UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-K/A
                                 AMENDMENT NO. 2

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934.
                     For the fiscal year ended June 30, 2003

[ ] Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.

For the transition period from _______ to __________


                        Commission file number 000-26749

                   NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

          Delaware                                         11-2841799
(State or other jurisdiction of             (I.R.S. Employee Identification No.)
 incorporation or organization)

                              26 Harbor Park Drive,
                               Port Washington, NY
                    (Address of principal executive offices)
                                      11050
                                   (Zip Code)

       Registrant's telephone number, including area code: (516) 626-0007

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange 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. [ ]

     The  aggregate  market  value  of the  registrant's  voting  stock  held by
non-affiliates  of the  registrant,  computed by reference to the closing  sales
price as  quoted  on the  NASDAQ  National  Market  on  September  22,  2003 was
approximately $49,955,122.

     (APPLICABLE ONLY TO REGISTRANTS  INVOLVED IN BANKRUPTCY  PROCEEDINGS DURING
THE PRECEDING FIVE YEARS)


<PAGE>



     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   X  No
    ---    ----

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     Indicate the number of shares outstanding of the registrant's common stock,
as of the latest practicable date:  7,834,581 shares outstanding as of September
22, 2003.

     DOCUMENTS  INCORPORATED  BY  REFERENCE:  Portions of the  definitive  Proxy
Statement to be delivered to  shareholders in connection with the annual meeting
of shareholders to be held in 2003 are  incorporated  into Part III of this Form
10-K.

Explanatory Note

     In  connection  with a review by the Staff of the  Securities  and Exchange
Commission ("SEC"), this annual report on Form 10-K/A of National Medical Health
Card Systems,  Inc., a Delaware  corporation  ("Health Card" or the  "Company"),
hereby  amends the  following  information  in its Form 10-K for the fiscal year
ended June 30, 2003,  as filed with the SEC on September 29, 2003 and amended on
October 28, 2003: (i) by amending the information  contained in Item 3 of Part I
to include current  information  with respect to the matter  described  therein,
(ii) by  amending  the  information  contained  in  Item 7 of Part I to  include
additional information, (iii) by amending the exhibit list under Item 15 of Part
IV to delete  exhibits  that are no longer  material and to include new exhibits
filed herewith and (iv) by amending the information contained in the Notes 1 and
9 of the Notes to Consolidated Financial Statements.


<PAGE>

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

                                      INDEX
                                                                                                Page No.

Forward Looking Statements                                                                        4

                                     PART I

Item 1.           Description of Business                                                         4

Item 2.           Description of Property                                                        27

Item 3.           Legal Proceedings                                                              28

Item 4.           Submission of Matters to a Vote of Security Holders                            28

                                     PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters          29

Item 6.           Selected Financial Data                                                        30

Item 7.           Management's Discussion and Analysis of Financial Condition and                32
                  Results of Operations

Item 7A.          Quantitative and Qualitative Disclosures about Market Risk                     46

Item 8.           Financial Statements and Supplementary Data                                    46

Item 9.           Changes in and Disagreements on Accounting And Financial Disclosure            46

Item 9A.          Controls and Procedures                                                        46

                                    PART III

Item 10.          Directors and Executive Officers of Registrant                                 47
                   Compliance with Section 16(a) of the Exchange Act

Item 11.          Executive Compensation                                                         47

Item 12.          Security Ownership of Certain Beneficial Owners and Management                 47

Item 13.          Certain Relationships and Related Transactions                                 47

Item 14.          Principal Accountant Fees and Services                                         47

                                     PART IV

Item 15.          Exhibits, Financial Statement Schedules and Reports on Form 8-K                48

Signatures                                                                                       53

</TABLE>

Item 3.           LEGAL PROCEEDINGS.

     Health  Card is  involved  in  various  legal  proceedings,  including  the
proceeding  described  below,  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 or financial
condition.

     An action was  commenced  against  the Company on April 30, 2002 by Midwest
Health Plan Inc.  ("MHP") in the United  States  District  Court for the Eastern
District of Michigan.  The amended complaint alleges,  among other things,  that
the  parties  entered  into a contract  dated July 1999 (the  "Agreement"),  and
further alleges that the Company has overcharged MHP for the  administration  of
prescription benefit services in contravention to the terms of the Agreement and
breached  its  fiduciary  duties by making a profit.  MHP is  seeking $3 million
dollars in damages.  The Company  filed an answer and  counterclaim  on June 12,
2002. In the counterclaim, the Company claimed damages in excess of $2.8 million
based on Midwest's failure to pay under a contract.  In late June 2002,  Midwest
agreed to make two payments in the amount of $1.34  million and $1.36 million to
partially settle the Company's  claims against Midwest.  Midwest has now added a
fiduciary duty claim. The Company continues to have counterclaims  totaling over
$200,000 against Midwest for Midwest's  failure to pay the amounts it had agreed
to pay Health  Card for goods and  services.  The  Company's  motion for partial
summary judgment and motion to dismiss the fiduciary duty claim will be heard on
November  6,  2003.  The court has not set a trial  date.  Discovery  will close
September 30, 2003. The Company intends to vigorously defend the action.




                                     PART II


<PAGE>


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

Overview

     The audited  Consolidated  Financial  Statements  include  the  accounts of
Health  Card  and  its  wholly  owned  subsidiaries,  PAI,  PMP,  Centrus,  IPA,
Specialty,  NMHCRX Contracts,  Inc.  ("Contracts"),  PBM Technology,  Inc. ("PBM
Tech"),  NMHCmail  and  Integrail.  Also  included  are the accounts of Funding.
Unless the context  otherwise  requires,  references  herein to the "Company" or
"Health Card" refer to the Company and its subsidiaries on a consolidated basis.
The results of  operations  and balance  sheet of PAI have been  included in the
consolidation  as of July 20, 2000, the effective date that the Company acquired
PAI. The results of  operations  and balance  sheet of PMP have been included in
the  consolidation  as of March 5, 2001,  the  effective  date that the  Company
acquired PMP. The results of operations and balance sheet of Centrus and Funding
have been included in the  consolidation  as of January 29, 2002,  the effective
date that the Company  acquired  Centrus.  The results of operations and balance
sheet of Integrail  have been  included in the  consolidation  as of November 1,
2002,  the  effective  date that the Company  acquired  Integrail.  All material
intercompany   balances   and   transactions   have  been   eliminated   in  the
consolidation.

     Health  Card  derives  its  revenue  from the  provision  of  comprehensive
pharmacy benefit management services to sponsors of prescription  benefit plans.
Substantially  all of the  services  Health Card  provides to its  sponsors  are
related to pharmacy benefit  programs and services.  Health Card also recognizes
administrative fees and earns rebates at the time of claims adjudication.

     Revenue  for  the  PBM  division  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. Since
January 1, 2000,  all  services  have been  provided on a fee for service  basis
only.  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 amount of revenue recognized is
reduced by the amount of rebates that Health Card shares with its sponsors.  The
specific  terms of the contracts  that Health Card enters into with its sponsors
will determine  whether Health Card  recognizes the gross revenue related to the
cost  of the  prescriptions  filled.  In  certain  cases,  the  Company  has not
recognized  the gross  revenue  or cost  related to  prescriptions  filled for a
specific sponsor. This has no impact on the Company's gross profit since neither
the prescription revenue nor the related cost of the prescriptions is recorded.

     The  following  table sets forth the  breakdown of Health  Card's  revenues
relating to pharmaceuticals dispensed and administrative fees ($ in thousands):

                                                   Years Ended June 30,
                                           2001       2002              2003
Revenues relating to:
Pharmaceuticals                        $266,959     $447,862         $562,283
Administrative fees and other             5,160       11,970           10,983
                                       --------     --------         --------

         Total Revenues                $272,119     $459,832         $573,266
                                       --------     --------         --------

     Health  Card  does  not  take   possession   or  legal   ownership  of  the
pharmaceuticals dispensed by the retail pharmacy network or its out-sourced mail
order  facilities,  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 does take  possession  and dispenses
pharmaceuticals  from its mail order  facility and its specialty  pharmacy as of
August 1, 2003.

     Health Card utilizes its comprehensive pharmacy benefit database to perform
outcome  studies and to develop disease  information  programs which are used to
reduce  overall  healthcare  costs.  The Company's  Integrail  division uses its
software  tools to analyze and predict  outcomes  for both  medical and pharmacy
data.  These  programs  currently  produce  a small  amount of  revenue,  but is
starting to attract interest in the marketplace. Health Card believes that these
value added information  based services are becoming a more important  component
of managed care as well as  management  of the overall  healthcare  dollar,  and
therefore these services may 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 the gross  rebates  received  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  receives.  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.

