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

                                    FORM 10-Q

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

For the quarterly period ended             December 31, 2001
                               -------------------------------------------------
                                       OR

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

For the transition period from                      to
                               --------------------    -------------------


                        Commission file number 000-26749

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

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


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

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



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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     The  number of shares  outstanding  of the  issuer's  Common  Stock,  as of
February 8, 2002 was 7,183,996 shares.
<PAGE>

           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

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

                                                                                        Page

PART I        -   FINANCIAL INFORMATION

ITEM 1        -   CONDENSED FINANCIAL STATEMENTS:                                         3

                  CONSOLIDATED BALANCE SHEET as of June 30, 2001                          3
                  and December 31, 2001 (unaudited)

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

                  CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)                         5
                  for the six months ended December 31, 2000 and 2001

                  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                     6

ITEM 2        -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                       13
                  CONDITION AND RESULTS OF OPERATIONS

ITEM 3        -   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT                          19
                  MARKET RISK

PART II       -   OTHER INFORMATION                                                       20

ITEM 1        -   LEGAL PROCEEDINGS                                                       20

ITEM 2        -   CHANGES IN SECURITIES AND USE OF PROCEEDS                               20

ITEM 3        -   DEFAULTS UPON SENIOR SECURITIES                                         20

ITEM 4        -   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     21

ITEM 5        -   OTHER INFORMATION                                                       22

ITEM 6        -   EXHIBITS AND REPORTS ON FORM 8-K                                        22

</TABLE>
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1 - CONDENSED FINANCIAL STATEMENTS

           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<S>                                                                                                  <C>                 <C>
                                                                                                     June 30,          December 31,
Assets                                                                                                 2001                2001
                                                                                                       ----                ----
Current:                                                                                                               (Unaudited)

  Cash and cash equivalents (including cash equivalent investments of $1,216,000                     $ 12,474,945        $10,790,401
         and $1,241,000)
  Accounts receivable, less allowance for possible losses of $1,846,827                                30,081,118         31,054,948
         and $2,473,828
  Rebates receivable                                                                                    7,789,310          7,857,966
  Due from affiliates                                                                                     986,827            415,078
  Deferred tax asset                                                                                    1,102,932          1,488,626
  Other current assets                                                                                  1,003,709            568,370
 -----------------------------------------------------------------------------------------------------------------------------------
     Total current assets                                                                              53,438,841         52,175,389
  Property, equipment and software development costs, net                                               8,583,890          8,194,528
  Due from affiliates                                                                                   3,831,621          3,538,906
  Customer relationships, net of accumulated amortization of $39,027 and $100,029                         265,973            204,971
  Goodwill                                                                                             12,943,502         12,943,502
  Deferred tax asset                                                                                            -             13,922
  Other Assets                                                                                             45,737             69,026
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
     Total Assets                                                                                    $ 79,109,564        $77,140,244
------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
    Current Liabilities:
  Accounts payable and accrued expenses                                                              $ 57,645,563        $54,559,130
  Current portion of capital lease obligations                                                            542,094            566,654
  Loans payable-current                                                                                   110,426             28,804
  Due to officer/stockholder                                                                              541,630            416,850
  Due to affiliates                                                                                       343,568              7,243
  Income taxes payable                                                                                          -            181,933
  Other current liabilities                                                                             1,345,533            361,396
------------------------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                                         60,528,814         56,122,010
  Capital lease obligations, less current portion                                                       1,333,349          1,043,682
  Long term loans payable and other liabilities                                                            72,712            473,380
  Deferred tax liability                                                                                1,702,470          1,754,948
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                                 63,637,345         59,394,020
------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' equity:
  Preferred stock $.10 par value; 10,000,000 shares authorized, none outstanding                                -                  -
  Common Stock, $.001 par value, 25,000,000 shares authorized, 7,312,496 and                                7,313              7,376
    7,374,996 shares issued and 7,121,496 and 7,183,996 outstanding
  Additional paid-in-capital                                                                           13,254,530         13,504,467
  Retained earnings                                                                                     3,254,143          5,290,898
  Treasury stock at cost, 191,000 shares                                                                 (743,767)         (743,767)
  Notes receivable - stockholders                                                                        (300,000)         (312,750)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
     Total stockholders' equity                                                                        15,472,219         17,746,224
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Equity                                                      $ 79,109,564        $77,140,244
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      See accompanying condensed notes to consolidated financial statements

<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<S>                                                     <C>            <C>            <C>                  <C>

                                                            Three months ended                 Six months ended
                                                                 December 31                      December 31
                                                            2000            2001            2000              2001
                                                            ----            ----            ----              ----

Revenues                                                 $64,429,140    $87,508,993     $120,293,304        $168,153,696
Cost of claims                                            59,772,316     79,768,923      111,039,365         153,160,803
-------------------------------------------------------------------------------------------------------------------------

Gross Profit                                               4,656,824      7,740,070        9,253,939          14,992,893

Selling, general and administrative expenses*              4,421,899      6,058,358        8,725,324          12,041,199
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------

Operating income                                             234,925      1,681,712          528,615           2,951,694

Other income, net                                            205,026        117,172          418,666             253,061
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                   439,951     1,798,884           947,281           3,204,755
Provision for income taxes                                   215,000       751,000           481,000           1,168,000
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------

Net Income                                                  $224,951    $1,047,884          $466,281          $2,036,755
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------

Earnings per common share:
    Basic                                                      $0.03         $0.15             $0.07               $0.28
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
    Diluted                                                    $0.03         $0.13             $0.07               $0.27
-------------------------------------------------------------------------------------------------------------------------

Weighted average number of common shares outstanding:
    Basic                                                  7,121,496     7,183,996         7,080,192           7,163,616
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
    Diluted                                                7,121,496     7,781,377         7,080,192            7,613,615
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------


* Includes amounts charged by affiliates aggregating:
                                                            $824,496      $699,938       $1,783,795           $1,398,572
-------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
      See accompanying condensed notes to consolidated financial statements

