SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A
                                Amendment No. 1

(MARK ONE)

     (X)  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
EXCHANGE ACT OF 1934

     FOR THE FISCAL YEAR ENDED JUNE 30, 2000

     ( )  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         (I.R.S. EMPLOYER
INCORPORATION     OR     ORGANIZATION)                   IDENTIFICATION NO.)

26 HARBOR PARK DRIVE, PORT WASHINGTON, NEW YORK                11050
-----------------------------------------------            --------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                     (ZIP CODE)

               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
                                 (516) 626-0007

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS                NAME OF EACH EXCHANGE
                                   ON WHICH REGISTERED
           NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          COMMON STOCK, $.001 PAR VALUE

                                (TITLE OF CLASS)


     INDICATE  BY CHECK MARK  WHETHER THE  REGISTRANT  (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE  ACT OF
1934  DURING  THE  PRECEDING  12 MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),  AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ____

     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT  FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S  KNOWLEDGE,  IN DEFINITIVE PROXY OR INFORMATION  STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]

     STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY
HELD BY  NON-AFFILIATES  OF THE REGISTRANT.  THE AGGREGATE MARKET VALUE SHALL BE
COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE COMMON  EQUITY WAS SOLD,  OR THE
AVERAGE BID AND ASKED  PRICES OF SUCH  COMMON  EQUITY,  AS OF A  SPECIFIED  DATE
WITHIN 60 DAYS PRIOR TO THE DATE OF FILING: $5,009,309 AS OF SEPTEMBER 22, 2000.

             (APPLICABLE ONLY TO REGISTRANTS 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 REGISTRANTS)
     INDICATE THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK,
AS OF THE LATEST PRACTICABLE DATE:  7,121,496 SHARES OUTSTANDING AS OF SEPTEMBER
22, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

        NONE


<PAGE>


                             INTRODUCTORY STATEMENTS

FORWARD LOOKING STATEMENTS

     When used herein,  the words "believe,"  "anticipate,"  "think,"  "intend,"
"will be," "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  certain risks
and uncertainties  discussed herein,  which could cause actual results to differ
materially from those in the forward-looking  statements.  Readers are cautioned
not to place undue reliance on the  forward-looking  statements which speak only
as of the date hereof.  Readers are also urged to carefully  review and consider
the various  disclosures  made by National  Medical  Health Card  Systems,  Inc.
("Health Card") 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 hereof and "Management's  Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7 hereof.

                                     PART I

ITEM 1.  BUSINESS.

GENERAL

     Health Card is an independent  company,  incorporated  in New York in 1981,
that provides  comprehensive  prescription benefit management  services.  Health
Card's programs are designed to assist prescription benefit plan sponsors by:

     o  monitoring  the cost and  quality  of  prescription  drugs  and  related
services

     o providing  sophisticated  consulting  services,  and

     o providing disease information services.

RECENT ACQUISITION

     On July  20,  2000  (the  "Effective  Date"),  pusuant  to the  terms of an
Agreement and Plan of Merger,  dated as of June 27, 2000 (the  "Agreement"),  by
and among Health Card,  PAI  Acquisition  Corp.,  a wholly owned  subsidiary  of
Health Card ("PAI"),  Pharmacy Associates,  Inc. ("Pharmacy Associates") and the
shareholders of Pharmacy  Associates (each a "Shareholder"  and collectively the
"Shareholders"),  PAI,  merged  with  and  into  Pharmacy  Associates.  Pharmacy
Associates located in Little Rock, Arkansas is a regional  prescription  benefit
management company operating in Arkansas, Louisiana and Mississippi.

         Pursuant to the Agreement,  the  Shareholders  as of the Effective Date
received an aggregate of $6,000,000 in cash and 400,000  shares of  unregistered
common stock of Health Card. In addition, if Pharmacy Associates' pre-tax income
for the 12 months  ending on June 30, 2001 or June 30,  2002 (each an  "Earn-Out
Period" and  collectively,  the "Earn Out Periods") is greater than  $1,000,000,
then  promptly   following  the  final   determination  of  the  pre-tax  income
calculation by Health Card for the applicable Earn-Out Period, Health Card shall
pay a pro rata portion of the amount described below to the Shareholders:

                  (i) if Pharmacy  Associates achieves a pre-tax income equal to
or greater than $2,5000,000 in an Earn-Out Period,  then the Contingent  Payment
for such Earn-Out Period shall be $1,000,000;

                  (ii) if  Pharmacy  Associates  achieves  a  pre-tax  income of
greater than $1,000,000 but less than $2,500,000 in an Earn-Out Period, then the
Contingent  Payment for such Earn-Out Period shall be equal to (x) the amount of
pre-tax income in excess of $1,000,000  achieved by Pharmacy  Associates  during
such Earn-Out  Period (such excess amount not to exceed  $1,500,000)  divided by
$1,500,000, multiplied by (y) $1,000,000; and

                  (iii) if Pharmacy Associates does not achieve a pre-tax income
of at least $1,000,000 in an Earn-Out Period,  then the Shareholders will not be
entitled to a Contingent Payment for such Earn-Out Period.

         Neither the amount of pre-tax income achieved in an Earn-Out Period nor
the amount of a Contingent  Payment paid in an Earn-Out  Period shall affect the
calculation of pre-tax income  achieved or the Contingent  Payment  payable,  if
any,  in the  applicable  Earn-Out  Peirod.  Seventy-five  percent  (75%) of the
Contingent  Payment,  if any,  payable to the  Shareholders  shall be payable in
cash,  with the remaining  twenty-five  percent  (25%)  payable in  unregistered
shares of common  stock of Health  Card based on the Health Card  Average  Price
(hereinafter  defined).  The Health Card Average Price shall mean the average of
the last  reported per share  trading price of Health Card common stock over the
30  business  day  period  immediately  preceding  the  date  of  determination;
provided,  that if such  average is below  $4.00,  then the deemed  Health  Card
Average  Price shall be $4.00,  and if such average is above  $6.00,  the deemed
Health Card Average Price shall be $6.00.

         Additionally,  if 35,000  additional  covered  lives  from a  specified
account are added to `Pharmacy  Associates'  network under similar terms to such
specified  account's  existing  network  contract,  Health  Card  will  pay  the
Shareholders  a total of $16 per covered life;  provided that such group must be
contracted within 90 days from the Effective Date and installation of such group
must occur within 180 days of the Effective Date.

         Additionally,  200,000 shares of Health Card common stock issued to the
Shareholders  as part of the merger will be held in escrow as  security  for the
indemnification  obligations of the Shareholders  under the Agreement until July
20, 2002.

         Pursuant to the Agreement, all of the Shareholders agreed not to become
involved,  in any manner or capacity  whatsoever,  with any entity or individual
that engages or proposes to engage in prescription  benefit  management,  except
Health  Card  or  Pharmacy  Associates,   until  June  27,  2003.  Each  of  the
Shareholders  further  agreed not to (i) seek to transact any  business  with or
alter the relationship in any way between any of Pharmacy Associates'  customers
or prospective customers and (ii) solicit for employment or in any way alter the
relationship  between  Pharmacy  Associates  and  any  person  who  was or is an
employee of Pharmacy  Associates  during the period of April 20, 2000 until July
20, 2003.

INDUSTRY BACKGROUND

         In response to escalating health care costs,  cost containment  efforts
in the health care  industry  have led to rapid growth in managed care and other
containment  efforts.  Despite  these  efforts,  continued  advances  in medical
technology,  new drug  development and increasing drug  utilization  have led to
significant  increases  in health care  costs.  This has created a need for more
efficient,   cost-effective  drug  delivery  mechanisms.   Prescription  benefit
management  companies  evolved to address this need. These companies  created an
opportunity  for plan  sponsors to provide  prescription  drug benefits to their
plan members in a cost-effective manner through:

                   o  mail pharmacy services       o   claims management
                   o  formulary management         o   drug review and analysis

while often improving  patient  compliance with  recommended  drug and treatment
guidelines.   An  industry  source  estimates  that  1999  U.S.   purchases  for
prescription  drugs increased 18% from 1998 to approximately  $122 billion.  The
total number of prescriptions  filled in 1999 reached  approximately 3.0 billion
representing a 9% increase over the prior year.

SERVICES

GENERAL

         Sponsors of  prescription  benefit plans managed by Health Card include
managed care organizations,  local governments,  unions,  corporations and third
party health care plan administrators. Sponsors retain Health Card to manage the
prescription  drug  plans  that they  maintain  for the  benefit  of their  plan
participants.  Health Card consults with sponsors to assist them in  customizing
their  prescription  drug plans to meet the particular  sponsor's needs.  Health
Card has also  developed and is continuing to expand its  consulting and disease
information  services to meet (i) the growing  needs of sponsors to address cost
management  pressures,  and (ii)  the  increasing  needs  of plan  participants,
particularly those requiring costly long-term and recurring therapies.

         Health Card's computerized on-line claims management system manages the
cost of the plan at the point of service by confirming that:

     o the submitted claim is in conformity  with plan terms and  conditions,

     o the plan  participant  is eligible for benefits,  and pays any applicable
deductible and/or  co-payment  amounts,  and

     o only the  negotiated  discounts  on  prescription  items  will be paid to
participating pharmacies.

         The data  collected  during the claims  management  process  provides a
basis  for  reporting  and  analyses  upon  which  recommendations  are  made to
sponsors.  These recommendations are intended to assist sponsors in lowering the
costs of their plans while improving quality and service.  See "Services -- Data
Access, Reporting and Information Analysis."

         Health  Card  provides a wide  variety of services  including,  but not
limited to:

                   o       Claims Management
                   o       Pharmacy Network
                   o       Benefit Design Consultation
                   o       Preferred Drug Management
                   o       Drug Review & Analysis
                   o       Consulting Services and Disease Information Services
                   o       Date Access, Reporting & Information Analysis
                   o       Physician Profiling

CLAIMS MANAGEMENT

         CLAIMS  PROCESSING.  Each sponsor's plan participant is issued a health
card which  identifies  the plan  participant  and the sponsor.  The card may be
utilized at any one of the pharmacies participating in Health Card's multi-state
pharmacy network and the sponsor's plan. Health Card allows the plan participant
to purchase approved  prescription drugs and other  physician-prescribed  items,
with the plan participant  paying a deductible and/or co-payment amount, if any,
to the pharmacy.

         Plan participants present their health card together with a physician's
prescription  to  a  participating  pharmacy.  The  pharmacist,  using  standard
industry software,  enters each claim on the pharmacy's  computer;  the claim is
electronically  communicated to Health Card for on-line real time processing and
resolution.  In the ordinary case where the prescription is for a drug listed on
the sponsor's formulary, the pharmacist is advised of the appropriate co-payment
and  deductible,  if any, to be collected from the plan  participant  and of the
payment the pharmacy will receive from Health Card.  Health Card's  computerized
on-line claims management system sends appropriate  messages regarding preferred
drugs and  contraindications,  based  upon plan  participants'  existing  claims
history with Health Card. The  prescription  is then dispensed by the pharmacist
to the plan participant,  who pays the appropriate  co-payment and/or deductible
amount and signs a signature log maintained by the participating  pharmacy. Plan
participants  are provided  with a list of  pharmacies  participating  in Health
Card's pharmacy  network.  Plan  participants may  alternatively  choose to fill
prescriptions at a non-participating pharmacy. Occasionally a plan participant's
claim is rejected or a prior authorization is required based on plan parameters,
in which case the participant may be referred to the plan's sponsor or to Health
Card's customer service department.

           Pharmacy  Associates  currently  processes  claims  differently  than
Health  Card.Pharmacy  Associates  has  contracted  with  an  outside  provider,
ComCoTec,  Inc. to process all its claims.  Pharmacy  Associates  pays for these
services  on a per claim  basis.  The  ComCoTec  agreement  has been  terminated
effective November 1, 2000 at which time Pharmacy  Associates'  sponsors' claims
will be incorporated into Health Card's  computerized  on-line claims management
system.

         INVOICING AND PAYMENTS.  Often,  sponsors are charged an agreed fee for
each  prescription  filled  plus an  administrative  and/or  dispensing  fee for
managing each claim. Sometimes sponsors are charged an adjustable monthly fee or
projected  maximum  fee based on the number of plan  participants,  utilization,
costs of drugs or other criteria.  Health Card provides flexibility of invoicing
for its  sponsors.  Sponsors pay Health Card;  Health Card pays an  individually
negotiated  amount to its participating  independent and chain pharmacies.  Plan
participants  filing for direct  payment  receive an allowable  payment which is
usually specified by the sponsor.  See " Services -- Pharmacy Network."

     REBATE  ADMINISTRATION.  Drug manufacturers may issue rebates in connection
with the use of certain  prescription  drugs.  Health  Card  submits  claims for
rebates for specified  sponsors  pursuant to an agreement with Express  Scripts,
Inc  ("Express")  dated April 1, 2000.  Based on the  agreement,  the payment of
rebates is contingent  upon Health Card adopting  Express'  formulary for Health
Card's  specified  sponsors.  Health Card  submits the claims for its  specified
sponsors to Express. Express submits Health Card's rebate claims, and may submit
such  claims  along  with  rebate  claims of  others,  to the  appropriate  drug
manufacturer,  pursuant to the agreements Express has negotiated with these drug
manufacturers.  Health Card's  Agreement  with Express  provides that Express is
obligated  to pay  Health  Card  within a  specified  period of time  after each
quarter a per claim fee, which can vary based on certain  contractual  criteria.
For the claims made  through  December  31,  2000,  Express is  obligated to pay
Health Card a specified amount per claim. Subsequent to December 31, 2000, a new
baseline will be  established  based on Health  Card's  actual  claims  history.
Express  retains a portion of the total  rebates as an  administrative  fee. The
agreement maybe terminated at any time upon mutual agreement of the parties,  or
upon ninety (90) days' notice by one party to another for any reason.

     Pursuant to a verbal agreement  between Health Card and Specialty  Pharmacy
Care, Inc.  ("Specialty"),  a wholly owned  subsidiary of Health Card's,  Health
Card  submits  claims for  rebates to  Specialty  for  certain of Health  Card's
specified  sponsors.  Specialty performs the services of a rebate  administrator
for  which  it is paid an  administrative  fee.  Health  Card has  entered  into
approximately 30 separate agreements with drug manufacturers. While the terms of
each agreement between Health Card and the drug  manufacturers  are unique,  the
basic concept is the same.  Such agreements  generally  provide that Health Card
must list the  specified  products of each of the drug  manufacturers  on Health
Card's approved  formularies  with the specified  sponsors.  Health Card may not
prefer, either directly or indirectly, any competing products over the specified
drug manufacturer's products except for reasons of medical appropriateness.  The
contracts  have  specified  terms,  but either party can terminate them within a
specified period of time depending upon the contract. The drug manufacturers are
obligated  to pay rebates  within a specified  period of time after  Health Card
submits its claims,  based on agreed upon specified  percentages  which can vary
based on certain  contractual  criteria The  manufacturers  establish a baseline
rebate  based  on  Health  Card's  initial  claims  and  are  obligated  to  pay
incremental rebates based on increases beyond the baseline.

         Pursuant to an agreement  between  Pharmacy  Associates  and  Wellpoint
Pharmacy  Management  ("Wellpoint"),  dated October 1, 1999,  Wellpoint provides
rebate administration services to Pharmacy Associates.  The services,  processes
and terms are similar to those covered under Health Card's  agreements  with its
rebate  administrators  as  described  above.  The  Agreement  terminates  as of
September 30, 2002 unless  terminated  sooner.  90 days' written  notice must be
provided to  terminate  the  contract.  Wellpoint  is  obligated to pay Pharmacy
Associates a specified  amount per claim  submitted  depending upon the level of
formulary  management as  described.  Pursuant to the  Agreement,  Wellpoint has
prepaid certain estimated rebates to Pharmacy Associates. Pharmacy Associates is
obligated  to  repay  this  amount,   plus  interest  at  8.5%,  in  four  equal
installments at the end of four successive quarters starting December 31, 2000,
or earlier in the event the agreement is cancelled by Pharmacy Associates.

         Upon  receipt  of  rebates  from the drug  manufacturers  or the rebate
administrators, Health Card shares certain amounts with its sponsors. All, part,
or none of the  rebates  received  by Health  Card may be remitted to certain of
Health Card's  sponsors,  depending upon the terms of Health Card's  agreements,
written or verbal, with each sponsor. See Item 7 hereof.

PHARMACY NETWORK

         Health Card maintains a pharmacy network that includes retail, mail and
e-pharmacy options. Health Card's agreements with many pharmacies do not require
it to make payments within a specified period.  However,  Health Card knows from
experience that timely payment is a significant consideration of the pharmacies.
Health Card endeavors to process claims  promptly and obtain funds from sponsors
prior to making  payments  to  participating  pharmacies;  still there can be no
assurance  that sponsors will pay Health Card in a timely  fashion.  Health Card
may be required to pay participating  pharmacies whether or not it has been paid
by its  sponsors.  The loss of a  substantial  portion of the  pharmacies in the
pharmacy network could have a material adverse effect on Health Card's business,
operating results and financial condition. See Item 7 hereof.

         RETAIL   PHARMACY   NETWORK   MANAGEMENT.   Health  Card   maintains  a
comprehensive multi-state network of participating  pharmacies.  Both the retail
and mail order  components of the pharmacy  network are managed by Health Card's
computerized on-line claims management system. Certain of Health Card's sponsors
require  Health Card to maintain a pharmacy  network with  specified  numbers of
pharmacies in various locations to serve plan participants.  Pharmacy Associates
also maintains a network in certain states in the Southeast.

         MAIL PHARMACY  CLAIMS  MANAGEMENT.  Mail pharmacy  service is generally
used  by  plan  participants  as  a  cost  effective  means  of  minimizing  the
inconvenience  resulting  from  repeated  trips  to  retail  pharmacies  to fill
prescriptions;  this is especially common when a plan participant with a chronic
condition  receives  long-term drug therapy.  In addition,  the plan participant
generally  saves money through a reduction in the number of co-payments he would
have paid had the  prescriptions  been filled  repeatedly at a retail  pharmacy.
Further,  with mail pharmacy service,  the sponsor is charged a lower dispensing
fee for prescription ingredients compared to those charged by a retail pharmacy.

         Health Card  presently  has a  non-exclusive  relationship  with Eckerd
Health Services d/b/a/ Express Pharmacy Services ("Express  Pharmacy")  pursuant
to which Express  Pharmacy acts as a participating  pharmacy and dispenses drugs
to plan  participants  by mail.  The agreement  between  Health Card and Express
Pharmacy is for a one year  automatically  renewable  term.  The  agreement  was
renewed  as of June 30,  2000.  Either  party  has the  right to  terminate  the
agreement  as of June 30, 2001 and at the end of any  successive  term,  in each
case on 90 days' prior  written  notice.  The  agreement  provides  that Express
Pharmacy will:

          o    provide the covered drugs by mail to plan participants
          o    collect the appropriate co-payment and
          o    if required  by the plan,  collect  any  additional  payment if a
               brand drug is dispensed when a generic drug is available

         Claims  submitted  by mail order  pharmacies  are managed  using Health
Card's computerized on-line claims management system and are subject to the same
review and verification as those claims submitted by retail pharmacies.

         E-PHARMACY  SERVICE  MANAGEMENT.  Health Card  maintains an  e-pharmacy
website pursuant to which  participants in Health Card's e-pharmacy  program may
purchase  over-the-counter  medications,  vitamins,  nutritional supplements and
prescription drugs through the Internet.

         In support of this e-pharmacy  initiative,  Health Card entered into an
agreement with The Arrow  Corporation  d/b/a  familymeds.com  ("familymeds"),  a
Connecticut  corporation  in  December,  1999.  Pursuant  to  the  terms  of the
agreement,  Health  Card has  established  a website  located at  www.NMHCRx.com
through which  familymeds acts as Health Card's  exclusive  provider of Internet
based sales and mail  fulfillment  of retail  pharmacy  prescription  medicines,
non-prescription  medicines,  over-the-counter  and health and beauty  products.
Familymeds pays Health Card for Health Card's members  registered on the site as
well as for  purchases  of  non-prescription  products  bought on the site.  The
agreement  can be  terminated  with or without  cause upon sixty (60) days prior
written notice to the other party. The e-pharmacy provides for:

          o    Health and Wellness information

          o    "Ask The Pharmacist" feature

          o    Information on patient compliance and emerging drugs

          o    Availability to purchase  prescription drugs and over-the counter
               medications.

BENEFIT DESIGN CONSULTATION

         Health Card has a sales and marketing staff and pharmacists experienced
in  prescription  drug  benefit plan  design.  Health Card  assists  sponsors in
defining their financial and employee-benefit  objectives for their prescription
drug benefit  plans and in developing a program to meet such  objectives.  Using
both  sponsor-specific  and  general  claims  experience  data,  the  sales  and
marketing staff makes recommendations of benefit features such as:

          o    levels of co-payments

          o    number of days supply of medication

          o    covered and excluded drugs

          o    maximum benefit cost

          o    generic   substitution   guidelineso
               maximum  plan  participant out-of-pocket cost

         The  clinical  services  staff,  with  occasional  assistance  from the
operations  staff,   produces  customized  periodic  reports,  and  disseminates
publicly  available,  peer  reviewed,   nationally  recommended  treatment  data
regarding  generic  substitution  guidelines.   Once  a  plan  design  has  been
implemented,   the  sales  and  marketing   staff   monitors  plan   performance
periodically and may recommend changes to the plan.

PREFERRED DRUG MANAGEMENT

         Through its preferred drug programs,  Health Card encourages physicians
and plan  participants to use drugs that are preferred by plan sponsors.  Health
Card does this,  typically,  through contacts with physicians.  In administering
preferred  drug  programs,  Health  Card  may  recommend  that a  sponsor  offer
incentives  so that the lower cost brand name drug  listed on its  formulary  is
prescribed  rather than a more expensive  therapeutically  equivalent drug. With
such a therapeutic  interchange program,  typically the savings are distributed,
for the first year of the program,  among the sponsor, the pharmacy,  and Health
Card;  starting  with the second  year,  all of the savings are  received by the
sponsor.  This  type of  program  is most  frequently  used in  connection  with
long-term therapies.  Through a generic substitution program, a plan participant
pays a lower co-payment than he would otherwise,  and thereby benefits  directly
from the  savings.  Health Card  believes  there are  substantial  savings to be
realized by encouraging  plan  participants to use generic instead of brand name
drugs,  since  the  cost of a  generic  prescription  drug can be as much as 91%
(typically  30% to 55%)  lower than the cost of the  therapeutically  equivalent
brand name prescription drug. Plan participants are encouraged by Health Card to
use generic drugs by a variety of methods,  consistent with sponsor requirements
and applicable regulations.

         If a physician prescribes a specific drug and the prescription includes
a "dispense  as written"  ("DAW")  notation,  a pharmacist  is not  permitted to
substitute a generic drug without the physician's  consent.  In such event,  the
pharmacist  must contact the physician  directly for  permission to substitute a
generic equivalent or a less expensive brand name drug.  Depending on state law,
if no DAW notation is made, the  pharmacist  must obtain the consent of only the
plan  participant  to  dispense  a generic  substitute.  In New York,  if no DAW
notation  is  made  and  the  physician  does  not  prohibit  substitution,  the
pharmacist  is required to dispense the generic  equivalent  if it is available.
Other states may have  different  laws,  rules and  regulations.  Health  Card's
detailed  quarterly reports to sponsors assist in determining if this program is
being utilized effectively.  See "Services -- Data Access, Reporting Information
and Analysis."

DRUG REVIEW AND ANALYSIS

         Health  Card's drug review and analysis  services  include  prospective
reviews  of  potential  claims  and  concurrent  and  retrospective  reviews  of
submitted  claims.  These  include a series of on-line  reviews  which  permit a
pharmacist  filling a  prescription  to examine  the plan  participant's  claims
history for:

               o    drug interactions

               o    geriatric or pediatric precautions

               o    premature refills of prescriptions

               o    compliance with the prescriptions

               o    duration or duplication of therapy

               o    other contraindications

               o    pregnancy and breast feeding precautions

         Health Card transmits such information to the dispensing pharmacist for
information  purposes only -- not to replace the prescribing  physician's or the
dispensing   pharmacist's   professional  judgment.   Health  Card's  consulting
department  retrospectively  analyzes  the  drug  utilization  patterns  of plan
participants  for each sponsor.  Health Card may then  recommend  changes in the
sponsor's  plan  design,  preferred  drug  management,  and disease  information
systems initiatives to contain costs or to better serve the plan participants.


CONSULTING SERVICES AND DISEASE INFORMATION SERVICES

         PRESCRIPTION BENEFIT PLAN CONSULTING. Health Card's consulting services
are  designed to enable  sponsors  to enhance the quality of plan  participants'
care while reducing  related costs.  Using data relating to the  progression and
treatment of diseases,  Health Card disseminates information regarding therapies
that are aimed at treating a disease in a cost-effective  manner.  Health Card's
information systems, which include a comprehensive  database,  allow Health Card
to  provide  (i)  drug  review  and  analysis,   (ii)  appropriate  reports  and
information,  and (iii) disease information services.  Health Card believes that
technology and information systems advances will allow for future integration of
health care claims  information,  including  hospital,  laboratory  and clinical
costs.  Health Card further  believes that  integration will enable it to assess
outcomes on a statistical  basis and based on such  statistical  assessments  to
make  recommendations  regarding effective  prescribing  practices.  Health Card
believes this should allow for improved patient care while  controlling  therapy
costs.