     Health  Card  processes  its  rebate  claims  either  direct  with the drug
manufacturers,  through its  wholly-owned  subsidiary,  Specialty,  for which it
receives  administrative  fees,  or through a third party rebate  administrator.
Effective  July 1, 2001,  Health Card has entered into an agreement with a third
party  administrator  to handle all of its  consolidated  rebate claims which it
does not otherwise submit direct to the drug manufacturers.

     The amount of rebates recognized as reductions to revenue or cost of claims
is based on estimates tied to actual claims data. The third party  administrator
provides estimates to Health Card based on its analysis of the amount of rebates
that Health Card's claims should generate. These estimates are prepared 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.  Under  Health  Card's  contract  with the
Administrator,  Health Card  receives a specified  minimum  amount per claim 150
days after the end of a quarter.  Amounts  above the minimum are shared  between
the  Administrator  and Health Card with final settlement  twelve months after a
quarter end. Health Card accrues rebates based upon an estimate  provided by the
Administrator.

     Health  Card  computes  the  amount of  rebates  due  direct  from the drug
manufacturers based on the actual claims data, the criteria  established in each
individual contract, and the specified payment schedules. The drug manufacturers
are  obligated to reimburse  Health Card for earned  rebates  within a specified
period of time.  Quarterly,  Health Card  reconciles  its  estimates  to amounts
received from the manufacturers.

     Certain  of Health  Card's  sponsors  are  entitled  to all or a portion of
rebates received by Health Card, which portion varies  contractually by sponsor.
The  manufacturer  rebates  retained by Health Card,  after the sponsors receive
their contractual amounts,  have historically had a significant impact on Health
Card's financial performance. For the fiscal years ended June 30, 2001, 2002 and
2003  the  rebates  retained  by  Health  Card  has  equaled  19%,  19% and 11%,
respectively, of the Company's total gross profit. Due to the expected continued
growth and  diversification  of Health  Card's  business,  Health  Card  expects
rebates to continue to account for a significant,  but declining,  percentage of
its total gross profit.

     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 when these arrangements  expire,  there
could be 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 plus
Health Card's collection  history.  The drug  manufacturers  contracted with are
primarily  Fortune  500  companies  and  Health  Card has not had a  history  of
write-offs related to rebate receivables.  Health Card does not believe a credit
risk reserve is necessary.

     The  pharmacy  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  pharmacy  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  organic  growth  through  increased
marketing  of its  services  and by  expanding  the range of  services  offered,
including  value added  consulting and  information-based  services  through its
Integrail  division,  mail order services  through its facility in Florida,  and
specialty  pharmacy  services through its Ascend division.  Health Card believes
these  services  to be in growing  demand  within the  healthcare  industry.  In
addition,  Health Card intends to continue to pursue an  acquisition  program to
supplement its organic growth by making  acquisitions of other pharmacy  benefit
management service providers, as well as related services providers.

Results of Operations

Fiscal Year Ended June 30, 2003 Compared to Fiscal Year Ended June 30, 2002

     Revenue increased $113.4 million, or approximately 25%, from $459.8 million
for the fiscal year ended June 30, 2002,  to $573.2  million for the fiscal year
ended June 30,  2003.  Revenue  recognized  for  contracts  recorded  on a gross
revenue  basis was $459.3  million  for the fiscal  year ended June 30, 2002 and
$571.9 million for the fiscal year ended June 30, 2003.  Revenue  recognized for
contracts  recorded on a net revenue  basis was $0.5 million for the fiscal year
ended June 30, 2002 and $1.3  million  for the fiscal year ended June 30,  2003.
The  specific  terms of the  contracts  that  Health  Card  enters into with its
sponsors will determine whether Health Card recognizes the gross revenue related
to the cost of the  prescriptions  filled.  For those contracts that Health Card
recognizes  net revenue,  there is no impact on gross  profit since  neither the
prescription revenue nor the related costs of the prescriptions is recorded.  Of
the $113.4 million increase in revenue in fiscal 2003, $156.0 million was due to
the  inclusion of revenues  from  Centrus,  since it was acquired on January 29,
2002 and  included a full  fiscal  year in 2003  compared  to a little over five
months in the fiscal year ended June 30, 2002. This increase due to Centrus is a
net  amount  and  reflects  the fact that one  major  sponsor  terminated  their
contract  effective December 31, 2002 and a new major sponsor was added in April
2003.  Another $38.5  million of the overall  gross revenue  increase was due to
revenues  related to new sponsors or new  services  offered  during  fiscal 2003
unrelated  to  Centrus'  customers  and  excluding  contracts  recorded on a net
revenue  basis.  Also,  $19.6  million of the increase  was from other  existing
sponsors as a result of several  factors  including  higher charges  relating to
increased cost of  pharmaceuticals,  new drugs,  plan participant  growth and an
increase in the average number of claims per plan  participant.  These increases
were partially offset by non-Centrus revenue decreases related to three factors:
1) the  termination of existing  customer  contracts  throughout the fiscal year
including one major sponsor which terminated  their contract  effective June 30,
2002, leading to a reduction in revenue of approximately $82.9 million, 2) there
was one contract  during the twelve  months ended June 30, 2003 that the Company
recognized on a net revenue  basis that was  recognized on a gross revenue basis
during the twelve  months ended June 30,  2002.  Due to a change in the contract
terms effective  November 1, 2002,  this customer's  revenue was recognized on a
net basis from that  point.  The  revenue  impact of this change was a year over
year reduction of gross revenue of approximately  $15.6 million,  and 3) rebates
payable to the Company's  non-Centrus sponsors increased by $2.2 million for the
twelve  months  ended June 30, 2003 as compared to the twelve  months ended June
30, 2002.  Since these rebates are treated as a reduction in revenues,  this led
to a reduction in the overall year-over-year revenue increase.

     Cost of claims increased $100.7 million,  or approximately 24%, from $424.7
million  for the fiscal  year ended June 30,  2002,  to $525.4  million  for the
fiscal year ended June 30, 2003.  Centrus  accounted for $151.6 million,  of the
net increase.  This increase was partially offset by the three factors described
in the previous  paragraph,  namely,  the loss of sponsors which reduced cost of
claims by $77.7 million,  the recognizing of a certain contract on a net revenue
basis which  reduced cost of claims by $15.6  million,  and. an increase of $1.7
million in gross  rebates  received,  which is treated as a reduction in cost of
claims.  The  balance  of the  increase  in cost of  claims  is  related  to the
increased revenue as described above related to both new and existing  sponsors.
As a percentage of revenues,  cost of claims  decreased  from 92.4% to 91.7% for
the fiscal years ended June 30, 2002 and June 30, 2003,  respectively.  The same
factors  contributed to the declining costs as a percentage of revenue.  The two
major   sponsors,   which   terminated   their   contracts,   are  managed  care
organizations.  Industry-wide,  managed  care  clients  have a  greater  cost of
claims,  and consequently a lower gross margin,  than other types of business in
the PBM  industry.  While  not all of the  revenue  associated  with  these  two
sponsors was replaced by new business,  the new business,  for the most part was
not managed  care,  so  consequently  the cost of claims on the new business was
lower than on the business it replaced. In addition, the contracts recognized on
a net revenue  basis  decrease  the overall  Company  costs as a  percentage  of
revenue due to the cost not being  recognized on the  contracts  recorded on the
net revenue basis. The decline in cost of claims as a percentage of revenues was
moderated by the higher cost of claims on the Centrus  book of  business,  which
serves  managed care clients  primarily.  Centrus' cost of claims for the fiscal
year ended June 30, 2003 ran about 6 - 9 percentage points greater than the rest
of the Company's business,  and since Centrus accounted for 49% of the Company's
revenue in the fiscal year, this impacted the overall cost of claims percentage.

     Gross profit  increased  from $35.1  million for the fiscal year ended June
30,  2002 to $47.8  million  for the fiscal  year ended June 30,  2003;  a $12.7
million, or 36%, increase. In addition, to the revenue volume increase,  Centrus
accounted  for $4.3 million,  or 33%, of the  increase.  The increase in rebates
(and  administrative fees related to the collection of rebates) after accounting
for the amount of rebates that are shared with  sponsors,  accounted for another
$1.6 million,  or 13%. Gross profit, as a percentage of revenue,  increased from
7.6% to 8.3%  for the  twelve  months  ended  June 30,  2002 and June 30,  2003,
respectively.  The contracts the Company  recognizes on a net revenue basis have
the effect of  improving  the gross  margin as a percent  of revenue  due to the
lower revenue base.  Partially offsetting this impact, the Company has seen some
decline in profit margins due to competitive pressures.