<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<S>                                                                                        <C>                     <C>
                                                                                                Six Months ended
                                                                                                   December 31,
                                                                                             2000                      2001
                                                                                             ----                      ----
Cash flows from operating activities:
              Net income                                                                   $ 466,281                $ 2,036,755
              Adjustments to reconcile net income to net cash provided by (used in)
              operating activities:
              Depreciation and amortization                                                1,161,832                  1,428,732
              Net gain on disposal of capital assets                                         -                          (16,780)
              Bad debt expense and allowance for possible losses                             251,990                    627,001
              Compensation expense accrued to officer/stockholder                            234,130                   (124,780)
              Deferred income taxes                                                          153,351                   (347,139)
              Interest accrued on stockholders' loans                                        (12,750)                   (12,750)
              Changes in assets and liabilities:
                (Increase) decrease in:
                  Accounts receivable                                                     (8,832,396)                (1,600,831)
                  Rebates receivable                                                        (761,595)                   (68,656)
                  Other current assets                                                      (359,291)                   428,299
                  Due to/from affiliates                                                    (318,827)                   528,138
                  Other assets                                                                44,878                    (27,729)
                Increase (decrease) in:
                  Accounts payable and accrued expenses                                    8,687,314                 (3,086,432)
                  Income taxes payable                                                       (86,827)                   181,933
                  Other liabilities                                                            5,262                   (734,137)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                                          633,352                   (788,376)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
                Capital expenditures                                                      (1,450,567)                (1,837,789)
                 Proceeds from disposal of capital assets                                      -                      1,321,000
                Acquisition of PAI, net of cash acquired                                  (4,487,006)                    -
                Interest received on notes from stockholders                                  39,100                     -
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                     (5,898,473)                  (516,789)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
                Repayment of debt and capital lease obligations                             (204,571)                  (379,379)
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                                       (204,571)                  (379,379)
----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                                 (5,469,692)                (1,684,544)
Cash and cash equivalents at beginning of period                                          15,724,730                 12,474,945
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                               $10,255,038                $10,790,401
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
     See accompanying condensed notes to consolidated financial statements
<PAGE>


           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     1. BASIS OF PRESENTATION

     The unaudited  consolidated  financial  statements  include the accounts of
National Medical Health Card Systems,  Inc. (the "Company") and its wholly owned
subsidiaries,  Pharmacy Associates, Inc. ("PAI"), Interchange PMP, Inc. ("PMP"),
National Medical Health Card IPA, Inc. ("IPA") and Specialty Pharmacy Care, Inc.
("Specialty").  Unless the context otherwise requires,  references herein to the
"Company"  refer  to the  Company  and  its  subsidiaries,  PAI,  PMP,  IPA  and
Specialty,  on a  consolidated  basis.  All material  intercompany  balances and
transactions have been eliminated in the consolidation.

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

     Certain  amounts in the prior period have been  reclassified  to conform to
the current period  presentation  (See Note 7). 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,  2001 (the  "Annual
Report").

     2. BUSINESS ACQUISITIONS

     Pursuant  to the  terms of the  Agreement  and Plan of Merger  between  the
Company and PAI, dated July 20, 2000 (the "PAI Agreement"), the Company acquired
PAI, a regional  pharmacy  benefit  management  company  operating  in Arkansas,
Louisiana,   and  Mississippi.   Under  the  terms  of  the  merger   agreement,
stockholders  of PAI  received  an  aggregate  of $6 million in cash and 400,000
shares of the  Company's  Common  Stock,  which was  valued at  $849,920  on the
acquisition date. The acquisition was accounted for under the purchase method of
accounting and the results of PAI's operations were included in the consolidated
financial statements  commencing with the acquisition date. PAI stockholders may
also  receive  additional  consideration  of  up  to  $2  million  payable  in a
combination  of cash and  unregistered  Common  Stock over a two-year  period if
certain  financial  targets  of PAI are met which  will be  accounted  for as an
addition to goodwill. The financial targets were achieved for the first year, so
$750,000  in cash and  $250,000  in Common  Stock  (62,500  shares) was paid and
issued in August, 2001.

     On March 5, 2001, the Company acquired through its wholly owned subsidiary,
Interchange  PMP,  Inc.  substantially  all of the  assets  and  certain  of the
liabilities of Provider Medical Pharmaceutical, LLC ("PMP"), an Oklahoma limited
liability  company,  pursuant to an Asset Purchase  Agreement among the Company,
PMP and the members of PMP. The assets  acquired from PMP included,  among other
things, PMP's accounts receivable and intellectual property,  PMP's rights under
various  contracts and the goodwill value of PMP's business.  The purchase price
for the assets  consisted of: (i) $4,000,000 in cash,  (ii) the  satisfaction by
the Company of PMP's bank indebtedness of $1,255,035,  and (iii) cancellation of
the $1,500,000 promissory note from PMP to the Company,  dated January 16, 2001.
The  acquisition  was accounted for under the purchase  method of accounting and
the results of PMP's  operations  were  included in the  consolidated  financial
statements, commencing with the acquisition date.

     3. STOCK OPTIONS

     During the six months ended December 31, 2001,  the Company  granted 84,487
stock options under the 1999 Stock Option Plan (the "Plan"). The total number of
shares of common stock  reserved by the Company for  issuance  under the Plan is
1,650,000 (2,850,000 as of January 24, 2002 - see Item 5 of Part II hereof) 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  December  31, 2001
equal 1,192,707.

     During  the six  months  ended  December  31,  2001,  the  total  number of
incentive  options  granted under the Plan, net of incentive  options  forfeited
during the same period,  were a reduction of 32,469. The options granted in this
period are  exercisable  at prices  ranging  from $3.50 to $12.61 and  terminate
between  four and five years  from the grant  date.  As of  December  31,  2001,
1,073,707  incentive options have been granted.  The Company has also granted to
date nonstatutory  options to its outside  Directors  (104,000) and the majority
shareholder  of PMP  (15,000)  under the Plan to purchase up to an  aggregate of
119,000  shares of Common Stock at prices ranging from $1.67 to $6.00 per share.
These options  terminate  after five years.  None of the  currently  exercisable
options have been 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>

                                                                         Three months ended December 31,
                                                                                2000         2001
                                                                                ----         ----
     Basic weighted average # of shares outstanding                          7,121,496       7,183,996
     Effect of assumed conversion of employee stock options                      -             555,714
     Contingently issuable shares (see Note 2)                                   -              41,667
                                                                             ---------       ---------
     Diluted weighted average # of shares outstanding                        7,121,496       7,781,377
                                                                             =========       =========