         Health Card has  established a Pharmacy &  Therapeutics  Committee (the
"P&T  Committee")  currently  comprised of physicians and  pharmacists.  The P&T
Committee's  primary  responsibility  is to assist  sponsors in designing a well
managed,  therapeutically appropriate,  cost-effective preferred drug listing or
"formulary."  The goal of the P&T  Committee  is to enable  sponsors to optimize
plan  participant  care through drug policy  development and education.  The P&T
Committee typically meets quarterly and performs the following functions:

               o    provides  information to sponsors to ensure that the covered
                    drugs of each plan  reflect the current  standard of medical
                    practice and pharmacology,

               o    evaluates drugs for inclusion in a plan as a preferred drug,

               o    analyzes  current   literature  for  safety,   efficacy  and
                    cost-effectiveness   of  covered  drugs,

               o    provides  recommendations  on drug therapy and utilization

               o    evaluates drug review and analysis programs and criteria

               o    determines  those drugs which  require  prior  authorization
                    from the sponsor, and

               o    reviews the  associates  guidelines  for those drugs' proper
                    use.

     The P&T Committee  currently  consists of eight members:  Martin Edelstein,
M.D., Paul Cohen, M.D., Carole Moodhe,  M.D., and David Grossman,  M.D., each of
whom is a practicing physician and medical school professor,  Jack M. Rosenberg,
a university professor of clinical pharmacy and pharmacology, Joseph B. Laudano,
a manager  of  medical  affairs of a major drug  company,  Howard G.  Levine,  a
pharmacist  who is the Chairman of the Board of an independent  pharmacy  group,
and John Ciufo, who is Health Card's Vice President of Clinical Services and its
liaison  with  the P&T  Committee.  Mr.  Ciufo  is the  only  member  of the P&T
Committee  otherwise  affiliated  with Health Card.  Vytra Health Plans,  Health
Card's  largest  customer,  has the  right to  designate  one  member of the P&T
Committee,  but has not exercised its right.  Each Committee member is requested
to disclose his or her  affiliation  with any drug company.  Mr. Laudano and Mr.
Rosenberg have disclosed a current affiliation with drug companies.

         DISEASE INFORMATION SERVICES. Through its disease information services,
Health Card provides  information to sponsors that is intended to enable them to
enhance  their  prescription  benefit plans and to improve the treatment of plan
participants with certain medical  conditions.  In providing disease information
services, based upon recommended drug and treatment guidelines, Health Card:

               o    reviews and  analyzes  drugs  prescribed  and  prescriptions
                    dispensed,

               o    recommends plan guidelines, and

               o    conducts plan participant and physician profiling.

         By analyzing plan participants'  pharmacy claims patterns,  Health Card
can provide information to sponsors and health care providers,  assisting in the
early identification of patients whose care might be improved through additional
or  alternative  treatment  or  medication.  Health Card has  developed  disease
information  systems covering  cardiovascular and  gastrointestinal  conditions,
migraines, diabetes, and asthma, among others.

         Health Card's disease information services utilize the recommended drug
and treatment guidelines,  changes in the drug and treatment guidelines, current
medical  literature  and its  own  assessments  to  identify  plan  participants
"at-risk" for a particular disease. If the disease information services identify
participants  "at-risk"  for  particular  diseases,  Health Card may provide the
recommended drug and treatment  guidelines to sponsors,  treating physicians and
plan  participants.  If  requested  by  the  sponsor,  Health  Card  monitors  a
participant's  compliance  with the recommended  drug and treatment  guidelines,
including  prescription usage. If it appears,  based upon Health Card's analysis
of the  participant's  claims history,  that the recommended  drug and treatment
guidelines are not being applied,  Health Card may, if requested by the sponsor,
contact the physician,  via either  telephone or letter,  suggesting  additional
options.  Physician  performance  and  adherence  to the  recommended  drug  and
treatment guidelines are monitored by using Health Card's information systems.

DATA ACCESS, REPORTING AND INFORMATION ANALYSIS

         Health Card's  computerized  on-line claims  management  system enables
Health Card to efficiently provide sponsors with:

               o    On-line  system access whereby the sponsor is able to update
                    and  maintain   certain  plan  areas  such  as   participant
                    eligibility

               o    Periodic  utilization  and financial  reports,  which Health
                    Card  representatives  utilize to assist sponsors  regarding
                    benefit  design,  cost  containment   initiatives,   disease
                    information initiatives and formularly managment

               o    Plan  performance  indicators  and ad hoc reporting  through
                    Health Card's proprietary decision support tool - HC Focus

PHYSICIAN PROFILING

         Health Card will,  at the  request of either a physician  or a sponsor,
analyze  (i.e.,  profile) a  physician's  prescription  history and consult with
either the physician or the sponsor about the physician's  prescribing  pattern.
Health Card might,  for example,  discuss  alternatives  to  therapies  that the
physician regularly prescribes based on the drug and treatment guidelines.  This
practice is designed to enhance the  therapeutic  benefits  received by the plan
participant and, where possible, to achieve cost savings. It is also designed to
promote  conformity  with plan benefits and the  recommended  drug and treatment
guidelines.

SPONSORS

     Sponsors include managed care  organizations,  local  governments,  unions,
corporations  and third party health care plan  administrators  of  prescription
drug  programs.  Health Card's  sponsors are typically  asked to sign a standard
form of managerial  agreement that governs Health Card's  relationship with that
sponsor.  Pursuant  to this  standard  agreement,  Health  Card pays  claims and
furnishes other related  services  through a network of pharmacies.  The sponsor
provides the details of the plan to be managed, along with a list of all covered
participants  and  eligibility  updates.  The  sponsor is liable for all charges
incurred by  unauthorized  people  unless Health Card was notified in writing or
electronically of ineligibility.  If the participant receives prescription drugs
from a non-member  pharmacy,  and the plan provides for reimbursement of some or
all of the cost of prescription  drugs purchased from a non-member  pharmacy,  a
claim for direct  reimbursement must be made. Health Card is obligated to ensure
that  an  adequate  number  of  member  pharmacies  are  available,   furnish  a
description  of the plan to the  pharmacies,  require such  pharmacies to comply
with the member pharmacy agreement,  process claims and determine whether claims
qualify for payment. Health Card is also obligated to furnish the sponsor with a
bi-weekly or semi-monthly account statement which sets forth a summary of claims
costs in the preceding period, and a description of the drugs which are included
and excluded from the plan.

         Pursuant to the  standard  agreement,  the sponsor is  obligated to pay
Health Card the cost of claims to Health Card (less any cash  advances  paid) as
the  bi-weekly or  semi-monthly  statements  are  received by the  sponsor.  The
account  statement  will  also  include  an amount  due to  Health  Card for the
auditing,  approval and payment of claims processed during the preceding period.
The contracting  party typically  agrees to make all payments within a specified
period,  except that any additional charges,  for which a separate fee is agreed
to by the  parties,  will be remitted by the  contracting  party  within 30 days
after  receipt of billing from Health Card.  Health Card agrees to maintain,  in
electronic form, current and complete files of all claims received,  and records
to  establish  the cost of drugs to each  sponsor.  The sponsor can review these
records.  While most of Health Card's larger sponsors negotiate other agreements
with Health Card, many sponsors sign the standard form or a modified  version of
the standard form. The specific terms of each  managerial  agreement,  including
any  incentive  arrangements,  are  negotiated  by Health Card on a case by case
basis.  While  Health Card may take into  account  factors such as the number of
plan participants,  margins and economies of scale, among others, in determining
the terms of its arrangements with sponsors,  Health Card generally does not use
set guidelines when determining these terms. See Item 7 hereof.

SIGNIFICANT SPONSORS

         Health Card depends on a limited  number of sponsors for a  significant
portion of its revenue.  For the fiscal year ended June 30,  2000,  Vytra Health
Plans Long Island,  Inc.,  Vytra Health Plans  Managed  Systems,  Inc. and Vytra
Health Services, Inc. (each individually, "Vytra" and collectively, "Vytra") and
Operating Engineers Trust Funds were the only sponsors that accounted for 10% or
more of Health Card's  revenues.  The loss of either one of these sponsors would
have a material adverse effect on Health Card's business,  operating results and
financial  condition.  The business  relationship with each of these sponsors is
detailed in the immediately following sections.

VYTRA

         Vytra is a particularly  significant  sponsor,  as the following  table
indicates:

                                       PERCENT OF
                                       HEALTH CARD'S           NUMBER OF
            YEAR ENDED JUNE 30,        REVENUES                PARTICIPANTS

                  1998                   44%                       166,840
                  1999                   37%                       150,061
                  2000                   27%                       133,218

         Health Card has been providing services to Vytra since 1990.

         Pursuant to a series of letters and conversations, Health Card provides
services to Vytra  under an  arrangement  that began  under a written  agreement
that, as amended, expires in December 2001 (the "Current Arrangement").

         Under the Current Arrangement,  Health Card provides Vytra prescription
benefit management services and charges Vytra on a fee for service basis. Health
Card  charges  Vytra a fee based on the number of claims  processed  during each
applicable  billing  period.  Vytra is invoiced for the  processed  prescription
claims of its members on a bi-weekly basis.

         Pursuant to the  Current  Arrangement,  Health Card is Vytra's  primary
provider of prescription  benefit  management  services.  Vytra has the right to
place a  percentage  of its claims with other  prescription  benefit  management
companies,  individual physicians or groups of physicians associated with Vytra.
If Vytra  processes more than such  percentage of its claims with other parties,
Health Card can terminate the Current  Arrangement  or  renegotiate  the present
amounts charged to Vytra.

         The  Current  Arrangement  requires  Health  Card  to  arrange  for and
maintain an adequate and accessible pharmacy network for Vytra plan participants
(i.e., a specified number of pharmacies). Health Card meets this standard if one
or more  participating  pharmacies  are  located  in each zip code in the  Vytra
service  area,  which,  as of this date,  includes  Queens,  Nassau and  Suffolk
County,  in the State of New York, unless either (i) no pharmacy exists within a
zip code, or (ii) a pharmacy will not participate and such  non-participation is
beyond the  reasonable  control of Health Card.  In  addition,  Health Card must
exercise  its  best  efforts  to  maintain  pharmacy  network  participation  in
accordance with certain historical levels. Health Card is not responsible if the
number of  pharmacies  in the network  declines  because of  pharmacy  closings,
consolidations  or changes in the  pharmacy  payment  schedule.  Health Card has
agreed  with Vytra that it will not  terminate  a major  chain of  participating
pharmacies during the term of the Current  Arrangement  without Vytra's consent.
However,  if Vytra does not consent and the  inclusion of such chain  results in
higher  actual  costs to Health  Card,  then Vytra will be  required to pay such
increase on a quarterly basis. In addition, Vytra may require Health Card to add
specific pharmacies to the pharmacy network. Similarly, if the inclusion of such
pharmacies  results  in  higher  actual  costs to  Health  Card,  Vytra  will be
responsible for the increase.

         The Current Arrangement requires that Health Card maintain a Pharmacy &
Therapeutics  Committee.  Vytra has the right to designate one representative to
serve on the  Pharmacy &  Therapeutics  Committee,  but,  as of the date of this
10-K,  Vytra has not exercised this right.  See "Services - Consulting  Services
and Disease Information Services - - Prescription Benefit Plan Consulting."

         The Current  Arrangement also sets forth certain guarantees that Health
Card must meet. These include:

               o    processing  certain  percentages  of claims  within  certain
                    periods,

               o    making all reasonable efforts to process all claims within a
                    maximum period,

               o    answering all calls within a specified average time,

               o    ensuring   that  a   certain   percentage   of  mail   order
                    prescriptions,  which do not require  pharmacy or  physician
                    intervention, are dispensed within certain periods,

               o    making  all  reasonable  efforts to make sure all mail order
                    prescriptions are dispensed within a maximum time period,

               o    reaching certain generic substitution rates, and

               o    maintaining a certain level of rebates per claim.

         The Current  Arrangement further requires that Health Card establish an
irrevocable  standby  letter of credit in favor of Vytra for $2,000,000 in order
to ensure the  fulfillment of certain of Health Card's  obligations to Vytra. As
of the date of this 10-K, Vytra has not drawn against this letter of credit.

         If Health Card were to lose Vytra as a sponsor,  or lose a  significant
portion of Vytra's  business,  it would have a material adverse effect on Health
Card's business, operating results and financial condition.

OPERATING ENGINEERS

         On December 1, 1997, Health Card began providing  prescription  benefit
management   services  to  Operating   Engineers  Trust  Funds,  IUOE  Local  12
("Operating  Engineers"),  a construction workers' union in Southern California.
As of June 30,  2000,  Operating  Engineers  covered  approximately  45,000 plan
participants.  As of the  date of  this  Form  10-K,  Health  Card is  providing
services pursuant to an oral agreement.  Pursuant to such oral agreement, Health
Card is required to pay a certain percentage of rebates to Operating  Engineers.
For the fiscal  year ended June 30,  2000,  Operating  Engineers  accounted  for
approximately 12% of Health Card's revenues.

         In the event that either of these sponsors choose to discontinue  using
Health Card's services, or if the terms of Health Card's arrangements with these
sponsors  unfavorably  change,  Health Card's  business,  operating  results and
financial condition will be materially  adversely affected.  In the event of the
loss of either of these  significant  sponsors,  there can be no assurance  that
Health Card will be able to replace such sponsor.  However, Health Card believes
that its sponsor base is growing and  diversifying and expects the percentage of
total  revenue  contributed  by its  largest  current  customers  to continue to
decline in the future.

SALES AND MARKETING

     Health Card markets its services  through a sales and marketing  department
led by the Executive Vice President of Sales and Marketing.  Health Card's sales
executives  target sponsors  throughout the United States.  In addition,  Health
Card  contracts with brokers and  consultants  who are retained to market Health
Card's services to prospective sponsors for agreed upon fees based on the number
of plan participants  enrolled in a Health Card supported plan and/or the number
of claims processed under such plan.

         Health Card  attends  numerous  trade shows and  utilizes  advertising,
public  relations  and marketing  literature  for sales  support.  Additionally,
Health  Card  employs  the  services  of a public  relations  and media firm for
exposure and  publication  in  newspapers,  periodicals  and journals  which are
targeted to employee benefit and managed care specialists as well as exposure to
national media.

     Furthermore,  Health Card is  continuing  to expand its World Wide  website
(www.nmhc.com).  Currently,  the web site describes  Health Card's  products and
services and lists frequently asked questions,  among other things. The web site
offers a page dedicated to on-line  services which allows plan  participants  to
fill out customer service surveys and direct payment claims forms, and to access
the pharmacy  network  listings.  Health Card also  maintains its e-pharmacy web
site (www.NMHCRx.com). Security firewalls have been developed and implemented to
protect patient confidentiality.

COMPETITION

         Health Card competes with numerous  companies which provide the same or
similar services.  Many of Health Card's  competitors have been in existence for
longer periods of time and are far better  established than Health Card. Many of
them also have:

               o    broader public recognition

               o    financial and marketing resources substantially greater than
                    Health Card

               o    more experienced management

         In addition,  some of Health Card's sponsors and potential sponsors may
find it desirable to perform for themselves those services now being rendered by
Health Card.

         Health Card's ability to attract and retain  sponsors is  substantially
dependent on its capability to provide efficient and accurate claims management,
prescription  drug  program  management  and  related  reporting,  auditing  and
consulting services. Health Card believes that the following factors help Health
Card successfully compete:

               o    a broad base of experience in the information technology and
                    pharmacy benefit management industries,

               o    flexible and sophisticated on-line computerized  information
                    systems, and

               o    a focus on customer service.

         There can be no assurance  that Health Card will remain  competitive or
successfully  market integrated  prescription  benefit  management  services and
disease information services to existing and new sponsors. Furthermore, there is
a distinct possibility that consolidation and alliances within the industry will
adversely  impact the  operations  and  prospects for  independent  prescription
benefit management companies such as Health Card.

EMPLOYEES

         As of September  22,  2000,  Health Card and its  subsidiaries  had 146
employees:  32 of these  employees  are located in Little  Rock,  Arkansas,  the
headquarters of Pharmacy Associates.  Health Card's employees are not subject to
collective  bargaining  agreements  and Health Card considers its relations with
its staff to be satisfactory. See Item 13 hereof.

INFORMATION SYSTEMS

         Health Card's information systems integrate all of the:

                  o        data input,
                  o        reporting,
                  o        analysis, and
                  o        access functions

provided by Health Card, and Health Card believes that its  information  systems
provide it with a competitive advantage. See Item 7 hereof.

     Health Card's  computerized  on-line  claims  management  system depends in
large part on software licensed from Prospective Health Incorporated ("PHI"). By
a  license  agreement  dated  February  18,  1998,  Health  Card was  granted  a
non-exclusive  and  nontransferable   perpetual  license  to  use  PHI's  claims
adjudication  software  system.  The  agreement  required  Health Card to pay an
initial  license fee. In addition,  if certain  milestones are met, based on the
number of  processed  claims,  as  defined,  the initial  license fee  increases
incrementally as specified over the term of the license.  To date, one milestone
has been met and paid for. 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. See Liquidity and Capital Resources - Item 7 hereof.

         Sandata,  Inc.  ("Sandata")  of which Bert E. Brodsky,  Chairman of the
Board and Chief Executive  Officer of Health Card, is the Chairman of the Board,
President  and  Treasurer  and a principal  stockholder,  provides,  through its
subsidiaries,  consulting  and other  information  systems  services  related to
Health Card's information  systems on such terms and conditions as may be agreed
upon  between the parties  from time to time.  A  significant  portion of Health
Card's information systems has historically been developed,  enhanced,  modified
and maintained by Sandsport Data  Services,  Inc., a wholly-owned  subsidiary of
Sandata.  Furthermore,  Health Card currently  leases computer  hardware for its
data processing center at a monthly cost of approximately $44,170 from Sandsport
pursuant to an oral agreement. See Item 13 hereof.

GOVERNMENT REGULATION

     The activities of prescription  benefit management companies such as Health
Card are subject to  regulation at the federal,  state and local  levels.  While
Health Card may not have  complied in the past,  it has  recently  reviewed  its
operations  for  areas of  non-compliance  and  believes  that it  substantially
complies with the laws and regulations material to the operation of its business
or is taking  steps to identify and comply with such laws and  regulations.  The
laws that may affect Health Card's operations and relationships include, but are
not limited to, the federal  Anti-Kickback,  FDA, anti-trust and ERISA laws, the
Health  Insurance  Portability  and  Accountability  Act and the laws of various
states relating to health,  utilization review, and the licensing and regulation
of  professionals,  including  physicians,  nurses,  pharmacists and pharmacies.
Health  Card is also  subject  to laws  and  regulations  relating  to  business
corporations in general.

         Regulatory  authorities  have very broad  discretion  to interpret  and
enforce  these  laws and to  promulgate  corresponding  rules  and  regulations.
Violations  of these laws and  regulations  may result in criminal  and/or civil
fines and  penalties,  injunctive  relief to prevent  future  violations,  other
sanctions,  loss of professional  licensure and exclusion from  participation in
federal and state health care programs, including Medicare and Medicaid.

         The   interpretation   and  applicability  of  some  of  the  laws  and
regulations  applicable  to Health  Card's  business are unclear.  Health Card's
business  activities  and  relationships  with  sponsors,   pharmacies,   rebate
administrators,  plan  participants,  and  brokers  have not been the subject of
regulatory  investigation  or review on either the state or the  federal  level.
Health Card has not  obtained or applied  for any opinion of any  regulatory  or
judicial authority that its business operations and relationships with sponsors,
pharmacies,   rebate  administrators,   plan  participants  or  brokers  are  in
compliance with applicable laws and regulations.  There can be no assurance that
Health Card has  interpreted the applicable laws and regulations in the same way
as regulatory or judicial  authorities,  or that the laws and regulations and/or
the interpretation thereof will not change.

         A more  detailed  analysis  of certain  specific  laws and  regulations
affecting the business, operations and relationships of Health Card is set forth
below.

ANTI-KICKBACK REGULATIONS

         The  federal   Anti-Kickback  Statute  prohibits  knowingly  paying  or
receiving  remuneration in return for referring an individual for the furnishing
of an item or service, or for the purchasing, ordering or arranging for any item
or  service  for which  payment  may be made in whole or in part under a federal
health care program,  including Medicare or Medicaid. The term "remuneration" in
the statute expressly includes any kickback,  bribe or rebate. Violation of this
law  is  a  felony,  punishable  by  fines  up  to  $25,000  per  violation  and
imprisonment  for up to five  years.  Violation  may  also  give  rise to  civil
penalties of up to $50,000 per  violation  and  exclusion  from the Medicare and
Medicaid programs.

         Safe  harbor  regulations  have been  adopted  under the  Anti-Kickback
Statute which immunize certain  remuneration  arrangements which might otherwise
violate the statute,  such as properly  reported  discounts  (including  certain
rebates) received from vendors and properly  disclosed  payments made by vendors
to group  purchasing  organizations.  While it is unclear  whether Health Card's
conduct, operations, and relationships would fall within a safe harbor under the
Statute or  regulations  promulgated  thereunder,  failure to fall within a safe
harbor  does not mean  that  Health  Card's  practices  would  violate  the law,
although it may result in heightened scrutiny or challenge.

         Health Card believes  that it is not in violation of the  Anti-Kickback
Statute because (i) it does not receive any remuneration directly from Medicare,
Medicaid or any other government sponsored health care program, and (ii) it does
not believe the payments to it from any of its sponsors,  other than Vytra,  are
derived from funds from Medicare, Medicaid or other federal government sponsored
health care programs. With respect to other sponsors,  although Health Card does
not have any knowledge to the  contrary,  it cannot be sure that no portion of a
sponsor's  payment is derived  from a  government  health care  program  source.
However,  even if Health Card were found to receive  indirectly  a benefit  from
such a government  sponsored  health care program in the form of a rebate from a
rebate administrator or from a drug manufacturer,  Health Card believes that its
conduct  would not violate the  Anti-Kickback  Statute  because it receives  and
shares rebates with its sponsors and participates in the therapeutic interchange
program,  only to share cost savings and reduce the cost of prescription benefit
services and not to induce referrals.  Health Card cannot be sure, however, that
a government  regulatory  agency or judicial tribunal would not view the receipt
and sharing of rebates as a violation of the federal Anti-Kickback Statute.

         The  Anti-Kickback  Statute and related  regulations  have been broadly
interpreted by the federal courts to prohibit the payment or receipt of any form
of  remuneration,  even if only one purpose of such  remuneration is to obtain a
referral  for any item or  service  that is  covered  by a federal  health  care
program.  Certain  states  other than New York have  similar  statutes  that may
extend  the   prohibitions   to  items  or   services   that  are  paid  for  by
non-governmental third-party payors, as well as individuals who pay directly for
their own health care.

         Health  Card is not aware of any  instance  in which the  Anti-Kickback
Statute  has been  applied  (i) to  prohibit  independent  prescription  benefit
management  companies from receiving  rebates from drug  manufacturers  based on
drug sales by pharmacies to plan participants, formulary management programs, or
therapeutic  substitution  programs,  or (ii) to the  contractual  relationships
between independent prescription benefit management companies and their sponsors
and participating pharmacies.

         In the last few years,  private  citizens  have  commenced  litigation,
known as Qui Tam actions,  against health care providers and suppliers on behalf
of the federal government alleging that such providers and suppliers filed false
claims with the Medicare and/or Medicaid programs. While the law on the issue is
still  unsettled,  if Health Card's  activities  with respect to its receipt and
sharing of rebates were  challenged  as a kickback in such a Qui Tam  proceeding
and  determined  to form the basis  for a false  claim  under the  Anti-Kickback
Statute,  Health  Card  could be  subject to  substantial  penalties  and treble
damages in addition to the punishments  described above.  Health Card's exposure
to litigation and enforcement  actions is increased  because of the availability
of such Qui Tam actions to a broader class of plaintiffs.

PHARMACY REGULATIONS

         New York prohibits  unlicensed persons from engaging in the practice of
pharmacy.  The practice of pharmacy is defined as "the  preparing,  compounding,
preserving, or the dispensing of drugs, medicines and therapeutic devices on the
basis of prescriptions or other legal  authority."  Health Card believes that it
is engaging in the business of providing management and administrative  services
for prescription benefit plans and not in the practice of pharmacy.

         As a precautionary  measure,  in order to preclude any possible finding
that it is engaged in the unauthorized practice of pharmacy,  Health Card became
a licensed  pharmacy in New York in March 1999.  Health Card cannot be sure that
the New York Department of Education will not claim that Health Card was engaged
in the practice of pharmacy  without a license  prior to that date.  Health Card
has not determined, and does not believe that it could determine with any degree
of accuracy,  the nature or extent of any sanctions  that might be imposed on it
as a result of such claim.

         As a licensed  pharmacy,  Health Card is subject to all of the laws and
regulations   governing  pharmacies   including  those  regarding   professional
misconduct.  Professional misconduct for a pharmacy is defined to include, among
other  things,   (i)  splitting  fees  in  connection  with  the  furnishing  of
professional  care or  services,  including  the sale of drugs,  (ii)  receiving
valuable consideration as a commission,  discount or gratuity in connection with
the sale of drugs, and (iii) paying or receiving any  consideration to or from a
third party for referring a patient,  or in connection with the performance of a
professional service.