     Selling,  general,  and  administrative  expenses,  which  include  amounts
charged by affiliates,  increased $8.7 million, or approximately 32%, from $27.2
million for the fiscal year ended June 30, 2002 to $35.9  million for the fiscal
year ended June 30, 2003. This increase is primarily  related to the acquisition
of Centrus. While the expenses specifically related to Centrus were $7.3 million
greater in the twelve  months ended June 30, 2003 as compared to the five months
since the  acquisition  in the  twelve  months  ended  June 30,  2002,  this was
partially offset by reductions in other areas of the Company related to the full
integration of Centrus. The Company analyzed every department in the Company and
made  decisions  concerning  the most  efficient  way to operate  regardless  of
location.  This  evaluation  has led to  synergies  across the  Company  and has
allowed  the  Company  to  maximize  the  utilization  of its  resources.  It is
anticipated that this kind of analysis and deployment of resources will continue
as the Company grows.

     Selling,  general, and administrative expenses also increased in the twelve
months  ended June 30,  2003 due to the  start-up of two new  activities  in the
quarter ended December 31, 2002. The Company  acquired  Integrail as of November
1, 2002 (See Note 2 to the Consolidated  Financial Statements  comprising Item 8
hereof). In the months since the Company acquired Integrail,  approximately $1.3
million of expenses were incurred  primarily  related to salary and benefits and
depreciation and amortization.  The other activity was the start-up of the build
out of a mail order  facility in Miramar,  Florida.  Prior to July 1, 2003,  the
Company  out-sourced  the total actual  fulfillment  of  prescriptions  that are
ordered by mail. By bringing these services  in-house the Company will be better
able to control service and cost for its customers.  For the twelve months ended
June  30,  2003,  approximately  $450,000  of  expenses  were  incurred  on this
endeavor. The division started dispensing pharmaceuticals as of July 1, 2003.

     Due to the  additions of Integrail and the mail order  facility  along with
Centrus for the full twelve  months in the fiscal year ended June 30, 2003,  the
Company's expenses increased $4.4 million for expenditures  related to increases
in compensation and benefits,  primarily associated with new employees including
senior management.  Some of this increase was also related to the replacement of
resources  from  related  parties  with  full time  employees  (see  below).  In
addition,  the Company incurred the following  additional expenses in the twelve
months  ended June 30,  2003:  1)  approximately  $400,000 of expenses  incurred
related to two acquisitions which the Company did not complete, 2) approximately
$127,000 related to a settlement of a New York State sales tax audit, and 3) the
payment of $100,000 related to a terminated consulting agreement.

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately  $1.0 million,  or 54%,  year-over-year  from $1.9 million to $0.9
million  for  the  fiscal   years  ended  June  30,  2002  and  June  30,  2003,
respectively.  The Company has eliminated many of the related party transactions
effective  January 1, 2002.  The  majority  of the  decrease  related to reduced
information  technology services and management and consulting services procured
from  affiliated  companies.  The hiring of full time  employees  and the use of
outside  consultants  replaced  the use of  affiliated  companies  to update the
information technology infrastructure.

     Selling,  general,  and  administrative  expenses  as a percent  of revenue
increased  from 5.9% for the fiscal  year  ended  June 30,  2002 to 6.3% for the
fiscal year ended June 30, 2003.  The main reason for the increase is the impact
of recognizing  more contracts on a net revenue basis, as that has the effect of
dividing these same expenses over a smaller gross revenue base. In addition, the
acquisition of Integrail and the start-up of NMHCmail led to an increase in this
percentage.

     For the  fiscal  year ended  June 30,  2002,  the  Company  incurred  other
expense,  net,  of  approximately  $502,000.  For the fiscal year ended June 30,
2003, the Company incurred other expense,  net, of approximately  $804,000.  The
components  of  the  approximate  $302,000  increase  in  net  expense  were  an
approximate  $84,000  increase  in interest  expense,  an  approximate  $270,000
decrease in interest income, offset by an approximate $52,000 additional gain on
sold assets during the fiscal year ended June 30, 2002. The primary  reasons for
the net  increase  in  expense  were 1) the  interest  expense  incurred  on the
Company's  revolving  credit  facility  and on the Note  Offering to finance the
acquisition   of  Centrus   and   Integrail   (see  Item  1,   "Description   of
Business-Recent  Acquisitions",   and  Note  2  to  the  Consolidated  Financial
Statements  comprising  Item 8 hereof),  and 2) the reduction in interest income
since all cash  balances go towards  paying off the revolving  credit  facility.
Partially  offsetting the increase in other expense was an  approximate  $52,000
increase  in  deferred  gain on the sale of assets  related to a  sale/leaseback
transaction,  which gain of  approximately  $459,000  was  recorded  as deferred
revenue and is being recognized over the life of the lease,  which is thirty-six
(36) months.  (See Note 9 to the Consolidated  Financial  Statements  comprising
Item 8 hereof.)

     Income before the provision for income taxes increased  approximately  $3.6
million, or 50%, from approximately $7.4 million, for the fiscal year ended June
30,  2002,  to  approximately  $11.0  million for the fiscal year ended June 30,
2003.  The primary reason for the increase was the improving  efficiencies  that
come with scale arising from the integration of the acquisitions the Company has
completed.  As  mentioned  previously,  the  acquisition  of  Integrail  and the
start-up of the mail order facility had the impact of reducing  profitability in
the year ended June 30, 2003.

     The effective tax rate  increased from 39.4% for the fiscal year ended June
30, 2002 to 41.8% for the fiscal year ended June 30, 2003. The increase  stemmed
primarily from an increase in the state tax rate as more of the Company's income
has been allocated to higher taxed states.

     Net income for the fiscal year ended June 30, 2003 was  approximately  $6.4
million as compared to approximately $4.5 million for the fiscal year ended June
30, 2002; a 44%  increase.  Earnings per diluted  share  increased by $0.24,  to
$0.80 for the fiscal year ended June 30, 2003.

         The Company has no off balance sheet transactions.

Fiscal Year Ended June 30, 2002 Compared to Fiscal Year Ended June 30, 2001

     Revenue increased $187.7 million, or approximately 69%, from $272.1 million
for the fiscal year ended June 30, 2001,  to $459.8  million for the fiscal year
ended June 30,  2002.  Revenue  recognized  for  contracts  recorded  on a gross
revenue  basis was $272.1  million  for the fiscal  year ended June 30, 2001 and
$459.3 million for the fiscal year ended June 30, 2002.  Revenue  recognized for
contracts  recorded on a net revenue basis was $0 for the fiscal year ended June
30, 2001 and $0.5 million for the fiscal year ended June 30, 2002. Of the $187.7
increase  in  revenue  in fiscal  2002,  $127.1  million,  or 68% was due to the
inclusion  of  revenues  from  Centrus,  subsequent  to January  29,  2002.  PMP
accounted  for another $19.2  million,  or 10.2%,  of the increase  since it was
acquired on March 5, 2001 and  included a full  fiscal year in 2002  compared to
less than four  months in the fiscal  year ended June 30,  2001.  Another  $17.2
million of the  increase  was due to  revenues  related to new  sponsors  or new
services  offered  during  fiscal  2002  unrelated  to  Centrus'  customers  and
excluding  contracts  recorded on a net revenue basis. The majority of the $24.9
million  balance of the  year-over-year  increase was due primarily to increased
revenues from other existing  sponsors as a result of several factors  including
higher charges relating to increased cost of  pharmaceuticals,  new drugs,  plan
participant  growth,  and an increase  in the average  number of claims per plan
participant.  Finally,  revenues for the twelve  months ended June 30, 2001 were
negatively  impacted by a reduction in revenues of $733,000  that arose when the
Company  settled  certain fees due from a major sponsor  related to a capitation
arrangement for calendar year 1999.

     Cost of claims increased $175.1 million,  or approximately 70%, from $249.6
million  for the fiscal  year ended June 30,  2001,  to $424.7  million  for the
fiscal year ended June 30, 2002. Centrus accounted for $122.9 million, or 70% of
the increase.  PMP accounted for another $17.3 million,  or 10% of the increase.
The balance of the  increase is related to the  increased  revenue as  described
above.  An  increase  of $12.4  million,  $9.1  million  of which is  related to
Centrus,  in gross rebates received,  which is treated as a reduction in cost of
claims,  for the fiscal  year ended June 30, 2002 as compared to the fiscal year
ended June 30,  2001 led to a reduction  in the  year-over-year  increase.  As a
percentage  of revenues,  cost of claims  increased  from 91.7% to 92.4% for the
fiscal years ended June 30, 2001 and June 30, 2002,  respectively.  The increase
relates  primarily to the higher cost of claims on the Centrus book of business,
which serves managed care clients primarily. Industry-wide, managed care clients
have a greater cost of claims, and consequently a lower gross margin, than other
types of business in the PBM  industry.  Centrus'  cost of claims for the fiscal
year ended June 30, 2002 ran about 3 - 6 percentage points greater than the rest
of the Company's business,  and since Centrus accounted for 28% of the Company's
revenue in the fiscal year, this impacted the overall cost of claims percentage.