                                                                          Six months ended December 31,
                                                                                2000         2001
                                                                                ----         ----
     Basic weighted average # of shares outstanding                         7,080,192        7,163,616
     Effect of assumed conversion of employee stock options                      -             422,628
     Contingently issuable shares (see Note 2)                                   -              27,371
                                                                            ---------        --------
     Diluted weighted average # of shares outstanding                       7,080,192        7,613,615
                                                                            =========        =========

     5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of the following:

                                                                              June 30,     December 31,
                                                                                2001           2001
                                                                                ----           ----
     Claims payable                                                       $46,615,563      $43,861,748
     Rebates payable to sponsors                                            6,479,069        6,363,859
     Other payables                                                         4,550,931        4,333,523
                                                                          -----------      -----------
                                                                          $57,645,563      $54,559,130
                                                                          ===========      ===========

</TABLE>

     6. RELATED PARTY TRANSACTIONS

     Certain costs paid to affiliates were  capitalized as software  development
costs.  For the six months  ended  December  31,  2001,  the  amount  charged by
affiliates and capitalized was approximately $96,000.

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

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

     General and administrative expenses related to transactions with affiliates
included in the statement of income are:
<TABLE>
<S>                                                                   <C>               <C>
                                                                       Three months ended December 31,
                                                                              2000            2001
                                                                              ----            ----
     Software maintenance and related services                        $    224,413       $   227,450
     Management and consulting fees                                        288,227           121,689
     Administrative and bookkeeping services and supplies                  160,731           225,737
     Rent and utilities                                                    151,125           125,062
                                                                      ------------       -----------
                                                                      $    824,496       $   699,938
                                                                      ============       ===========

                                                                         Six months ended December 31,
                                                                              2000            2001
                                                                              ----            ----
     Software maintenance and related services                        $    560,305       $   481,408
     Management and consulting fees                                        594,849           199,013
     Administrative and bookkeeping services and supplies                  367,641           429,805
     Rent and utilities                                                    261,000           288,346
                                                                      ------------       -----------
                                                                       $ 1,783,795       $1,398,572
                                                                       ===========       ==========

</TABLE>

     The  Company  has accrued  approximately  $131,000 of interest  income from
affiliates,  arising from two loans, for the six months ended December 31, 2001.
This compares to  approximately  $190,000 for the six months ended  December 31,
2000. The two loans are as follows:  (i) Sandata  Technologies,  Inc.  (formerly
Sandata, Inc.), a corporation of which Mr. Brodsky is the Chairman of the Board,
Treasurer and a principal  stockholder  ("Sandata"),  owed the Company  $500,000
principal  plus interest  pursuant to a promissory  note dated May 31, 2000. The
Note was paid in full in August 2001; (ii) a non-recourse  promissory note dated
July 31, 2000, made payable to the order of the Company by P.W. Capital,  LLC, a
company affiliated with Mr. Brodsky,  in the amount of $3,890,940.  Such note is
payable in annual installments of $400,000, consisting of principal and interest
at the rate of 8-1/2%  per annum on each of the  first  and  second  anniversary
dates,  with the total  remaining  balance of  principal  and  interest  due and
payable on July 31, 2003.  The note is  collateralized  by  1,000,000  shares of
$.001  par  value  Common  Stock of the  Company  registered  in the name of Mr.
Brodsky and is subject to his personal guarantee. The first $400,000 payment due
under the note as of July 31, 2001 was  satisfied by  offsetting an equal amount
owed to Mr.  Brodsky by the Company.  Effective July 31, 2001, the interest rate
on the note was changed to the prime rate in effect from time to time.

     The Company currently occupies  approximately  29,915 square feet of office
space  located at 26 Harbor Park  Drive,  Port  Washington,  New York 11050 (the
"Facility").  The  Company  subleases  the  Facility  from BFS  Realty,  LLC, an
affiliate of Mr. Brodsky (the  "Affiliate").  The Affiliate  leases the Facility
from the Nassau County Industrial Development Agency,  pursuant to a lease which
was  entered  into by that  agency and the  Affiliate  in July  1994,  and which
expires in March 2005.  The  Affiliate  has the right to become the owner of the
Facility upon expiration of the lease. The Affiliate  subleases a portion of the
Facility 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
$308,305.  While  formerly the Company made  estimated  monthly real estate tax,
utility  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 $336,000 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
Facility is adequate for current purposes.  Leasehold  improvements made to this
space during the six months ended December 31, 2001, was approximately $37,000.

     7. 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 July 1, 2001  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. Had SFAS 142 been effective prior to July 1, 2001, our
net income would have been $300,488 or $0.04 per basic and diluted share for the
three  months  ended  December  31,  2000 and  $601,112,  or $0.08 per basic and
diluted share for the six months ended December 31, 2000.

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

     8. SUPPLEMENTAL CASH FLOW INFORMATION

     During the six months ended  December  31, 2000 and December 31, 2001,  the
Company  paid  $122,570  and  $109,421 in interest  and $414,363 and $697,966 in
income taxes, respectively.  During the six months ended December 31, 2000, in a
non-cash  transaction,  the Company issued  400,000  shares of its  unregistered
Common  Stock,  valued at $849,920,  as part of the  acquisition  of PAI in July
2000.  During the six months  ended  December  31,  2001,  in a second  non-cash
transaction,  the Company issued 62,500 shares of its unregistered Common Stock,
valued at $250,000,  as additional  consideration  to the stockholders of PAI in
August  2001.  (See  Note 2  above  for  additional  information  about  the PAI
agreement).

     9. LITIGATION

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

     10. SUBSEQUENT EVENTS

     (a) The 2001 annual meeting of  shareholders  was held on January 24, 2002,
at the Company's executive offices in Port Washington,  NY. For a description of
the  matters  voted  upon  and the  results  of such  votes,  see  Item 5 (Other
Information) of Part II hereof.

     (b) On  January  29,  2002,  the  Company  entered  into an Asset  Purchase
Agreement  with  Health  Solutions,  Ltd.  ("HSL"),  HSL  Acquisition  Corp.,  a
wholly-owned  subsidiary  of the  Company,  and the  security  holders of HSL. A
description of the  transaction  has been  previously  reported in the Company's
Current Report on Form 8-K, filed with the SEC on February 11, 2002.

