                                                                  610            1,186
-----------------------------------------------------------------------------   ----------      ----------
-----------------------------------------------------------------------------   ----------      ----------
   Total current assets                                                            82,137           90,346

Property, equipment and software development costs, net                             9,031            8,737
Due from affiliates                                                                 3,620                -
Intangible assets, net of accumulated amortization of $406 and $575, respectively   2,523            2,354
Goodwill                                                                           52,035           52,035
Other assets                                                                          549              503
-----------------------------------------------------------------------------   ----------     -----------
-----------------------------------------------------------------------------   ----------     -----------
   Total Assets                                                                 $ 149,895       $  153,975

-----------------------------------------------------------------------------   ----------     -----------
-----------------------------------------------------------------------------   ----------     -----------

Liabilities and Stockholders' Equity
Current Liabilities:

Accounts payable and accrued expenses                                           $ 108,525         $101,035
Revolving credit facility and loans payable-current                                13,835           24,382
Current portion of capital lease obligations                                          556              558
Due to officer/stockholder                                                            696              435
Income taxes payable                                                                    -              104
Other current liabilities                                                           1,178              171
----------------------------------------------------------------------------    ----------      ----------
----------------------------------------------------------------------------    ----------      ----------
  Total current liabilities                                                       124,790          126,685
Capital lease obligations, less current portion                                       809              727
Long term loans payable and other liabilities                                         865            1,100
Deferred tax liability                                                              2,154            2,154
----------------------------------------------------------------------------    ----------      ----------
----------------------------------------------------------------------------    ----------      ----------
  Total liabilities                                                               128,618          130,666
----------------------------------------------------------------------------    ----------     -----------
----------------------------------------------------------------------------    ----------     -----------

Commitments and Contingencies
Stockholders' Equity:

Preferred stock $.10 per value; 10,000,000 shares authorized,
  none outstanding                                                                     -                -
Common Stock, $.001 par value, 25,000,000 shares authorized, 7,550,239
  and 7,801,907 shares issued, 7,359,239 and 7,610,907 outstanding, respectively        8                8
Additional paid-in-capital                                                         14,292           14,959
Retained earnings                                                                   7,721            9,086
Treasury stock at cost, 191,000 shares                                               (744)            (744)
---------------------------------------------------------------------------     ----------         --------
---------------------------------------------------------------------------     ----------         --------
  Total Stockholders' Equity                                                       21,277           23,309
---------------------------------------------------------------------------     ----------         --------
---------------------------------------------------------------------------     ----------         --------
  Total Liabilities and Stockholders' Equity                                    $ 149,895         $153,975

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

<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

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



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

                                                                                      Three months ended
                                                                                          September 30,

                                                                                       2001             2002
                                                                                       ----          -- ----
Revenues                                                                        $    80,645      $    147,367
Cost of claims                                                                       73,392           136,488
------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------

Gross profit                                                                          7,253            10,879

Selling, general and administrative expenses*                                         5,983             8,340

------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------

Operating income                                                                      1,270             2,539

Other income (expense):
  Interest expense                                                                      (60)             (320)
  Interest income                                                                       196                56
  Other income, net                                                                       -                38
------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------
                                                                                        136             (226)
------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------

Income before provision for income taxes                                              1,406             2,313
Provision for income taxes                                                              417               948
------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------

Net Income                                                                        $     989         $   1,365

------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------

Earnings per common share:
  Basic                                                                              $  0.14          $  0.18

------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------
  Diluted                                                                            $  0.13          $  0.17

------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------


Weighted average number of common shares outstanding:
  Basic                                                                               7,143             7,524
------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------
  Diluted                                                                             7,474             7,919
------------------------------------------------------------------------------  ------------     -------------
------------------------------------------------------------------------------  ------------     -------------


* Includes amounts charged by affiliates aggregating                              $     831           $    297
   ---------------------------------------------------------------------------- ------------    --------------
------------------------------------------------------------------------------  ------------    --------------
</TABLE>

  See accompanying condensed notes to consolidated financial statements


<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                ($ in thousands)
                                   (Unaudited)
<TABLE>
<S>                                                                      <C>    <C>    <C>    <C>    <C>    <C>


                                                                                       Three months ended
                                                                                            September 30,
                                                                                       2001             2002
                                                                                       ----             ----
Cash flows from operating activities:
  Net income                                                                          $ 989        $    1,365
  Adjustments to reconcile net income to net cash used in
    operating activities:
  Depreciation and amortization                                                         685             1,044
  Amortization of deferred gain                                                           -               (39)
  Loss on disposal of capital assets                                                      9                 -
  Provision for doubtful accounts                                                       384               153
  Compensation expense accrued to officer/stockholder                                  (265)             (261)
  Deferred income taxes                                                                 (34)                -
  Interest accrued on stockholders' loans                                                (4)                -
  Changes in assets and liabilities, net of effect from
   acquisitions:
  Restricted cash                                                                        57               243
  Accounts receivable                                                                (3,330)           (1,808)
  Rebates receivable                                                                    354            (2,061)
  Other current assets                                                                    4               128
  Due to/from affiliates                                                                571              (392)
  Other assets                                                                           (2)                -
  Accounts payable and accrued expenses                                              (4,302)           (7,490)
  Income taxes payable and other current liabilities                                    453              (654)
  Other long term liabilities                                                          (696)              285
------------------------------------------------------------------------------      --------           -------
------------------------------------------------------------------------------      --------           -------
Net cash used in operating activities                                                (5,127)           (9,487)
------------------------------------------------------------------------------      --------           -------
------------------------------------------------------------------------------      --------           -------