         Health  Card  is not  aware  of any  interpretation  by  any  court  or
governmental  agency of the laws and  regulations  regarding  fee  splitting  or
referral fees by licensed  professionals  to any  arrangements  similar to those
engaged  in by Health  Card nor has Health  Card  obtained  or  applied  for any
opinion of any regulatory or judicial authority that its business  operations or
relationships  are or will be in compliance with such laws and regulations.  The
following  aspects of Health  Card's  business  should be considered in light of
these laws and regulations.

     Health Card receives rebates direct from drug manufacturers as well as from
one or more third party rebate administrators through contracts between them and
pharmaceutical companies. While Health Card shares the proceeds of those rebates
with some of its sponsors, it does not share any rebates with pharmacies.

         In connection with its formulary management program,  Health Card's P&T
Committee,  or its formulary  administrators,  considers the net cost of various
drugs as one factor in determining  which drugs should be included in the Health
Card  formulary.  While the  determination  to include or exclude drugs from the
formulary is primarily based on the quality and efficacy of the drugs, their net
cost after any available  rebate is also  considered.  If Health Card chooses to
include certain drugs in its formulary,  or adapt the formulary of its formulary
administrator, for which it receives rebates, it may be required under the terms
of its agreements with rebate  administrators  or drug  manufacturers to exclude
certain other drugs from its formulary in order to receive those rebates.

         Under its therapeutic  interchange program,  Health Card shares savings
realized as a result of  participating  pharmacies'  dispensing lower cost drugs
instead of more expensive  prescribed drugs.  Health Card also has agreements to
pay  brokers  to market  its plan  administration  services  to other  potential
sponsors.

         Although it is  licensed  as a  pharmacy,  Health Card does not believe
that its activities as a prescription  benefit manager  constitute the rendering
of  pharmacy  services  that  would  subject it to the  professional  misconduct
regulations for its prescription benefit management activities.  Even if it were
determined  that Health Card's  activities  constitute the practice of pharmacy,
Health  Card  does  not  believe  that  any of its  activities  are of the  type
prohibited  by the laws  governing the  pharmacies or the rules of  professional
misconduct  applicable to pharmacies.  Health Card cannot be sure, however, that
the New York  Department of Education  would not come to a different  conclusion
and commence a regulatory  investigation  or seek to impose  sanctions on it for
such conduct.

         Health Card maintains an e-pharmacy pursuant to which plan participants
may purchase  prescription  drugs and other items through the  Internet.  Health
Card has entered into an agreement  with a Connecticut  based  corporation to be
the exclusive provider of such Internet  prescription drugs and other items. New
York State does not  presently  regulate  out-of-state  pharmacies.  There is no
assurance that the New York State regulatory authorities will not determine that
Health  Card,  through  its  Internet  website,  is engaged in the  practice  of
pharmacy services within New York State,  thereby  subjecting Health Card to New
York State pharmacy  regulations,  including  regulations  governing  electronic
transmission of prescriptions, or that regulatory authorities in the future will
not assert  their  jurisdiction  and  regulate  out-of-state  e-pharmacies  that
deliver  products into New York State.  Such regulation  could adversely  affect
Health Card's ability to provide e-pharmacy services.

         In May  2000 the  Secretary  of HHS  presented  a  proposal  concerning
internet  drug  sales to a  congressional  representative.  The  proposal  would
require online pharmacies to (i) be licensed in each state in which they operate
or to which they deliver  prescription  drugs,  (ii) comply with all  applicable
state and federal laws  governing  the  practice of pharmacy  and (iii)  provide
notice and certain information to the Secretary before launching a website. This
proposal has not yet  proceeded in Congress for lack of a House  sponsor.  It is
uncertain  whether this or a similar  proposal will be considered by Congress in
the future and if enacted  what  effect  such  legislation  would have on Health
Card's activities.

REGULATIONS REGARDING CERTAIN RIGHTS OF PRIVACY AND CONFIDENTIALITY

         It is also  professional  misconduct  in New  York  for a  pharmacy  to
disseminate  personally  identifiable health information about a patient without
the  patient's  prior  written  authorization.  Improper  dissemination  of such
information  may subject a  pharmacist  to fines,  penalties,  other  sanctions,
injunctive relief, professional disciplinary actions and loss of license.

         In the course of its business, Health Card receives data regarding each
plan   participant's   prescription   drug  utilization   history.   Under  some
circumstances,  Health Card may also receive other medical information regarding
a plan  participant.  The  availability  of such  information to Health Card may
enable it to draw certain  conclusions about a plan  participant's  health.  For
example,  a  plan  participant   receiving  long-term  insulin  therapy  may  be
identified  as a diabetic.  Health Card calls  these  identifications  "inferred
disease states."

         Based  on  the  information   Health  Card  obtains  regarding  a  plan
participant's  inferred disease state,  Health Card may make  recommendations to
sponsors  on how to reduce  costs and  improve  the plan to  better  serve  plan
participants.  Health Card routinely  shares such  information with its sponsors
through its computer  network.  Under the terms of most plans,  Health Card also
may be required to provide patient  specific  information  directly to sponsors,
including drug history  information  that may suggest an inferred disease state.
In utilizing  the data  received by Health Card in this  manner,  it is possible
that Health  Card could be found to have  violated  the  privacy  rights of plan
participants  under  the  laws of New  York and  other  states  in which it does
business.  Such a determination  could have a material  adverse effect on Health
Card's ability to provide disease information  services, an area of its business
that Health Card believes gives it a competitive advantage and is anticipated to
be an important element of its future success.

     Confidentiality   provisions  of  the  Health  Insurance   Portability  and
Accountability  Act of 1996 ("HIPAA") required the Secretary of Health and Human
Services to issue standards  concerning health  information  privacy if Congress
did not enact health information privacy legislation by August 1999. As Congress
did not enact such legislation, the Secretary issued a proposed rule in November
1999 and the public  comment  period for this  proposed rule expired on February
17, 2000.  It is not known when the final rule  governing  the privacy of health
information  will  be  issued  by  HHS.  The  proposed  rule  imposes  extensive
restrictions  on the  use  and  disclosure  of  personally  identifiable  health
information.  It is anticipated that the health  information  privacy  standards
would become effective two years after the final rule is issued.  The final rule
is  expected  to  preempt  state  laws  which are less  restrictive  than  HIPAA
regarding  health  information  privacy,  but not more  restrictive  state laws.
Health Card cannot predict accurately what effect the final regulations may have
on its  operations,  and there can be no  assurance  that the  restrictions  and
duties  imposed by the  regulations  will not have a material  adverse effect on
Health Card's business, results of operations or financial conditions.

REGULATIONS APPLICABLE TO HEALTH CARE PROFESSIONALS

         All states,  including  New York,  regulate  the  practice of medicine,
nursing and other licensed health  professions.  Activities  deemed by a state's
regulatory  authority to constitute  the practice of medicine,  nursing,  or any
other licensed  health  profession  without the proper license would subject the
actor to the penalties provided under such state's laws.

         In the course of its business, Health Card provides disease information
services,  drug  usage  monitoring  programs,  preferred  drug  management,  and
consulting services. Health Card does not believe that these or any of its other
activities as a prescription benefit management company, constitute the practice
of medicine, nursing or any other licensed health profession. Health Card cannot
assure that a regulatory  authority in New York,  or any other state in which it
engages in such activities,  would not assert a contrary position and subject it
to the sanctions described above.


UTILIZATION REVIEW REGULATIONS

         Under the  Insurance  Law and Article 49 of the Public  Health Law, the
State of New York regulates utilization review. Utilization review is defined as
the review to determine  whether  health care services that have been, are being
or will be provided are medically necessary.  Health care services, for purposes
of the  utilization  review  law,  are  defined  to  include  the  provision  of
pharmaceutical products. In some of the contracts to which it is a party, Health
Card  agrees  to  provide  "drug  utilization   review"  and  "drug  utilization
management."  However,  Health Card  believes  that the drug review and analysis
services it provides to its sponsors do not involve making  determinations as to
the medical necessity of the pharmaceutical products provided that would subject
it to regulation under the utilization review laws.

FDA REGULATION

         The United  States Food and Drug  Administration  has asserted  general
authority to regulate promotional  activities of, and materials disseminated by,
prescription  benefit  management  companies  that are owned or influenced by or
subject to contractual  relationships with drug companies.  In January 1998, the
FDA  published  a  draft  guidance  concerning  certain  promotional   practices
performed by such prescription benefit management companies. Among the practices
discussed  in the  FDA's  commentary  to the  draft  guidance  were  the  use of
product-specific   financial   incentives  to  influence   drug   selection  and
prescribing decisions, disease information programs, and the use of specified or
preferred drug  formularies.  Although the FDA's draft guidance has  effectively
been withdrawn, there can be no assurance that the FDA will not again attempt to
assert  jurisdiction  over  certain  aspects of Health  Card's  business  in the
future,  and in such event, the impact could materially  adversely affect Health
Card's operations.

         Since  Health  Card  is  neither  owned,  nor  directly  controlled  or
influenced by a drug company,  it believes that the existing  regulations do not
apply  to  it.  However,  due  to  its  contractual   relationship  with  rebate
administrators  and various drug companies,  there can be no assurance that some
of Health Card's activities may not be subject to FDA review and regulation.  In
such event,  some of Health Card's activities and its rebate program may require
modification or elimination.

MEDICARE PRESCRIPTION DRUG BENEFIT

         Medicare  reimbursement and coverage of prescription drugs could change
significantly  in the near  future.  Medicare  presently  covers  only a limited
number of outpatient  prescription drugs, but legislative  initiatives are being
considered to expand Medicare  coverage of drugs, in some instances as part of a
broad reform of the Medicare  program.  Some proposals have included  provisions
for incorporating the services of prescription benefit managers into the program
to  control  costs.  Health  Card  cannot  assess  at this  stage  whether  such
legislation  will be approved or how it would  address drug coverage or costs or
impact Health Card's business.  Enactment of legislation to expand Medicare drug
coverage  could  create  broader  markets  for  prescription  benefit  managers.
Alternatively,  it could regulate or limit the services of prescription  benefit
managers and have an adverse impact upon Health Card's business.

REGULATION IN OTHER STATES

     Health Card is in the process of evaluating its  involvement  with sponsors
and plan  participants  located in states  other than New York.  Health  Card is
conducting that review systematically, focusing its attention initially on those
states where it has the most  sponsors  and/or plan  participants.  As a result,
Health Card has applied for and became  licensed as a third party  administrator
in Ohio,  Kansas,  Kentucky and Michigan,  and has applied for such licensure in
Florida,  Indiana  and  South  Carolina  and is in  the  process  of  completing
applications  for such  licensure in Arkansas,  Mississippi  and  Louisiana.  In
addition,  Pharmacy  Associates has been licensed as a third party administrator
in Louisiana.

         Health Card intends to apply for a third party administrator's  license
in each state in which it determines  that its business  operations  require it.
Prior to September 1998,  Health Card conducted its activities  without applying
for any such licenses.  While Health Card is in the process of seeking to comply
with all such laws that are in effect  in the  states in which it  conducts  its
business,  Health Card cannot be sure that it will be granted  such  licenses at
this time or at all, or that it will not be subject to fines and other penalties
including injunctive relief, as a result of its past non-compliance. Health Card
has not determined, and does not believe that it could determine with any degree
of accuracy,  the nature or extent of any punishment that might be imposed on it
as a result of such historical non-compliance.

         New York does not regulate  prescription benefit management  companies.
Health  Card  cannot be sure that New York or any other  state  will not  assert
regulatory  authority  over  it or  its  activities  as a  prescription  benefit
management  company or otherwise,  now or at any time in the future.  If a state
does assert such regulatory authority,  Health Card will seek to comply with all
applicable  regulations;  however, Health Card cannot be sure compliance will be
achieved. If Health Card is unable to comply, it may not be permitted to conduct
its activities in those states as it currently conducts them, or at all.

         Health Card has requested advice from special counsel regarding changes
in laws and regulations covering insurance,  health, licensure and certain other
regulatory matters governed by New York State laws and federal laws. Health Card
has not  retained  counsel,  or obtained  any  advisory  opinion  from any state
administrative  or  regulatory  agency,  regarding  the laws of any other state.
Health  Card  cannot be sure that its  activities  in such  other  states are in
compliance with all applicable  laws and  regulations of such states,  and thus,
its  activities in those other states may subject it to judicial and  regulatory
review and such sanctions  and/or  punishments as may be provided under the laws
and regulations of such states.

ITEM 2.           PROPERTIES.

         Health Card  occupies  approximately  14,600 square feet of space at 26
Harbor Park Drive, Port Washington, New York under an amended lease at a monthly
cost of $32,550 (including  utilities).  The lessor is BFS Realty, LLC, which is
affiliated with Mr.  Brodsky,  Health Card's  Chairman.  The lease expires as of
March 30, 2004. Rent under the lease increases by 5% annually. The BFS lease was
assigned  by Sandata  to BFS in  November  1996.  Mr.  Brodsky is the  Operating
Manager and sole holder of the membership interests of BFS. Health Card believes
that the terms of this lease are as fair to it as those  which could be obtained
from an unaffiliated third party.  Pursuant to an oral agreement entered into in
1994 with BFS, Health Card paid $700,000 in June 1995 in connection with certain
allocated leasehold improvements. Health Card began occupying space at 26 Harbor
Park Drive in October  1994 and began making  rental  payments for such space in
December 1994. See Item 13 hereof.

         Pursuant to a lease dated March 4, 1996, as amended on November 2, 1998
and November 19, 1998, Pharmacy  Associates occupies  approximately 5,545 square
feet at 320  Executive  Court,  Little  Rock,  Arkansas..  The  landlord for the
premises is  Executive  Park  Partnership.  The current  monthly rent under this
lease is $7,027.08 and  subsequently  increases to $7,309.45 for the period from
May 1, 2001 until April 30, 2002. The lease expires on April 30, 2002.

     Pursuant to a lease  dated July 8, 1999,  Pharmacy  Associates  occupies an
additional 1,435 square feet at 320 Executive Court, Little Rock, Arkansas.  The
landlord for the premises is Executive  Park  Partnership.  The current  monthly
rent under this lease is $1,815.75 and  subsequently  increases to $1,888.38 for
the period from May 1, 2001 to April 30,  2002.  The lease  expires on April 30,
2002.

     Pursuant to a lease dated  August 10, 1998 and expiring on August 31, 2005,
Health Card occupies approximately 1,500 square feet at 63 Manorhaven Boulevard,
Port Washington,  New York, which is used as a pharmacy.  The landlord for these
premises is 61 Manorhaven  Boulevard,  LLC. Bert Brodsky is the sole member. The
current  monthly rent is $1,575 per month running  through  August 31, 2001. The
annual rent can increase by 5% per year. Additional rent, in the form of certain
expenses, is also payable.

         Pursuant to a new lease  commencing  December 15, 1999, and expiring on
December 14, 2000,  Health Card leases an apartment,  for use by a member of its
senior management, at premises located at 77 Juniper Road, Port Washington,  New
York.  The annual rent is $21,000.  Utilities  and  maintenance  service (if any
maintenance  service is contracted for) are payable by Health Card as additional
rent.

ITEM 3.           LEGAL PROCEEDINGS.

         Health Card is involved in various legal proceedings, including the one
described in the following paragraph, incidental to the conduct of its business.
While  there can be no  assurance,  Health  Card does not  expect  that any such
proceedings will have a material adverse effect on its business,  operations and
financial condition.

         On February 9, 1999, Health Card was informed by counsel that an action
was brought  against it by the West Contra Costa Unified School  District and an
individual  plaintiff  in the  State of  California.  The case was  subsequently
removed to Federal court. The complaint  alleges,  among other things,  that the
parties entered into a contract in November 1996, for services to be provided by
Health Card and, subsequently,  Health Card unilaterally terminated the contract
on December 16, 1996. The complaint further alleges that this termination was in
violation  of the terms of the contract  and one or more  statutory  provisions;
that the  termination  resulted in the school district  incurring  approximately
$150,000 in  additional  costs due to its having to enter into a fee for service
arrangement  with  Health  Card in  order  to  continue  providing  prescription
benefits to its plan members;  and that, due to the wrongful  termination of the
contract,  the  school  district  was  forced  to secure a  replacement  for the
benefits and the  services  that were to have been  provided  under the contract
with Health Card.  In  connection  with this last  circumstance,  the  complaint
alleges that the school district incurred  approximately  $400,000 in additional
expenses.  The  complaint  also seeks  treble  damages.  If treble  damages were
allowable in this case and a judgment  were to be entered  against  Health Card,
Health Card would be liable for damages in excess of $1,500,000.  Health Card is
currently in the process of assessing  Plaintiff's  alleged  damages  based upon
documents  produced in the  discovery  phase and is  expected  to commence  with
depositions  shortly.   Health  Card  denies  the  allegations  and  intends  to
vigorously defend this action. In the opinion of management, the outcome of this
litigation  will not have a material  adverse effect on Health Card's  financial
position or its results of operations.

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

                  None.

                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                    STOCKHOLDER MATTERS.

MARKET INFORMATION

         Health Card's Common Stock is traded in  over-the-counter  market under
the symbol "NMHC" on the National  Association of Securities  Dealers  Automated
Quotation System ("NASDAQ").  The table below sets forth high and low bid prices
of the Common  Stock,  as furnished by NASDAQ.  The  quotations  set forth below
reflect interdealer prices without retail markup, markdown or commission and may
not necessarily represent actual transactions.

                                           BID PRICES

                                           HIGH              LOW

FISCAL YEAR ENDED

JUNE 30, 2000

First Quarter                              $7.75         $4.81
Second Quarter                              5.63           2.75
Third Quarter                               5.25           2.81
Fourth Quarter                              3.13           1.88

HOLDERS

         Health Card has been advised by its transfer agent  (Continental  Stock
Transfer & Trust Company) that the  approximate  number of record holders of its
common stock as of September 22, 2000 was 43.

DIVIDEND POLICY

         Health Card has not declared or paid any cash dividends in the past and
does not anticipate doing so in the foreseeable  future.  Health Card intends to
retain any earnings to finance its growth. Any future payments of dividends will
be at the discretion of the Board of Directors and will depend upon such factors
as the Board of Directors deems relevant.  No assurance can be given that Health
Card will pay dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

         None.

<PAGE>


ITEM 6.     SELECTED FINANCIAL DATA.

     The following tables summarize certain selected  financial  information for
each of the  years in the five  year  period  ended  June 30,  2000 and provided
certain  supplemental data. The selected  consolidated income statement data for
the years  ended  June 30,  1998,  1999 and 2000 and the  selected  consolidated
balance  sheet  data as of June 30,  1999 and 2000  have been  derived  from the
audited  consolidated  financial  statements  of Health Card  included in Item 8
hereof. The selected consolidated income statement data for the years ended June
30, 1996 and 1997 and the selected  consolidated  balance  sheet data as of June
30,  1996,  1997 and 1998  have  been  derived  from  the  audited  consolidated
financial  statements  of Health Card which are not  included in this Form 10-K.
The  information  contained  in this table  should be read in  conjunction  with
Health Card's  consolidated  financial  statements  and the notes  thereto,  and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included in Item 7 hereof.
<TABLE>
<S>
<C>                                     <C>              <C>              <C>              <C>               <C>
                                                               YEAR ENDED JUNE 30,
                                           1996             1997             1998             1999               2000

INCOME STATEMENT DATA:
Revenues...........................     $54,308,872      $70,405,168      $98,528,384      $134,031,026      $172,313,838
Cost of claims.....................      48,843,261       63,293,699       89,770,402       121,536,733       158,015,411
Gross profit.......................       5,465,611        7,111,469        8,757,982        12,494,293        14,298,427
Selling, general and
  administrative expenses*.               4,216,259        5,855,282        7,192,027        10,171,314        12,357,819
                                          ---------        ---------        ---------        ----------        ----------
Operating income (loss)............       1,249,352        1,256,187        1,565,955         2,322,979         1,940,608
Other income (expense).............          21,530           42,595         (180,507)          592,032           922,066
                                             ------           ------          --------          -------           -------
Income before income taxes
  (loss)...........................       1,270,882        1,298,782        1,385,448         2,915,011         2,862,674
Provision for income taxes
  (benefit)...........................     (185,275)        (189,984)         569,000           976,000         1,247,000
                                           --------         --------          -------           -------         ---------
Net income (loss).....................  $ 1,456,157     $  1,488,766     $    816,448      $  1,939,011       $ 1,615,674
                                          =========        =========          =======         =========         =========
Earnings (loss) per common share:
    Basic.............................  $      0.47     $       0.46    $        0.16      $       0.37       $      0.24
                                          =========        =========      ============      ===========         =========
    Diluted...........................  $      0.35     $       0.37    $        0.16      $       0.37       $      0.24
                                          =========        =========      ============       ==========         =========

Weighted average number of common shares outstanding:
    Basic.............................     3,093,085       3,258,459        4,966,885         5,205,084            6,720,104
    Diluted...........................     4,182,909       4,008,481        4,969,166         5,205,084            6,720,104
------------------------
*Includes amounts charged by
  affiliates aggregating..............   $ 2,868,974     $ 4,511,144     $  4,904,514       $ 2,816,982          $ 2,985,506
</TABLE>

<PAGE>
<TABLE>
<S>
<C>                                     <C>              <C>              <C>              <C>               <C>
                                                               YEAR ENDED JUNE 30,
                                           1996             1997             1998             1999               2000




BALANCE SHEET DATA:
Cash and cash equivalents...            $     11,137     $ 1,782,597     $  1,305,792       $ 2,815,863          $15,724,730
Working capital (deficit)...              (7,530,351)     (7,436,095)      (8,658,324)       (6,680,593)           6,030,219
Total assets................               8,531,507      11,871,820       18,343,900        30,846,011           44,363,618
Long-term debt (including
  current portion)..........                 869,437         263,648            9,742             1,950            2,331,881
Total stockholders' equity
  (deficit).................              (3,663,125)     (2,343,671)      (2,006,282)        1,998,315           13,425,259
</TABLE>

<TABLE>
<S>
<C>                                     <C>              <C>              <C>              <C>               <C>
                                                               YEAR ENDED JUNE 30,
                                           1996             1997             1998             1999               2000

SUPPLEMENTAL DATA(1):
Retail pharmacy claims
  processed...................             1,675,490       1,990,976        2,405,627         3,066,098            4,058,748
Mail pharmacy processed
  claims......................                28,238          62,413          131,611           171,295              255,211
Estimated plan participants
  (at period end).............               271,784         291,446          401,226           521,150              505,401
------------

          (1) This data has not been audited. See Items 1 and 7 hereof.

</TABLE>
<PAGE>



ITEM 7.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION
            AND RESULTS OF OPERATIONS.

OVERVIEW

         Health Card  derives its revenue from the  provision  of  comprehensive
prescription  benefit  management  services to sponsors of prescription  benefit
plans.  Substantially  all of the services  Health Card provides to its sponsors
are  related to the  adjudication  of the drug  claims at the point of  service.
Health  Card  also  recognizes   administrative  fees  at  the  time  of  claims
adjudication.

         Revenue is earned and  recognized as follows:  administrative  fees are
agreed  upon  with the  sponsor  on  either  a per  claim  charge  or a per plan
participant  per month  charge.  Per claim fees are billed to  sponsors  for the
claims  adjudicated  during the period.  Per plan participant per month fees are
generally  billed to  sponsors  at the  beginning  of the  month.  The amount of
revenue  related to the drugs  dispensed by pharmacies  participating  in Health
Card's pharmacy network is recognized at the time of dispensing the drug, as the
cost is incurred.

         The following  table sets forth the breakdown of Health Card's  charges
relating to pharmaceuticals dispensed and administrative fees:

                                            YEARS ENDED JUNE 30,
                                        1998            1999             2000

Charges relating to
  Pharmaceuticals                   $97,558,390    $132,889.359     $169,808,763
Administrative fees and other           969,994       1,141,667        2,505,075
                                    -----------    ------------      -----------

      Total Revenues                $98,528,384    $134,031,026     $172,313,838
                                    -----------    ------------     ------------

         Health  Card  does  not  take  possession  or  legal  ownership  of the
pharmaceutical  drugs  dispensed by the pharmacy  network,  although Health Card
assumes the legal  responsibility  and  financial  risk of paying for  dispensed
pharmaceuticals whether or not Health Card is paid by its sponsors.

         Health Card utilizes its comprehensive prescription benefit database to
perform outcome studies and to develop  disease  information  programs which are
used to reduce  overall  healthcare  costs.  Health  Card also has  access to an
e-pharmacy.  These programs currently produce a small amount of revenue.  Health
Card believes that these value added  information  based services are becoming a
more important  component of managed care, and therefore  these services  should
provide an increasing source of revenue for Health Card in the future.

         Cost  of  claims  includes  the  amounts  paid to  network  pharmacies,
including mail service  pharmacies,  for  pharmaceutical  claims, and reductions
resulting from rebates from drug manufacturers. Cost of claims are recognized as
follows:  the  contractual  obligation  of Health Card to pay for these drugs is
recorded as cost of claims at the time of dispensing of the drug by the pharmacy
network.  Cost of claims is reduced by the rebates  that Health Card retains net
of amounts due to the sponsors  and a fee retained by the rebate  administrators
as an administrative  fee. Rebates are earned from drug  manufacturers  based on
drugs utilized by plan  participants  at the time of  dispensing.  Health Card's
portion of these  rebates,  which varies by sponsor,  is recorded  monthly based
upon the claims adjudicated in that month.