     (c) On January  29,  2002,  the  Company  and  certain of its  subsidiaries
entered into a Receivables  Purchase and Transfer  Agreement  with NMHC Funding,
LLC (a limited liability company, the members of which are the Company and those
subsidiaries).  On the same date,  NMHC  Funding,  LLC  entered  into a Loan and
Security  Agreement with HFG Healthco-4 LLC, an affiliate of Healthcare  Finance
Group,  Inc. A description of this  financing  transaction  has been  previously
reported  in the  Company's  Current  Report on Form 8-K,  filed with the SEC on
February 11, 2002;  see also Item 2 of Part I of this  Quarterly  Report on Form
10-Q.

     (d) On January 22, 2002 the Company  completed a convertible  note offering
(the  "Note  Offering")  in the  aggregate  principal  amount of $11.6  million.
Pursuant to the Note  Offering,  subscribers,  two of whom are  directors of the
Company, received a promissory note (each a "Note") paying interest quarterly on
the unpaid principal balance at the rate of 12% per annum. The Notes have a term
of one year,  unless otherwise  extended  pursuant to the terms of the Note. The
Notes are  convertible at any time at the election of the holders into shares of
the common stock of the Company ("Conversion  Shares") at a conversion price per
share equal to $12.00,  the fair value of the common  stock on January 22, 2002.
The Note holders have been granted certain  registration  rights with respect to
the Conversion Shares pursuant to a Registration  Rights Agreement dated January
22,  2002 by and among the Company  and the  holders  participating  in the Note
Offering.  Proceeds  from the Note  Offering  were used to  finance  part of the
purchase  price of the Asset  Purchase  Agreement  referred to in paragraph  (b)
above and will also be used by the  Company  for working  capital  purposes  and
future acquisitions.
<PAGE>
           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES

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

     Results of Operations

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

     Revenues increased $23.1 million,  or approximately 36%, from $64.4 million
for the three months ended  December  31, 2000,  to $87.5  million for the three
months ended December 31, 2001. Of the increase,  $7.0 million,  or 30%, was due
to the inclusion of revenues  from PMP in the quarter  ended  December 31, 2001.
Another $7.0 million of the increase was due to revenues related to new sponsors
or new services  offered during the quarter ended  December 31, 2001.  There was
also a $0.7 million  reduction in revenue during the three months ended December
31,  2000 which  arose when the Company  settled  certain  fees due from a major
sponsor related to a capitation arrangement for calendar year 1999. The majority
of the balance of the increase,  or $8.4 million, was due primarily to increased
revenues from other existing  sponsors as a result of several factors  including
higher charges relating to increased cost of  pharmaceuticals,  new drugs,  plan
participant  growth and an  increase  in the  average  number of claims per plan
participant.

     Revenues for the three months ended  December 31, 2000 were adjusted  based
on EITF 00-14,  Accounting for Certain Sales  Incentives - Coupons,  Rebates and
Discounts  (See Note 7). The financial  impact of this is to reduce  revenues by
the amount of rebates to be paid to  customers  and reduce cost of claims by the
gross amount of rebates  received by the Company.  Previously the net difference
between  the  gross  amount  received  by the  Company  and the  amount  paid to
customers  was  treated  as a  reduction  in cost of  claims  with no  effect on
revenue.  The impact of this change was to reduce  revenue and cost of claims by
$1.2 million for the quarter ended December 31, 2000.

     Cost of claims increased $20.0 million,  or  approximately  33%, from $59.8
million for the three months ended  December 31, 2000,  to $79.8 million for the
three months ended December 31, 2001. PMP accounted for $6.2 million,  or 31% of
the increase.  An increase in gross rebates received  accounted for $1.6 million
of the increase. The balance of the increase is related to the increased revenue
as described  above. As a percentage of revenues,  cost of claims decreased from
92.8% to 91.2% for the three  months  ended  December  31, 2000 and December 31,
2001,  respectively.  The decrease relates primarily to the lower cost of claims
achieved by PAI - 87% and PMP - 89% during the three months  ended  December 31,
2001, and the $1.6 million increase in gross rebates received.

     Gross  profit  increased  from $4.6  million,  for the three  months  ended
December 31, 2000, to $7.7 million for the three months ended December 31, 2001;
a $3.1 million, or 66% increase. In addition to the revenue volume increase, PMP
accounted  for $0.8 million,  or 26%, of the  increase,  and the net increase in
rebates after  accounting for the amount that is shared with sponsors  accounted
for another $0.6  million,  or 19%.  Gross  profit,  as a percentage of revenue,
increased  from 7.2% to 8.8%,  for the three months ended  December 31, 2000 and
December 31, 2001,  respectively.  The increase  year-over-year  is  principally
related to the greater margins achieved by PAI and PMP in the quarter as well as
the increase in net rebates  retained.  These increases were partially offset by
declines elsewhere in the Company due to competitive pressures.

     Selling,  general,  and  administrative  expenses,  which  include  amounts
charged by affiliates,  increased $1.6 million,  or approximately  37% from $4.4
million for the three  months  ended  December  31, 2000 to $6.0 million for the
three months ended December 31, 2001.  Approximately 6% of the increase, or $0.1
million,  was related to the inclusion of PMP in the consolidated  numbers.  The
balance of the growth in these expenses was  principally  related to five areas:
(i) an approximate  $429,000  increase in  expenditures  related to increases in
compensation  and benefits,  primarily  associated with new employees  including
senior  management;  (ii) an approximate  $175,000  increase in depreciation and
amortization  expenses  related to increased  hardware  procurement and software
development in prior periods;  (iii) an approximate $521,000 increase in the use
of outside consultants to primarily update the Company's information  technology
infrastructure;  (iv) an  approximate  $102,000  increase in commission  expense
related  to the  increase  in new  revenues;  and  (v)  an  approximate  $64,000
reduction in the amount of internal  salaries that were  capitalized  related to
enhancements to the Company's reporting system.