Cash flows from investing activities:
  Capital expenditures                                                               (1,116)             (580)
  Proceeds from sale of capital assets                                                    1                 -
-----------------------------------------------------------------------------        -------           -------
-----------------------------------------------------------------------------        -------           -------
Net cash used in investing activities                                                (1,115)             (580)
-----------------------------------------------------------------------------       --------           -------
-----------------------------------------------------------------------------       --------           -------

Cash flows from financing activities:
  Proceeds from exercise of stock options                                                 -               418
  Proceeds from revolving credit facility                                                 -           170,950
  Repayment of revolving credit facility                                                  -          (160,408)
  Deferred financing costs                                                                -                47
  Repayment of debt and capital lease obligations                                      (238)              (88)
------------------------------------------------------------------------------     ---------        ----------
------------------------------------------------------------------------------     ---------        ----------
Net cash (used in) provided by financing activities                                    (238)           10,919
------------------------------------------------------------------------------     ---------        ----------
------------------------------------------------------------------------------     ---------        ----------

Net (decrease) increase in cash and cash equivalents                                  (6,480)             852
Cash and cash equivalents at beginning of period                                      10,877            1,768
-------------------------------------------------------------------------------      --------       ----------
-------------------------------------------------------------------------------      --------       ----------
Cash and cash equivalents at end of period                                           $ 4,397        $   2,620

</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,  formerly known as HSL Acquisition Corp.
(see Note 2)  ("Centrus"),  National  Medical  Health  Card IPA,  Inc.  ("IPA"),
formerly known as PSCNY IPA, Inc., Specialty Pharmacy Care, Inc.  ("Specialty"),
NMHCRX Contracts, Inc. ("Contracts"), 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  the
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
September 30, 2002 and 2001 unaudited interim financial  statements  include all
adjustments,  consisting of normal recurring  adjustments,  necessary for a fair
presentation  of  results  for these  interim  periods.  In the  opinion  of the
Company's  management,  the disclosures contained in this Form 10-Q are adequate
to make the information  presented not misleading when read in conjunction  with
the Notes to Consolidated  Financial  Statements  included in the Company's Form
10-K for the year ended June 30, 2002.  The results of operations  for the three
month period ended  September  30, 2002 are not  necessarily  indicative  of the
operating results to be expected for the full year.

     For information  concerning the Company's significant  accounting policies,
reference  is made to the  Company's  Annual  Report on Form 10-K,  for the year
ended June 30, 2002 (the "Annual Report").

2. BUSINESS ACQUISITIONS

     The Company  entered into an Asset Purchase  Agreement (the "Asset Purchase
Agreement"),  dated as of January 29, 2002, with Health  Solutions,  Ltd., a New
York corporation  ("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  "Acquisition").  Centrus  provides PBM services
primarily to managed care organizations in the northeast. The Company intends to
continue to use the Centrus assets to provide PBM services. The Centrus business
complements  the  Company's  business  while  significantly   strengthening  the
Company's presence in the managed care market.

     The aggregate purchase price of the Acquisition was $40 million in cash, of
which  $3  million  is  held  in  escrow  to  secure   certain   indemnification
obligations,  ($2  million  has been  released  as of July  2002).  The  Company
acquired  approximately $1.4 million of HSL's assets which included $0.9 million
of property and equipment and $0.5 million of software.  The Company also agreed
to assume  approximately  $1.4  million  of HSL's  liabilities  relating  to the
Centrus  business which  included $1.1 million of rebates due to sponsors,  $0.1
million of capital  leases,  and $0.2  million of  miscellaneous  payables.  The
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  $40,671.5,
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 and a consulting  agreement  valued at a combined  value of $89, 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  $38,091.5,
which will not be amortized for book purposes per SFAS 142 (see Note 8). 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 million 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.  HSL may  also  be  entitled  to an  additional
incentive  payment based on the financial  performance  of the Centrus  business
during the one-year period following the Closing.

     Simultaneously  with  the  consummation  of the  Acquisition,  the  Company
entered  into an  Employment  Agreement  and a Stock Option  Agreement  with the
former  president of Centrus,  pursuant to which he will serve as Executive Vice
President  of Managed  Care for the Company.  Additionally,  several  members of
Centrus'  management  team have  joined the  Company  either as an employee or a
consultant,  and have been  granted  stock  options to purchase an  aggregate of
375,000  shares of Common Stock,  under the Company's 1999 Stock Option Plan, as
amended.

     On January 29, 2002,  the Company and certain of its  subsidiaries  entered
into a $40 million 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  borrowing up to $40 million at the London
InterBank  Offered Rate  (LIBOR) plus 2.40% (4.2% at September  30, 2002) and is
secured  by  receivables  and other  assets of the  Company  and  certain of its
subsidiaries.  Borrowings  of $28.7  million  under  the  Facility  were used to
finance part of the purchase price of the  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 September 30, 2002 was approximately $24.4 million,  which was all classified
as short term. The Facility  requires the Company to maintain certain  financial
and other  covenants.  The  Company  was in  compliance  with all  covenants  at
September 30, 2002.

     The  summarized  unaudited pro forma results of operations  set forth below
for the three months ended  September  30, 2001 assumes the Centrus  acquisition
had occurred as of the beginning of the period.