         In the past  Health Card  relied  upon third  party  administrators  to
negotiate  contracts  with drug  manufacturers  and submit  Health Card's claims
along with claims of others. Health Card would receive estimates from the rebate
administrator  based on their  analysis  of the  amount of rebates  that  Health
Card's  claims  should  generate.  These  estimates  were prepared by the rebate
administrators  based on estimates of how Health Card's  claims might  influence
the market share of a particular  drug  covered  under an agreement  with a drug
manufacturer. Market share is generally defined as the percentage of utilization
of a certain  drug or drugs within its  therapeutic  class.  Historically,  this
market share has been very  predictable  and consistent  with the prior quarter.
Relying  upon  their  analyses,  the rebate  administrators  would then remit to
Health Card 80% of its  estimate of the total  amount to be  collected  120 days
after the end of a quarter.

     Starting in April  2000,  Health Card began  processing  its rebate  claims
either direct with the drug manufacturers,  through its wholly-owned subsidiary,
Specialty,  or through  Express.  For the claims made through December 31, 2000,
Express is obligated to pay Health Card a specified amount per claim. Subsequent
to December 31, 2000, a new baseline will be established  based on Health Card's
actual claim history.  Consequently,  the total amount of rebates to be received
from  Express  will be known  once the  number of  claims  is  known.  As to the
agreements with the drug manufacturers, since Health Card now knows the criteria
that  relate to the amount of  rebates  from these  manufacturers,  Health  Card
computes the amount of rebates based on the actual claims data and the specified
payment schedules.  The drug manufacturers,  per the individual agreements,  are
obligated to  reimburse  Health Card for the earned  rebates  within a specified
period of time.

         Health Card, through  Specialty,  has submitted the majority of covered
claims to the drug manufacturers, in accordance with the agreements currently in
place,  for the quarter ended June 30, 2000.  Since this was Health Card's first
submission  direct  to  the  drug  manufacturers,  and  since  approximately  30
different  contracts  had to be analyzed  and loaded into Health  Card's  custom
designed rebate system, certain submissions were delayed and certain submissions
still need to be made.  In  addition,  Health Card is  attempting  to  negotiate
agreements with several  additional  manufacturers  and submit claims under such
agreements  with respect to the period.  These late  submissions and submissions
under any additional manufacturer agreements might have some negative short-term
effect on cash flow, but Health Card believes it has sufficient cash reserves to
deal with any delayed reimbursements.

         Manufacturer  rebates have  historically  had a  significant  impact on
Health Card's financial performance as the following table shows:

                                            YEARS ENDED JUNE 30,

                                    1998             1999             2000
                                    ---------------------------------------
REBATES AS A:
% Of cost of claims                 1.6%             2.1%              2.4%
% Of total gross profit              17%              20%               27%
% Of income before taxes            105%              87%              133%

         Due to the  expected  continued  growth and  diversification  of Health
Card's  business,  Health Card also expects  rebates as a percentage  of cost of
claims,  to increase and  continue to account for a  significant  percentage  of
total gross profit and income  before taxes.  Certain of Health Card's  sponsors
are  entitled  to all or a portion of rebates  received  by Health  Card,  which
portion varies by sponsor.  If such rebate  programs were to be  discontinued or
adversely altered by drug manufacturers, or if the terms of Health Card's rebate
sharing  arrangements with its sponsors were adversely altered,  it would have a
material  adverse  effect on  Health  Card's  business,  operating  results  and
financial condition.

         Due to changing market conditions and competition,  it is possible that
the percentage of rebates retained by Health Card based on its arrangements with
the  sponsors  may  change  when these  arrangements  expire and may be lower in
arrangements  with new  sponsors.  Any such change in the  percentage of rebates
retained  and  recorded as a reduction  of cost of claims  could have a material
adverse  effect on Health  Card's  business,  operating  results  and  financial
condition.

         Credit risk relating to the rebates  receivable  is evaluated  based on
the financial strength of the rebate  administrator and the drug  manufacturers.
Health  Card  believes  that  most of the drug  manufacturers  are  Fortune  500
companies. Health Card does not believe a credit risk reserve is necessary.

         The prescription benefit management industry is intensely  competitive,
generally  resulting in  continuous  pressure on Health Card's gross profit as a
percentage  of total  revenue.  In  recent  years,  industry  consolidation  and
dramatic  growth  in  managed  healthcare  have led to  increasingly  aggressive
pricing of prescription benefit management  services.  Given the pressure on all
parties  to reduce  healthcare  costs,  Health  Card  expects  this  competitive
environment to continue for the foreseeable future.

         Health Card plans to continue its  internal  growth  through  increased
marketing  of its  services  and by  expanding  the range of  services  offered,
particularly to include value added  consulting and  information-based  services
which  Health  Card  believes  to be in growing  demand  within  the  healthcare
industry. In addition,  Health Card intends to continue to pursue an acquisition
program  to  supplement  its  internal  growth by making  acquisitions  of other
prescription  benefit  management  service  providers,  similar  to  its  recent
Pharmacy Associates acquisition.

PUBLIC OFFERING

         On August 2, 1999,  Health Card completed the sale of 1,600,000  shares
of its common stock in an underwritten  public offering (the "Public Offering").
Pursuant  to  the  Public  Offering,   Health  Card  received  net  proceeds  of
approximately $9,538,037. Concurrently, the Bert E. Brodsky Revocable Trust (the
"Brodsky  Trust")  sold  400,000  shares  of common  stock of Health  Card in an
underwritten  offering.  Of the proceeds  received by the Brodsky Trust, it used
approximately  $1,992,900 to repay to Health Card, in part, certain indebtedness
owed by certain  affiliates  of the Brodsky  Trust to Health  Card.  See Item 13
hereof.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999

     Revenues  increased $38.3 million or approximately 29%, from $134.0 million
for the fiscal  year ended June 30,  1999 to $172.3  million for the fiscal year
ended June 30, 2000. The increase  related to revenues from new sponsors  during
the fiscal year was  approximately  $21 million.  The majority of the  remaining
increase of  approximately  $17 million was due to 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.  The remainder of the increase,
approximately  $630,000,  was due to new services offered during the year around
the e-pharmacy and clinical services.

     Revenues grew year over year despite the loss of two key clients during the
June 30, 2000 fiscal year. One, a previous significant sponsor, terminated their
contract  with  Health  Card as of  January  1,  2000.  The second was placed in
receivership  by the State of Florida as of January 1, 2000,  and their  members
were  dispersed  to other plans not covered by Health  Card.  These two sponsors
accounted  for $20.5  million and $21.4  million in  revenues  during the fiscal
years ended June 30,  1999 and 2000,  respectively.  The revenue  from these two
sponsors  has been  replaced  by the $21  million of revenue  from new  sponsors
described above.  This helped to mitigate the overall impact of their loss on an
annual run rate basis. Two other factors influencing the year to year comparison
were:  revenues of the fiscal year ended June 30, 1999  included a one-time rate
increase of $500,000  from a major  client,  and the revenue for the fiscal year
ended June 30, 2000 was net of an $821,000 reduction in revenue when Health Card
settled  certain fees due from a major  sponsor as  consideration  for a new two
year arrangement with this sponsor.

         Cost of claims increased $36.5 million or approximately 30% from $121.5
million for the fiscal year ended June 30, 1999 to $158.0 million for the fiscal
year ended June 30, 2000. As a percentage of revenues,  cost of claims increased
from 91% for the  fiscal  year ended  June 30,  1999 to 92% for the fiscal  year
ended June 30, 2000. The primary  reason for the cost of claims  increasing as a
percentage of revenue has to due with a risk sharing arrangement Health Card had
with a major  sponsor.  During the fiscal  year ended June 30,  2000 the cost of
drugs covered under this arrangement were greater than the agreed upon capitated
rate, which led to a sharing of those costs between Health Card and the sponsor.
This fact along with the $821,000  revenue  reduction  mentioned  above led to a
differential between revenue and cost under this contract of $1.6 million during
fiscal 2000.  This risk sharing  arrangement  is no longer in effect.  Partially
offsetting  this  increase  in costs was a  $540,000  increase  in the amount of
manufacturer  rebates  estimated to be received due to the  increased  volume of
claims  and  the  administrative  fee to be  paid to  Specialty.  See  "Business
Services - - Claims Processing - -Rebate  Administration" Rebates are treated as
a reduction  in the cost of claims.  In  addition,  during the fiscal year ended
June 30,  2000  rebates  payable  were  reduced by  $736,000  when  Health  Card
reevaluated its liability to a plan sponsor.  Cost of claims for the fiscal year
was decreased by the same amount.

         Gross profit  increased  $1.8 million or  approximately  14% from $12.5
million for the fiscal year ended June 30, 1999 to $14.3  million for the fiscal
year ended June 30,  2000,  primarily  as a result of the  increase in revenues,
offset by the increase in cost of claims.

         Selling,  general and  administrative  expenses,  which include amounts
charged by affiliates,  increased $2.2 million,  or approximately 22% from $10.2
million for the fiscal year ended June 30, 1999 to $12.4  million for the fiscal
year ended June 30, 2000.  $1.3 million of the increase  resulted from increases
in compensation,  benefits, rent, sales and marketing and other expenses related
to the  continued  expansion  of Health  Card's  business.  The  majority of the
compensation  and benefits  increase is related to  approximately 20 incremental
employees  at  June  30,  2000  compared  to June  30,  1999.  Depreciation  and
amortization  expenses  have also  increased  by  approximately  $528,000,  as a
function of increased  hardware  procurement and software  development as Health
Card continues to enhance its information technology  capabilities.  Health Card
also  evaluated  its  receivables  due from  certain  sponsors,  including a key
sponsor currently in receivership,  as described above, and determined it should
increase its reserves and/or write-off some balances.  The impact on Health Card
was an  incremental  $338,000 in bad debt  expense in fiscal 2000 as compared to
fiscal  1999.  This  accounted  for the  majority of the  remaining  increase in
selling,  general  and  administrative  expenses.  While  selling,  general  and
administrative expenses increased year over year in an absolute amount they grew
at a slower rate than the increase in revenue. These expenses as a percentage of
revenue  actually  declined from 7.6% in fiscal year 1999 to 7.2% in fiscal year
2000.

         General and  administrative  expenses  charged by affiliates  increased
$169,000,  or  approximately  6%, from $2,817,000 for the fiscal year ended June
30, 1999 to $2,986,000  for the fiscal year ended June 30, 2000,  primarily as a
result of  increased  information  technology  services  and rent to support the
business.

         Other  income  increased  $330,000,  from  $592,000 for the fiscal year
ended June 30, 1999 to $922,000 for the fiscal year ended June 30, 2000. The net
increase to income was due to an increase in interest  income of $327,000 earned
on increased  cash from the Public  Offering and a $83,000  decrease in offering
costs.  This  addition to income was partially  offset by a $80,000  increase in
interest expense from a capital lease for computer hardware.

         The provision for income taxes increased $271,000 from $976,000 for the
fiscal year ended June 30, 1999 to $1,247,000 for the fiscal year ended June 30,
2000.  The  provision for the fiscal year ended June 30, 1999 was reduced by the
utilization of a $595,000 net operating loss carryforward. There is no remaining
net operating loss carry forward to the year ended June 30, 2000.

FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998

         Revenues  increased  $35.5 million,  or  approximately  36%, from $98.5
million for the fiscal year ended June 30, 1998 to $134.0 million for the fiscal
year ended June 30, 1999.  The increase  resulted  primarily from a $6.8 million
increase  in fees  related to the  increase  in the number of plan  participants
under an  arrangement  with one of Health  Card's  major  sponsors  and includes
approximately $500,000 in additional revenue recorded in September 1998 when the
amount of the adjustment became determinable,  upon Health Card receiving verbal
acceptance of the calculation  under the provisions of the arrangement to adjust
for the  increased  cost of drugs  primarily  related to the prior year.  Claims
under the plan of  another  major  sponsor  increased  by 190,190  claims  which
resulted in an increase in revenues of approximately $8.3 million. The remaining
increase of  approximately  $20.4  million was due  primarily to other  existing
sponsors as a result of higher charges relating to  pharmaceuticals,  new drugs,
plan participant growth and an increase in the average number of claims per plan
participant.  New  business,  as  a  percentage  of  revenue  growth,  increased
throughout the fiscal year ended June 30, 1999.

         Cost of claims  increased  $31.8 million,  or  approximately  35%, from
$89.8 million for the fiscal year ended June 30, 1998 to $121.5  million for the
fiscal year ended June 30,  1999.  As a percentage  of revenues,  cost of claims
remained unchanged at approximately 91%.

         Gross profit  increased $3.7 million,  from $8.8 million for the fiscal
year ended June 30,  1998 to $12.5  million  for the fiscal  year ended June 30,
1999, primarily as a result of the increase in revenues,  offset by the increase
in the cost of claims.

         Selling,  general and  administrative  expenses,  which include amounts
charged by affiliates,  increased $3 million,  or  approximately  42%, from $7.2
million for the fiscal year ended June 30, 1998 to $10.2  million for the fiscal
year ended June 30, 1999.  The increase  resulted  primarily from an increase of
$550,000  representing  additional reserves against certain receivables.  Health
Card  evaluated  its  accounts  receivable  as of  June  30,  1999  taking  into
consideration  the  expiration  of certain  contracts  during the period and the
status of  negotiations  to renew  those  contracts.  As  consideration  for the
renewal of these contracts, Health Card determined that it would be necessary to
negotiate the receivable  balance due from these  contracts and that Health Card
most likely  would not be able to collect the full amount.  As a result,  Health
Card  estimated  and  recorded  a  reserve  for  the  amount  that  may  not  be
collectible.  In prior  periods,  due to the  status of these  contracts,  these
additional  reserves were not required  based upon Health Card's  analysis.  The
remaining increase in selling, general and administrative expenses resulted from
an  increase  of $37,500 in the bad debt  reserve,  a $170,000  bonus to certain
officers/stockholders, a $360,000 compensation accrual to an officer/stockholder
and a $1.9 million increase in compensation,  benefits,  sales and marketing and
other expenses related to the expansion of Health Card's business.

     General and  administrative  expenses charged by affiliates  decreased $2.1
million,  or approximately 43%, from $4.9 million for the fiscal year ended June
30, 1998 to $2.8 million for the fiscal year ended June 30,  1999.  The decrease
resulted  primarily  from a decrease  of $2.1  million  due to  compensation  of
employees hired by Health Card who were previously engaged through an affiliated
service  vendor and a decrease of $905,000 for software  maintenance,  offset by
increases of $340,000 for equipment rental, $200,000 for data processing related
charges and $362,000 for other operating expenses.

         Other income increased  $773,000 from a net expense of $181,000 for the
fiscal year ended June 30, 1998 to income of $592,000  for the fiscal year ended
June 30, 1999, due to a $382,000 increase in interest accrued on a loan due from
an affiliate, a $29,000 increase in interest earned on short term investments of
excess cash balances and a $362,000 decrease in public offering costs.

         The provision for income taxes increased $407,000 from $569,000 for the
fiscal year ended June 30,  1998 to $976,000  for the fiscal year ended June 30,
1999,  as a result  of  increased  taxable  income  after  utilization  of a net
operating loss carryforward in the amount of approximately $595,000.

LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2000, Health Card had working capital of $6.0 million.  This
represented  an $12.7  million  improvement  in  working  capital  over the $6.7
million  working  capital  deficiency as of June 30, 1999.  $12.2 million of the
improvement was due to increased  current  assets:  $34.4 million in fiscal 2000
vs. $22.2 million in fiscal 1999. Cash and cash equivalents  balances  accounted
for this  increase as these  balances were up $12.9 million at the end of fiscal
2000  over  the  balance  at the end of June  30,  1999.  Concurrently,  current
liabilities were approximately  $500,000 lower at the end of fiscal 2000 than at
the end of fiscal 1999.  This was primarily due to lower amounts due for current
income taxes and lower amounts due to affiliates and officers.

         Health Card has  generated  positive  net cash  provided  by  operating
activities in each of the last three fiscal years:  $0.9 million,  $1.5 million,
and $6.1  million for the fiscal  years ended June 30, 1998,  1999,  and 2000,
respectively. The $4.6 million improvement in net cash from operating activities
for the fiscal year ended June 30, 2000 over the fiscal year ended June 30, 1999
stemmed  primarily  from the  following:  (i) improved  collections  of accounts
receivables  --$6.6 million  positive  impact,  (ii) reduced rebate  receivables
--$2.9  million  positive  impact,  and (iii) offset by  reductions  in accounts
payables and accrued  expenses  - $4.6  million  negative  impact.  The accounts
receivables balances remained virtually the same from fiscal year 1999 to fiscal
year 2000 while  revenues were  increasing  29%. While there was a write down of
$340,000 of old rebate receivables from a rebate  administrator that Health Card
no longer  utilizes,  there were amounts  received for older  balances that were
outstanding  at the  beginning of fiscal year 2000.  The improved cash flow from
operations along with the cash from the Public Offering  described below enabled
Health Card to make  payments so as to get more  current  with its  vendors.  In
contrast,  for the fiscal  year  1999,  the  majority  of net cash  provided  by
operating activities,  besides from net income, was due to increases in accounts
payable and accrued expenses, offset by increasing accounts receivable balances.

         Historically,  the  timing of Health  Card'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 Health Card's  pharmacy  network on the other hand.  These
terms generally lead to Health Card's payments to participating pharmacies being
slower  than its  corresponding  collections  from plan  sponsors.  Health  Card
believes  that  this  situation  is  not  unusual  in the  prescription  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, Health Card could
require  additional  working capital  financing.  There can be no assurance that
such financing could be obtained at rates or on terms acceptable to Health Card,
if at all.

         Net  cash  used  in  investing  activities  amounted  to  approximately
$416,000,  $1.7  million and $1.8  million  for the fiscal  years ended June 30,
1998, 1999 and 2000,  respectively.  These uses of cash resulted  primarily from
capital  expenditures,   and  advances  and  payments  of  amounts  due  to/from
stockholders.

         During  fiscal year 2000,  Health Card 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.

         Net cash  (used  in)  provided  by  financing  activities  amounted  to
approximately ($1.0 million), $1.7 million and $8.6 million for the fiscal years
ended June 30, 1998,  1999 and 2000,  respectively.  These uses of cash resulted
primarily from capital distributions and repayment of debt. The cash provided by
financing  activities for fiscal 1999 resulted  primarily from 340,919 shares of
common  stock  purchased  for $2 million by the  principal  stockholder.  At the
beginning  of fiscal  year  2000,  pursuant  to Health  Card's  Public  Offering
described  below,  $9.5 million of net cash was generated during the fiscal year
ended June 30,  2000.  Health  Card used  approximately  $744,000 of these funds
during the fiscal year ended June 30,  2000 to  purchase  some of its stock back
into the treasury.

         In  February  1998,  Health  Card  entered  into an  agreement  with an
unaffiliated  third  party  for  computer  software  products  and  professional
services.  The agreement  required Health Card to pay an initial license fee. In
addition,  if  certain  milestones  are met,  based on the  number of  processed
claims,  as  defined,  the  initial  license  fee  increases   incrementally  as
specified.  To date one milestone has been met. 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 Pharmacy Associates acquisition that at least one milestone,  and
perhaps two,  will be met during  calendar year 2001.  The  financial  impact to
Health Card can be between $150,000 and $250,000.

           The  registration  statement for Health Card's Public Offering became
effective on July 28, 1999 ("the Public Offering").  Health Card consummated the
Public Offering on August 2, 1999 and issued 1,600,000 shares of common stock at
an offering price of $7.50 per share.  Health Card granted the  underwriters  of
the Public Offering  200,000  warrants for nominal  consideration.  The warrants
entitle the  underwriters to purchase 200,000 shares of common stock from Health
Card at $9.00 per share.  The warrants are exercisable for four years commencing
on July 29, 2000. In addition,  the  underwriters  were granted an overallotment
option by Health Card to buy 300,000  shares of common  stock at $7.50 per share
exercisable  by  September  11, 1999.  The  underwriters  did not exercise  this
option.  Concurrent  with the Public  Offering,  the  Selling  Stockholder  sold
400,000 shares of common stock from his holdings at $7.50 per share. Health Card
received gross proceeds of $12,883,100  representing payment for the sale of the
1,600,000 shares plus 73% of the proceeds from the sale of the 400,000 shares by
the Selling  Stockholder for repayment of $1,992,900 of indebtedness owed by the
Selling Stockholder and affiliates to Health Card. Such proceeds were reduced by
underwriting discounts and commissions,  a non-accountable expense allowance and
a financial advisory fee paid to the underwriters plus certain fees and expenses
paid by Health Card.

         On July 20,  2000  Health  Card  acquired  Pharmacy  Associates  for $6
million cash plus 400,000  shares of its common stock.  The cash purchase  price
represented  a  partial  use  of the  proceeds  of the  Public  Offering.  It is
anticipated  that  based  on  current  operations,  Pharmacy  Associates  should
generate  enough  net  cash  to fund  its own  operations.  See,  "Business  - -
General."

         Health Card  anticipates  that the remaining net proceeds of the Public
Offering and the repayment of certain affiliate and shareholder  debt,  together
with  anticipated  cash flow from  operations from both Health Card and Pharmacy
Associates,  will be  sufficient  to satisfy  Health  Card'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 Health Card's stated goals to acquire other  prescription
benefit management companies. This will require cash. Depending on Health Card's
evaluation of future acquisitions,  additional cash may be required.  Therefore,
revolving credit lines for acquisitions and/or operations and debt financing are
being  evaluated as backups to anticipated  cash needs. In the event that Health
Card's plans change or its assumptions prove to be inaccurate or the proceeds of
the Public  Offering  otherwise  prove to be insufficient to fund operations and
acquisitions,  Health Card could be required to seek additional financing sooner
than anticipated.

OTHER MATTERS

INFLATION

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

RECENT PRONOUNCEMENTS

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133, ACCOUNTING FOR DERIVATIVE  INVESTMENTS
AND HEDGING  ACTIVITIES INCOME ("SFAS No. 133"), which requires the recording of
all  derivative  instruments  as assets or  liabilities  measured at fair value.
Among  other  disclosures,  SFAS  No.  133  requires  that  all  derivatives  be
recognized  and  measured at fair value  regardless  of the purpose or intent of
holding the derivative.

         SFAS No. 133 is effective for financial  statements for years beginning
after June 15,  2000.  Health Card has no  derivative  investments  and does not
participate in hedging activities; therefore, its financial position, results of
operations and disclosures will be unaffected by the adoption of this standard.

         In December 1999, the Securities and Exchange  Commission  issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  "Revenue  Recognition  in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles  to revenue  recognition  in  financial  statements.  Health  Card is
currently  assessing  the  impact  of  SAB  101 on  its  consolidated  financial
statements, and believes that the effect, if any, will not be material to Health
Card's operating results.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

            Not applicable.


ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The audited financial statements of Health Card as of June 30, 2000 and
1999 and for the years ended June 30,  2000,  1999 and 1998 are included in this
Form 10-K following Item 14 hereof.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.

<PAGE>

                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

EXECUTIVE OFFICERS AND DIRECTORS

         Certain information  concerning the executive officers and Directors of
Health Card is set forth below:

---------------------------------- ---------- ----------------------------------
                    NAME           AGE        POSITIONS HELD

---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Bert E. Brodsky                    57         Chairman of the Board and
                                              Chief Executive Officer
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Gerald Shapiro                     70         Vice Chairman of the Board
                                              and Secretary
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
James Bigl                         37         President and
                                              Chief Operating Officer
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Linda Portney                      55         Executive Vice President
                                              of Operations
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Mary Casale                        61         Executive Vice President of Sales
                                              and Marketing
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Barry Denaro                       44         Treasurer and
                                              Chief Financial Officer
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
David Gershen                      45         Senior Vice President of Finance
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Richard J. Strauss, M.D., F.A.C.S. 54         Director
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Gerald Angowitz                    51         Director
---------------------------------- ---------- ----------------------------------
---------------------------------- ---------- ----------------------------------
Kenneth J. Daley                   63         Director
---------------------------------- ---------- ----------------------------------

     Bert E.  Brodsky  has served as  Chairman of the Board of Health Card since
December 7, 1998, and as Chief Executive  Officer since June,  1998. Mr. Brodsky
has at various times since 1983 served as Chairman of the Board, President and a
Director  of Health  Card.  Mr.  Brodsky has served as Chairman of the Board and
Treasurer of Sandata,  Inc., a provider of computerized data processing services
and custom software and programming  services,  since June 1983 and as President
of Sandata from December 1989 through January 2000.  Sandata's  shares of common
stock are publicly  traded.  From October 1983 though December 1993, Mr. Brodsky
served as Chairman of the Board of Compuflight, Inc., a provider of computerized
flight planning services.  Since August 1980, Mr. Brodsky has served as Chairman
of the Board and President of P.W.  Medical  Management,  Inc.,  which  provides
financial and  consulting  services to  physicians.  For more than the past five
years,  Mr.  Brodsky has also  served as  President  of P.W.  Capital  Corp.,  a
consulting  services  firm and  Chairman of  Sandsport  Data  Services,  Inc., a
computer services firm and wholly-owned  subsidiary of Sandata.  Mr. Brodsky has
also been the Operating Manager of BFS Realty, LLC, a real estate company, since
October 1996, BFS Realty II, LLC, a real estate company, since November 1996 and
4 B's Realty, LLC, a real estate company, since July 1996. See Item 13 hereof.