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately $125,000, or 15%, year-over-year from $825,000 to $700,000 for the
three months ended  December 31, 2000 and December 31, 2001,  respectively.  The
majority of the decrease related to reduced information  technology services and
management and consulting  fees procured from affiliated  companies.  The use of
outside  consultants for the most part replaced the use of affiliated  companies
to update the information technology infrastructure.

     Other  income,  net,  decreased  by  approximately  $88,000,  or 43%,  from
approximately  $205,000  for the  three  months  ended  December  31,  2000,  to
approximately $117,000 for the three months ended December 31, 2001. The reasons
for the net decrease was (i) an approximate $129,000 decrease in interest income
related to lower cash balances due to the  acquisitions  of PAI and PMP, as well
as due to the lower interest rates in effect as of December 31, 2001 as compared
to December 31, 2000, (ii) an approximate  $16,000 decrease in interest expense,
and  (iii) an  approximate  $25,000  gain on the  sale of  assets  related  to a
sale/leaseback  transaction.  In  October  2001,  the  Company  entered  into  a
sale/leaseback  operating  lease of certain fixed assets  (principally  computer
hardware and externally developed software) with Mediclaim,  an affiliate of the
Company's  Vice  Chairman.  The  fixed  assets,  which  had a net book  value of
approximately  $861,000,  were  sold  for  $1,320,000.  The  resulting  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 income taxes  increased  approximately  $1,359,000,  or 309%,
from  approximately  $440,000 for the three months ended  December 31, 2000,  to
approximately  $1,799,000  for the three  months ended  December  31, 2001.  The
primary  reason for the increase  was the  increased  gross margin  generated as
described  above.  EBITDA (earnings  before  interest,  taxes,  depreciation and
amortization)  for  these  same  periods  showed  a  increase  of  approximately
$1,553,000,  or 178%,  from  approximately  $872,000  for the three months ended
December  31,  2000 to  approximately  $2,425,000  for the  three  months  ended
December  31,  2001.  The  majority of the  increase is due to the $1.4  million
increase  in  operating  income,  which  again was due to the  increase in gross
margin,  from December 31, 2001 as compared to December 31, 2000. The balance of
the  increase  is due to an  approximate  $184,000 of  incremental  depreciation
related to new assets procured during the year,  which was partially offset by a
$78,000  decrease in intangibles  amortization of PAI and PMP. Per SFAS 142, the
Company no longer amortizes goodwill as of July 1, 2001 (see Note 7).

     The  effective  tax rate  decreased  from 49% for the  three  months  ended
December  31, 2000 to 42% for the three months  ended  December  31,  2001.  The
decrease stemmed primarily from the adoption of SFAS 142. Effective July 1, 2001
the Company is no longer amortizing  goodwill pursuant to SFAS 142 which results
in lowering the effective rate due to the fact that the goodwill  related to the
PAI acquisition is no longer a permanent difference,  since it is not deductible
for book or tax purposes (See Note 7).


     Six Months Ended  December 31, 2001  Compared to Six Months Ended  December
31, 2000

     Revenues increased $47.9 million, or approximately 40%, from $120.3 million
for the six months ended December 31, 2000, to $168.2 million for the six months
ended December 31, 2001. Of the increase,  $13.7 million, or 29%, was due to the
inclusion  of  revenues  from PMP in the six months  ended  December  31,  2001.
Another $8.8 million of the increase was due to revenues related to new sponsors
or new  services  offered  during the six months ended  December  31, 2001.  The
settlement with a major sponsor,  described above, accounted for $0.7 million of
the increase. The majority of the balance of the increase, or $24.7 million, was
due primarily to increased  revenues from other existing sponsors as a result of
several  factors   including  higher  charges  relating  to  increased  cost  of
pharmaceuticals,  new drugs,  plan  participant  growth and an  increase  in the
average number of claims per plan participant.

     Revenues for the six months ended  December 31, 2000 were adjusted based on
EITF 00-14,  Accounting  for Certain  Sales  Incentives  - Coupons,  Rebates and
Discounts  (See Note 7). The financial  impact of this is to reduce  revenues by
the amount of rebates to be paid to  customers  and reduce cost of claims by the
gross amount of rebates  received by the Company.  Previously the net difference
between  the  gross  amount  received  by the  Company  and the  amount  paid to
customers  was  treated  as a  reduction  in cost of  claims  with no  effect on
revenue.  The impact of this change was to reduce  revenue and cost of claims by
$2.3 million for the six months ended December 31, 2000.

     Cost of claims increased $42.2 million,  or approximately  38%, from $111.0
million for the six months ended  December 31, 2000,  to $153.2  million for the
six months ended December 31, 2001.  PMP accounted for $12.2 million,  or 29% of
the increase.  An increase in gross rebates received  accounted for $2.5 million
of the increase. The balance of the increase is related to the increased revenue
as described  above. As a percentage of revenues,  cost of claims decreased from
92.3% to 91.1% for the six months ended December 31, 2000 and December 31, 2001,
respectively.  The  decrease  relates  primarily  to the  lower  cost of  claims
achieved  by PAI - 88% and PMP - 89% during the six months  ended  December  31,
2001, and the $2.5 million increase in gross rebates received.

     Gross profit increased from $9.3 million, for the six months ended December
31, 2000,  to $15.0  million for the six months ended  December 31, 2001; a $5.7
million,  or 62%  increase.  In  addition to the revenue  volume  increase,  PMP
accounted  for $1.5 million,  or 26%, of the  increase,  and the net increase in
rebates after  accounting for the amount that is shared with sponsors  accounted
for another $1.2  million,  or 21%.  Gross  profit,  as a percentage of revenue,
increased  from 7.7% to 8.9%,  for the six months  ended  December  31, 2000 and
December 31, 2001,  respectively.  The increase  year-over-year  is  principally
related to the greater margins achieved by PAI and PMP in the six months as well
as the increase in net rebates  retained.  These increases were partially offset
by declines elsewhere in the Company due to competitive pressures.