     Gross profit  increased  from $22.5  million for the fiscal year ended June
30,  2001 to $35.1  million  for the fiscal  year ended June 30,  2002;  a $12.6
million, or 56%, increase. In addition, to the revenue volume increase,  Centrus
accounted for $4.2 million,  or 33%, of the increase.  PMP accounted for another
$1.9  million,   or  15%,  of  the  increase.   The  increase  in  rebates  (and
administrative  fees related to the collection of rebates) after  accounting for
the amount of rebates that are shared with sponsors,  accounted for another $4.6
million, or 37%. Gross profit, as a percentage of revenue, declined from 8.3% to
7.6% for the fiscal years ended June 30, 2001 and June 30,  2002,  respectively.
The decrease  year-over-year is again  principally  related to the lower margins
achieved by Centrus.  The Company has also seen a decline in profit  margins due
to competitive pressures.

     Selling,  general,  and  administrative  expenses,  which  include  amounts
charged by affiliates,  increased $5.8 million, or approximately 27%, from $21.4
million for the fiscal year ended June 30, 2001 to $27.2  million for the fiscal
year ended June 30, 2002.  Approximately  67% of the increase,  or $3.9 million,
was  related to the  acquisition  of  Centrus.  There  were also  year-over-year
increases in the following  areas:  (i) an  approximate  $1,202,000  increase in
expenditures  related to  increases  in  compensation  and  benefits,  primarily
associated with new employees  including senior management;  (ii) an approximate
$709,000 increase in depreciation and amortization expenses related to increased
hardware  procurement  and  software  development  in  prior  periods;  (iii) an
approximate  $1,189,000 increase in the use of outside consultants  primarily to
update  the  Company's  information  technology  infrastructure;   and  (iv)  an
approximate  $360,000 increase in commission  expense related to the increase in
new  revenues  not  related  to the  acquisitions.  Partially  offsetting  these
increases were: (i) a reduction of  approximately  $1,376,000  related to actual
payments  made  and/or  reserves  accrued  during the fiscal year ended June 30,
2001,  but not the  fiscal  year ended June 30,  2002  related to the  following
matters:  (A) the settlement of the West Contra Costa lawsuit (see Note 9 to the
Consolidated  Financial  Statements  that  comprise  Item  8  hereof);  (B)  the
reconciliation and settlement of amounts due to a former major sponsor (See Note
7 to the Consolidated Financial Statements), and (C) the settlement, in April of
2001,  of a certain  patent  infringement  litigation  involving  the use by the
Company of certain PBM  information  technology  systems;  (ii) the reduction in
general and administrative  expenses charged by affiliates  described below, and
(iii) an approximate  $396,000  decrease in intangible  amortization  due to the
adoption of SFAS 142. Per SFAS 142, the Company no longer amortizes  goodwill as
of July 1, 2001 (see Note 1 to the Consolidated  Financial Statements Comprising
Item 8 hereof).

     General  and  administrative   expenses  charged  by  affiliates  decreased
approximately  $2.2 million,  or 54%,  year-over-year  from $4.1 million to $1.9
million  for  the  fiscal   years  ended  June  30,  2001  and  June  30,  2002,
respectively.  The Company has eliminated most of the related party transactions
effective  January 1, 2002.  The  majority  of the  decrease  related to reduced
information  technology services and management and consulting services procured
from  affiliated  companies.  The hiring of full time  employees  and the use of
outside  consultants  replaced  the use of  affiliated  companies  to update the
information technology infrastructure.

     Selling,  general,  and  administrative  expenses  as a percent  of revenue
improved  from 7.9% for the  fiscal  year  ended  June 30,  2001 to 5.9% for the
fiscal  year ended June 30,  2002.  This  improvement  stems from the  continued
growth of the Company due to improving efficiencies with scale.

     For the fiscal  year ended June 30,  2001,  the  Company  recognized  other
income, net, of approximately $877,000. For the fiscal year ended June 30, 2002,
the  Company  incurred  other  expense,  net,  of  approximately  $502,000.  The
components  of the  approximate  $1,379,000  increase  in net  expense  were  an
approximate  $889,000  increase in interest  expense,  an  approximate  $591,000
decrease in interest  income,  and an  approximate  $101,000 gain on sold assets
during the fiscal  year ended June 30,  2002.  The  primary  reasons for the net
increase  in  expense  were  the  interest  expense  incurred  on the  Company's
revolving  credit facility and on the Note Offering during the fiscal year ended
June 30, 2002 to finance the acquisition of Centrus (see Item 1, "Description of
Business-Recent  Acquisitions",   and  Note  2  to  the  Consolidated  Financial
Statements  comprising  Item 8 hereof).  Partially  offsetting  the  increase in
interest  expense was the approximate  $101,000  deferred gain during the fiscal
year  ended  June 30,  2002 on the sale of assets  related  to a  sale-leaseback
transaction.  (See Note 9 to the Consolidated  Financial  Statements  comprising
Item 8 hereof.)

     Income before the provision for income taxes increased  approximately  $5.4
million,  or 268%, from  approximately  $2.0 million,  for the fiscal year ended
June 30, 2001, to approximately  $7.4 million for the fiscal year ended June 30,
2002.  The primary reason for the increase was the improving  efficiencies  that
come with scale. For the fiscal year ended June 30, 2002 revenues  increased 69%
over  the  fiscal  year  ended  June  30,  2001,  while  selling,  general,  and
administrative  expenses  increased  only 27%. In  addition,  while gross margin
percentages declined year-over-year due to the acquisition of Centrus, the gross
profit  dollars  increased  by 56%.  These  factors  contributed  to the  marked
improvement - 268% - in profitability.


     The effective tax rate  decreased from 42.1% for the fiscal year ended June
30, 2001 to 39.4% for the fiscal year ended June 30, 2002. The decrease  stemmed
primarily from a reduction in non-deductible goodwill amortization.

     Net income for the fiscal year ended June 30, 2002 was  approximately  $4.5
million as compared to approximately $1.2 million for the fiscal year ended June
30, 2001; a 285%  increase.  Earnings per diluted share  increased by $0.40,  to
$0.56 for the fiscal year ended June 30, 2002.


Liquidity and Capital Resources

     The Company's  primary cash  requirements are for capital  expenditures and
operating  expenses,  including cost of  pharmaceuticals,  software and hardware
upgrades  and the  funding of  accounts  receivable.  Effective  July 2003,  the
Company  requires  cash to  carry  inventory  in its  mail  order  facility  and
specialty pharmacy. The Company also requires cash for potential acquisitions of
other pharmacy benefit  management  companies or of companies  providing related
services.  As of June 30,  2003,  the Company had a working  capital  deficit of
$32.6  million as compared to a working  capital  deficit of $42.7 million as of
June 30, 2002. The primary reason for the improvement in working capital was the
profitability  generated  by the  Company  during the fiscal year ended June 30,
2003. The Company has now acquired four  companies  since July 2000 (and a fifth
in July 2003)  utilizing  primarily  cash. This has had the effect of increasing
the  Company's  working  capital  deficits  until  sufficient  profitability  is
generated to pay back the cost of the acquisitions.  In addition,  the Company's
revolving credit facility is treated all as a short-term liability per generally
accepted accounting principles even though its terms do not expire until January
2005.

     Net cash  provided  by  operating  activities  was $12.4  million and $15.7
million for the fiscal  years ended June 30,  2002 and 2003,  respectively.  One
factor  leading to the $3.3 million  increase in cash provided by operations was
the $1.9  million of  incremental  net income  generated  during the fiscal year
ended June 30, 2003 as compared to the fiscal year ended June 30, 2002.  Another
factor in the  increase  in cash was the  changes in  accounts  receivables  and
payables during the two years. For the year ended June 30, 2002 accounts payable
and accrued expenses  increased by $41.7 million while receivables  increased by
$37.7 million, providing $4.0 million of cash. For the year ended June 30, 2003,
accounts payable increased by $6.8 million while  receivables  decreased by $1.3
million  generating  $8.1  million of cash.  Thus,  $4.1  million  more cash was
provided by  operations  from changes in  receivables  and  payables  during the
fiscal year ended June 30, 2003 as compared to June 30, 2002.

     Historically,  the timing of the Company's accounts receivable and accounts
payable has generally been a net source of cash from operating activities.  This
is the result of the terms of trade in place with plan sponsors on the one hand,
and the Company's pharmacy network on the other hand. These terms generally lead
to the  Company's  payments to  participating  pharmacies  being slower than its
corresponding  collections  from plan sponsors.  The Company  believes that this
situation is not unusual in the pharmacy benefit management industry and expects
to operate on similar terms for the foreseeable future. However, there can be no
assurance that such terms of trade will continue in the future and, if they were
to change  materially,  the Company could  require  additional  working  capital
financing.  The Company has put in place a $40 million revolving credit facility
for acquisitions and working capital financing.  However, if such terms of trade
were  to  change  materially,  and/or  if the  Company  were  unable  to  obtain
additional working capital  financing,  there could be a material adverse effect
on the Company's business, financial condition, or results of operations.