                                                         Three Months Ended
                                                           September, 2001
                                                         ------------------
Revenues                                                 $       145,771
Net income                                               $         1,204
Net income per common share:
  Basic                                                  $          0.17
  Diluted                                                $          0.16
Pro forma weighted average number of common shares
outstanding:
  Basic                                                        7,143,235
  Diluted                                                      7,473,537



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

3. STOCK OPTIONS

     During the three  months ended  September  30,  2002,  the Company  granted
115,703  stock  options and 40,477  stock  options were  cancelled  for a net of
75,226 stock options under the 1999 Stock Option Plan (the "Plan").  The options
granted during this period are exercisable at prices ranging from $7.32 to $8.67
and  terminate  five years from the grant  date.  The total  number of shares of
common stock  reserved by the Company for  issuance  under the Plan is 2,850,000
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 September  30, 2002
equal 1,802,975, net of 385,243 options exercised to date.

4. EARNINGS PER SHARE

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

                                                                         Three Months Ended September 30,
                                                                             2001                 2002
                                                                             ----                 ----
Basic                                                                    7,143,235            7,524,438
Effect of assumed exercise of employee stock options                       289,542              394,815
Contingently issuable shares related to an acquisition                      40,760                   -
                                                                             -----               ------
Diluted weighted average number of shares outstanding                    7,473,537            7,919,253
                                                                         =========            =========

</TABLE>
     As of June 30, 2002,  the Company  retired the entire $11.6  million of its
Convertible Notes, which were previously due January 23, 2002.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                                   June 30,        September 30,
                                                    2002               2002
                                                  --------         -------------

Claims Payable                                 $   82,195           $ 73,739
Rebates Payable to Sponsors                        16,921             21,684
Trade Payables                                      6,693              2,454
Other Payables                                      2,716              3,158
                                                  -------           --------
                                               $  108,525           $101,035
                                                  =======           ========


6. RELATED PARTY TRANSACTIONS

     As of January 1, 2002,  the  Company  has  eliminated  the  majority of its
historical related party service  transactions with the exception being rent and
some  administrative  services as described  below.  For the periods  presented,
certain general,  administrative  and other expenses  reflected in the financial
statements  include  allocations of certain  corporate  expenses from affiliates
which take into consideration personnel,  estimates of the time spent to provide
services or other  appropriate  bases.  These  allocations  include services and
expenses for employee benefits administration,  legal,  communications and other
miscellaneous services.

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

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

                                                                               Three Months Ended
                                                                                  September 30,
                                                                       -------------------------------
                                                                               2001            2002
                                                                               ----            ----
Software maintenance and related services                                   $   254          $    -
Management and consulting fees                                                  208              46
Administrative, accounting services and supplies                                206              28
Rent and utilities                                                              163             223
                                                                                ---             ---
                                                                            $   831         $   297
                                                                                ===             ===
</TABLE>

     Due from  affiliates  includes a note from another  company  affiliated  by
common ownership. As of September 30, 2002, the balance due from this affiliate,
including accrued interest, was $3,662.5.  Such amount 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 Chairman of the Board and was secured by his personal  guarantee.  The
original note was replaced by a new non-recourse  promissory note dated July 31,
2000,  payable to the Company in the amount of $3,890.9.  The note is payable in
annual installments of $400, consisting of principal and interest at the rate of
8.5% per annum on each of the first and second anniversary dates, with the total
remaining  balance of  principal  and interest due and payable on July 31, 2003.
The note is  collateralized  by 1,000,000 shares of $.001 par value common stock
of the Company registered in the name of the Company's Chairman of the Board and
is secured by his personal guarantee.  The first two $400 payments due under the
note as of July 31, 2001 and 2002 were  satisfied by  offsetting an equal amount
owed by the Company to the Chairman of the Board.  Effective  July 31, 2001, the
interest  rate on the note was  changed to the prime rate in effect from time to
time (4.75% at September 30, 2002).

     On February 8, 2001, the President gave to the Company his Promissory  Note
in the amount of $34 as evidence of the loan by the Company to the President. On
April 12, 2002, the  Promissory  Note was amended and Company agreed to increase
the loan to $100.  The loan bears  interest at 8%, and is due on April 25, 2003.
The interest  rate was lowered  effective  July 1, 2002 to the rate at which the
Company borrows money.

     The Company currently occupies  approximately  26,500 square feet of office
space at 26 Harbor  Park Drive,  Port  Washington,  New York 11050 (the  "Leased
Premises").  The Company subleases the Leased Premises from BFS Realty,  LLC, an
affiliate of the Chairman of the Board (the  "Affiliate").  The Affiliate leases
the  Leased  Premises  from the Nassau  County  Industrial  Development  Agency,
pursuant to a lease which was entered  into by the agency and the  Affiliate  in
July 1994,  and which  expires in March  2005.  The  Affiliate  has the right to
become the owner of the Leased  Premises  upon  expiration  of this  lease.  The
Affiliate  subleases  a portion  of the  Leased  Premises  to the  Company  (the
"Lease").  As of November 1, 2001,  the  Company and the  Affiliate  amended the
Lease.  The Lease provides that,  effective  August 1, 2001, the rent payable by
the Company  shall be an  aggregate  annual  rent of $308.  While  formerly  the
Company  made  estimated  monthly  real estate tax,  utilities  and  maintenance
expense payments to the Affiliate,  the Lease now provides that the Company will
pay its pro-rata share of such expenses directly to the entities to whom payment
must be made. The Company  estimates that such monthly expenses will approximate
an  aggregate  of $336 per year.  The annual  rent will  increase by 5% per year
during the term of the Lease. The annual expenses are also expected to increase,
although the Company  cannot  estimate by how much.  The Lease  expires in July,
2010.  The Company  believes  that the Leased  Premises are adequate for current
purposes.  There were no  leasehold  improvements  made to the space  during the
three months ended September 30, 2002.