     Selling,  general,  and  administrative  expenses,  which  include  amounts
charged by affiliates,  increased $3.3 million,  or approximately  38% from $8.7
million for the six months ended  December 31, 2000 to $12.0 million for the six
months ended  December  31, 2001.  Approximately  12% of the  increase,  or $0.4
million,  was related to the inclusion of PMP in the consolidated  numbers.  The
balance of the growth in these expenses was  principally  related to five areas:
(i) an approximate  $560,000  increase in  expenditures  related to increases in
compensation  and benefits,  primarily  associated with new employees  including
senior  management;  (ii) an approximate  $330,000  increase in depreciation and
amortization  expenses  related to increased  hardware  procurement and software
development in prior periods;  (iii) an approximate $882,000 increase in the use
of outside consultants to primarily update the Company's information  technology
infrastructure;  (iv) an  approximate  $147,000  increase in commission  expense
related  to the  increase  in new  revenues  and  (v)  an  approximate  $187,000
reduction in the amount of internal  salaries that were  capitalized  related to
enhancements to the Company's reporting system.

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately $385,000, or 22%, year-over-year from $1,784,000 to $1,399,000 for
the six months ended December 31, 2000 and December 31, 2001, respectively.  The
majority of the decrease related to reduced information  technology services and
management and consulting  fees procured from affiliated  companies.  The use of
outside  consultants for the most part replaced the use of affiliated  companies
to update the information technology infrastructure.

     Other  income,  net,  decreased by  approximately  $166,000,  or 40%,  from
approximately   $419,000  for  the  six  months  ended  December  31,  2000,  to
approximately  $253,000 for the six months ended  December 31, 2001. The reasons
for the net decrease was (i) an approximate $204,000 decrease in interest income
related to lower cash balances due to the  acquisitions  of PAI and PMP, as well
as due to the lower interest rates in effect as of December 31, 2001 as compared
to December 31, 2000, (ii) an approximate  $13,000 decrease in interest expense,
and  (iii) an  approximate  $25,000  gain on the  sale of  assets  related  to a
sale/leaseback transaction described above.

     Income before income taxes  increased  approximately  $2,258,000,  or 238%,
from  approximately  $947,000  for the six months ended  December  31, 2000,  to
approximately $3,205,000 for the six months ended December 31, 2001. The primary
reason for the increase was the  increased  gross margin  generated as described
above.  EBITDA  for  these  same  periods  showed a  increase  of  approximately
$2,647,000,  or 153%,  from  approximately  $1,734,000  for the six months ended
December 31, 2000 to approximately  $4,381,000 for the six months ended December
31, 2001.  The  majority of the increase is due to the $2.4 million  increase in
operating  income,  which again was due to the  increase in gross  margin,  from
December 31, 2001 as compared to December 31, 2000.  The balance of the increase
is due to an  approximate  $348,000 of incremental  depreciation  related to new
assets  procured  during  the year,  which was  partially  offset by a  $125,000
decrease in intangibles  amortization  of PAI and PMP. Per SFAS 142, the Company
no longer amortizes goodwill as of July 1, 2001 (see Note 7).

     The effective tax rate decreased from 51% for the six months ended December
31, 2000 to 36% for the six months ended December 31, 2001. The decrease stemmed
primarily  from the adoption of SFAS 142.  Effective July 1, 2001 the Company is
no longer amortizing goodwill pursuant to SFAS 142 which results in lowering the
effective rate due to the fact that the goodwill  related to the PAI acquisition
is no longer a permanent difference,  since it is not deductible for book or tax
purposes (See Note 7).

     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 pharmacy benefit management companies or of
companies providing related services. As of December 31, 2001, the Company had a
working  capital  deficit of $3.9  million,  as  compared  to a working  capital
deficit  of $7.1  million  as of June  30,  2001.  The  primary  reason  for the
improvement in working capital was the  profitability  generated  during the six
months ended December 31, 2001.

     Net cash  provided by operating  activities  was $0.6 million for the three
months  ended  December  31,  2000,  as compared  to net cash used in  operating
activities of $0.8 million for the three months ended December 31, 2001. For the
six months ended December 31, 2001,  accounts payable  decreased by $3.1 million
as the Company continued to make payments to bring its vendors more current.  At
the  same  time,  accounts  receivable  increased  by  $1.6  million,  thus  the
combination  of these two factors used cash by $4.7  million.  This differs from
the six months ended  December 31, 2000 where accounts  receivable  increased by
$8.8 million,  but accounts payable increased by $8.7 million,  a use of cash of
only $0.1 million,  a difference  in the use of cash of $4.6 million  during the
two periods.

     During the six month period ended  December 31, 2001,  net cash was used in
operating  activities,  however,  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.  The Company has put
in place a $40 million  revolving  credit facility for  acquisitions and working
capital  financing (see below).  However,  if such terms of trade were to change
materially,  and/or if the  Company  were  unable to obtain  sufficient  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 $5.9 million for the six months
ended  December  31, 2000 as compared to $0.5  million for the six months  ended
December  31,  2001.  The  primary  differences  in  the  two  periods  was  the
acquisition  of PAI in the period ended  December 31, 2000, and the $1.3 million
gross  proceeds from the  sale/leaseback  transaction  in October 2001 described
above.  The net cash outlay for PAI was $4.5 million,  representing  the initial
payment of $6.0 million plus $0.2 million of related  expenses,  less PAI's cash
balance at July 20, 2000 of $1.7 million.

     Net cash used in financing activities increased from approximately $205,000
for the six months ended December 31, 2000 to approximately $379,000 for the six
months ended December 31, 2001. The increase relates to certain leases that were
acquired with the acquisitions of PAI and PMP.

     During  fiscal year 2000,  the Company  entered  into three  capital  lease
transactions  for hardware and  software.  The purchase  price of these  capital
assets was  $2,537,730.  One  hardware  lease is for a term of 57  months,  with
monthly payments of $40,322.  Another hardware lease is for a term of 60 months,
with monthly payments of $3,245.  The software lease is for a term of 33 months,
with monthly payments of $13,662.  The principal  balance of these three capital
leases as of December 31, 2001 was $1,610,336.

     PAI  stockholders  were  eligible to receive up to $1,000,000 in additional
consideration  payable  in  combination  of cash and  Common  Stock  if  certain
financial targets of PAI were met for the fiscal year ended June 30, 2001. These
targets were  achieved,  and $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 2001.  The PAI  stockholders  are eligible to
receive one more payment of up to $1 million if certain financial targets of PAI
are met for the fiscal year ended June 30, 2002.