     Net cash used in investing  activities  was $6.0 million for the year ended
June 30,  2003,  as compared to $42.9  million for the year ended June 30, 2002.
The primary  differences in the two periods were the  acquisition of Centrus for
$40 million in the year ended June 30, 2002, and the acquisition of Integrail in
the year ended June 30, 2003. The net cash outlay for Integrail was  $1,472,425,
representing the initial payment of $1,400,000 plus $72,425 of related expenses.
No cash was assumed in the acquisition.

     During  the  year  ended  June  30,  2003  the  Company  borrowed  a net of
approximately $1.8 million under its revolving credit facility. These funds were
primarily  utilized to repay the  principal  balance of the  Convertible  Notes,
which had been put in place to  acquire  Centrus,  which  has had the  effect of
significantly reducing the interest expense that the Company incurs. The Company
also paid $0.8  million  towards its  outstanding  capital  lease and other debt
obligations during the fiscal year ended June 30, 2003

     On January 29,  2002,  the  Company  entered  into a $40 million  revolving
credit facility, details of which are set forth in Item 1 above and in Note 9 to
the Consolidated  Financial Statements  comprising Item 8 hereof.  Borrowings of
$28.7 million under the Facility were used to finance part of the purchase price
of the Company's acquisition of Centrus. The Facility contains various covenants
that,  among other  things,  require the Company to maintain  certain  financial
ratios, as defined in the agreements governing the Facility. As of September 15,
2003,  approximately  $19.1 million was outstanding under the Facility,  and the
Company was in compliance with its financial-ratios covenants.

     Three of these  financial  covenants  are based upon the  EBITDA  (earnings
before interest,  taxes, depreciation and amortization) generated by the Company
over specified  periods of time. These covenants,  EBITDA for the current fiscal
quarter,  interest  coverage ratio,  and debt service  coverage for the previous
twelve  months,  are  evaluated  by the  Lender  as a measure  of the  Company's
liquidity  and its ability to meet all of its  obligations  under the  Facility.
EBITDA is presented as cash flow from  operations  plus or minus the net changes
in assets and liabilities and the changes in certain non-cash  reconciling items
from net cash from  operations  to net income over the reported  periods.  While
EBITDA is not a measure of financial  performance  nor liquidity under generally
accepted accounting principles,  it is provided as information for investors for
analysis purposes in light of the financial  covenants referred to above. EBITDA
is not meant to be  considered a  substitute  or  replacement  for net income as
prepared in accordance  with  accounting  principles  generally  accepted in the
United States.  EBITDA is calculated as follows (see  Consolidated  Statement of
Cash Flows comprising Item 8 hereof for more details):


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

                                                                    Year Ended June 30,
                                                    2001                       2002                       2003
                                          -------------------------- -------------------------- --------------------------
                                          -------------------------- -------------------------- --------------------------
Cash flow from operations                        $   12,091                  $   12,415                $   15,685
Provision for income taxes                              843                       2,900                     4,602
Other (income) expense, net                            (877)                        502                       804
Net change in assets and liabilities                 (6,644)                     (4,404)                   (4,613)
Non-cash  items  to  reconcile  net cash             (1,704)                       (280)                     (221)
from operations to net income
                                          -------------------------- -------------------------- --------------------------
                                          -------------------------- -------------------------- --------------------------
EBITDA                                            $   3,709                  $   11,133                $   16,257
                                          ========================== ========================== ==========================
</TABLE>


     The  Company  has entered  into  various  capital  lease  transactions  for
hardware and  software.  The Company has also  assumed  various  capital  leases
through its acquisitions. The principal balance of all capital leases as of June
30, 2003 was approximately $808,000.

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

     The total future  payments under these  contractual  obligations as of June
30, 2003 is as follows:

<TABLE>
<S>                                                        <C>    <C>    <C>     <C>    <C>    <C>
                                                       Payments Due by Period
Contractual Obligations                                    ($ in thousands)

                                                       Less than                                          After 5
                                       Total            1 year           1-3 years     4-5 years            Years
                                       -----            ------           ---------     ---------            -----

Long Term Debt                       $ 15,683       $   15,683           $   __       $       __        $      __

Capital Lease Obligations                 808              481              327               __               __

Operating Leases                       11,206            2,414            4,370            1,934            2,488

Sale-leaseback                            592              444              148               __               __
                                     ________          _______            _____          _______           ------

Total Contractual Cash
Obligations                         $  28,289        $  19,022           $4,845           $1,934       $    2,488
                                   ==========        =========            =====         ========       ==========
</TABLE>


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

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

     The Sellers of Integrail  are eligible to receive from monies put in escrow
up to $700,000 if certain  operational  milestones  are achieved  over the first
twelve months.

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

     The  Company  anticipates  that  current  cash  positions,  after  its five
acquisitions  and the  repayment  of certain  affiliate  and  shareholder  debt,
together  with  anticipated  cash flow from  operations,  will be  sufficient to
satisfy the Company's  contemplated  cash  requirements  for at least 24 months.
This is based upon current levels of capital expenditures, anticipated inventory
levels and anticipated operating results for the next 24 months.  However, it is
one of the Company's stated goals to acquire other pharmacy  benefit  management
companies  and  companies  providing  related  services,  evidenced  by the five
acquired since July 2000.  This will require cash and depending on the Company's
evaluation of future acquisitions, additional cash may be required. In addition,
the Company is  completing  the build out of its mail order  facility in Florida
which will require cash to build out the facility and to acquire  inventory.  In
the  event  that the  Company's  plans  change  or its  assumptions  prove to be
inaccurate,  or the proceeds from the Facility prove to be  insufficient to fund
operations and  acquisitions,  the Company could be required to seek  additional
financing sooner than anticipated. There can be no assurance that such financing
could be obtained at rates or on terms acceptable to the Company, if at all.

Other Matters

Inflation

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

Subsequent Events

     On July 31, 2003, the Company entered into a Stock Purchase  Agreement with
Portland  Professional  Pharmacy  ("PPRX"),   Professional  Pharmacy  Associates
("PRXA",  and together with PPRX,  "PPP") and the individual  shareholders  (the
"PPP  Shareholders")  to purchase all of the shares of PPP for  $3,150,000  (the
"PPP  Acquisition").  In  addition,  the  Company  agreed  to  pay  to  the  PPP
Shareholders  up to  $7,000,000  over a  three-year  period if the PPP  business
achieved certain financial targets. PPP provides  specialty-pharmacy services in
a broad range of areas,  including women's health,  pediatric care, men's health
and  transplant.  Funds for the PPP  Acquisition  were supplied by the Company's
revolving credit facility.

     In connection with the PPP Acquisition, several members of PPP's management
team have joined the Company as  employees,  and have been granted stock options
to purchase an aggregate of 150,000 shares of Common Stock,  under the Company's
1999  Stock  Option  Plan,  as  amended.  As of August 1,  2003,  the  Company's
wholly-owned  subsidiary,  Ascend Specialty Pharmacy Services,  Inc.  ("Ascend")
assumed  all of the shares of PPP.  Each of PRXA and PPRX  continues  to operate
under their respective  names, as subsidiaries of Ascend, in the state of Maine.
The Company intends to position Ascend as a preferred provider with PPP's target
markets  while  focusing on the  extension  of their  specialty  services to the
Company's PBM division.

Critical Accounting Policies and Estimates

General

     Health  Card's  discussion  and  analysis of its  financial  condition  and
results  of  operations  are based upon  Health  Card's  Consolidated  Financial
Statements,  which have been prepared in accordance with  accounting  principles
generally  accepted in the United States.  The  preparation  of these  financial
statements  requires Health Card to make estimates and judgments that affect the
reported amounts of assets, liabilities,  revenues and expenses; these estimates
and  judgments  also  effect  related   disclosure  of  contingent   assets  and
liabilities.  On  an  on-going  basis,  Health  Card  evaluates  its  estimates,
including those related to rebate income, bad debt,  intangible  assets,  income
taxes and  financing  operations.  Health Card bases its estimates on experience
and on various other  assumptions  that are believed to be reasonable  under the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.

     The Company believes that of its significant  accounting policies (see Note
1 to the  Consolidated  Financial  Statements  comprising  Item 8  hereof),  the
following may involve a higher degree of judgment and complexity than others:

Revenue Recognition

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

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

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

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

Bad Debt

     Health Card maintains allowances for doubtful accounts for estimated losses
resulting from the liability of its sponsors to make required  payments.  If the
financial condition of Health Card's sponsors were to deteriorate,  resulting in
an impairment of their ability to make  payments,  additional  allowances may be
required.