7. MAJOR CUSTOMERS AND PHARMACIES

     For the three months ended  September  30, 2001,  approximately  14% of the
consolidated  revenues of the Company were from one plan  sponsor  administering
multiple plans. For the three months ended September 30, 2002, approximately 38%
of the  consolidated  revenues  of the  Company  were  from  two  plan  sponsors
administering  multiple  plans.  Amounts due from these sponsors as of September
30, 2002 approximated $21.2 million.

     For the three months ended  September  30, 2001,  approximately  26% of the
cost of claims  were  from two  pharmacy  chains.  For the  three  months  ended
September  30,  2002,  approximately  48% of the cost of claims  were from three
pharmacy chains. Amounts payable to these three pharmacy chains at September 30,
2002 were approximately $13.5 million.

8. RECENTLY ISSUED ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
Nos. 141 and 142,  Business  Combinations  and  Goodwill and Other  Intangibles,
respectively.  SFAS 141 requires all business combinations  initiated after June
30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill
is no longer subject to  amortization  over its estimated  useful life.  Rather,
goodwill is subject to at least an annual  assessment for impairment by applying
a fair-value based test.  Additionally,  an acquired  intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual  or other  legal  rights,  or if the  intangible  asset can be sold,
transferred,  licensed, rented or exchanged, regardless of the acquirer's intent
to do so.  The  Company  has  adopted  these  SFAS's  as of July 1, 2001 and has
performed  the  requisite  impairment  testing.  As of June 30, 2002 there is no
impairment to the goodwill recorded on the accompanying balance sheet.

     SFAS 142  requires  the  disclosure  of net income and  earnings  per share
computed on a pro forma basis by reversing the goodwill amortized in the periods
presented. Such pro forma disclosures are required in the period of adoption and
thereafter  until  all  periods  presented  reflect  goodwill  accounted  for in
accordance with SFAS 142. No pro forma is required as all periods presented have
now been accounted for in accordance with SFAS 142.

     In  October  2001,  the  FASB  issued  SFAS  NO.  144,  Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets,  that is applicable to financial
statements  issued for fiscal years  beginning  after  December  15, 2001,  with
transition provisions for certain matters.  FASB's new rules on asset impairment
supersede SFAS No. 121,  Accounting for the Impairment of Long-Lived  Assets and
for Long-Lived  Assets to be Disposed of, and provide a single  accounting model
for  long-lived  assets  to be  disposed  of.  Although  retaining  many  of the
fundamental  recognition  and  measurement  provisions  of SFAS No. 121, the new
rules significantly change the criteria that would have to be met to classify an
asset as  held-for-sale.  The new rules  supersede the  provisions of Accounting
Principals  Board  Opinion No. 30 ("APB No. 30") with  regard to  reporting  the
effects of a disposal of a segment of a business,  and require  expected  future
operating  losses from  discontinued  operations to be displayed in discontinued
operations in the period in which the losses are incurred  rather than as of the
measurement  date  as  presently  required  by APB No.  30.  In  addition,  more
dispositions  will qualify for discontinued  operations  treatment in the income
statement.  The Company does not believe that the implementation of SFAS No. 144
will have any impact on its  financial  statements as of and for the year ending
June 30, 2003.

9. SUPPLMENTAL CASH FLOW INFORMATION

     During the three months ended  September 30, 2001,  and September 30, 2002,
the  Company  paid $60 and $320 in  interest  and $43 and $636 in income  taxes,
respectively.  In non-cash  transactions,  the Company  issued 62,500 shares and
41,668  shares of its common  stock,  each issue valued at $250,  as  additional
compensation  to the  shareholders  of PAI  in  August  2001  and  August  2002,
respectively.

10.      LITIGATION

See Item 1 of Part II of this Quarterly Report on Form 10-Q.

11.      SUBSEQUENT EVENTS

     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"),  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 $1.4 million. Half of the purchase price was paid at the
closing  directly  to the  Sellers,  and half will be  deposited  into escrow as
security  for the  performance  of certain  indemnification  obligations  of the
Sellers.  Funds for this  transaction  were  supplied  by the  revolving  credit
facility that was put into place in January,  2002.  (See Note 2). The Agreement
provides that if certain  operational  milestones  are achieved over the next 12
months,  certain  amounts will be released  from the escrow to the  Sellers.  No
material liabilities were assumed.

     HSL  and  Health  Card  previously  entered  into  another  Asset  Purchase
Agreement. (See Note 2 above for a description of the Centrus Acquisition).