     The members of PMP are eligible to receive  additional  consideration of up
to $1,000,000 if certain  financial  targets  related to PMP's  business are met
over the next three years.

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

     On January 29,  2002,  the  Company  entered  into a $40 million  revolving
credit  facility  (the  "Facility")  with HFG  Healthco-4  LLC, an  affiliate of
Healthcare Finance Group, Inc. ("HFG"),  to be used for working capital purposes
and future  acquisitions.  The Facility  replaced the Company's  existing credit
facilities  with its former  lenders.  The Facility has a three-year term and is
secured by the  Company's  receivables  and other  assets.  Interest  is payable
monthly and provides for borrowing of up to $40 million at the London Inter-Bank
Offered Rate (LIBOR) plus 2.4%.  Borrowings  of $28.4 million under the Facility
were  used to  finance  part  of the  purchase  price  of the  Company's  recent
acquisition of an Albany,  New York-based  PBM. A description of the acquisition
has been previously  reported in the Company's Current Report on Form 8-K, filed
with the SEC on February 11,  2002.  The Facility  contains  various  convenants
that,  among other  things,  require the Company to maintain  certain  financial
ratios, as defined in the agreements  governing the Facility.  As of February 8,
2002, $14,825,000 was outstanding under the Facility.

     The Company anticipates that current cash positions,  after the PAI and PMP
acquisitions  and the  repayment  of certain  affiliate  and  shareholder  debt,
together  with  anticipated  cash flow from  operations,  will be  sufficient to
satisfy the Company's  contemplated  cash  requirements  for at least 24 months.
This is based  upon  current  levels of  capital  expenditures  and  anticipated
operating  results for the next 24 months.  However,  it is one of the Company's
stated goals to acquire other pharmacy benefit management  companies,  evidenced
by the  three  acquired  within  the last 2 years.  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.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.
<PAGE>
                           PART II - OTHER INFORMATION


ITEM 1 -  LEGAL PROCEEDINGS

     An action was commenced against the Company on December 8, 1998 by the West
Contra Costa Unified School  District (the "School  District") and an individual
plaintiff in the State of California. The case was subsequently moved to Federal
court. The complaint alleged,  among other things, that the parties entered into
a contract in November  1996, and that the Company  unilaterally  terminated the
contract  on  December  16,  1996.  The  complaint   further  alleged  that  the
termination resulted in the School District incurring  approximately $150,000 in
costs and  $867,000 in  expenses to obtain  coverage  from  December  1996 until
October  1997.  The  complaint  also sought  treble  damages.  While  settlement
documents are currently being  finalized,  the parties have reached an agreement
that  contemplates  the  Company  paying to the  plaintiffs  an  amount  that is
significantly lower than the amount of costs and expenses claimed, and funding a
part of the plaintiffs'  litigation against another  defendant.  The proceeds of
any settlement  with or verdict  against such defendant will be divided  between
the Company and the School  District.  Although the  settlement  papers have not
been  finalized,  the Company  believes that these terms will be the crux of the
agreement.

     An action commenced by a former executive of the Company,  Mary Casale, who
alleged that employees of the Company engaged in sex discrimination in violation
of Title VII of the Civil Rights Act of 1964,  has been settled,  along with the
Company's action against Ms. Casale and her current  employer.  No payments were
made by or on behalf of the Company, and releases were exchanged by the parties.
The matter has been withdrawn from the Equal Employment Opportunity Commission.

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 of the Condensed
Notes to Consolidated  Financial Statements  comprising Item 1 of Part I of this
Quarterly Report on Form 10-Q.

     Pursuant  to the terms of the PAI  Agreement,  the Company  issued  400,000
shares of unregistered  Common Stock of the Company to certain PAI  stockholders
at the time of the  acquisition.  The stock issued to the PAI  stockholders  was
valued  at  $849,920.  In August  2001,  the  Company  issued  62,500  shares of
unregistered  Common Stock of the Company to the PAI  stockholders as additional
consideration.  These shares were valued at $250,000. Information concerning the
PAI Agreement,  including the type and amount of  consideration  received by the
Company, is provided in Note 2 of the Condensed Notes to Consolidated  Financial
Statements  in Part I hereof.  The Company was advised that the issuance of such
shares  was  exempt  from  registration  under the  Securities  Act by virtue of
Section 4(2) thereof.

ITEM 3  -  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     No matters  were  submitted  to a vote of the  Company's  security  holders
during  the  period  covered  by this  report.  However,  several  matters  were
submitted for a vote at the Company's  Annual Meeting of Shareholders on January
24, 2002. See Item 5.

ITEM 5  -  OTHER INFORMATION

     a. The registrant  held its 2001 Annual Meeting of  Shareholders on January
24, 2002.

     B. Six (6) directors  were elected at the Annual Meeting to serve until the
next Annual Meeting of Shareholders  and until their  respective  successors are
duly elected and qualified,  or until their earlier resignation or removal.  The
names of these  directors  and votes cast in favor of their  election  and votes
withheld are as follows:

                  Name                     Votes For            Votes Withheld

                  Bert E. Brodsky           6,878,015               3,600
                  Gerald Shapiro            6,878,015               3,600
                  Kenneth J. Daley          6,878,015               3,600
                  Ronald L. Fish            6,878,015               3,600
                  Paul J. Konigsberg        6,878,015               3,600
                  Gerald Angowitz           6,878,015               3,600

     C. A proposal to change the Company's state of incorporation  from New York
to Delaware was approved as set forth below:

                  Votes For                Votes Against        Abstentions

                  5,551,115                    25,958               2,000

     D. A proposal to amend the Company's 1999 Stock Option Plan to increase the
number of shares reserved for issuance thereunder,  from 1,650,000 to 2,850,000,
was approved as follows:

                  Votes For                Votes Against        Abstentions

                  5,393,265                   168,358              17,450

     E.  The  adoption  of  the  proposal  to  change  the  Company's  state  of
incorporation  from New York to Delaware also resulted in the  classification of
the Board of Directors, as follows:

1.       Class I (to serve until the 2002 annual meeting):
         Gerald Shapiro and Ronald Fish
2.       Class II (to serve until the 2003 annual meeting):
         Gerald Angowitz and Kenneth J. Daley
3.       Class III (to serve until the 2004 annual meeting):
         Bert E. Brodsky and Paul J. Konigsberg

     Furthermore,  effective on the date that the  reincorporation  is effected,
the rights and duties of the Company's shareholders, directors and officers will
be governed by the  Certificate  of  Incorporation  and By-Laws of the  Delaware
subsidiary into which the Company will be merged to effect the  reincorporation.
A detailed description of the effects of the reincorporation has been previously
reported in the Company's  Definitive Proxy Statement,  which was filed with the
SEC on December 21, 2001.