Deferred Taxes

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

Goodwill and Intangible Impairment

     In  assessing  the  recoverability  of the  Company's  goodwill  and  other
intangibles,  the Company must make assumptions  regarding estimated future cash
flows and other factors to determine the fair value of the respective assets. If
these estimates or their related  assumptions  change in the future, the Company
may be required to record  impairment  charges for these  assets not  previously
recorded.  On July 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible  Assets," and will be required
to analyze its goodwill for impairment  issues on a periodic  basis  thereafter.
During the year ended June 30, 2003,  the Company did not record any  impairment
losses related to goodwill and other intangible assets.

Capitalized Software

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



<PAGE>


                                     PART IV

Item 15. 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:
<TABLE>
<S>                                                               <C>    <C>    <C>    <C>    <C>    <C>

                  Independent Auditors' Reports                                                      F-2 - F-3

                  Consolidated Balance Sheet as of June 30, 2002 and 2003                               F-4

                  Consolidated Statement of Income for each of the years ended
                  June 30, 2001, 2002 and 2003                                                          F-5

                  Consolidated Statement of Stockholders' Equity for each
                  of the years ended June 30, 2001, 2002 and 2003                                       F-6

                  Consolidated Statement of Cash Flows for each of the years ended
                  June 30, 2001, 2002 and 2003                                                          F-7

                  Notes to Consolidated Financial Statements                                         F-8 - F-31

         2.       Financial Statement Schedule

                  Schedule II:  Valuation and Qualifying Accounts                                     S-1-S-2

         3.       Exhibits

Exhibit
Number       Description of Exhibit


 2.1     Asset Purchase Agreement dated as of November 1, 2002, by and between Health Card, Integrail Acquisition
         Corp., Health Solutions, Ltd., and certain security holders of Health Solutions, Ltd. (10)
 2.2     Assignment Agreement dated as of November 1, 2002, by and between Health Card, Integrail Acquisition Corp.,
         and Health Solutions, Ltd. (10)
 2.3     Stock Purchase Agreement dated July 31, 2003, among Health Card and Portland Professional Pharmacy,
         Portland Professional Pharmacy Associates and the individuals listed on Schedule I thereto
 2.4     Stock Purchase Agreement dated October 30, 2003 by and between Health Card and New Mountain Partners, L.P. (13)
 3.1     Certificate of Incorporation of Health Card (7)
 3.2     By-Laws of Health Card (7)
 4.1     Form of Warrant Agreement, including form of Representatives' Warrants (1)
10.1     Mail Service Provider Agreement, dated July 1, 1996, between Health Card and
         Thrift Drug, Inc. d/b/a Express Pharmacy Services (1)
10.2     Amendment to Mail Service Provider Agreement, dated January 1, 1997, between
         Health Card and Thrift Drug, Inc. d/b/a Express Pharmacy Services (1)
10.3     Software License Agreement and Professional Service Agreement, dated February
         18, 1998, between Health Card and Prospective Health, Inc. (1)
10.4     1999 Stock Option Plan (1)
10.5     Employee Covenant Agreement, dated June 16, 1998, between Health Card
         and Ken Hammond (1)
10.6     Stock Option Agreement, dated August 3, 1999, between Health Card and Ken
         Hammond (4)
10.7     Employment Agreement, dated March 27, 2000, between Health Card and
         David Gershen (4)
10.8     Stock Option Agreement, dated May 1, 2000, between Health Card and David
         Gershen (4)
10.9     Employment Agreement, dated May 3, 2000, between Health Card and James
         Bigl (4)
10.10    Stock Option Agreement, dated June 12, 2000, between Health Card and James
         Bigl (4)
10.11    Stock Option Agreement, dated August 3, 1999, between Health Card and
         Kenneth J. Daley (4)
10.12    Stock Option Agreement, dated August 3, 1999, between Health Card and
         Gerald Angowitz (4)
10.13    Lease, dated August 10, 1998, between 61 Manorhaven Boulevard, LLC and
         Health Card (1)
10.14    Acquisition and Merger Agreement, dated as of June 27, 2000, between
         Health Card and Pharmacy Associates, Inc. (3)
10.15    Asset Purchase Agreement dated as of March 5, 2001 among National Medical Health
         Card Systems, Inc., PMP Acquisition Corp., Provider Medical Pharmaceutical, LLC and
         members of PMP (5)
10.16    Employment Agreement, dated June 4, 2001, between National Medical Health Card
         Systems, Inc. and Tery Baskin (6)
10.17    Stock Option Agreement, dated June 4, 2001, between National Medical Health Card
         Systems, Inc. and Tery Baskin (6)
10.18    Stock Option Agreement, dated June 12, 2001, between National Medical Health Card
         Systems, Inc. and James Bigl (6)
10.19    Asset Purchase Agreement dated January 29, 2002 by and among the
         Company, Health Solutions Limited ("HSL"), HSL Acquisition Corp., a
         wholly-owned subsidiary of the Company, and the security holders of HSL (8)
10.20    Receivables Purchase and Transfer Agreement dated January 29, 2002 by and among
         the Company and certain of  its subsidiaries and NMHC Funding, LLC (8)
10.21    Amendment No. 1 dated September 25, 2002 to Receivables Purchase and Transfer Agreement by
         and among the Company and certain of its subsidiaries and NMHC Funding, LLC
10.22    Amendment No. 2 dated June 30, 2003 to Receivables Purchase and Transfer Agreement by
         and among the Company and certain of its subsidiaries and NMHC Funding, LLC
10.23    Amendment No. 3 dated October 30, 2003 to Receivables Purchase and Transfer Agreement by
         and among the Company and  certain of its subsidiaries and NMHC Funding, LLC
10.24    Loan and Security Agreement dated January 29, 2002, by and between NMHC Funding, LLC
         and HFC Healthco-4, LLC, an affiliate of Healthcare Finance Group, Inc. (8)
10.25    Lease Agreement dated as of August 1, 2001, between National Medical Health Card Systems,
         Inc. and BFS Realty, LLC (6)
10.26    Amended Lease Agreement dated as of August 1, 2001, between National Medical Health Card Systems, Inc.
         and  BFS Realty, LLC (6)
10.27    2003 Employee Stock Purchase Plan (11)
10.28    Amendment No. 2 dated April 15, 2002 to Employment Agreement between Health Card and James Bigl (12)
10.29    Amendment No. 3 dated October 14, 2002 to Employment Agreement between Health Card and James Bigl(12)
10.30    Amendment No. 4 dated November 6, 2002 to Employment Agreement between Health Card and James Bigl (12)
10.31    Stock Option Agreement between Health Card and James Bigl dated February 20, 2001 (12)
10.32    Stock Option Agreement between Health Card and James Bigl dated April 30. 2002 (12)
10.33    Stock Option Agreement between Health Card and James Bigl dated June 26, 2002 (12)
10.34    Stock Option Agreement between Health Card and James Bigl dated July 22, 2003 (12)
10.35    Employment Agreement dated October 14, 2002 between Health Card and Bert Brodsky (12)
10.36    Employment Agreement dated November 20, 2002 between Health Card and Agnes Hall (12)
10.37    Stock Option Agreement between Health Card and Agnes Hall dated January 8, 2001 (12)
10.38    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated January 8, 2001 (12)
10.39    Stock Option Agreement between Health Card and Agnes Hall dated August 10, 2001 (12)
10.40    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated August 10, 2001 (12)
10.41    Stock Option Agreement between Health Card and Agnes Hall dated December 4, 2001 (12)
10.42    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated December 4, 2001(12)
10.43    Stock Option Agreement between Health Card and Agnes Hall dated July 31, 2002 (12)
10.44    Amendment to Stock Option Agreement between Health Card and Agnes Hall dated July 31, 2002 (12)
10.45    Stock Option Agreement between Health Card and Agnes Hall dated August 1, 2003 (12)
10.46    First Amendment dated November 6, 2002 to Employment Agreement between Health Card and David Gershen (12)
10.47    Stock Option Agreement between Health Card and David Gershen dated February 20, 2001 (12)
10.48    Stock Option Agreement between Health Card and David Gershen dated September 24, 2001 (12)
10.49    Stock Option Agreement between Health Card and David Gershen dated August 1, 2002 (12)
10.50    Stock Option Agreement between Health Card and David Gershen dated August 1, 2003 (12)
10.51    First Amendment dated November 6, 2002 to Employment Agreement between Health Card and Tery Baskin (12)
10.52    Stock Option Agreement between Health Card and Tery Baskin dated July 20, 2000 (12)
10.53    Stock Option Agreement between Health Card and Tery Baskin dated August 10, 2001 (12)
10.54    Stock Option Agreement between Health Card and Tery Baskin dated August 1, 2002 (12)
10.55    Stock Option Agreement between Health Card and Tery Baskin dated September 19, 2002 (12)
10.56    Stock Option Agreement between Health Card and Tery Baskin dated August 1, 2003 (12)
10.57    Employment Agreement between Health Card and Patrick McLaughlin dated January 29, 2002 (12)
10.58    Stock Option Agreement between Health Card and Patrick McLaughlin dated January 29, 2002 (12)
10.59    Stock Option Agreement between Health Card and Patrick McLaughlin dated August 1, 2003 (12)
10.60    Amendment to Stock Option Agreement dated January 29, 2002 between Health Card and Patrick McLaughlin (12)
10.61    Stock Option Agreement between Health Card and Gerald Angowitz dated November 20, 2000 (12)
10.62    Stock Option Agreement between Health Card and Gerald Angowitz dated February 20, 2001 (12)
10.63    Stock Option Agreement between Health Card and Gerald Angowitz dated April 9, 2003 (12)
10.64    Stock Option Agreement between Health Card and Kenneth J. Daley dated November 20, 2000 (12)
10.65    Stock Option Agreement between Health Card and Kenneth J. Daley dated February 20, 2001 (12)
10.66    Stock Option Agreement between Health Card and Kenneth J. Daley dated April 9, 2003 (12)
10.67    Stock Option Agreement between Health Card and Ronald L. Fish dated November 20, 2000 (12)
10.68    Stock Option Agreement between Health Card and Ronald L. Fish dated February 20, 2001 (12)
10.69    Stock Option Agreement between Health Card and Ronald L. Fish dated April 9, 2003 (12)
10.70    Stock Option Agreement between Health Card and Paul J. Konigsberg dated November 20, 2000 (12)
10.71    Stock Option Agreement between Health Card and Paul J. Konigsberg dated February 20, 2001 (12)
10.72    Stock Option Agreement between Health Card and Paul J. Konigsberg dated April 9, 2003 (12)
10.73    Stock Option Agreement between Health Card and Bert E. Brodsky dated February 20, 2001 (12)
10.74    Stock Option Agreement between Health Card and Gerald Shapiro dated February 20, 2001 (12)
10.75    Lease dated November 1, 2002 between B/A Airport Park Solutions, LLC and Health Card (12)
10.76    Lease Addendum dated March 10, 2003 between B/A Airport Park Solutions, LLC and Health Card (12)
10.77    Lease Agreement dated November 18, 2002 between Sunbeam Development Corporation and
         NMHCRx Mail Order, Inc. (12)
10.78    Lease Expansion and Modification Agreement dated July 31, 2003 between Sunbeam Development
         Corporation and NMHCRx Mail Order, Inc. (12)
10.79    AmerisourceBergen Prime Vendor Agreement, dated July 21, 2003 between NMHCRx Mail Order, Inc.
         d/b/a NMHCMail and AmerisourceBergen Drug Corporation (12)
10.80    Sixth Amendment to Employment Agreement, dated October, 30, 2003, by and between
         National Medical Health Card Systems, Inc. and James J. Bigl
10.81    Release, dated October 30, 2003, by Sandata Technologies, Inc. and Sandsport, Inc.
10.82    Amendment to Lease Agreement, dated as of October 23, 2003, by and
         among BFS Realty, LLC and National Medical Health Card Systems, Inc.
10.83    Lease Agreement, dated August 1, 2001, between Brodsky Sibling Realty
         Juniper Road, LLC and National Medical Health Card Systems, Inc.
10.84    Lease Agreement (30 Sea Cliff), dated May 1, 2002, between Living in Style, LLC
         and National Medical Health Card Systems, Inc.
10.85    Amendment to Lease Agreement (30 Sea Cliff), dated as of October 30,
         2003, between Living in Style, LLC and National Medical Health Card
         Systems, Inc.
10.86    Lease Agreement (32 Sea Cliff), dated May 1, 2002, between Living in Style, LLC
         and National Medical Health Card Systems, Inc.
10.87    Amendment to Lease Agreement (32 Sea Cliff), dated as of October 30,
         2003, between Living in Style, LLC and National Medical Health Card
         Systems, Inc.
10.88    Second Amendment to Employment Agreement, dated October 30, 2003, by and
         between National Medical Health  Card Systems, Inc. and Bert E. Brodsky
14.      Code of Ethics (12)
21.      List of Subsidiaries (12)
23.1     Consent of Ernst & Young LLP to the incorporation by reference in the
         Registration Statement on Form S-8 (File No. 333-8224) of its report dated
         September 5, 2003.
23.2     Consent of Goldstein Golub Kessler LLP to the incorporation by reference in the
         Registration Statement on Form S-8 (File No. 333-8224) of its report dated August 31, 2003.
31.1     Rule 13a-14(a)/15d-14(a) Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
31.2     Rule 13a-14(a)/15d-14(a) Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act
32.1     Section 1350 Certification of CEO as adopted by Section 906 of the Sarbanes-Oxley Act
32.2     Section 1350 Certification of CFO as adopted by Section 906 of the Sarbanes-Oxley Act