     Gerald  Shapiro  has served as Vice  Chairman  of the Board of Health  Card
since December 7, 1998.  Mr. Shapiro has also served as Secretary  since October
28,  1998.  From June 1, 1998 until  December  7, 1998,  Mr.  Shapiro  served as
Chairman of the Board.  From February 4, 1998 until present,  Mr. Shapiro served
as Health Card's Vice Chairman.  For more than the past five years,  Mr. Shapiro
has been an employee of Sandata, President of Lee Management Associates, Inc., a
physician  billing and  consulting  firm,  Chairman and  Treasurer of Mediclaim,
Inc., a physician billing and consulting firm,  President of Brookhaven  M.R.I.,
Inc.,  a  company  that  operates  magnetic  resonance  imaging  machines,  Vice
President  of Mobile  Health  Management  Services,  Inc., a provider of medical
screening services. From 1973 to 1978, Mr. Shapiro served as President of Ally &
Gargano,  Inc., an advertising agency, and from 1971 to 1973 he was President of
Hertz Corporation.

         James  Bigl has  served as  President  and Chief  Operating  Officer of
Health Card since June 12, 2000.  Immediately  prior to joining Health Card, Mr.
Bigl  served as  President  and CEO of York  HealthNet,  SelectPro  and USI Care
Management("USI").  In late 1998, Mr. Bigl directed the sale of the Prescription
Benefit  Management he founded at Yale-New Haven to USI. In October of 1994, Mr.
Bigl oversaw the wide ranging operations,  including home infusion,  health care
collections,  real  estate  and  retail  pharmacy  at  Yale-New  Haven  Health's
for-profit  division.  For the last fifteen years,  Mr. Bigl has been working in
the retail pharmacy and Pharmacy Benefit Management industries.

         Linda Portney has served as Executive  Vice  President of Operations of
Health  Card since June 1998.  Ms.  Portney  served as a Director of Health Card
from 1982 until May 1999,  and as  Secretary  of Health  Card from June 26, 1998
until October 28, 1998.  From 1995 until  December  1998,  Ms. Portney served as
President of Health Card,  and as Vice  President  and  Secretary of Health Card
from 1983 to 1995. Ms. Portney has been employed by Health Card since 1981.

         Mary  Casale  has  served  as  Executive  Vice  President  of Sales and
Marketing of Health Card since June 1, 1998.  She served as a Vice  President of
Health Card from March 1996 to June 1, 1998.  Ms.  Casale  previously  served as
Vice  President of Managed Care Sales and Union Related  Accounts at ValueRx,  a
prescription benefit management company,  from March 1995 to February 1996, Vice
President of Sales for the Eastern  Region at  Diagnostek,  Inc., a prescription
benefit  management  company that was  acquired by ValueRx,  from August 1994 to
March  1995,  National  Vice  President  of Customer  Development  for Sales and
Marketing at  Diagnostek  from January 1994 to August 1994 and a consultant  for
special accounts for Sales and Marketing at Diagnostek from 1989 to 1993.

         Barry  Denaro has served as Chief  Financial  Officer  for Health  Card
since June 1997 and as Treasurer for Health Card since February 1998. Mr. Denaro
served as  Controller  of NDA  Clinical  Trial  Services  Inc.,  a  provider  of
laboratory testing and data collection for clinical drug trials, from April 1996
through  November  1996 and  served  as  Controller  of North  Shore  Agency,  a
collection  agency,  from  October  1993  through  July 1995.  Mr.  Denaro is an
attorney  licensed  to  practice  in  New  York  State  and a  certified  public
accountant.

         David Gershen has served as Senior Vice President of Finance for Health
Card since May 2000.  From July 1996 until April 2000, Mr. Gershen served as the
Vice  President  of  Finance  and  Administration  of  CSC  Healthcare  Inc.,  a
subsidiary of Computer Sciences  Corporation  ("CSC"), a healthcare  information
services  company.  Prior  thereto,  and since 1985,  Mr.  Gershen  held various
financial positions with APM, Inc., which was acquired by CSC in 1996.

     Richard J. Strauss,  M.D., F.A.C.S. has served as a Director of Health Card
since June 26, 1998.  Since 1979, Dr. Strauss has owned and operated the medical
practice of Richard J.  Strauss,  M.D.,  P.C. Dr.  Strauss also has served as an
Associate  Clinical  Professor of Surgery at Albert Einstein College of Medicine
since 1990, and as an Instructor of Clinical  Surgery at Cornell  Medical Center
since 1978.

     Gerald  Angowitz  has  served as a Director  of Health  Card since June 26,
1998.  Mr.  Angowitz  presently  serves as a Management  Consultant  through the
Angowitz Company, which provides consulting services. Mr. Angowitz had served as
Senior Vice  President of Human  Resources and  Administration  for RJR Nabisco,
Inc. ("RJR"), a consumer products  manufacturer,  from March 1995 until December
1999. Mr.  Angowitz  previously  served as Vice President of Human Resources for
RJR from February 1994 to March 1995 and Vice President of employee  benefits at
RJR from January 1992 to February 1994. Mr.  Angowitz is the  brother-in-law  of
Hugh Freund, a Vice President,  Secretary, principal stockholder and Director of
Sandata.

         Kenneth J. Daley has served as a Director  of Health Card since May 10,
1999.  For more than the five years prior to January  1999,  Mr. Daley served as
Senior Vice President of Chase Manhattan Bank.

         Each of Health Card's Directors is elected for a period of one year and
serves until his successor is duly elected and qualified.  During the last three
fiscal years, no Directors' fees were paid.

         Each of the executive  officers serves at the pleasure of Health Card's
Board of Directors.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16 of the Securities Exchange Act of 1934, as amended ("Section
16"), requires that reports of beneficial ownership of capital stock and changes
in such  ownership be filed with the  Securities  and Exchange  Commission  (the
"SEC") by Section 16 "reporting persons," including directors, certain officers,
holders of more than 10% of the  outstanding  Common Stock and certain trusts of
which  reporting  persons are  trustees.  Health Card is required to disclose in
this  10-K  each  reporting  person  whom it  knows to have  failed  to file any
required reports under Section 16 on a timely basis during the fiscal year ended
June 30, 2000 or prior fiscal years.

     To Health Card's knowledge,  based solely on a review of copies of Forms 3,
4 and 5 furnished to it and written  representations  that no other reports were
required,  during the fiscal year ended June 30, 2000,  Health Card's  officers,
Directors  and  10%   stockholders   complied  with  all  Section  16(a)  filing
requirements  applicable to them except:  Mr. Angowitz failed to timely file two
reports relative to one transaction.  Mr. Bigl failed to timely file one report.
Mr. Brodsky failed to timely file three reports  relative to four  transactions.
Ms. Casale failed to timely file two reports relative to two  transactions.  Mr.
Daley failed to timely file two reports.  Mr. Denaro failed to timely file three
reports relative to two  transactions.  Ms. O'Malley failed to timely file three
reports  relative to two  transactions.  Ms.  Portney  failed to timely file one
report.  Mr.  Shapiro  failed to timely file one report.  Dr.  Strauss failed to
timely file two reports relative to one transaction.

ITEM 11.     EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

          The following table sets forth certain information with respect to the
compensation  paid or awarded by Health Card to the Chief Executive  Officer and
other executive officers,  (collectively, the "Named Executive Officers"), whose
salary and bonus  exceeded  $100,000 in all capacities for the fiscal year ended
June 30, 2000:

<PAGE>
<TABLE>
<S>
<C>                         <C>     <C>          <C>        <C>           <C>         <C>           <C>      <C>
=========================== ======= ===================================== ================================== =============
                                           Annual Compensation                 Long-Term Compensation

--------------------------- ------- ------------------------------------- ---------------------------------- -------------
--------------------------- ------- ------------ ---------- ------------- ------------------------- -------- -------------
                                                                                   Awards           Payouts
--------------------------- ------- ------------ ---------- ------------- ------------------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                                                               Other      Restricted   Securities             All Other
                                                               Annual       Stock      Underlying    LTIP        Com-
                                      Salary       Bonus     Compensa-     Awards      Options/    Payouts    pensation
    Name and Principal       Year       ($)         ($)         Tion         ($)        SARs (#)      ($)         ($)
         Position                                               ($)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
Bert E. Brodsky, Chairman    2000   182,114 (1)  120,000    97,310 (5)      -0-         -0-           -0-        -0-
       of the Board                              (3)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1999   403,867 (2)  487,500    90,717 (5)      -0-         -0-           -0-        -0-
                                                 (3)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1998   751,096 (2)  30,000     47,377 (5)      -0-         -0-           -0-        -0-
                                                 (3)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
 Linda Portney, Executive    2000   125,000         -0-     20,140 (6)      -0-         -0-           -0-     499(15)
    Vice President of                                                                                         512(16)
        Operations

--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1999   125,000         -0-     20,027 (7)      -0-         -0-           -0 -    952(16)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1998   125,000         -0-     19,514 (7)      -0-         -0-           -0-     1170(16)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
  Mary Casale, Executive     2000   100,000      226,936    4,800 (8)(9)    -0-       255,689(10)     -0-     523(15)
 Vice President of Sales                         (4)                                                          538(16)
      and Marketing

--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1999   100,000      103,300    4,800 (8)(9)    -0-         -0-           -0-
                                                 (4)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1998   100,000      50,031     4,800 (8)(9)    -0-       255,690(10)     -0-     987(16)
                                                 (4)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                                                                                                              586(16)

--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
  Kenneth Hammond, Vice      2000   114,231      10,250       -0-           -0-       10,000 (12)     -0-     393(15)
 President of Operations                                                              (12)                    347(16)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1999   103,135      10,250       -0-           -0-         -0-           -0-     656(16)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1998   100,327         -0-       -0-           -0-         -0-           -0-        -0-
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
     John Ciufo, Vice        2000   141,730      20,000       -0-           -0-       35,568(13)      -0-      508(15)
  President of Clinical
         Services

--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1999    59,000      5,000        -0-           -0-       25,568(14)      -0-        -0-
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------- -------- -------------
                             1998       -0-         -0-       -0-           -0-         -0-           -0-        -0-
=========================== ======= ============ ========== ============= =========== ============= ======== =============
</TABLE>

<PAGE>

(1)  Represents salary paid to Mr. Brodsky.

(2)  Represents  salary and consulting fees paid to certain entities  affiliated
     with Mr. Brodsky. See Item 13 hereof.

(3)  For the fiscal year ending June 30, 2000, reflects a $120,000 bonus awarded
     to Mr.  Brodsky in January  2000.  Such bonus is to be paid in twelve equal
     monthly  installments of $10,000. As of June 30, 2000, no amounts have been
     paid to Mr.  Brodsky with regards to this bonus.  Also  includes a bonus of
     $360,000 for the fiscal year ended June 30, 1999 and a bonus of $30,000 for
     the fiscal year ended June 30, 1998.

(4)  Represents  $0, $0 and $15,000 in bonus and $226,936,  $103,300 and $35,031
     in  commissions  for the fiscal years ended June 30,  2000,  1999 and 1998,
     respectively.  Pursuant to Ms.  Casale's  current  arrangement  with Health
     Card,  she is entitled to  commissions  as follows:  .5% of gross  revenues
     received from direct accounts sold and .25% of gross revenues received from
     accounts sold by sales people under her management.

(5)  Includes automobile lease payments to an entity affiliated with Mr. Brodsky
     and life insurance premiums. See Item 13 hereof.

(6)  Represents  automobile lease payments to an unaffiliated entity and amounts
     for automobile insurance and travel allowance.

(7)  Represents  automobile  lease  payments  to an entity  affiliated  with Mr.
     Brodsky and amounts for automobile insurance and travel allowance.

(8)  Represents automobile allowances paid to Ms. Casale.

(9)  Does not include  annual  payments  of $20,400  made by Health Card for the
     lease of an apartment for the benefit of Ms. Casale.

(10) Includes  an option  granted by Health Card on February 1, 2000 to purchase
     255,689 shares of common stock, of which 51,138 were exercisable as of June
     30, 2000.  As of September  22,  2000,  102,276  shares of such option were
     currently exercisable.

(11) Includes  an option  granted by Mr.  Brodsky on July 1, 1997 to purchase an
     aggregate of 255,690 shares of Health Card common stock from Mr. Brodsky at
     a price of $5.87 per share.  Such option was  surrendered  by Ms. Casale on
     February 1, 2000.

(12) Includes an option  granted on August 3, 1999 to purchase  10,000 shares of
     common  stock at an exercise  price of $7.50,  of which  4,000  shares were
     exercisable as of June 30, 2000. As of September 22, 2000,  7,000 shares of
     such option were currently exercisable.

(13) Includes an option  granted on August 3, 1999 to purchase  10,000 shares of
     common  stock at an exercise  price of $7.50,  of which  3,400  shares were
     exercisable  as of June 30, 2000.  As of September  22, 2000,  6,700 shares
     were currently exercisable.  Also includes an option granted on February 1,
     2000 to purchase  25,568  shares of common  stock at an  exercise  price of
     $5.87, of which 8,530 shares of such option were exercisable as of June 30,
     2000 and September 22, 2000.

(14) Includes an option  granted by Mr.  Brodsky on December 7, 1998 to purchase
     an aggregate of 25,568 shares of Health Card common stock from Mr.  Brodsky
     at a price of $5.87 per share.  Such option was surrendered by Mr. Ciufo on
     February 1, 2000.

(15) Represents  amounts  anticipated  to be  contributed  by Health  Card under
     Health Card's 401(k) Plan.  Such amounts have not yet been  contributed and
     the obligation to pay these amounts is at the discretion of Health Card.

(16) Represents  amounts  contributed  by Health Card under Health Card's 401(k)
     Plan as of June 30, 2000.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

     The following table sets forth certain  information  concerning  individual
grants of stock options during the fiscal year ending June 30, 2000:

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




                                                                                         POTENTIAL REALIZABLE VALUE
                                                                                         AT ASSUMED ANNUAL RATES OF
                                                                                          STOCK PRICE APPRECIATION
                                   INDIVIDUAL GRANTS                                           FOR OPTION TERM
---------------------------------------------------------------------------------------- ----------------------------
------------------- ----------------- ------------------ ---------------- -------------- ------------- --------------


                       Number of      Percent of Total
                       Securities       Options/SARs
                       Underlying        Granted to
                        Options/        Employees in       Exercise or
                      SARs Granted       Fiscal Year       Base Price      Expiration
       Name               (#)                (%)             ($/Sh)           Date          5% ($)        10% ($)
------------------- ----------------- ------------------ ---------------- -------------- ------------- --------------
------------------- ----------------- ------------------ ---------------- -------------- ------------- --------------

Bert E. Brodsky           -0-                -0-               -0-             -0-          -0-            -0-

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

Mary Casale           255,689 (1)           38.9             5.87           7/1/05          -0-            -0-

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

Kenneth Hammond       10,000 (2)            1.5              7.50           8/3/04       11,104.15      23,999.78

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

John Ciufo            10,000 (3)            1.5              7.50           8/3/04       11,104.15      23,999.78
                      25,568 (4)            3.9              5.87           2/1/05          -0-            -0-

------------------- ----------------- ------------------ ---------------- -------------- ------------- --------------
</TABLE>

(1)  Exercisable  over a five  year  period to the  extent  of 51,138  shares of
     Common  Stock in each of July  1999,  July 2000,  July 2001,  July 2002 and
     51,137 shares of Common Stock in July 2004.

(2)  Exercisable  over a three  year  period to the  extent  of 4,000  shares of
     Common  Stock in August  1999 and 3,000  shares of Common  Stock in each of
     August 2000 and August 2001.

(3)  Exercisable  over a three  year  period to the  extent  of 3,400  shares of
     Common  Stock in August  1999 and 3,300  shares of Common  Stock in each of
     August 2000 and August 2001.

(4)  Exercisable  over a three  year  period to the  extent  of 8,530  shares of
     Common  Stock in February  2000 and 8,519 shares of Common Stock in each of
     February 2001 and December 2001.


<PAGE>

AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUE TABLE

         The following table sets forth certain information concerning the value
of unexercised options and warrants for the fiscal year ended June 30, 2000:
<TABLE>
<S>
<C>                   <C>                     <C>               <C>                        <C>
===================== ======================= ================= ========================== ==========================
                                                                  Number of Securities       Value of Unexercised
                                                                 Underlying Unexercised    in-the-Money Options and
                                                                 Options and Warrants at     Warrants at June 30,
        Name            Shares Acquired on     Value Realized       June 30, 2000(#)                2000($)
                           Exercise(#)              ($)         Exercisable/Unexercisable  Exercisable/Unexercisable
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
  Bert E. Brodsky              -0-                  -0-                    -0-                        -0-
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
    Mary Casale                -0-                  -0-              51,138/204,551                 -0-/-0-
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
  Kenneth Hammond              -0-                  -0-              4,000/6,000                    -0-/-0-
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
     John Ciufo                -0-                  -0-              3,400/6,600                    -0-/-0-
                               -0-                  -0-              8,530/17,038                   -0-/-0-
===================== ======================= ================= ========================== ==========================
</TABLE>

EMPLOYMENT  CONTRACTS,  TERMINATION  OF  EMPLOYMENT  AND  CHANGE-IN-CONTROL
ARRANGEMENTS

         Except as described below,  there are no written  employment or similar
agreements  with any of the Named Executive  Officers.  See Item 13 hereof for a
discussion of certain fees paid and payable to Mr. Brodsky.

         Health Card  entered  into an  employment  agreement  with the majority
stockholder, Mr. Brodsky effective July 1, 1999. Pursuant to this agreement, Mr.
Brodsky has agreed to serve as Chairman of the Board of  Directors  at an annual
salary  of  $200,000,  subject  to  adjustment  by the Board of  Directors.  The
agreement  commenced  on  July 1,  1999  and  has a term  of two  years,  unless
terminated  by  Health  Card for  cause,  or in the event  Mr.  Brodsky  becomes
permanently disabled. The agreement provides for certain fringe benefits payable
to or on behalf of Mr. Brodsky,  such as the use of an automobile.  In addition,
the agreement provides for certain termination  benefits payable to Mr. Brodsky,
which  depending  upon the  reason  for  termination,  can equal up to two years
salary.  It is anticipated that Mr. Brodsky may devote a portion of his business
time to business affairs unrelated to Health Card, provided that such activities
do not prevent him from  fulfilling his  obligations  under the  agreement.  The
agreement  does not quantify the amount of time that Mr.  Brodsky must devote to
Health  Card.  However,  it is  contemplated  that  Mr.  Brodsky  will  devote a
substantial portion of his business time to the affairs of Health Card.

         In January 2000,  the Board of Directors  authorized the payment to Mr.
Brodsky  of a bonus in the  amount of  $120,000.  Such bonus is payable in equal
monthly installments of $10,000.

          Health  Card  entered  into an  employment  agreement  with James Bigl
effective  June 12,  2000.  Pursuant to this  agreement,  Mr. Bigl has agreed to
serve as President and Chief Operating  Officer at an annual salary of $188,000,
in addition to (i) a $25,000  signing bonus upon  execution of the agreement and
(ii) the ability to  participate  in the bonus pool for senior  executives.  The
agreement also provides for certain termination benefits,  which, depending upon
the reason for  termination,  can equal up to one year of salary.  In connection
with the  employment  agreement,  Health Card  granted to Mr. Bigl an  incentive
stock option to purchase 100,000 shares of common stock at $5.00 per share. Such
option vests over a three year period  commencing  on June 12, 2001.  The option
expires on June 12, 2005.

         Health Card entered into an  employment  agreement  with David  Gershen
effective May 1, 2000.  Pursuant to this  agreement,  Mr.  Gershen has agreed to
serve as Senior Vice  President of Finance at an annual  salary of $150,000,  in
addition  to (i) a  $25,000  bonus  upon  the  completion  of one  full  year of
employment  with Health Card and (ii) the  ability to  participate  in the bonus
pool for senior executives.  The agreement also provides for certain termination
benefits,  including,  but not limited to, a change of control, which, depending
upon  the  reason  for  termination,  can  equal up to one  year of  salary.  In
connection with the employment agreement,  Health Card granted to Mr. Gershen an
incentive  stock option to purchase  35,000  shares of common stock at $5.00 per
share. Such option vests over a three year period commencing on May 1, 2001. The
option expires on May 1, 2005.

     Ms. Portney,  Ms. Casale,  Mr. Ciufo and Mr. Hammond are employed by Health
Card pursuant to letters,  employee covenant  agreements and/or  confidentiality
and non-disclosure  agreements reflecting the compensation terms described under
Item 11  hereof  and/or  restricting  the  employee  from  engaging  in  certain
competitive activity and/or disclosing certain information.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Until May 10, 1999,  Health Card did not have a Compensation  Committee
or other  committee  of the Board of  Directors  performing  similar  functions.
Decisions  concerning the  compensation  of executive  officers were made by the
Board of Directors.

         Effective  May  10,  1999,   Health  Card  established  a  Compensation
Committee  consisting  of Messrs.  Shapiro and  Angowitz  and Dr.  Strauss.  The
Compensation Committee is responsible for making recommendations to the Board of
Directors regarding  compensation  arrangements for executive officers of Health
Card,  including  annual bonus  compensation,  and consults  with  management of
Health Card  regarding  compensation  policies and practices.  The  Compensation
Committee also makes recommendations concerning the adoption of any compensation
plans in which management is eligible to participate,  including the granting of
stock options or other  benefits under such plans.  Effective  October 27, 1999,
Mr. Daley replaced Dr. Strauss on such committees.

     Gerald Shapiro, the Vice Chairman of the Board of Directors of Health Card,
and Bert E.  Brodsky,  Health Card's  Chairman of the Board and Chief  Executive
Officer,  are each  either  or both  members  of the Board of  Directors  and/or
officers of the following  companies (unless otherwise stated, such affiliations
have been maintained for more than the past five years): (i) P.W. Capital Corp.,
a consulting  services firm (Mr.  Brodsky since June 1996 and Mr.  Shapiro since
October 1994),  (ii) Brookhaven  M.R.I.,  Inc., a company that operates magnetic
resonance imaging machines,  (iii) Mobile Health  Management  Services,  Inc., a
provider of medical testing  services,  (iv) 780 Bay Walk Land Co., Inc., a real
estate  company  (since  August  1994),  (v)  Accutrak  Media,  Inc., a computer
duplication  disk  company,  (vi) Bert Brodsky  Associates,  Inc.,  an insurance
consulting firm (since February 1996),  (vii) Island Mermaid Restaurant Corp., a
company that operates a restaurant,  (viii) Wilder Woods Estates Corporation,  a
real estate company (since April 1994), (ix) Lee Management Associates,  Inc., a
billing and collections firm, (x) United States  Information  Corp., a facsimile
subscription  service company,  and (xii) Medical Arts Office Services,  Inc., a
company that provides  personnel and  administrative  services  (since  November
1998). See Item 13 hereof.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT.

         The following table sets forth certain information, as of September 22,
2000, concerning the beneficial ownership of Health Card's common stock for:

     o    each person who is known by Health Card to be the beneficial  owner of
          more than five (5%) percent of Health Card's shares of common stock,


     o    each of the Named Executive Officers,

     o    each of Health Card's Directors, and

     o    all of Health Card's Executive Officers and Directors as a group.

     Except as otherwise  indicated below, each of the entities or persons named
in the table has sole voting and investment  power with respect to all shares of
common stock beneficially owned.

============================================= ==================================

<PAGE>
<TABLE>
<S>
<C>                                           <C>                                       <C>
   NAME OF MANAGEMENT PERSON AND NAME AND                 NUMBER OF SHARES                        OF OUTSTANDING SHARES
      ADDRESS OF BENEFICIAL OWNER (1)
--------------------------------------------- ----------------------------------------- ------------------------------------------
Bert E. Brodsky                                            4,051,160 (2)                                  56.9%
--------------------------------------------- ----------------------------------------- ------------------------------------------
Irrevocable Trust of                                         383,579                                       5.4%
David Craig Brodsky
--------------------------------------------- ----------------------------------------- ------------------------------------------
Gerald Shapiro                                               383,534                                       5.4%
--------------------------------------------- ----------------------------------------- ------------------------------------------
James Bigl                                                     2,000 (3)                                      *
--------------------------------------------- ----------------------------------------- ------------------------------------------
Linda Portney                                                219,162                                       3.1%
--------------------------------------------- ----------------------------------------- ------------------------------------------
Mary Casale                                                  102,276 (4)                                   1.4%
--------------------------------------------- ----------------------------------------- ------------------------------------------
David Gershen                                                    -0- (5)                                      *
--------------------------------------------- ----------------------------------------- ------------------------------------------
Barry Denaro                                                   7,010 (6)                                      *
--------------------------------------------- ----------------------------------------- ------------------------------------------
Kenneth Hammond                                                7,000 (7)                                      *
--------------------------------------------- ----------------------------------------- ------------------------------------------
John Ciufo                                                    15,230 (8)                                      *
--------------------------------------------- ----------------------------------------- ------------------------------------------
Kenneth J. Daley                                               6,700 (9)                                      *
6 Glen Avenue
Glen Head, NY 11545
--------------------------------------------- ----------------------------------------- ------------------------------------------
Richard J. Strauss, M.D.                                       6,700 (9)                                      *
1000 Northern Boulevard
Great Neck, NY 11021
--------------------------------------------- ----------------------------------------- ------------------------------------------
Gerald Angowitz                                                6,700 (9)                                      *
37 Fieldstone Lane
Oyster Bay, NY 11771
--------------------------------------------- ----------------------------------------- ------------------------------------------
All executive officers and Directors as a
group (10 persons)                                  4,785,242 (2)(3)(4)(5)(6)(9)                          66.0%
============================================= ========================================= ==========================================
</TABLE>
---------------
*        Less than 1%.