<PAGE>


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

Results of Operations

Three Months Ended September 30, 2002
Compared to Three Months Ended September 30, 2001

     Revenues increased $66.7 million,  or approximately 83%, from $80.7 million
for the three months ended  September 30, 2001, to $147.4  million for the three
months ended  September 30, 2002. Of the increase,  $75.4 million was due to the
inclusion of revenues from  Centrus,  which was included in the revenues for the
quarter  ended  September 30, 2002,  but not in the quarter ended  September 30,
2001.  Another $1.5  million of the increase was due to revenues  related to new
sponsors or new services  offered  during the three months ended  September  30,
2002. These increases were partially offset by a $23 million decrease related to
two  factors:  1) a major  sponsor  terminated  its  contract  with  Health Card
effective June 30, 2002, and 2) there were certain  contracts during the quarter
ended  September  30, 2002 that the Company  recognized  on a net revenue  basis
versus no contracts  during the three months ended  September  30, 2001 that the
Company  recognized on a net revenue basis.  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 few contracts that Health Card recognizes net revenue,  there
is no impact on gross profit since  neither the revenue nor the related costs of
the prescriptions is recorded.  The majority of the balance of the increase,  or
approximately  $13 million,  was due primarily to increased  revenues from other
existing  sponsors  as a result of  several  factors  including  higher  charges
relating to  increased  cost of  pharmaceuticals,  new drugs,  plan  participant
growth and an increase in the average number of claims per plan participant.

     Cost of claims increased $63.1 million,  or  approximately  86%, from $73.4
million for the three months ended September 30, 2001, to $136.5 million for the
three months ended  September 30, 2002.  Centrus  accounted for $73.6 million of
the increase. This increase was partially offset by the two factors described in
the previous paragragh,  namely, the loss of a major sponsor and the recognizing
of a few contracts on a net revenue basis. As a percentage of revenues,  cost of
claims  increased  from 91.0% to 92.6% for the three months ended  September 30,
2001 and September 30, 2002, respectively. The increase relates primarily to the
higher cost of claims on the Centrus book of business, which serves managed care
clients  primarily.  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.  Centrus' cost of claims for the three months ended  September
30,  2002  ran  about 7 - 10  percentage  points  greater  than  the rest of the
Company's business, and since Centrus accounted for 51% of the Company's revenue
in the three months ended  September 30, 2002, this impacted the overall cost of
claims percentage.

     Gross  profit  increased  from  $7.3  million  for the three  months  ended
September  30, 2001 to $10.9  million for the three months ended  September  30,
2002;  a $3.6  million,  or 50%,  increase.  In addition  to the revenue  volume
increase  and  consequent  gross margin  increase,  Centrus  accounted  for $1.8
million, or 50%, of the gross profit increase.  Gross profit, as a percentage of
revenue,  declined  from 9.0% to 7.4% for the three months ended  September  30,
2001 and September  30, 2002,  respectively.  The decrease is again  principally
related to the lower margins achieved by Centrus. The Company has also seen some
decline in profit margins due to competitive pressures.

     Selling,  general,  and  administrative  expenses,  which  include  amounts
charged by affiliates,  increased $2.3 million,  or approximately 39%, from $6.0
million for the three  months ended  September  30, 2001 to $8.3 million for the
three months ended September 30, 2002. This increase is primarily related to the
acquisition of Centrus.  While the expenses specifically related to Centrus were
$3.1 million in the quarter ended September 30, 2002, this was partially  offset
by reductions in other areas of the Company  related to the full  integration of
Centrus. The Company analyzed every department in the Company and made decisions
concerning  the most  efficient  way to operate  regardless  of  location.  This
evaluation  has led to synergies  across the Company and has allowed the Company
to maximize the utilization of its resources.  It is anticipated  that this kind
of analysis and deployment of resources will continue as the Company grows.

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately  $534,000, or 64%,  year-over-year from approximately  $831,000 to
approximately  $297,000  for the  three  months  ended  September  30,  2001 and
September 30, 2002,  respectively.  The majority of the decrease  related to the
hiring of employees which allowed the Company to bring in-house certain services
which historically had been obtained from related parties.

     Selling,  general,  and  administrative  expenses  as a percent  of revenue
improved  from 7.4% for the  quarter  ended  September  30, 2001 to 5.7% for the
quarter ended  September  30, 2002.  This  improvement  stems from the continued
growth of the Company due to improving efficiencies with scale.

     For the three months ended September 30, 2001, the Company recognized other
income, net, of approximately $136,000. For the three months ended September 30,
2002, the Company incurred other expense,  net, of approximately  $226,000.  The
components  of  the  approximate  $362,000  increase  in  net  expense  were  an
approximate  $260,000 increase in interest expense,  and an approximate $140,000
decrease in interest income, and an approximate $38,000 amortized gain on assets
sold during the fiscal year ended June 30, 2002. The primary reasons for the net
increase  in  expense  were  the  interest  expense  incurred  on the  Company's
revolving credit facility during the quarter ended September 30, 2002 to finance
the  acquisition  of Centrus (see Note 2), and the reduction in interest  income
since  all  balances  go  towards  paying  off the  revolving  credit  facility.
Partially offsetting the increase in interest expense was an approximate $38,000
deferred  gain on the sale of assets  related to a  sale/leaseback  transaction,
which gain of  approximately  $459,000 was  recorded as deferred  revenue and is
being recognized over the life of the lease, which is thirty-six (36) months.

     Income before the provision for income taxes increased  approximately  $0.9
million,  or  65%,  from  approximately  $1.4  million,  for the  quarter  ended
September  30,  2001,  to  approximately  $2.3  million  for the  quarter  ended
September  30,  2002.  The primary  reason for the  increase  was the  improving
efficiencies   that  come  with  scale  arising  from  the  integration  of  the
acquisitions the Company has completed. For the three months ended September 30,
2002  revenues  increased  83% over the three months ended  September  30, 2001,
while  selling,  general,  and  administrative  expenses  increased only 39%. In
addition, while gross margin percentages declined  period-over-period due to the
acquisition of Centrus, the gross profit dollars increased by 50%. These factors
contributed to the continued improvement in the Company's profitability.