Item 6  -  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

Exhibit
Number       Description of Exhibit

3.1  Restated Certificate of Incorporation of Health Card (1)

3.2  Certificate   of  Amendment,   filed  May  25,  1999,  to   Certificate  of
     Incorporation of Health Card (1)

3.3  Restated Certificate of Incorporation of Health Card, as amended (2)

3.4  Amended and Restated By-Laws of Health Card (1)

4.1  Form of Specimen Common Stock Certificate (1)

4.2  Form of Warrant Agreement, including form of Representatives' Warrants (1)

10.1 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 December 7, 1998,  between Health Card
     and Marjorie O'Malley (1)

10.7 Letter, dated November 3, 1998, from Health Card to John Ciufo (1)

10.8 Confidentiality  and  Non-Disclosure  Agreement,  dated  November 19, 1998,
     between Health Card and John Ciufo (1)

10.9 Stock Option Agreement,  dated August 3, 1999, between Health Card and John
     Ciufo (4)

10.10 Stock Option Agreement,  dated February 1, 2000, between Health Card and
      John Ciufo (4)

10.11 Employee Covenant  Agreement,  dated June 16, 1998, between Health Card
      and Ken Hammond (1)

10.12 Stock Option Agreement,  dated August 3, 1999,  between Health Card and
      Ken Hammond (4)

10.13 Employment  Agreement,  dated March 27, 2000, between Health Card and
      David Gershen (4)

10.14 Stock Option  Agreement,  dated May 1, 2000,  between Health Card and
      David Gershen (4)

10.15 Employment  Agreement,  dated May 3, 2000,  between  Health  Card and
      James Bigl (4)

10.16 Stock Option Agreement,  dated June 12, 2000, between Health Card and
      James Bigl (4)

10.17 Stock  Option  Agreement,  dated  August 3, 1999,  between  Health Card
      and Kenneth J. Daley (4)

10.18 Stock  Option  Agreement,  dated  August 3, 1999,  between  Health Card
      and Gerald Angowitz (4)

10.19 Assignment,  dated November 1, 1996, from Sandata, Inc., to
      BFS Realty, LLC (1)

10.20 Lease,  dated August 10, 1998,  between 61  Manorhaven  Boulevard,  LLC
      and Health Card (1)

10.21 Letter,  dated June 3,  1999,  from Bert  Brodsky to Health  Card (1)

10.22 Promissory  Note, dated July 1, 1997, made payable by Gerald Shapiro to
      the order of Health Card in the original principal amount of $300,000 (1)

10.23 Letter, dated June 3, 1999, from Gerald Shapiro to Health Card (1)

10.24 Agreement of Guaranty,  dated June 1, 1998,  by Bert E. Brodsky in favor
      of Health Card (1)

10.25 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)

10.26 Letter, dated June 8, 1999, from P.W. Capital Corp. to Health Card (1)

10.27 Letter, dated June 9, 1999, from Bert E. Brodsky to Health Card (1)

10.28 Letter,  dated June 8, 1999,  from the Bert E. Brodsky  Revocable  Trust
      to Health Card (1)

10.29 Letter  Agreement,  dated  June  30,  1999,  between  the
      Bert E.  Brodsky Revocable Trust and Health Card (1)

10.30 Employment  Agreement,  dated July 1, 1999, between Health Card and
      Bert E. Brodsky (1)

10.31 Letter, dated June 8, 1999, from Bert E. Brodsky to Health Card (1)

10.32 Form of Lock-Up Agreement (1)

10.33 Acquisition  and  Merger  Agreement,  dated  as of June 27,  2000,
      between Health Card and Pharmacy Associates, Inc. (3)

10.34 Lease Agreement,  dated March 4, 1996,  between Pharmacy  Associates, Inc.
      and Executive Park Partnership (4)

10.35 Amendment to Lease,  dated November 2, 1998,  between Pharmacy Associates,
      Inc. and Executive Park Partnership (4)

10.36 Amendment to Lease, dated November 19, 1998,  between Pharmacy Associates,
      Inc. and Executive Park Partnership (4)

10.37 Lease Agreement, dated July 8, 1999, between Pharmacy Associates, Inc. and
      Executive Park  Partnership (4)

10.38 Asset Purchase  Agreement dated as of March 5, 2001  among  National
      Medical  Health  Card  Systems,  Inc., PMP Acquisition Corp., Provider
      Medical Pharmaceutical,  LLC and members of PMP (5)

10.39 Employment  Agreement,  dated June 4, 2001, between National Medical
      Health Card Systems, Inc. and Tery Baskin (6)

10.40 Stock  Option  Agreement,  dated June 4,  2001,  between  National Medical
      Health Card Systems, Inc. and Tery Baskin (6)

10.41 Stock Option  Agreement,  dated June 12,  2001,  between National  Medical
      Health Card Systems, Inc. and James Bigl (6)

10.42 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 (7)

10.43 Receivables Purchase and Transfer  Agreement dated January 29, 2002 by and
      among the Company and certain of its subsidiaries and NMHC Funding, LLC
      (7)

10.44 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. (7)

10.45 Lease Agreement dated as of August 1, 2001, between National Medical
      Health Card Systems, Inc. and BFS Realty, LLC (6)

10.46 Amended Lease Agreement dated as of August 1, 2001, between National
      Medical Health Card Systems, Inc. and BFS Realty, LLC

      (b) Reports on Form 8-K

          None.

(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  Current  Report on
     Form 8-K for events  dated  January  29,  2002 and  incorporated  herein by
     reference.

 <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:    February 14, 2002                  By:      /s/ Bert E. Brodsky
         -----------------                      --------------------------------
                                                     Bert E. Brodsky
                                                     Chairman of the Board
                                                     and Chief Executive Officer



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