(1)  With the exception of the addresses specifically noted, the address of each
     person named in the table is c/o National Medical Health Card Systems, Inc.
     at 26 Harbor Park Drive, Port Washington, NY 11050.

(2)  Includes (i) an aggregate  of 997,583  shares of common stock  beneficially
     owned by Mr.  Brodsky's  children's  trusts,  (ii) 100,000 shares of common
     stock  beneficially owned by the Bert E. Brodsky Revocable Trust, and (iii)
     1,725 shares of common stock  beneficially  owned by P.W. Capital Corp., of
     which Mr. Brodsky is President.

(3)  Does not include an aggregate of 100,000  shares of common stock subject to
     currently unexercisable options.

(4)  Includes  102,276  shares of  common  stock  subject  to  options  that are
     currently  exercisable.  Does not include an aggregate of 153,413 shares of
     common stock subject to currently unexercisable options.

(5)  Does not include an aggregate of 35,000  shares of common stock  subject to
     currently unexercisable options.

(6)  Includes 7,000 shares of common stock subject to options that are currently
     exercisable.  Does not include an aggregate of 3,000 shares of common stock
     subject to currently unexercisable options.

(7)  Includes 7,000 shares of common stock subject to options that are currently
     exercisable.  Does not include an aggregate of 3,000 shares of common stock
     subject to currently unexercisable options.

(8)  Includes 6,700 shares of common stock subject to options that are currently
     exercisable.  Does not include an aggregate of 3,300 shares of common stock
     subject to currently  unexercisable  options.  Also  includes  8,530 shares
     subject to options  that are  currently  exercisable.  Does not  include an
     aggregate  of  17,038   shares  of  common   stock   subject  to  currently
     unexercisable options.

(9)  Includes for each of Mr. Daley,  Dr. Strauss and Mr.  Angowitz 6,700 shares
     of common stock subject to options that are currently exercisable. Does not
     include for each of them 3,300 shares of common stock  subject to currently
     unexercisable options.


ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         From time to time,  Mr.  Brodsky  and his  affiliates  have  engaged in
numerous transactions with Health Card.

HEALTH CARD'S RELATIONSHIP WITH SANDATA

         Health Card has entered  into  various  verbal and written  agreements,
with Sandata,  and its  wholly-owned  subsidiaries,  of which Mr. Brodsky is the
Chairman of the Board,  Treasurer and a principal  stockholder.  The majority of
the services  which are provided by  wholly-owned  subsidiaries,  Sandsport Data
Services, Inc. and Sandata Home Health Systems, Inc. are related to database and
operating   system   support,   hardware   leasing,   maintenance   and  related
administrative  services.  Health Card purchases services from Sandata,  and its
subsidiaries,  on an as needed  basis  based upon  negotiated  hourly or monthly
rates.  Sandata also procures the majority of Health Card's  computer  equipment
and furniture and fixtures.  Sandata resells these items to Health Card at their
cost plus a 10-20%  servicing fee depending on the level of up-front  consulting
required to develop the proper  specifications for the equipment.  Approximately
$181,000 of computer  equipment and  furniture  and fixtures  were  purchased on
Health  Card's  behalf  during the fiscal year ended June 30, 2000. In addition,
Sandata, through another wholly-owned subsidiary,  Santrax Systems, Inc. resells
its telephone services to Health Card based on actual usage.

         A  significant   portion  of  Health  Card's  information  systems  has
historically been developed, enhanced, modified and maintained by Sandsport Data
Services,  Inc., a  wholly-owned  subsidiary of Sandata.  During the fiscal year
ended June 30, 2000,  Sandsport  billed Health Card  approximately  $478,000 for
quality assurance  testing of software  programs  developed by Health Card along
with  network  support  and  approximately  $147,000  for  help  desk  services.
Furthermore,  Health  Card  currently  leases  computer  hardware  for its  data
processing  center at a monthly cost of  approximately  $44,170  from  Sandsport
pursuant  to an  oral  agreement,  terminable  at will by  either  party.  Lease
payments  under  this lease for the fiscal  years  ended June 30,  1999 and 2000
totaled $350,287 and $490,214  respectively.  Management of Health Card believes
that the terms of such  lease and the  negotiated  billing  rates are as fair to
Health Card as those that could be obtained  from an  unaffiliated  third party,
although no independent fee quotes have been obtained.

         During the fiscal years ended June 30, 1998, 1999 and 2000, Health Card
incurred  fees to Sandata,  or its  subsidiaries,  in the  aggregate  amounts of
approximately $2,626,781, $2,151,415 and $2,331,000 respectively. As of June 30,
2000, Health Card owed $172,379 to Sandata, or its subsidiaries,  which has been
paid subsequently.

         As of June 30, 2000,  Sandata owed Health Card  $503,958  pursuant to a
promissory  note,  dated May 31,  2000,  made payable by Sandata to the order of
Health Card in the original  principal  amount of $500,000  plus interest at the
rate of 9-1/2%;  interest on such note is payable quarterly and such note is due
on June 1, 2001.

EMPLOYEE MANAGEMENT RELATIONSHIP WITH MEDICAL ARTS OFFICE SERVICES, INC.

     Medical  Arts Office  Services,  Inc.  may be deemed an affiliate of Health
Card. Certain persons employed by companies affiliated with Mr. Brodsky are also
officers  and  Directors  of  Medical  Arts,  of which Mr.  Brodsky  is the sole
shareholder.

         Medical  Arts  provides  Health Card with  paralegal,  bookkeeping  and
administrative  services  (including  payroll  processing)  pursuant  to an oral
agreement, terminable at will by either party.

         During the fiscal year ended June 30, 2000,  the total payments made by
Health Card to Medical  Arts were  approximately  $262,147 of which  $66,725 was
paid for  bookkeeping  services,  $80,491 was paid for  paralegal  services  and
$114,931 was paid for administrative services.

         The hourly rates  charged by Medical Arts for such  services  currently
are as follows:  paralegal  services at $125 per hour,  bookkeeping  services at
$6,650  per  month,  and  administrative  services  at  various  rates  per hour
depending upon the provider of the service.  Management believes that the hourly
rates  charged by Medical Arts are as fair to Health Card as those that could be
obtained from an  unaffiliated  third party,  although no independent fee quotes
have been obtained.

CONSULTING FEES

     For the  fiscal  year  ended  June 30,  2000,  Health  Card paid  aggregate
consulting fees to P.W. Capital of $58,111 for services rendered by Mr. Brodsky.

         Prior to the consummation of the Public  Offering,  in consideration of
consulting fees, Mr. Brodsky provided managerial expertise and advice, including
but not limited to advice regarding the hiring of executive management and other
personnel,  marketing  and sales  matters,  and  negotiation  of contracts  with
sponsors  and  other  parties.  Mr.  Brodsky's  services  were  rendered  in his
capacities  as Chairman of the Board of Directors and Chief  Executive  Officer.
Pursuant to an agreement with Mr. Brodsky,  payment of the above consulting fees
ceased upon  consummation  of the Public Offering and, in  consideration  of the
provision  of such  executive  services,  Mr.  Brodsky  began  to  receive,  and
continues to receive,  remuneration  as an employee of Health Card.  See Item 11
hereof.

         In addition,  during the fiscal year ended June 30,  2000,  Health Card
paid P.W.  Capital $28,000  representing  lease payments for cars leased for Mr.
Brodsky's benefit.

REAL ESTATE

         Health Card  occupies  approximately  14,600 square feet of space at 26
Harbor Park Drive, Port Washington, New York under an amended lease at a monthly
cost of $32,550 (including  utilities).  The lessor is BFS Realty, LLC, which is
affiliated with Mr. Brodsky.  The lease expires as of March 30, 2004. Rent under
the lease increases by 5% annually. The BFS lease was assigned by Sandata to BFS
in November 1996. Mr. Brodsky is the Operating  Manager and holder of a majority
of the membership  interests of BFS. Health Card believes that the terms of this
lease are as fair to it as those which could be  obtained  from an  unaffiliated
third party, although no independent fee quotes have been obtained.  Pursuant to
an  agreement  entered into in 1994,  Health Card paid  $700,000 in June 1995 in
connection  with certain  allocated  leasehold  improvements.  Health Card began
occupying  space at 26 Harbor Park Drive in October 1994 and began making rental
payments for such space in December  1994. In addition,  during the fiscal years
ended  June 30,  1999 and  2000,  Health  Card  paid  another  affiliated  party
approximately $15,833 and $10,200, respectively, in connection with improvements
to the  building in which  Health  Card's  offices  are  located.  Sandata  also
occupies space at 26 Harbor Park Drive. Except for certain common areas, Sandata
and Health Card do not share space in such facility.

         Pursuant  to a lease dated  August 10, 1998 and  expiring on August 31,
2005,  Health  Card  occupies  approximately  1,500  square  feet of space at 63
Manorhaven  Boulevard,  Port  Washington,  New  York,  which  is  licensed  as a
pharmacy.  The landlord for these premises is 61 Manorhaven  Boulevard,  LLC, of
which Mr. Brodsky is the sole member.  The current rent is $1,575 per month; the
annual rent  increases by 5% per year.  Additional  rent, in the form of certain
expenses, is also payable.

INDEBTEDNESS OF MANAGEMENT

         From  time  to  time,   Mr.  Brodsky  and  certain  of  his  affiliates
(collectively  the "Brodsky  Affiliates")  and other directors and affiliates of
Health Card have borrowed  funds,  or have incurred  indebtedness  in connection
with the purchase of shares,  from Health Card.  The following  table  describes
certain information relating to such indebtedness.
<TABLE>
<S>
<C>                                          <C>                         <C>

                                                LARGEST AGGREGATE
                                             AMOUNT OWED BY DEBTOR          DEBT OWED
                                              DURING FISCAL YEAR              AS OF
                      DEBTOR                 ENDED JUNE 30, 2000          JUNE 30, 2000
                                           ------------------------      ---------------

P.W. Capital  LLC(1)..............................  $4,609,664              $3,872,996
Port Charitable Foundation(2).....................      14,000                  14,000
Bert E. Brodsky(3)................................   1,050,900                     -0-
Gerald Shapiro(4).................................     338,250                 338,250
Sandra Rothstein(5)...............................         850                     850
Linda Portney(6)..................................       2,374                   2,374
Sandata,Inc. (7)..................................     503,958                 503,958
</TABLE>

(1)  On June 1, 1998,  Health Card  assigned  certain  indebtedness  aggregating
     $1,636,785 in principal and accrued interest,  if any, from certain persons
     and  entities,  including  Mr.  Brodsky,  to P.W.  Capital,  LLC, a company
     affiliated  with Mr.  Brodsky.  On June 1, 1998,  P.W.  Capital  executed a
     demand  promissory  note made  payable  to the order of Health  Card in the
     principal amount of $4,254,785 with interest at the rate of 8.5% per annum,
     payable  quarterly,  such amount  reflecting  the assigned debt and amounts
     then owed by P.W.  Capital to Health  Card.  On June 1, 1998,  Mr.  Brodsky
     executed an unconditional guaranty in favor of Health Card for the full and
     prompt payment to Health Card of all amounts payable under the P.W. Capital
     promissory  note  dated June 1,  1998.  Such note is  secured by  1,022,758
     shares of common stock of Health Card and is without recourse to the maker.
     Such note was restructured by a new non-recourse promissory note dated July
     31, 2000,  made payable by P.W.  Capital to the order of Health Card 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  date,  with the total
     remaining  balance of  principal  and  interest due and payable on July 31,
     2003. This note is  collateralized  by 1,000,000  shares of $.001 par value
     common stock of Health Card.

          As of January 2, 1999, P.W. Capital executed a demand  promissory note
     made  payable  without  interest  to the order of Health  Card to  evidence
     advances to P.W. Capital in the amount of $90,100.

(2)  Port  Charitable  Foundation is a company  affiliated  with Hugh Freund and
     Carol Freund,  who are husband and wife.  Mr.  Freund is an Executive  Vice
     President, Director and principal stockholder of Sandata.

(3)  Includes  principal  and  interest  due under a  non-recourse  (except  for
     interest) promissory note dated July 1, 1997 made payable by Mr. Brodsky to
     the order of Health Card in the original  principal  amount of  $1,000,000,
     secured by a pledge of  1,278,447  shares of common  stock of Health  Card.
     Interest on such note, at the rate of 8.5% per annum, is payable quarterly.
     The principal amount of the note is payable five years from the date of the
     note. This note has been paid in full.

(4)  Mr. Shapiro,  Vice Chairman of the Board of Health Card, is the Chairman of
     the  Board and  Treasurer  of  Mediclaim,  Inc.  The  amount  due  includes
     principal  and  interest  due under a  non-recourse  (except for  interest)
     promissory note dated July 1, 1997 made payable by Mr. Shapiro to the order
     of Health Card in the original  principal amount of $300,000,  secured by a
     pledge of 383,534  shares of common stock of Health Card.  Interest on such
     note, at the rate of 8.5% per annum,  is payable  quarterly.  The principal
     amount of the note is payable five years from the date of the note. $38,250
     of interest was paid by Mr. Shapiro in July, 2000.

(5)  Sandra Rothstein is Mr. Brodsky's  administrative  assistant. In July 1997,
     Ms.  Rothstein  purchased  51,137  shares of common stock of Health Card by
     delivery of a  promissory  note made payable to the order of Health Card in
     the original  principal  amount of $40,000.  This note is secured by 51,137
     shares of common stock of Health Card owned by Ms.  Rothstein and principal
     was without,  and interest is with,  recourse to Ms. Rothstein.  As of June
     30, 2000,  no principal  was  outstanding  with respect to Ms.  Rothstein's
     note,  and $850 of  interest  was  outstanding  under  such  note.  $850 of
     interest was paid by Ms. Rothstein in July 2000.

(6)  Linda Portney is Executive Vice President of Operations of Health Card.

(7)  Sandata,  Inc.  is a company  affiliated  with  Health  Card,  of which Mr.
     Brodsky is Chairman of the Board, Treasurer and principal  stockholder.  On
     May 31, 2000 Sandata,  Inc.  executed a promissory note made payable to the
     order of Health Card in the  principal  amount of $500,000 with interest at
     9-1/2% per annum,  payable  quarterly.  The principal amount of the note is
     payable on June 1, 2001.

         The  Brodsky  Revocable  Trust has repaid  certain of the  indebtedness
reflected above to the extent of approximately  $1,992,900  (representing 73% of
the proceeds from the sale of shares by the Brodsky Trust pursuant to the Public
Offering,  net of  underwriting  discounts and  commissions,  a  non-accountable
expense allowance and a financial advisory fee payable to the representatives of
the Public  Offering).  The net proceeds  from the sale of shares by the Brodsky
Trust were applied first 100% to amounts owed by Mr.  Brodsky to Health Card and
the balance to amounts  owed by P.W.  Capital to Health Card.  In addition,  Mr.
Brodsky had agreed to pay in full,  within one year of the  consummation  of the
Public Offering, the remaining  indebtedness owed by P.W. Capital,  reflected in
the above table,  after  application of the net proceeds from the sale of shares
by the Brodsky Trust in the Public Offering.  However, in July 2000, Health Card
restructured  such  indebtedness with a new promissory note dated July 31, 2000,
and made  payable by P.W.  Capital to the order of Health  Card 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  date with the total remaining  balance of principal and
interest due and payable on July 31, 2003.  In the event that P.W.  Capital does
not pay amounts due as and when  required  under this  promissory  note,  Health
Card's  recourse  will be to exercise  its legal  remedies  with  respect to the
Health Card shares held by Health Card as  collateral  and pursue  legal  action
against Mr.  Brodsky  under a related  guaranty.  Such note does not provide for
default interest or penalties.  Mr. Shapiro had orally agreed to pay in full the
indebtedness  reflected  opposite his name in the above table within one year of
the consummation of this offering.  However,  in July 2000,  Health Card allowed
Mr. Shapiro to comply with the payment  schedule  reflected in footnote 4 to the
table above.  In the event that Mr. Shapiro does not pay amounts due as and when
required under his July 1997 promissory note,  Health Card's recourse will be to
exercise  its legal  remedies  with  respect to the Health  Card  shares held by
Health Card as collateral and pursue legal action against Mr. Shapiro for unpaid
interest.  Such note does not provide for default  interest or penalties.  It is
not anticipated  that additional  advances to or on behalf of Mr. Brodsky or his
affiliates  will be  permitted in the future,  unless  approved by a majority of
Health Card's disinterested Directors.

SUNSTAR HEALTHCARE, INC.

         SunStar  Healthcare,  Inc.,  ("SunStar")  a Delaware  corporation,  was
engaged in  providing  managed  health care  services in the state of Florida by
operating an HMO. Its service territory covered 52 counties in central, northern
and other parts of Florida,  including the metropolitan areas of Tampa, Orlando,
Jacksonville,  and others. As of November 1, 1998, SunStar served  approximately
57,000 enrolled plan members.  On February 19, 1999, Mr. Brodsky, as trustee for
the  irrevocable  trusts of each of his  children,  purchased  for  $250,000 (an
aggregate  of  $1,000,000)  preferred  stock and  warrants  offered by  SunStar.
Effective  May 1, 1999,  Health Card began  providing  services  to SunStar.  On
February  1,  2000,  Health  Card  was  notified  that  SunStar  was  placed  in
receivership under the Department of Insurance of the State of Florida. There is
an  outstanding  receivable  from  SunStar  for the  month of  January,  2000 of
approximately $1.2 million.  Health Card intends to file a claim for this amount
with the Department of Insurance of the State of Florida.  There is no guarantee
that the full amount will be collected so Health Card has made an  assessment of
amounts that might be collected and has reserved for the difference.  During the
fiscal year ended June 30, 2000, Health Card billed SunStar  approximately $10.5
million. See Item 7 hereof.


<PAGE>
<TABLE>
<S>
<C>      <C>                                                                                             <C>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
-------  ----------------------------------------------------------------

(a)      1.       FINANCIAL STATEMENTS

               The following  consolidated  financial  statements of Health Card
          are included herein:

                  Report of Independent Certified Public Accountants                                                F-2

                  Consolidated Balance Sheets as of June 30, 1999 and 2000                                          F-3

                  Consolidated Statements of Income for each of the years ended                                     F-4
                  June 30, 1998, 1999 and 2000

                  Consolidated Statements of Stockholders' Equity (Deficit) for each                                F-5
                  of the years ended June 30, 1998, 1999 and 2000

                  Consolidated Statements of Cash Flows for each of the years ended                                 F-6
                  June 30, 1998, 1999 and 2000

                  Notes to Consolidated Financial Statements                                                        F-7

         2.       FINANCIAL STATEMENT SCHEDULES

                  Schedule II:  Valuation and Qualifying Accounts                                                   S-1

         3.       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              Letter, dated January 31, 1996, from Health Card to Mary Casale(1)
10.6              Employee Covenant  Agreement,  dated June 15, 1998, between Health Card and Mary Casale(1)
10.7              Stock Option  Agreement,  dated July 1, 1997,  between Bert Brodsky and Mary Casale(1)
10.8              Letter, dated February 1, 2000, from Mary Casale to Bert E. Brodsky
10.9              Stock Option Agreement,  dated February 1, 2000, between Health Card and Mary Casale
10.10             Letter, dated November 30, 1998,  from Health Card to Marjorie  O'Malley(1)
10.11             Employee Covenant Agreement,  dated December 7, 1998, between Health Card and Marjorie O'Malley (1)
10.12             Stock Option Agreement,  dated December 7, 1998,  between Bert Brodsky and Marjorie  O'Malley(1)
10.13             Letter,  dated  February  1, 2000,  from  Marjorie O'Malley to Bert E. Brodsky
10.14             Stock  Option  Agreement,  dated  February 1, 2000, between Health Card and Marjorie O'Malley
10.15             Letter,  dated November 3, 1998, from Health Card to John Ciufo(1)
10.16             Confidentiality and Non-Disclosure Agreement, dated November 19, 1998, between Health Card and John Ciufo(1)
10.17             Stock Option Agreement,  dated December 7, 1998,  between Bert Brodsky and John Ciufo(1)
10.18             Stock Option Agreement, dated August 3, 1999, between Health Card and John Ciufo
10.19             Letter,  dated  February 1, 2000,  from John Ciufo to Bert E. Brodsky
10.20             Stock Option  Agreement,  dated February 1, 2000,  between Health Card and John Ciufo
10.21             Employee  Covenant  Agreement,  dated June 16, 1998, between Health Card and Ken Hammond(1)
10.22             Stock Option Agreement, dated August 3, 1999,  between  Health Card and Ken Hammond
10.23             Employee  Covenant Agreement,  dated June 1, 1998,  between Health Card and Linda  Portney(1)
10.24             Employment  Agreement,  dated  March 27,  2000,  between  Health  Card and David Gershen
10.25             Stock Option Agreement, dated May 1, 2000, between Health Card and David Gershen
10.26             Employment Agreement, dated May 3, 2000, between Health Card and James Bigl
10.27             Stock Option Agreement, dated June 12, 2000, between Health Card and James Bigl
10.28             Stock Option Agreement,  dated August 3, 1999, between Health Card and Kenneth J. Daley
10.29             Stock Option  Agreement,  dated August 3, 1999,  between  Health Card and Gerald  Angowitz
10.30             Stock Option  Agreement, dated August 3, 1999,  between  Health Card and Richard J. Strauss,  M.D.
10.31             Lease,  dated January 1, 1996,  between  Sandata,  Inc. and Health Card(1)
10.32             Assignment,  dated November 1, 1996, from Sandata,  Inc., to BFS Realty,  LLC(1)
10.33             First Amendment to BFS Realty,  LLC Lease, dated June 1, 1998, between BFS Realty, LLC and Health Card(1)
10.34             Second Amendment to BFS Realty,  LLC Lease,  dated April 1, 1999,  between BFS Realty, LLC and Health Card(1)
10.35             Lease,  dated August 10, 1998,  between 61 Manor Haven Boulevard,  LLC and Health Card(1)
10.36             Promissory  Note, dated July 1, 1997, made payable by Bert Brodsky to the order of Health Card
                  in the original principal amount of $1,000,000(1)
10.37             Letter, dated June 3, 1999, from Bert Brodsky to Health Card(1)
10.38             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)
10.39             Letter, dated June 3, 1999, from Gerald Shapiro to Health Card(1)
10.40             Promissory Note, dated June 1, 1998, made payable by P.W. Capital,  LLC to the order of Health Card
                  in the original principal amount of $4,254,785(1)
10.41             Agreement of Guaranty, dated June 1, 1998, by Bert E. Brodsky in favor of Health Card(1)
10.42             Demand Promissory Note, dated January 2, 1999, made payable by P.W. Capital,  LLC to the order
                  of Health Card, in the original principal amount of $90,100(1)
10.43             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.
10.44             Consulting Agreement,  dated April 14, 1994, between P.W. Medical Management,  Inc. and Health Card(1)
10.45             Assignment,  dated July 1, 1996,  between  P.W.  Medical  Management,  Inc.  and P.W.  Capital Corp.(1)
10.46             Letter, dated June 8, 1999, from P.W. Capital Corp. to Health Card(1)
10.47             Letter, dated June 9, 1999, from Bert E. Brodsky to Health Card(1)
10.48             Letter, dated June 8, 1999, from the Bert E. Brodsky Revocable Trust to Health Card(1)
10.49             Letter agreement,  dated June 30, 1999, between the Bert E. Brodsky Revocable Trust and Health Card(1)
10.50             Employment Agreement, dated July 1, 1999, between Health Card and Bert E. Brodsky(1)
10.51             Letter, dated June 8, 1999, from Bert E. Brodsky to Health Card(1)
10.52             Form of Lock-up Agreement(1)
10.53             Acquisition and Merger Agreement,  dated as of June 27, 2000, between Health Card and Pharmacy Associates, Inc.(3)
10.54             Lease Agreement,  dated March 4, 1996,  between Pharmacy  Associates,  Inc. and Executive Park Partnership
10.55             Amendment to Lease,  dated November 2, 1998, between Pharmacy  Associates,  Inc. and Executive Park Partnership
10.56             Amendment to Lease, dated November 19, 1998, between Pharmacy  Associates,  Inc. and Executive Park Partnership
10.57             Lease  Agreement,  dated July 8, 1999,  between Pharmacy  Associates,  Inc. and Executive Park Partnership
21                Subsidiaries of Health Card
27                Financial Data Schedule

(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.

(b)      REPORTS ON FORM 8-K

          No Report  on Form 8-K was  filed by Health  Card  during  the three
          months ended June 30, 2000.

</TABLE>
<PAGE>

                            NATIONAL MEDICAL HEALTH
                               CARD SYSTEMS, INC.
                                AND SUBSIDIARIES
<TABLE>
<S>
<C>                                                                                     <C>

                      CONTENTS
                                                                                        Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                      F-2

CONSOLIDATED FINANCIAL STATEMENTS:

     Balance sheets as of June 30, 1999 and 2000                                        F-3

     Statements  of Income for each of the years ended June 30,  1998,  1999 and
     2000                                                                               F-4

     Statements of  Stockholders'  Equity  (Deficit) for each of the years ended
     June 30, 1998, 1999 and 2000                                                       F-5

     Statements of Cash Flows for each of the years  ended June 30,  1998,  1999
     and 2000                                                                           F-6

     Notes to Financial Statements                                                      F-7

</TABLE>
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
National Medical Health Card Systems, Inc. and Subsidiaries
Port Washington, New York

We have audited the accompanying consolidated balance sheets of National Medical
Health Card Systems, Inc. and Subsidiaries as of June 30, 1999 and 2000, and the
related  consolidated  statements of income,  stockholders' equity (deficit) and
cash flows for each of the three years in the period ended June 30, 2000.  These
financial  statements  are the  responsibility  of the  management  of  National
Medical Health Card Systems, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of National Medical
Health Card Systems, Inc. and Subsidiaries as of June 30, 1999 and 2000, and the
results of their  operations and their cash flows for each of the three years in
the period ended June 30, 2000 in conformity with generally accepted  accounting
principles.