     EBITDA  (earnings before interest,  taxes,  depreciation and  amortization)
increased by approximately  $1.6 million or 83%, from $2.0 million for the three
months  ended  September  30, 2001 to $3.6  million for the three  months  ended
September 30, 2002. The primary factor for the increase was the approximate $1.3
million,  or 100%,  increase in operating  income  described above. In addition,
there was an approximate $116,000 increase in depreciation and amortization, and
an approximate $130,000 increase in other intangibles amortization.

     The effective tax rate increased from 29.7% for the quarter ended September
30, 2001 to 41.0% for the quarter ended  September 30, 2002. The tax rate of 41%
represents the Company's estimated tax rate for the full fiscal year.

     Net income for the quarter ended September 30, 2002 was approximately  $1.4
million  as  compared  to  approximately  $1.0  million  for the  quarter  ended
September  30, 2001; a 38%  increase.  Earnings per diluted  share  increased by
$0.04, to $0.17 for the quarter ended September 30, 2002.

Liquidity and Capital Resources

     The Company's  primary cash  requirements are for capital  expenditures and
operating  expenses,  including cost of  pharmaceuticals,  software and hardware
upgrades and the funding of accounts receivable.  The Company also requires cash
for  potential  acquisitions  of other PBM  companies or of companies  providing
related  services.  As of September 30, 2002, the Company had a working  capital
deficit  of $36.3  million as  compared  to a working  capital  deficit of $42.7
million as of June 30, 2002. The primary  reason for the  improvement in working
capital was the profitability  generated by the Company during the quarter ended
September 30, 2002. In addition,  there was a $3.6 million reclassification of a
long term loan  receivable  to short  term  since it is now due within one year,
(See Note 6 - Related Party  Transactions).  The Company has now acquired  three
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 used in operating activities was $5.1 million and $9.5 million for
the three months ended September 30, 2001 and 2002, respectively.  For the three
months ended September 30, 2002, accounts payable decreased by $3.6 million more
than  accounts  and rebate  receivables,  thus using cash.  For the three months
ended September 30, 2001,  accounts payable  decreased by more than accounts and
rebates receivables as well, but only by $1.3 million,  this differential led to
a $2.3 million greater use of cash in the quarter ended September 30, 2002.

     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 $1.1 million for the three months
ended September 30, 2001, as compared to $0.6 million for the three months ended
September  30,  2002.  The  reduction  is  related  to  a  decrease  in  capital
expenditures.

     During the quarter ended  September 30, 2002 the Company  borrowed a net of
approximately $10 million under its revolving credit facility.  These funds were
primarily utilized to repay the principal balance of the Convertible Notes which
has had the effect of  significantly  reducing  the  interest  expense  that the
Company incurs.

     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
September 30, 2002 was approximately $1,285,000.

     The Company has entered into various real estate operating leases with both
related and unrelated  parties.  The Company has entered into various  operating
leases 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
Vice Chairman.  See Note 9 to the Consolidated  Financial Statements  comprising
Item 8 of Form 10 -K for the year ended June 30, 2002 for a further  description
of these various leases.

     On January 29,  2002,  the  Company  entered  into a $40 million  revolving
credit  facility (the  "Facility"),  details of which are set forth in Note 2 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
November 4, approximately $20.0 million was outstanding under the Facility,  and
the Company was in compliance with its financial ratios covenants.

     The  total  future  payments  under  these  contractual  obligations  as of
September 30, 2002 is as follows:
<TABLE>
<S>                                                      <C>    <C>    <C>               <C>    <C>    <C>


Contractual Obligations                                    Payments Due by Period
                                                               ($ in thousands)

                                          Total              Less than         1-3 Years         4-5 Years         After
                                                               1 Year                                            5 Years

Long Term Debt                          $ 24,396            $  24,382           $    14         $      -        $      -
Capital Lease Obligations                  1,285                  558               727                -               -
Operating Leases                          10,039                1,442             2,763            2,142           3,692
Sale-leaseback                               923                  444               479                -               -
                                        --------            ---------           -------         --------        --------
                                        --------            ---------           -------         --------        --------
   Total Contractual Cash               $ 36,643            $  26,826           $ 3,983         $  2,142        $  3,692
        Obligations

</TABLE>

     PAI  stockholders  were  eligible to receive up to $2,000,000 in additional
consideration  payable  in  combination  of cash and  common  stock  if  certain
financial  targets of PAI were met for the fiscal  years ended June 30, 2001 and
2002.  These  targets have been  achieved and the $2 million has been earned and
paid. At the end of August 2001, $750,000 in cash was paid, and 62,500 shares of
the  Company's  Common  Stock  valued at $4.00 per share were  issued to the PAI
stockholders.  At the end of August 2002,  $750,000 in cash was paid, and 41,668
shares of the  Company's  Common  Stock valued at $6.00 per share were issued to
the PAI stockholders.

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

     In  February  1998,   the  Company   entered  into  an  agreement  with  an
unaffiliated party for computer software products and professional services. The
agreement  required the Company to pay an initial  license fee. In addition,  if
certain  milestones are met based on the number of processed  claims, as defined
in the agreement, the initial license fee increases in specified increments.  To
date, four such  milestones  have been met,  resulting in a 100% increase in the
license fee. The  agreement  also  provides for the annual  payment of a fee for
maintenance  and updating  services equal to 18% of the initial  license fee, as
defined.   It  is  anticipated,   based  on  internal  growth  and  the  Centrus
acquisition,  that the last milestone will be met. If the remaining milestone is
reached, the cash outlay by the Company would be $100,000.