(1) Denotes document filed as an Exhibit to Health Card's Registration Statement
on Form S-1 (Registration Number: 333-72209) and incorporated herein by reference.
(2) Denotes documentation filed as an Exhibit to Health Card's Report on Form 10-K
for the fiscal year ended June 30, 1999.
(3) Denotes document filed as an Exhibit to Health Card's Form 8-K for an event dated
July 20, 2000 and incorporated herein by reference.
(4) Denotes documentation filed as an Exhibit to Health Card's Report on Form 10-K
for the year ended June 30, 2000.
(5) Denotes document filed as an Exhibit to Health Card's Form 8-K for an event dated March 5, 2001.
(6) Denotes document filed as an Exhibit to Health Card's Report on Form 10-K for the year ended June
30, 2001.
(7) Denotes document filed as an Exhibit to Health Card's Definitive
Proxy Statement on Schedule 14-A filed on December 21, 2001 and incorporated
herein by reference.
(8) Denotes document filed as an Exhibit to Health Card's Current Report on Form
8-K for events dated January 29, 2002 and incorporated herein by reference.
(9) Denotes document filed as an Exhibit to Health Card's Amendment number 1 on Form
8-K/A filed with the Securities and Exchange Commission on May 21, 2002 and
incorporated herein by reference.
(10) Denotes document filed as an Exhibit to Health Card's Form 10-Q for the
quarter ended September 30, 2002 and incorporated herein by reference.
(11) Denotes document filed as an Exhibit to Health Card's Definitive Proxy Statement
on Schedule 14-A on October 25, 2002 and incorporated herein by reference.
(12) Denotes document filed as an Exhibit to Health Card's Form 10-K for the year
ended June 30, 2003.
(13) Denotes document filed as an Exhibit to Health Card's Form 8-K filed on November 13, 2003
and incorporated herein by reference.
</TABLE>

(b) Reports on Form 8-K

    A Form 8-K was filed with the Securities and Exchange Commission on May 16,
2003 and August 12, 2003.


<PAGE>


                                   SIGNATURES

Pursuant to the requirements 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.
-------------------------------------------------------------------------------
        (Registrant)

By  /s/Bert E. Brodsky
    ----------------------------------------------------------------------------
Bert E. Brodsky, Chairman
Date:February 17, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

By    /s/  Bert E. Brodsky
   -----------------------------------------------------------------------------
        Bert E. Brodsky, Chairman of the Board
Date:February 17, 2004

By   /s/  Gerald Shapiro
  ------------------------------------------------------------------------------
        Gerald Shapiro, Vice Chairman of the Board, Secretary,
Date:February 17, 2004

By   /s/  James J. Bigl
   -----------------------------------------------------------------------------
        James J. Bigl, Chief Executive Officer, Principal Executive Officer
                        and Director
Date: February 17, 2004

By   /s/  Gerald Angowitz
  ------------------------------------------------------------------------------
        Gerald Angowitz, Director
Date: February 17, 2004

By   /s/  Kenneth J. Daley
  ------------------------------------------------------------------------------
        Kenneth J. Daley, Director
Date: February 17, 2004

By   /s/  Paul J. Konigsberg
  ------------------------------------------------------------------------------
        Paul J. Konigsberg, Director
Date:February 17, 2004

By   /s/  Ronald L. Fish
  ------------------------------------------------------------------------------
        Ronald L. Fish, Director
Date: February 17, 2004

By   /s/ Stuart Fleischer
  ------------------------------------------------------------------------------
       Stuart Fleischer, Principal Financial and Accounting Officer
Date: February 17, 2004

<PAGE>



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------









Independent Auditors' Reports                                        F-2 - F-3


Consolidated Financial Statements:

   Balance Sheet                                                         F-4
   Statement of Income                                                   F-5
   Statement of Stockholders' Equity                                     F-6
   Statement of Cash Flows                                               F-7
   Notes to Consolidated Financial Statements                         F-8 - F-31









<PAGE>




                         Report of Independent Auditors


The Board of Directors and Stockholders of
National Medical Health Card Systems, Inc. and Subsidiaries

     We have audited the  accompanying  consolidated  balance sheets of National
Medical Health Card Systems, Inc. and subsidiaries as of June 30, 2003 and 2002,
and the related  consolidated  statements of income,  stockholders'  equity, and
cash flows for the years then ended.  Our audits  also  included  the  financial
statement schedule listed in the index at Item 15(a). These financial statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit 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 financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of National
Medical Health Card Systems,  Inc. and  subsidiaries  at June 30, 2003 and 2002,
and the  consolidated  results of their  operations and their cash flows for the
years then ended in conformity with accounting  principles generally accepted in
the United  States.  Also,  in our  opinion,  the  related  financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.