BDO Seidman, LLP
Melville, New York

September 19, 2000

<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S>
<C>                                                                                       <C>                 <C>
                                                                                                     June 30,
 ------------------------------------------------------------------------------------- --------------------------------------
                                                                                              1999               2000
 ------------------------------------------------------------------------------------- ------------------- ------------------
 ASSETS
 CURRENT:

    Cash and cash equivalents (including cash equivalent investments of $11,181,583
       on June 30, 2000)                                                                   $  2,815,863         $15,724,730
    Accounts receivable, less allowance for possible losses of $846,344 and $726,551         13,233,760          13,409,219
    Rebates receivable                                                                        5,303,786           3,685,576
    Due from affiliates                                                                               -             903,958
    Deferred income tax                                                                         530,000             409,000
    Other current assets                                                                        283,694             268,651
 ------------------------------------------------------------------------------------- ------------------- ------------------
         TOTAL CURRENT ASSETS                                                                22,167,103          34,401,134
    Property, equipment and software development costs, net                                   2,754,522           6,424,170
    Due from affiliates                                                                       4,579,280           3,486,996
    Other assets                                                                                 15,728              51,318
    Deferred income tax                                                                         166,000                   -
    Deferred offering costs                                                                   1,163,378                   -
 ------------------------------------------------------------------------------------- ------------------- ------------------
                                                                                            $30,846,011         $44,363,618
 ------------------------------------------------------------------------------------- ------------------- ------------------
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT:

    Accounts payable and accrued expenses                                                   $26,883,745         $27,430,684
    Current portion of capital lease obligations                                                  1,950             456,437
    Due to officer/stockholder                                                                  390,000              60,000
    Due to affiliates                                                                           750,968             311,767
    Income taxes payable                                                                        704,489              11,991
    Other current liabilities                                                                   116,544             100,036
 ------------------------------------------------------------------------------------- ------------------- ------------------
         TOTAL CURRENT LIABILITIES                                                           28,847,696          28,370,915
    Capital lease obligations, less current portion                                                   -           1,875,444
    Deferred tax liability                                                                            -             692,000
 ------------------------------------------------------------------------------------- ------------------- ------------------
         TOTAL LIABILITIES                                                                   28,847,696          30,938,359
 ------------------------------------------------------------------------------------- ------------------- ------------------
 COMMITMENTS AND CONTINGENCIES (NOTE 8)
 STOCKHOLDERS' EQUITY:

    Preferred stock $.10 par value; 10,000,000 shares authorized, none outstanding                    -                   -
    Common stock, $.001 par value, 25,000,000 shares authorized, 5,312,496 and
       6,912,496 shares issued 5,312,496 and 6,721,496 outstanding                                5,313               6,913
    Additional paid-in capital                                                                2,868,573          12,405,010
    Retained earnings                                                                           480,529           2,096,203
    Treasury stock at cost, 191,000 shares                                                            -            (743,767)
    Notes receivable - stockholders                                                          (1,356,100)           (339,100)
 ------------------------------------------------------------------------------------- ------------------- ------------------
         TOTAL STOCKHOLDERS' EQUITY                                                           1,998,315          13,425,259
 ------------------------------------------------------------------------------------- ------------------- ------------------
                                                                                            $30,846,011         $44,363,618
 ------------------------------------------------------------------------------------- ------------------- ------------------
</TABLE>
                  SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

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

                                                                                Years Ended June 30,
                                                         --------------------------------------------------------------------
                                                                    1998                   1999                   2000
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------

 Revenues                                                    $98,528,384             $134,031,026           $172,313,838
 Cost of claims                                               89,770,402              121,536,733            158,015,411
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
    Gross profit                                               8,757,982               12,494,293             14,298,427

 Selling, general and administrative expenses*                 7,192,027               10,171,314             12,357,819
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------

 Operating income                                              1,565,955                2,322,979              1,940,608
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
 Other income (expense):
    Other income, net                                            264,666                  674,936                922,066
    Public offering costs                                       (445,173)                 (82,904)                     -
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
                                                                (180,507)                 592,032                922,066
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
 Income before income taxes                                    1,385,448                2,915,011              2,862,674
 Provision for income taxes                                      569,000                  976,000              1,247,000
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
 Net income                                                 $    816,448           $    1,939,011         $    1,615,674
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------

 Earnings per common share:
    Basic                                                  $          0.16        $              0.37    $              0.24
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
    Diluted                                                $          0.16        $              0.37    $              0.24
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
 Weighted average number of common shares outstanding:

    Basic                                                      4,966,885                5,205,084              6,720,104
    Diluted                                                    4,969,166                5,205,084              6,720,104
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------

    *Includes amounts charged by affiliates
       aggregating:                                         $  4,904,514           $    2,816,982         $    2,985,506
 ------------------------------------------------------- ---------------------- ---------------------- ----------------------
</TABLE>



               SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S>
<C>                              <C>           <C>     <C>      <C>        <C>     <C>             <C>           <C>      <C>
                                    Notes                                                            Retained
                                  Receivable                                           Additional    Earnings
                                 Stockholders  Preferred Stock  Common Stock        Paid-in Capital  (Deficit)   Treasury Stock
                                 ------------  ---------------  ------------       ---------------  ---------   --------------
                                               Shares  Amount   Shares     Amount                                Shares   Amount
                                               ------  ------   ------     ------                                ------   ------
 BALANCE, JUNE 30, 1997          $   (72,000)       -       -   3,258,459  $3,259            -     ($2,274,930)        -        -
    Sale of stock                  (1,340,000)      -       -   1,713,118   1,713   $1,338,287              -         -        -
    Interest on notes receivable     (113,900)      -       -           -       -            -              -         -        -
    Capital distributions, net of
       income taxes                         -       -       -           -       -     (437,159)             -         -        -
    Repayment of loan by
       stockholder                     72,000       -       -           -       -            -              -         -        -
    Net income                              -       -       -           -       -            -        816,448         -        -

 BALANCE, JUNE 30, 1998            (1,453,900)      -       -   4,971,577   4,972      901,128     (1,458,482)        -        -
    Interest on notes receivable     (113,900)      -       -           -       -            -              -         -        -
    Interest paid on notes
       receivable                     171,700       -       -           -       -            -              -         -        -
    Principal paid on notes
       receivable                      40,000       -       -           -       -            -              -         -        -
    Sale of stock                           -       -       -     340,919     341    1,999,659              -         -        -
    Capital distributions, net of
       Income taxes                         -       -       -           -       -      (32,214)             -         -        -
    Net income                              -       -       -           -       -            -      1,939,011         -        -

 BALANCE, JUNE 30, 1999            (1,356,100)      -       -   5,312,496   5,313    2,868,573        480,529         -        -
    Sale of stock                           -       -       -   1,600,000   1,600    9,536,437              -         -        -
    Stock purchase                          -       -       -           -                    -              -   191,000 (743,767)
    Interest paid on notes
       receivable                      49,583       -       -           -       -            -              -          -        -
    Principal paid on notes
       receivable                   1,000,000       -       -           -       -            -              -          -        -
    Interest on notes receivable      (32,583)      -       -           -       -            -              -          -        -
    Net income                              -       -       -           -       -            -      1,615,674          -        -


 BALANCE, JUNE 30, 2000            $ (339,100)      -       -   6,912,496  $6,913   12,405,010     $2,096,203   $191,000 $(743,767)


                  SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<PAGE>
<TABLE>
<S>
<C>                                                          <C>                 <C>               <C>

                                                                                  Years Ended
                                                                                     June 30,

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

                                                                      1998                  1999           2000
 ----------------------------------------------------------- -------------------- ----------------- ------------------

 CASH FLOWS FROM OPERATING ACTIVITIES:


 OPERATING ACTIVITIES:

    Net income                                                    $    816,448        $1,939,011       $  1,615,674
    Depreciation and amortization                                      368,644           772,389          1,299,984
    Bad debt expense and allowance for possible    losses               70,000           602,155            995,806
    Compensation expense accrued to officer/stockholder                 30,000           360,000             60,000
    Deferred income taxes                                              488,000           201,000            979,000
    Interest accrued on stockholders' loans                           (113,900)         (113,900)           (32,583)
    CHANGES IN ASSETS AND LIABILITIES:
       Accounts receivable                                          (2,836,750)       (7,756,836)        (1,171,304)
       Other current assets                                            (27,138)         (188,380)            26,451
       Rebates receivable                                           (2,577,201)       (1,238,918)         1,618,210
       Due to/from affiliates                                       (1,562,981)           20,921           (250,875)
       Accounts payable and accrued expenses                         6,175,665         6,233,083          1,663,317
       Income taxes payable                                             59,881           644,608           (692,498)
       Other liabilities                                                31,420            47,764            (16,508)
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 NET CASH PROVIDED BY OPERATING ACTIVITIES                             922,088         1,522,897          6,094,674
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:

       Capital expenditures                                           (864,108)       (1,930,468)        (2,431,861)
       Loans (to)/from stockholders                                   (792,200)           10,774           (390,000)
       Repayment of loans by officer/stockholder                     1,167,919                 -                  -
       Repayment of note by stockholder                                 72,000            40,000          1,049,583
       Interest received on notes from stockholders                          -           171,700                  -
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 NET CASH USED IN INVESTING ACTIVITIES                                (416,389)       (1,707,994)        (1,772,278)
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:

       Sale of common stock - net                                            -         2,000,000          9,538,037
       Capital distribution                                           (728,598)          (54,214)                 -
       Repayment of debt and capital lease obligations                (253,906)           (7,792)          (207,799)
       Purchase of treasury stock                                            -                 -           (743,767)
       Deferred offering costs                                               -          (242,826)                 -
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                  (982,504)        1,695,168          8,586,471
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 (476,805)        1,510,071         12,908,867
 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                      1,782,597         1,305,792          2,815,863
 ----------------------------------------------------------- -------------------- ----------------- ------------------
 CASH AND CASH EQUIVALENTS, END OF PERIOD                          $ 1,305,792        $2,815,863        $15,724,730
 ----------------------------------------------------------- -------------------- ----------------- ------------------

                     SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>

   1.     SIGNIFICANT ACCOUNTING    NATURE OF BUSINESS
          POLICIES

               National  Medical  Health  Card  Systems,  Inc.  (the  "Company",
          "Health Card") provides comprehensive  prescription benefit management
          services to plan sponsors  which include  managed care  organizations,
          local  governments,  unions,  corporations and third party health care
          plan  administrators   through  its  network  of  licensed  pharmacies
          throughout  the United  States.  The  Company's  prescription  benefit
          management services include electronic  point-of-sale  pharmacy claims
          management,  retail pharmacy network management,  mail pharmacy claims
          management,  benefit design  consultation,  preferred drug  management
          programs,  drug  review and  analysis,  consulting  services,  disease
          information  programs,   data  access,   reporting  and  analysis  and
          physician profiling.

               The Company enters into two types of arrangements for the payment
          of  administrative  fees,  fee for  service  (per claim  charges)  and
          capitation(per plan participant per month charges).  Under the fee for
          service  arrangement,  the  Company  is paid by the  plans  for  their
          disbursements  plus  a  set  transaction  fee.  Under  the  capitation
          arrangement,  the  Company  receives  its fee  based on the  number of
          participants per month and pays for the cost of  prescriptions  filled
          and thus shares the risk of operating profit or loss with these plans.
          As of January 1, 2000,  all services are provided on a fee for service
          basis.

          BASIS OF CONSOLIDATION

               In October 1998,  the Company  acquired  National  Medical Health
          Card IPA, Inc., ("IPA") which is an independent  practice  association
          under the laws of New York. This wholly owned subsidiary is a recently
          formed  inactive  company  acquired  from a relative of the  principal
          stockholder  for no  consideration.  The Company  intends that the IPA
          will be the  contracting  party  with  respect to any  contracts  with
          Health  Maintenance  Organizations or providers  containing  financial
          risk  sharing  provisions.  The  IPA  is  subject  to  the  regulatory
          authority  of the  Department  of  Health  and  the  laws,  rules  and
          regulations  applicable to independent  practice  associations  in New
          York.   Activities   conducted   through   June  30,   2000   included
          organization,  planning and  development  of the IPA's  activities and
          securing regulatory approvals.

               Specialty  Pharmacy Care, Inc.  ("Specialty") was incorporated in
          January 2000. This wholly owned  subsidiary was established to provide
          manufacturer rebate administration  services to Health Card. Effective
          as of April 2000,  Health  Card began to enter into rebate  agreements
          directly  with  drug  manufacturers.  Although  these  agreements  are
          between  Health  Card and drug  manufacturers,  Specialty  administers
          these  contracts  on  behalf  of  Health  Card.  Specialty  retains  a
          percentage of rebates collected.

               Currently,  Specialty  does not have  any  full  time  employees.
          Specialty reimburses Health Card for the use of its employees on an as
          needed basis.

               The consolidated financial statements include the Company and the
          above wholly owned subsidiaries.  All material  intercompany  accounts
          and transactions have been eliminated in consolidation.

          CASH EQUIVALENTS

               The Company  considers  all highly  liquid debt  instruments  and
          other  short-term  investments  with an initial maturity date of three
          months  or  less  from  purchase  date to be  cash  equivalents.  Cash
          equivalents  also  include   short-term,   highly  liquid  investments
          (primarily  municipal  bonds  with  interest  rates  that  are  re-set
          monthly) which are readily  convertible into cash at par value (cost).
          Cash  equivalents  at June 30,  1999 and 2000  includes  $838,000  and
          $1,130,000, respectively which is restricted as to its use.


         REVENUE RECOGNITION AND COST OF CLAIMS

               Revenue  under the fee for  service  arrangement  related  to the
          sales of  prescription  drugs by the Company's  nationwide  network of
          pharmacies  are  recognized  when the claims are  adjudicated.  At the
          point-of-sale, the pharmacy claims are adjudicated using the Company's
          computerized on-line processing system. Adjudication is the process by
          which the plan participant is checked for eligibility of coverage, the
          prescription  is compared to the plan  parameters  established  by the
          sponsor, the particular drug is reviewed for  contraindications  based
          upon  the  plan  participant's  drug  history,  age  and  sex  and the
          information  is placed into a database  available  for  reporting  and
          query. The Company invoices plan sponsors and includes as revenues the
          Company's  administrative fees and charges relating to pharmaceuticals
          dispensed  by the  Company's  network  of  pharmacies.  Cost of claims
          includes the amounts paid to the Company's  network of pharmacies  for
          pharmaceutical claims reduced by rebates from drug manufacturers.  The
          Company  does  not  take   possession   or  legal   ownership  of  the
          pharmaceutical  drugs dispensed by the pharmacy network,  although the
          Company assumes the legal  responsibility and financial risk of paying
          for  dispensed  pharmaceuticals  whether or not the Company is paid by
          its sponsors.

               Revenues under the capitation arrangements are recognized monthly
          based on the number of  participants  and costs  under the  capitation
          agreements are recognized as incurred.

               The Company  records  the  portion of the net  rebates  from drug
          manufacturers,  which it  retains  as a  reduction  of cost of claims.
          These rebates are  recognized  when the Company is entitled to them in
          accordance  with the  terms of the  Company's  arrangements  with drug
          manufacturers and third party rebate  administrators and the Company's
          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. Currently some rebates are processed by
          a third  party  rebate  administrator  and the  remaining  rebates are
          submitted  by  Specialty   directly  to  the  drug  manufacturers  for
          reimbursement  (see Note 1). For the years ended June 30,  1998,  1999
          and 2000,  net rebates  recorded by the Company as a reduction of cost
          of claims were $1,460,537, $2,541,959 and $3,817,856, respectively.

          PROPERTY, EQUIPMENT AND SOFTWARE

               Office equipment and furniture and fixtures are being depreciated
          over five years using the straight-line method of depreciation.

               Property  under  capital  lease  obligations  is  amortized  on a
          straight  line basis  using a useful life  ranging  from five to eight
          years.

               Leasehold  improvements  are amortized on a  straight-line  basis
          over the term of the lease.

               Expenditures  relating to the  development of software to be used
          in the claims  adjudication  process  are  charged  to  expense  until
          technological  feasibility is established upon completion of a working
          model of the software.  Thereafter, the remaining software development
          costs up to the date such  software is completed are  capitalized  and
          included on the balance sheet as software  development  costs.  During
          the years ended June 30, 1999 and 2000,  $1,434,507  and $1,178,977 in
          software development costs were capitalized, respectively.

               Amortization  of  capitalized  amounts  commences on the date the
          software is placed into use and is  computed  using the  straight-line
          method over the estimated  economic  life of the  software,  primarily
          five years.  Amortization expense was $213,340,  $460,234 and $841,703
          for the years ended June 30, 1998, 1999 and 2000, respectively.

               A  significant  portion of the  Company's  computer  software was
          developed by a company  affiliated by common  ownership  (See Note 3).
          The cost includes  development of software  programs and enhancements,
          which may either expand or modify existing  programs.  To the extent
          that  the  Company  has  capitalized   certain  amounts  for  software
          development  and those  amounts  exceeded  the costs  incurred  by the
          affiliate,  this  excess  has been  charged  to  stockholders'  equity
          (deficit) as a capital distribution.

          DEFERRED OFFERING COSTS

               The Company  accounts for deferred  offering  costs in accordance
          with SAB Topic  5:A.  Accordingly,  only  specific  incremental  costs
          directly  attributable to a proposed or actual offering are classified
          as deferred offering costs.

               The deferred  offering  costs in  connection  with the  Company's
          Public  Offering  consummated on August 2, 1999 were  capitalized  and
          subsequently  were charged to equity upon  consummation  of the Public
          Offering. (See Note 13).

          LONG LIVED ASSETS

               Long lived assets are  evaluated  for  impairment  when events or
          changes in  circumstances  indicate  that the  carrying  amount of the
          assets  may not be  recoverable  through  the  estimated  undiscounted
          future  cash  flows  from  the use of  these  assets.  When  any  such
          impairment  exists,  the related  assets will be written  down to fair
          value. No such impairment existed through June 30, 2000.

          TAXES ON INCOME

               The Company accounts for income taxes in accordance with SFAS No.
          109, ACCOUNTING FOR INCOME TAXES. Under this standard,  deferred taxes
          on income are provided for those items for which the reporting  period
          and  methods  for  income  tax  purposes  differ  from  those used for
          financial  statement  purposes  using the asset and liability  method.
          Deferred  income  taxes are  recognized  for the tax  consequences  of
          "temporary differences" by applying enacted statutory rates applicable
          to  future  years  to  differences  between  the  financial  statement
          carrying amounts and the tax bases of existing assets and liabilities.

          COMPUTATION OF EARNINGS PER COMMON SHARE

               Basic  earnings  per share has been  computed  using the weighted
          average number of shares of common stock outstanding. Diluted earnings
          per share has been computed using the basic weighted average shares of
          common stock issued plus  outstanding  stock options and warrants,  in
          the periods in which such options and warrants have a dilutive effect.

          ACCOUNTING FOR STOCK BASED COMPENSATION

               The Company has adopted the intrinsic  value method of accounting
          for employee  stock  options and will disclose the pro forma impact on
          net income and earnings per share.

          CONCENTRATION OF CREDIT RISK

               The Company may be subject to a concentration of credit risk with
          respect to its trade receivables.  The Company performs ongoing credit
          evaluations   of  its  customers   and  generally   does  not  require
          collateral.  The Company  maintains  allowances to cover  potential or
          anticipated losses for uncollectible accounts.

               Financial  instruments which  potentially  subject the Company to
          concentrations of credit risk are cash balances deposited in financial
          institutions  which exceed FDIC or SIPIC insurance limits.  Amounts on
          deposit with financial  institutions  which exceeded the FDIC or SIPIC
          insurance  limits  at June  30,  1999  and 2000  were  $3,177,895  and
          $16,506,606, respectively.

           USE OF ESTIMATES

               The  preparation  of  financial  statements  in  conformity  with
          generally accepted accounting  principles requires the Company to make
          estimates and assumptions  that affect the reported  amounts of assets
          and liabilities and disclosure of contingent assets and liabilities at
          the date of the  financial  statements  and the  reported  amounts  of
          revenues and expenses  during the  reporting  period.  Actual  results
          could differ from those estimates.

           ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

               The carrying  amounts of financial  instruments,  including cash,
          accounts   receivable,   accounts  payable  and  accrued  liabilities,
          approximate  fair  value  because  of  the  current  nature  of  these
          instruments.  The fair  value of the loans due from  stockholders  and
          affiliates is difficult to estimate due to their related party nature.
          Certain amounts due to a stockholder  represent accrued bonuses and do
          not bear  interest.  Loans due from  affiliates  bear market  interest
          rates;  therefore,  the  Company  believes  that the  carrying  amount
          approximates fair value.

          EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARD

               In June 1998,  the Financial  Accounting  Standards  Board issued
          Statement of Financial  Accounting  Standards No. 133,  ACCOUNTING FOR
          DERIVATIVE INVESTMENTS AND HEDGING ACTIVITIES INCOME ("SFAS No. 133"),
          which requires the recording of all  derivative  instruments as assets
          or liabilities  measured at fair value. Among other disclosures,  SFAS
          No. 133 requires that all  derivatives  be recognized  and measured at
          fair  value  regardless  of the  purpose  or  intent  of  holding  the
          derivative.

               SFAS No. 133 is  effective  for  financial  statements  for years
          beginning   after  June  15,  2000.  The  Company  has  no  derivative
          investments and does not participate in hedging activities; therefore,
          its financial position,  results of operations and disclosures will be
          unaffected by the adoption of this standard.

               In December 1999, the Securities and Exchange  Commission  issued
          Staff Accounting Bulletin No. 101 ("SAB 101"). "Revenue Recognition in
          Financial Statements." SAB 101 provides guidance on applying generally
          accepted  accounting  principles to revenue  recognition  in financial
          statements.  The Company is currently  assessing the impact of SAB 101
          on its  consolidated  financial  statements,  and  believes  that  the
          effect,  if any,  will  not be  material  to the  Company's  operating
          results.

   2.     PROPERTY, EQUIPMENT AND SOFTWARE DEVELOPMENT COSTS

               Property, equipment and software development costs consist of the
          following:

                                                              June 30,
                                                          1999      2000
           ----------------------------------------- ------------ ----------
           Equipment                                  $  644,246    $999,757
           Software                                    3,746,101   5,062,599
           Leasehold improvements                         72,207     109,385
           Property under capital lease obligations            -   2,537,730
           ----------------------------------------- ------------ -----------
                                                       4,462,554   8,709,471
           Accumulated depreciation/amortization       1,708,032   2,285,301
           ----------------------------------------- ------------ -----------
                                                       $2,754,522 $6,424,170
           ----------------------------------------- ------------ -----------

               Accumulated   depreciation   on  property   under  capital  lease
          obligations was $140,369 as of June 30, 2000.

               Depreciation  and  amortization  expense for the years ended June
          30,  1998,  1999 and  2000  was  $368,644,  $772,389  and  $1,299,984,
          respectively.

   3.       RELATED PARTY
            TRANSACTIONS

            (A)      DISTRIBUTIONS - CAPITAL

     Due to affiliates  represent trade payables for developed  software,  other
software  services,  operating  leases and  maintenance  costs.  During 1998, an
affiliate  charged  the  Company  approximately  $208,000,  as  a  fee  to  hire
programmers,  which were formerly employed by an affiliated company. The Company
assumed a liability of $86,000 relating to these employees.

                    In accordance with SAB 48, the Company has recorded  amounts
               in  excess  of   affiliates'   cost  for   capitalized   software
               development   and   acquisition   of   employees   as  a  capital
               distribution, net of tax as follows:

                                            1998       1999      2000
               ------------------------ ----------  --------- ---------------

                Software development    $ 520,122   $ 54,214  $         -

                Acquisition of
                employees                 208,476          -            -

                Tax effect               (291,439)   (22,000)           -
                ------------------------ ---------  ---------- --------------

                Net charge to
                stockholders' equity
                (deficit)               $ 437,159   $ 32,214    $       -
                                        ------------------------------------

            (B)   OTHER

                    On May 31,  2000,  the  Company  loaned  money to a  company
               affiliated  by common  ownership in the amount of $500,000.  This
               amount is due on June 1, 2001. Interest is 9-1/2% per annum to be
               paid  quarterly.  The  balance of this loan at June 30, 2000 with
               accrued  interest  was  $503,959  and is  included  in  due  from
               affiliates.

                        Due from  affiliates  also  includes a note from another
               company  affiliated by common ownership.  As of June 30, 2000 the
               balance due from this affiliate  including  accrued  interest was
               $3,886,995.  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 majority  stockholder and was subject to the personal
               guarantee of the majority  stockholder.  Such note was restructed
               by a new  non-recourse  promissory note dated July 31, 2000, made
               payable  by the  affiliate  to the  order of the  Company  in the
               amount of $3,890,940. Such note is payable in annual installments
               of $400,000 consisting of principal and interest at the rate of 8
               1/2% per annum on each of the first and second anniversary dates,
               with the total remaining balance of principal and interst due and
               payable  on  July  31,  2003.  The  note  is  collaterialized  by
               1,000,000  shares of $.001 par value  common stock of the Company
               registered in the name of the majority stockholder and is subject
               to the personal  guarantee of the majority  stockholder.  For the
               years ended June 30, 1998,  1999 and 2000, the amount of interest
               income  accrued  was $0,  $361,657  and  $314,233,  respectively.
               Interest  paid  by the  affiliate  in  December  1998  aggregated
               $183,000.