     The  Company  anticipates  that  current  cash  positions,  after its three
acquisitions  and the  repayment  of certain  affiliate  and  shareholder  debt,
together  with  anticipated  cash flow from  operations,  will be  sufficient to
satisfy the Company's  contemplated  cash  requirements  for at least 24 months.
This is based  upon  current  levels of  capital  expenditures  and  anticipated
operating  results for the next 24 months.  However,  it is one of the Company's
stated goals to acquire other pharmacy benefit management  companies,  evidenced
by the three acquired  since July 2000.  This will require cash and depending on
the  Company's  evaluation  of  future  acquisitions,  additional  cash  may  be
required.  In the event that the Company's plans change or its assumptions prove
to be inaccurate,  or the proceeds from the Facility 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, revenues and expenses; these
estimates and judgments also effect related disclosures of contingent assets and
liabilities.  On an on-going  basis,  Health Card  evaluates  its  estimates and
judgements, 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 for
the year ended June 30,  2002),  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.  Revenues are 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. In certain limited cases, 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 revenue nor the related cost of the prescriptions is recorded.

     (c)  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 our  management  in  order  to  allow  timely  decisions  regarding  required
disclosure.

     Under the supervision and with the participation of management, chiefly our
principal  executive officer and our principal  financial  officer,  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,  our  principal  executive  officer  and our
principal  financial  officer have  concluded that these controls and procedures
are effective.  There have been no significant changes in our internal controls,
or in other factors that could significantly  affect these controls,  subsequent
to the date of the evaluation.

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

     An action was  commenced  against  the Company on April 30, 2002 by Midwest
Health Plans Inc.  ("MHP") in the United States  District  Court for the Eastern
District of  Michigan.  The  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.
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 MHP's  failure to pay under a contract.  In
late June 2002,  MHP agreed to make two payments in the amount of $1.34  million
and $1.36  million to partially  settle the Company's  claims  against MHP. As a
part of that payment, MHP dropped one of its two claims against the Company that
had sought to setoff or recoup alleged  overcharges by the Company.  The Company
continues to have counterclaims  totaling approximately $150,000 against MHP for
its  failure to pay the  amounts it had agreed to pay Health  Card for goods and
services. Trial currently is scheduled for September 22, 2003. Factual discovery
cut-off is February 28,  2003.  The Company  believes the claims  alleged in the
complaint are without merit and intends to vigorously defend the action.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS

     For  information  concerning  the Company's 1999 Stock Option Plan, and the
options currently issued and outstanding thereunder, see Note 3 to the Financial
Statements comprising Item 1 of Part I of this Form 10-Q.

     Pursuant to the terms of the PAI Agreement, in August 2001 and August 2002,
the Company issued 62,500 and 41,668 shares respectively, of unregistered Common
Stock of the Company to the PAI stockholders as additional consideration.  These
issuances  were  valued at $250,000  each.  The Company was advised in each case
that the  issuance  of such  shares  was  exempt  from  registration  under  the
Securities Act by virtue of Section 4(2) thereof.


ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

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

None.


ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit
Number       Description of Exhibit


3.1   Certificate of Incorporation of Health Card (7)
3.4   By-Laws of Health Card (7)
4.1   Form of Specimen Common Stock Certificate (9)
4.2   Form of Warrant Agreement, including form of Representatives' Warrants (1)
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 (1)
10.5  Employee Covenant Agreement, dated June 15, 1998, between Health Card
       and Mary Casale (1)
10.6  Employee Covenant Agreement, dated June 16, 1998, between Health Card
       and Ken Hammond (1)
10.7  Stock Option Agreement, dated August 3, 1999, between Health Card
       and Ken Hammond (4)
10.8  Employment Agreement, dated March 27, 2000, between Health Card
       and David Gershen (4)
10.9  Stock Option Agreement, dated May 1, 2000, between Health Card and
       David Gershen (4)
10.10 Employment Agreement, dated May 3, 2000, between Health Card and
       James Bigl (4)
10.11 Stock Option Agreement, dated June 12, 2000, between Health Card
        and James Bigl (4)
10.12 Stock Option Agreement, dated August 3, 1999, between Health Card
        and Kenneth J. Daley (4)
10.13 Stock Option Agreement, dated August 3, 1999, between Health Card
        and Gerald Angowitz (4)
10.14 Assignment, dated November 1, 1996, from Sandata, Inc., to BFS Realty,
        LLC (1)
10.15 Lease, dated August 10, 1998, between 61 Manorhaven Boulevard, LLC
        and Health Card (1)
10.16 Letter, dated June 3, 1999, from Bert Brodsky to Health Card (1)
10.17 Letter, dated June 3, 1999, from Gerald Shapiro to Health Card (1)
10.18 Agreement of Guaranty, dated June 1, 1998, by Bert E. Brodsky in
        favor of Health Card (1)
10.19 Promissory Note, dated July 31, 2000, made payable by P.W. Capital, LLC
        to the order of Health Card, in the amount of $3,890,940 (4)
10.20 Letter, dated  June 8, 1999, from P.W. Capital Corp. to Health Card (1)
10.21 Letter, dated June 9, 1999, from Bert E. Brodsky to Health Card (1)
10.22 Letter, dated June 8, 1999, from the Bert E. Brodsky Revocable Trust to
        Health Card (1)
10.23 Letter Agreement, dated June 30, 1999, between the Bert E. Brodsky
        Revocable Trust and Health Card (1)
10.24 Employment Agreement, dated July 1, 1999, between Health Card and
        Bert E. Brodsky (1)
10.25 Letter, dated June 8, 1999, from Bert E. Brodsky to Health Card (1)
10.26 Form of Lock-Up Agreement (1)
10.27 Acquisition and Merger Agreement, dated as of June 27, 2000, between
        Health Card and Pharmacy Associates, Inc. (3)
10.28 Lease Agreement, dated March 4, 1996, between Pharmacy Associates, Inc.
        and Executive Park Partnership (4)
10.29 Amendment to Lease, dated November 2, 1998, between Pharmacy Associates,
        Inc. and Executive Park Partnership (4)
10.30 Amendment to Lease, dated November 19, 1998, between Pharmacy Associates,
        Inc. and Executive Park Partnership (4)
10.31 Lease Agreement, dated July 8, 1999, between Pharmacy Associates, Inc.
        and Executive Park Partnership (4)
10.32 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 (3)
10.33 Employment Agreement, dated June 4, 2001, between National Medical Health
        Card Systems, Inc. and Tery Baskin (6)
10.34 Stock Option Agreement, dated June 4, 2001, between National Medical
        Health Card Systems, Inc. and Tery Baskin (6)
10.35 Stock Option Agreement, dated June 12, 2001, between National Medical
        Health Card Systems, Inc. and James Bigl  (6)
10.36 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)
10.37 Receivables Purchase and Transfer Agreement dated January 29, 2002 by
        and among the Company and certain of its subsidiaries and
        NMHC Funding, LLC (8)
10.38 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)
10.39 Lease Agreement dated as of August 1, 2001,  between National Medical
        Health Card Systems,  Inc. and BFS Realty, LLC (6)
10.40 Amended Lease Agreement dated as of August 1, 2001, between National
        Medical Health Card Systems, Inc. and BFS Realty, LLC (6)
10.41 2003 Employee Stock Purchase Plan (11)
10.42 Asset Purchase Agreement dated as of November 1, 2002, by and between
        the Company, Integrail Acquisition Corp., Health Solutions, Ltd.,
        and certain security holders of Health Solutions, Ltd.
10.43 Assignment Agreement dated as of November 1, 2002, by and between the
        Company, Integrail Acquisition Corp., and Health Solutions, Ltd.
23.1  Consent of Ernst & Young LLP to the incorporation by reference in
        the Registration Statement on Form S-8 (File No. 333-8224) of its
        report dated September 30, 2002 (10)
23.2  Consent of Goldstein Golub Kessler LLP to the incorporation by reference
        in the Registration Statement on Form S-8 (File No. 333-82224) of its
        report dated August 31, 2001 (10)
23.3  Consent of BDO Seidman LLP to the incorporation by reference in the
        Registration Statement on Form S-8 (File No. 333-82224) of its report
        dated September 19, 2000 (10)
99.1  Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act
99.2  Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act


(1)         Denotes document filed as an Exhibit to Health Card's Registration
            Statement on Form S-1 (Registration Number: 333-72209) and
            incorporated herein by reference.
(2)         Denotes documentation filed as an Exhibit to Health Card's Report
            on Form 10-K for the fiscal year ended June 30, 1999.
(3)         Denotes document filed as an Exhibit to Health Card's Form 8-K for
            an event dated July 20, 2000 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.
(5)         Denotes document filed as an Exhibit to Health Card's Form 8-K for
            an event dated March 5, 2001.
(6)         Denotes document filed as an Exhibit to Health Card's Report on
            Form 10-K for the year ended June 30, 2001.
(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 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 No.
            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-K for
            the fiscal year ended June 30, 2002.
(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.


(b) Reports on Form 8-K

(1)     8-K filed July 18, 2002 regarding retirement of the Convertible Notes.

(2)     8-K/A filed July 18, 2002 regarding retirement of the Convertible Notes.

(3)     8-K filed July 23, 2002 regarding change in certifying accountant.

(4)     8-K/A filed July 23, 2002 regarding change in certifying accountant.


-----------------------


<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:    November 12, 2002          By:  /s/ James J. Bigl
                                        --------------------------------------
                                             James J. Bigl
                                             Chief Executive Officer


                                     By:  /s/ David J. Gershen
                                         -------------------------------------
                                              David J. Gershen
                                              Chief Financial Officer and
                                                Treasurer


<PAGE>



                                  CERTIFICATION

I, James J. Bigl, Chief Executive Officer, certify that:

     1. I have reviewed this quarterly  report on Form 10-Q of National  Medical
Health Card Systems, Inc. and its Subsidiaries;

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

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

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have:

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

          b) evaluated the effectiveness of the registrant's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

          c)  presented  in this  quarterly  report  our  conclusions  about the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data, and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November  12, 2002                             /s/James J. Bigl
                                                     ---------------------------
                                                        James J. Bigl,
                                                        Chief Executive Officer


<page>
                             CERTIFICATION


I, David Gershen, Chief Financial Officer, certify that:

     1. I have reviewed this quarterly  report on Form 10-Q of National  Medical
Health Card Systems, Inc. and its Subsidiaries;

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

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

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have:

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

          b) evaluated the effectiveness of the registrant's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

          c)  presented  in this  quarterly  report  our  conclusions  about the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board of directors  (or persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data, and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  November 12, 2002                       /s/ David Gershen
                                               --------------------------------
                                                   David Gershen,
                                                   Chief Financial Officer