                    Concurrent  with the  consummation  of the Company's  Public
               Offering,  on August 2, 1999 a trust  controlled by the Company's
               majority  stockholder  (the "Selling  Stockholder")  sold 400,000
               shares of common stock from its  holdings.  The Company  received
               $1,992,900  from the  sale by the  Selling  Stockholder  of which
               $1,042,500 was applied to amounts owed by the Selling Stockholder
               and the balance to amounts due from the affiliate. (See Note 13).

                    On   January   2,  1999,   another   affiliate   executed  a
               non-interest bearing note payable to the Company in the amount of
               $90,100 to evidence advances to the affiliate in the same amount.
               Such advances were repaid during fiscal 2000.

                    Prior  to  June  1,  1998,  the  Company  leased  all of its
               employees  from an  affiliated  company  at an agreed  upon price
               equal  to the  affiliate's  cost  plus a 7%  administrative  fee.
               Effective June 1, 1998, the Company hired these employees  (which
               included programmers as discussed above) and paid its own payroll
               and related  costs.  For the years ended June 30, 1998,  1999 and
               2000,  the  administrative  fee  charged  by  the  affiliate  was
               approximately $157,000, $-0- and $-0-, respectively.

                    Certain costs paid to the  affiliates  were  capitalized  as
               software development costs. For the years ended June 30, 1999 and
               2000,  the amounts  charged by affiliates  and  capitalized  were
               $612,906 and $477,728, respectively.

                    The Company purchased equipment from an affiliate during the
               year ended June 30, 2000 for  approximately  $181,646.  The price
               included a 20% purchasing and handling fee.

                    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 general management, 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:

                                                     Year ended June 30,
                                           -------------------------------------

                                               1998        1999           2000
                                           -------------------------------------
               Software maintenance and
               related services(I)         $1,124,626  $   770,396   $   977,032

               Management and consulting
               fees(II)                       857,540    1,524,451     1,355,482

               Administrative and
               bookkeeping services(III)    2,618,155      237,307       262,147

               Rent and utilities             304,193      284,828       390,845
                                           -------------------------------------
                                           $4,904,514   $2,816,982    $2,985,506
                                           -------------------------------------

                         (I) A company affiliated by common ownership provides a
                    significant  portion of the Company's  software  maintenance
                    (Note 1), certain other software services, computer hardware
                    under  operating  leases  and  maintains   certain  computer
                    hardware.

                         (II)  The  Company   incurred  fees  to  certain  other
                    affiliated  companies for various  management and consulting
                    services.

                         (III) A company affiliated by common ownership provides
                    the  Company  with  various  administrative   services.  The
                    arrangement  includes  the  leasing  of  all  the  Company's
                    employees   through  June  1,  1998  and  the  provision  of
                    bookkeeping   services  and  personnel  related   consulting
                    services.

                    Due from  stockholders as of June 30, 2000 represents a loan
               to a  stockholder.  This loan  bears  interest  at 8.5% and has a
               repayment date of July 1, 2002.

                    For the year ended June 30, 1999 and 2000,  the Company paid
               the  annual  premium  of   approximately   $66,000  and  $69,000,
               respectively,  on a life  insurance  policy  where  the  majority
               stockholder is the owner and beneficiary.

     (c) Leases See note 8(a) for  information  regarding  leases  with  related
parties.

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                    Accounts   payable  and  accrued  expenses  consist  of  the
               following:

                                                       June 30
                                              -------------------------------

                                                  1999           2000
               ------------------------------------------    ----------------

               Claims payable                 $17,553,036    $22,571,928

               Rebates payable to sponsors      7,062,159      3,565,258

               Other payables                   2,268,550      1,293,498
               ----------------------------------------- -------------------

                                              $26,883,745    $27,430,684
               ----------------------------------------- -------------------

   5.       CAPITAL LEASE OBLIGATIONS
                    The  following  is a schedule,  by year,  of future  minimum
               lease  payments  under  capitalized  leases,  together  with  the
               present value of the net minimum lease payments at June 30, 2000.

                    Payments for the year ending June 30,

                    --------------------------------------------------------
                    2001                                         $   686,754
                    2002                                             686,754
                    2003                                             632,104
                    2004                                             522,804
                    2005                                             338,800
                    --------------------------------------------------------
                     Total minimum lease payments                  2,867,216
                     Less: Amount representing interest              535,335
                     -------------------------------------------------------
                     Present value of net minimum lease payments   2,331,881
                     Less: Current portion                           456,437
                     -------------------------------------------------------
                     Long-term lease obligations                  $1,875,444
                     -------------------------------------------------------

   6.       MAJOR CUSTOMERS AND PHARMACIES

                    For the year ended June 30, 1998,  approximately 42% and 15%
               of revenues were from two plan  sponsors,  respectively.  For the
               year  ended  June 30,  1999,  approximately  37%,  14% and 12% of
               revenues  were from three plan  sponsors,  respectively.  For the
               year ended June 30, 2000,  approximately  27% and 12% of revenues
               were from two plan sponsors, respectively. Amounts due from these
               customers at June 30, 1999 and 2000  approximated  $6,813,000 and
               $3,859,000,  respectively.  The Company's arrangements with these
               plan  sponsors are either  oral,  short-term,  terminable  by the
               sponsor or subject to continuing negotiation.

                    During the year ended June 30,  1999,  the Company  recorded
               approximately  $500,000 of additional  revenue when the amount of
               an adjustment  under the provisions of one of its arrangements to
               adjust for the increased cost of drugs,  primarily related to the
               prior  year,  became  determinable,  upon the  Company  receiving
               verbal acceptance of the calculations.

                    For  the  years  ended  June  30,   1998,   1999  and  2000,
               approximately  25%,  41%, and 42% of the cost of claims were from
               two pharmacy chains. Amounts payable to these two pharmacy chains
               at June 30,  1999  and 2000  were  approximately  $7,686,000  and
               $9,608,000, respectively.

                    As  specified  in  one  of its  arrangements  with  a  major
               customer,  the  Company  has  deposited  with  this  customer  an
               irrevocable  standby letter of credit of $2 million to insure the
               fulfillment  of  certain   obligations  by  the  Company  to  the
               customer.  As of June 30,  2000,  no claims  have been made under
               this letter of credit.

   7.       TAXES ON INCOME

                    Provisions for federal and state income taxes consist of the
               following:


                                 Year ended June 30,
               -------------------------------------------------
                              1998       1999            2000
               -------------------------------------------------
               CURRENT:
                 Federal  $  60,000     $596,000     $  199,000
                 State       21,000      179,000         69,000
               -------------------------------------------------
                             81,000      775,000        268,000
               -------------------------------------------------
               DEFERRED:
                 Federal    363,000      135,000        727,000
                 State      125,000       66,000        252,000
               ----------------------------------------- -------
                            488,000      201,000        979,000
               -------------------------------------------------
               TOTAL       $569,000     $976,000     $1,247,000
               -------------------------------------------------


               In  fiscal  1998,  1999 and  2000,  $291,439,  $22,000  and $-0-,
          respectively,  of income tax benefits reduced the capital distribution
          in those years (Note 3(a)).

                    Differences  between  the  federal  statutory  rate  and the
               Company's effective tax rate are as follows:

                                                 Year ended June 30,
                              -----------------------------------------------
                                                1998    1999     2000
               --------------------------------------------------------------
               Statutory rate                  34.0%    34.0%    34.0%
               State taxes - net of federal
                 taxes                          7.1      5.4      7.4
               Utilization of net operating
                 loss carryforward                -     (7.3)       -
               Permanent differences              -      1.4       1.5
                 Other                            -        -        .7
               --------------------------------------------------------------
                                               41.1%    33.5%    43.6%
               --------------------------------------------------------------

                    Deferred  income  tax  assets   (current  and   non-current)
               resulting from temporary differences are as follows:

               JUNE 30,                             1999       2000
               ------------------------------------------------------
               Accounts receivable allowances     $333,000   $309,000
               Vacation expense accrual             41,000     43,000
               Officer/stockholder bonus accrual   156,000     57,000
               Property and equipment              166,000          -
               ------------------------------------------------------
                                                  $696,000   $409,000
               ------------------------------------------------------


                    Deferred income tax liabilities of $692,000 at June 30, 2000
               resulted from temporary differences in property and equipment.


   8.       COMMITMENTS AND CONTINGENCIES

                    (A) The Company leases offices space in Port Washington, New
               York  from  acompany  affiliated  by  common  ownership  under an
               agreement expiring March 30, 2004. Leasehold improvements made to
               this space  during the year ended June 30, 1999 and June 30, 2000
               were $72,207 and $37,178, respectively.

                    In September 1998 the Company leased space for a pharmacy in
               Port  Washington,  New York, from a Company  affiliated by common
               ownership under a seven-year agreement expiring August 31, 2005.

                    Rent expense charged by affiliates  including  utilities for
               the years  ended June 30,  1998,  1999 and 2000  under  operating
               leases amounted to $304,193, $284,828 and $390,845, respectively.

                    Future  minimum  rent  payments  under  the   noncancellable
               operating  leases with related and other parties at June 30, 2000
               are as follows:

               YEAR ENDING JUNE 30,

               --------------------------------------------------
               2001                    $  425,000
               2002                       436,000
               2003                       458,000
               2004                       362,000
               2005                        24,000
               Thereafter                   4,000
               --------------------------------------------------
                                       $1,709,000

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

                    Rent  expense  for the years ended June 30,  1998,  1999 and
               2000 were $285,818, $273,937, and $411,570, respectively.

                    (B) In February 1998, the Company  entered into an agreement
               to purchase computer software products and professional  services
               with an unrelated company.  The agreement requires the Company to
               pay an initial  license fee of  $400,000,  of which  $100,000 was
               paid  upon  signing  and  $25,000  was  payable  monthly  through
               February  1999.  The initial  license  fee of  $400,000  has been
               capitalized and is being amortized over three years. In addition,
               if  certain  milestones  were  reached  based  on the  number  of
               processed   claims,   as  defined,   the  license  fee  increases
               incrementally,  up to an additional $500,000 over the term of the
               agreement.  In February 1999, the Company met certain milestones,
               resulting in an  additional  license fee of  $150,000,  which was
               capitalized and is being amortized over three years.  The Company
               did not meet any additional milestones during the year ended June
               30, 2000.  The agreement  also provides for the annual payment of
               18%  of  the  initial  license  fee,  as  defined,  as a  service
               maintenance fee which is expensed as incurred.

                    (C) On February 9, 1999, the Company was informed by counsel
               that an action was brought  against it by the West  Contra  Costa
               Unified School District and an individual  plaintiff in the State
               of  California.  The case was  subsequently  removed  to  Federal
               court.  The  complaint  alleges,  among  other  things,  that the
               parties entered into a contract in November 1996, for services to
               be  provided  by  the  Company  and,  subsequently,  the  Company
               unilaterally  terminated  the contract on December 16, 1996.  The
               complaint  further alleges that this termination was in violation
               of  the  terms  of  the  contract  and  one  or  more   statutory
               provisions;  that the termination resulted in the school district
               incurring  approximately  $150,000 in additional costs due to its
               having  to  enter  into a fee for  service  arrangement  with the
               Company in order to continue providing  prescription  benefits to
               its plan members;  and that,  due to the wrongful  termination of
               the  contract,  the  school  district  was  forced  to  secure  a
               replacement  for the benefits and services that were to have been
               provided under the contract with the Company.  In connection with
               this last  circumstance,  the  complaint  alleges that the school
               district incurred  approximately $400,000 in additional expenses.
               The complaint also seeks treble  damages.  If treble damages were
               allowable in this case and a judgment were to be entered  against
               the Company, the Company would be liable for damages in excess of
               $1,500,000.  The Company is currently in the process of assessing
               plaintiff's  alleged damages based upon documents produced in the
               discovery  phase and is  expected to  commence  with  depositions
               shortly.  The  Company  denies  the  allegations  and  intends to
               vigorously defend this action. In the opinion of management,  the
               outcome  of this  litigation  will  not have a  material  adverse
               effect on the  Company's  financial  position  or its  results of
               operations.

                    (D)  Commencing  with the year  ending  June 30,  2000,  the
               Company has an employment  arrangement with its senior executives
               which  entitles them to  participate in a bonus pool equal to 15%
               of any increase in pretax profits over the prior year.

                    (E) The Company  entered into an employment  agreement  with
               the majority stockholder effective July 1, 1999. Pursuant to this
               agreement,  the  majority  stockholder  has  agreed  to  serve as
               Chairman  of the  Board  of  Directors  at an  annual  salary  of
               $200,000,  subject to adjustment  by the Board of Directors.  The
               agreement  commenced on July 1, 1999 and has a term of two years,
               unless  terminated by the Company for cause,  or in the event the
               stockholder becomes permanently disabled.  The agreement provides
               for  certain  fringe  benefits  payable  to or on  behalf  of the
               majority  stockholder,  such  as  the  use of an  automobile.  In
               addition, the agreement provides for certain termination benefits
               payable to the majority  stockholder,  which  depending  upon the
               reason for  termination,  can be equal to up to two years salary.

                    (F) The  Company  has an  employment  arrangement  with  its
               Executive  Vice  President of Sales and Marketing who is entitled
               to  commissions  of .5% of gross  revenues  received  from direct
               accounts sold and .25% of gross  revenues  received from accounts
               sold by sales people under her management.

                        (G) The Company  entered  into an  employment  agreement
               with its President and Chief Operating Officer effective June 12,
               2000.  Pursuant to this agreement,  an annual salary of $188,000,
               in addition to (i) a $25,000  signing bonus upon execution of the
               agreement and (ii) the ability to  participate  in the bonus pool
               for senior  executives,  has been  specified.  The agreement also
               provides for certain termination  benefits,  which depending upon
               the reason for  termination,  can equal up to one year of salary.
               In connection with the employment agreement,  the Company granted
               an incentive  stock option to purchase  100,000  shares of common
               stock at $5.00 per share  such  option  vests  over a three  year
               period  commencing on June 12, 2001.  The option expires June 12,
               2005.

                        (H) The Company  entered  into an  employment  agreement
               with its Senior Vice President of Finance  effective May 1, 2000.
               Pursuant to this  agreement,  an annual  salary of  $150,000,  in
               addition to (i) a $25,000  bonus upon the  completion of one full
               year of  employment  with the  Company  and (ii) the  ability  to
               participate  in the bonus  pool for senior  executives,  has been
               specified.  The agreement  also provides for certain  termination
               benefits,  which  depending  upon  the  reason  for  termination,
               including  but not limited to, a change of control,  can equal up
               to  one  year  of  salary.  In  connection  with  the  employment
               agreement,  the Company granted 35,000 incentive stock options to
               purchase  shares of common stock at $5.00 per share.  Such option
               vests over a three year  period  commencing  on May 1, 2001.  The
               option expires on May 1, 2005.

   9.       STOCK OPTIONS AND WARRANTS
                (A)  STOCK OPTIONS

                    During the year ended June 30,  2000,  the  Company  granted
               incentive  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  plus  an
               indeterminable number of shares of common stock issuable upon the
               exercise of "reload options".  Total shares issued under the plan
               total 656,469 options. Stock options outstanding have a life from
               5 to 10 years as defined in Section 422 of the  Internal  Revenue
               Code. These incentive options granted may not be for a price less
               than 100% of the fair market  value of the Common Stock as of the
               date of the grant.

                        All prior  option  plans have  expired  and the  options
               granted by the majority  stockholder  have been  canceled  during
               fiscal 2000.

                    The  following  tables  summarize  information  about  stock
               option activity for the years ended June 30, 1998, 1999 and 2000:

                                                                      Weighted
                                                                       Average
                                                                      Exercise
                                                                      Price Per
                                                   Number of Options    share

           --------------------------------------- ------------------ ----------
           Shares under option at June 30, 1997          1,406,292      $   .08
           Cancelled                                    (1,406,292)         .08
           Granted                                         255,689         5.87
           --------------------------------------- ------------------ ----------
           Shares under option at June 30, 1998            255,689         5.87
           Granted                                          89,491         5.87
           --------------------------------------- ------------------ ----------
           Shares under option at June 30, 1999            345,180         5.87
           Cancelled                                      (345,180)        5.87
           Granted                                         656,469         5.98
           --------------------------------------- ------------------ ----------
           Shares under option at June 30, 2000            656,469        $5.98
           --------------------------------------- ------------------ ----------

                         Statement of  Financial  Accounting  Standards  No. 123
               ("SFAS No.  123"),  "ACCOUNTING  FOR  STOCK-BASED  COMPENSATION",
               requires the Company to provide pro forma  information  regarding
               net income and net  income  per common  share as if  compensation
               costs for the Company's stock option plans had been determined in
               accordance with the fair value method prescribed in SFAS No. 123.
               Had  compensation  expense been recorded  under the provisions of
               SFAS No.  123,  the  impact on the  Company's  net  earnings  and
               earnings per share would have been:

                                            Year ended June 30,
           ---------------------------------------------------------------------
                                               1998          1999       2000
           ---------------------------------------------------------------------
           Reported net earnings            $816,448    $1,939,011   $1,615,674
           Pro forma compensation
            expense, net of tax              (51,982)      (67,145)    (236,664)
           ---------------------------------------------------------------------
           Pro forma net earnings           $764,466    $1,871,866   $1,379,010
           ---------------------------------------------------------------------
           Pro forma earnings per shares:
             Basic and diluted                  $.15          $.36         $.21
           ---------------------------------------------------------------------


                    The fair value of each option  granted is  estimated  on the
               date of grant using the Black-Scholes  option-pricing  model with
               the following weighted average assumptions used for all grants in
               the years ended June 30,  1998,  1999,  2000:  dividend  yield of
               0.008%,  risk-free  interest  rate ranges  from 4.5% to 6.8%;  an
               expected  life of options for 7, 4.3 and 5.0 years  respectively;
               and a  volatility  of .1%,  .1% and  45.6%  respectively  for all
               grants.  The weighted  average value of options granted is $2.03,
               $.87 and $1.09 for the years ended June 30, 1998 , 1999 and 2000.

                    The  following  table  summarizes  information  about  stock
               options outstanding at June 30, 2000:

<TABLE>
<S>
<C>                         <C>               <C>                 <C>              <C>             <C>
                                                 Outstanding                                   Exercisable
  ------------------------- ------------------------------------------------------ ------------------------------------
                                                                     Weighted

                                              Weighted Average       Average                         Weighted Average
     Option Price Range     Number of Shares   Remaining Life     Exercise Price   Number of Shares   Exercise Price
  ------------------------- ----------------- ------------------ ----------------- ----------------- ------------------
  $4.00 to $5.87                  480,199     5.02 years             $5.42                80,976           $5.87
  $7.50 to $7.50                  176,270     4.18 years              7.50                44,470            7.50
                            -----------------                                      -----------------
  $4.00 to $7.50                  656,469     4.79 years              5.98               125,446            6.45
                            -----------------                                      -----------------
</TABLE>
                    (B) WARRANTS

                    The Company granted the  underwriters of the Public Offering
               200,000 warrants for nominal consideration.  The warrants entitle
               the  underwriters to purchase 200,000 shares of common stock from
               the Company at $9.00 per share.  The warrants are exercisable for
               four years commencing on July 29, 2000.

  10.     SUPPLEMENTAL CASH FLOW INFORMATION

                                                        Year ended June 30,
                                    -----------------------------------------

               Cash paid:                        1998           1999       2000
               -----------------------------------------------------------------

               Interest                        $  4,136      $    250    $98,496

               Income taxes                      20,901       131,827    960,498

               Non-cash investing and
                  financing activities:

               Issuance of common stock for
                  notes from stockholders     1,340,000(I)          -          -

               Capital lease obligations
                   were incurred for
                   computer equipment and
                   software                            -            -  2,537,730
               -----------------------------------------------------------------

                         (I) These non-recourse (except with regard to interest)
                    promissory  notes dated July 1, 1997, are due and payable in
                    five  years  and bear  interest  at 8.5% per  annum  payable
                    quarterly.  The 1,713,118  shares issued in connection  with
                    these  notes  include  1,278,447  shares  to  the  majority
                    stockholder.  The notes are  collateralized by the shares of
                    stock  purchased.  As of June 30, 2000,  $339,100  including
                    accrued interest remains unpaid.

  11.       EMPLOYEE BENEFIT PLAN

                    Effective  June 1, 1998,  the Company  adopted a 401(k) plan
               covering  substantially all employees.  Participants may elect to
               contribute  to the plan a minimum  of 1% to a  maximum  of 18% of
               their  annual  compensation,  not to exceed a dollar limit set by
               law.  Annually,   the  Company  will  determine  a  discretionary
               matching contribution equal to a percentage of each participant's
               contribution.  Contributions  made by the  Company  for the years
               ended  June 30,  1999  and 2000  were  approximately  $7,000  and
               $18,000, respectively.


  12.       EARNINGS PER SHARE

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



                                                 Year ended June 30,
                                     -------------------------------------------

                                                  1998       1999        2000
               -----------------------------------------------------------------

               Basic                         4,966,885    5,205,084    6,720,104


               Effect of assumed conversion
                 of employee stock options       2,281            -            -
               -----------------------------------------------------------------
               Diluted                       4,969,166    5,205,084    6,720,104
               -----------------------------------------------------------------

                    Outstanding  options  and  warrants  to  purchase  shares of
               common  stock were not  included  in the  computation  of diluted
               earnings per share because they were antidilutive.  (See Note 9)
               These options were as follows:

                                                    Year ended June 30,
                                  ----------------------------------------------

                                                  1998       1999       2000
               -----------------------------------------------------------------

               Number of options and warrants   255,689     345,180    856,469

               Weighted-average exercise
                  price                           $5.87       $5.87      $6.69
               -----------------------------------------------------------------

  13.       PUBLIC OFFERING

                    The registration statement for the Company's Public Offering
               became  effective on July 28, 1999. The Company  consummated  the
               Public Offering on August 2, 1999 and issued 1,600,000 shares, of
               common  stock  at an  offering  price  of  $7.50  per  share.  In
               addition,  the underwriters were granted an overallotment  option
               by the Company to buy 300,000 shares of common stock at $7.50 per
               share exercisable by September 11, 1999. The underwriters did not
               exercise this option.  Concurrent with the Public  Offering,  the
               Selling  Stockholder sold 400,000 shares of common stock from its
               holdings at $7.50 per share.  The Company received gross proceeds
               of $12,883,100 representing payment for the sale of the 1,600,000
               shares  plus 73% of the  proceeds  from  the sale of the  400,000
               shares by the Selling  Stockholder for repayment of $1,992,900 of
               indebtedness  owed by the  Selling  Stockholder  in the amount of
               $1,042,500  and the balance to amounts owed by  affiliates of the
               Selling Stockholder to the Company. Such proceeds were reduced by
               underwriting discounts and commissions, a non-accountable expense
               allowance and a financial  advisory fee paid to the  underwriters
               plus certain fees and expenses paid by the Company.


  14.       SUBSEQUENT EVENTS

                    On July 20, 2000 the Company acquired  Pharmacy  Associates,
               Inc. ("PAI"), a regional  prescription benefit management company
               operating in Arkansas, Louisiana and Mississippi. PAI merged with
               and into PAI  Acquisition  Corp.,  a wholly owned  subsidiary  of
               Health   Card.   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.   PAI
               stockholders  may  also  receive   additional   consideration  of
               approximately  $2 million  payable in a  combination  of cash and
               common stock over a two-year period if certain  financial targets
               are met.

                    In connection with the acquisition, the Company entered into
               an  employment  agreement  with the former  president  of PAI. In
               addition,  substantially  all of the former employees of PAI were
               hired by the Company.




<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

The audits  referred  to in our  report to the Board of  Directors  of  National
Medical Health Card Systems,  Inc. and  Subsidiaries,  dated September 19, 2000,
relating to the  consolidated  financial  statements of National  Medical Health
Card Systems,  Inc. and Subsidiaries,  included the audit of the schedule listed
under Item 14 of Form 10-K for each of the three years in the period  ended June
30,  2000.  This  financial  statement  schedule  is the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial statement schedule based upon our audits.

In our opinion,  such  financial  statement  schedule  presents  fairly,  in all
material respects, the information set forth therein.

BDO Seidman, LLP
Melville, New York

September 19, 2000


<PAGE>




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


                                               Additions
                               Balance at      charged to
                               beginning of    costs and                                  Balance at end
Description                      period        expense (A)   Write-offs    Other Changes    of period
----------------------------------------------------------------------------------------------------------------------

Reserves and allowances
  deducted from asset
  accounts:

Allowance for possible
  losses

Year ended June 30, 1998       $200,000        $  70,000     $   25,811    $  -           $244,189

Year ended June 30, 1999       $244,189        $ 602,155     $        -    $  -           $846,344

Year ended June 30, 2000       $846,344        $ 995,806     $1,115,599    $  -           $726,551


(A)   Charged to bad debts.

</TABLE>
















                                   SIGNATURES

         Pursuant to the  requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, 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.

October 20, 2000               By:/s/Bert E. Brodsky
                              -----------------------------------
                              Bert E. Brodsky, Chairman of the Board and
                              Chief Executive Officer