     As  discussed  in  note 1 to the  consolidated  financial  statements,  the
Company  changed its method of  accounting  for  goodwill  and other  intangible
assets effective July 1, 2001.


                                                          /s/ Ernst & Young LLP
Melville, New York
September 5, 2003











<PAGE>




                          INDEPENDENT AUDITOR'S REPORT




Board of Directors
National Medical Health Card Systems, Inc.


     We  have  audited  the  accompanying  consolidated  statements  of  income,
stockholders'  equity  (deficiency),  and cash flows for the year ended June 30,
2001 of National  Medical  Health Card  Systems,  Inc. and  Subsidiaries.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit 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  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the results of National Medical Health
Card Systems,  Inc. and  Subsidiaries'  operations  and their cash flows for the
year ended June 30, 2001 in  conformity  with  accounting  principles  generally
accepted in the United States of America.




GOLDSTEIN GOLUB KESSLER LLP
New York, New York

August 31, 2001



<PAGE>

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



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

----------------------------------------------------------------------------------------------------------------------------
                           CONSOLIDATED BALANCE SHEET

                                ($ in thousands)
----------------------------------------------------------------------------------------------------------------------------
                                                                                             June 30,              June 30,
Assets                                                                                         2002                 2003
                                                                                               ----                 ----
Current:

  Cash and cash equivalents (including cash equivalent investments of $1,187              $    1,768               $ 5,222
            and $1,189, respectively)

  Restricted cash                                                                              2,653                 2,383

  Accounts receivable, less allowance for doubtful accounts of $2,248
             and $2,014, respectively                                                         59,285                52,022

  Rebates receivable                                                                          15,775                24,584

  Due from affiliates                                                                            504                 4,165

  Deferred tax assets                                                                          1,542                 2,065

  Other current assets                                                                           610                 1,714
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                    82,137                92,155

  Property, equipment and software development costs, net                                      9,031                 8,239

  Due from affiliates                                                                          3,620                     -

  Intangible assets, net of accumulated amortization of $406 and $1,210,
          respectively                                                                         2,523                 2,291

  Goodwill                                                                                    52,035                53,669

  Other assets                                                                                   549                   386
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
      Total Assets                                                                        $  149,895            $  156,740
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current Liabilities:

  Accounts payable and accrued expenses                                                   $  100,525            $  106,675
  Revolving credit facility and loans payable-current                                         13,835                15,683

  Convertible notes payable                                                                    8,000                     -

  Current portion of capital lease obligations                                                   556                   481

  Due to officer/stockholder                                                                     696                 1,117

  Income taxes payable                                                                             -                   629

  Other current liabilities                                                                    1,178                   137
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                               124,790               124,722

  Capital lease obligations, less current portion                                                809                   327

  Other long term liabilities                                                                    865                 1,020

  Deferred tax liability                                                                       2,154                 2,245
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                       128,618               128,314
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies
Stockholders' Equity:

  Preferred stock $.10 par value; 10,000,000 shares authorized, none outstanding                   -                     -
  Common Stock, $.001 par value, 25,000,000 shares authorized,  7,550,239 and
    7,812,907 shares issued, 7,359,239 and 7,621,907 outstanding, respectively                     8                     8

  Additional paid-in-capital                                                                  14,292                15,027

  Retained earnings                                                                            7,721                14,135

  Treasury stock at cost, 191,000 shares                                                        (744)                 (744)
---------------------------------------------------------------------------------------------------------------------------
     Total stockholders' equity                                                               21,277                28,426
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
     Total Liabilities and Stockholders' Equity                                           $  149,895            $  156,740
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
                               See accompanying notes to consolidated financial statements

</TABLE>


<PAGE>



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

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

-----------------------------------------------------------------------------------------------------------------------------------
                        CONSOLIDATED STATEMENT OF INCOME

              (All amounts in thousands, except per share amounts)
                                                                                        Years ended June 30,

                                                                           2001              2002                2003
                                                                           ----              ----                ----

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

Revenue                                                           $      272,119    $      459,832      $      573,266
Cost of claims                                                           249,572           424,733             525,472
-----------------------------------------------------------------------------------------------------------------------------------

Gross profit                                                              22,547            35,099              47,794

Selling, general and administrative expenses*                             21,423            27,230              35,974

----------------------------------------------------------------------------------------------------------------------------------
Operating income                                                           1,124             7,869              11,820
----------------------------------------------------------------------------------------------------------------------------------

Other income (expense):
Interest expense                                                            (236)           (1,125)             (1,209)
Interest income                                                            1,113               522                 252
Other income, net                                                             -                101                 153
---------------------------------------------------------------------------------------------------------------------------------
                                                                             877              (502)               (804)
---------------------------------------------------------------------------------------------------------------------------------

Income before provision for income taxes                                   2,001             7,367              11,016
Provision for income taxes                                                   843             2,900               4,602

--------------------------------------------------------------------------------------------------------------------------------
Net income                                                           $     1,158      $      4,467        $      6,414
================================================================================================================================

Earnings per common share:
  Basic                                                             $       0.16      $       0.62        $       0.85

================================================================================================================================
  Diluted                                                           $       0.16      $       0.56        $       0.80
================================================================================================================================


Weighted-average number of common shares outstanding:
  Basic                                                                    7,101             7,213               7,590

================================================================================================================================
  Diluted                                                                  7,200             7,909               8,036
================================================================================================================================

* Includes amounts charged by affiliates aggregating:                $     4,081        $    1,889          $      862


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

           See accompanying notes to consolidated financial statements


<PAGE>



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

           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
-----------------------------------------------------------------------------------------------------------------------------------
                 Consolidated Statement Of Stockholders' Equity
                           (All amounts in thousands)

                                           Notes
                                        Receivable     Preferred Stock   Common Stock    Additional      Retained   Treasury Stock
                                         ----------    ----------------  ------------    -----------     ---------  --------------
                                        Stockholders    Shares Amount    Shares Amount  Paid-in-Capital  Earnings    Shares Amount
                                        ------------    ------ ------    ------ ------  ---------------  --------    ------ ------
Balance at June 30, 2000               $   (339)          -  $    -      6,912   $  7     $ 12,405      $   2,096      191    (744)
  Principal paid on notes receivable         65           -       -          -      -            -             -         -       -
  Interest paid on notes receivable         (26)          -       -          -      -            -             -         -       -
  Stock issued - PAI acquisition              -           -       -        400      -          850             -         -       -
  Net income                                  -           -       -          -      -            -          1,158        -       -

-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001                    (300)         -       -       7,312     7       13,255          3,254      191    (744)
  Principal paid on notes receivable         300          -       -           -     -            -              -        -       -
  Exercise of stock options                    -          -       -         175     1          787              -        -       -
  Stock issued - PAI acquisition               -          -       -          63     -          250              -        -       -
  Net income                                   -          -       -           -     -            -          4,467        -       -

-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002                       -          -       -       7,550     8       14,292          7,721      191    (744)
  Exercise of stock options                    -          -       -         221     -          485             -         -       -
  Stock issued - PAI acquisition               -          -       -          42     -          250             -         -       -
  Net income                                   -          -       -          -      -            -          6,414        -       -

-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003              $        -          -   $   -       7,813  $  8     $ 15,027      $  14,135      191  $ (744)
-----------------------------------------------------------------------------------------------------------------------------------

           See accompanying notes to consolidated financial statements
</TABLE>


<PAGE>




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

           NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------------------------------------------------------------
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                ($ in thousands)
                                                                                            Years Ended June 30,
                                                                                   ---------------------------------------
                                                                                   ------------ ------------ -------------
                                                                                      2001         2002        2003
                                                                                      ----         ----        ----
Cash flows from operating activities:
             Net income                                                         $     1,158  $    4,467   $   6,414
               Adjustments to reconcile net income to net cash
               provided by operating activities:
                 Depreciation and amortization                                        2,585       3,264       4,437
                 Amortization of deferred gain                                            -        (102)       (153)
                 Net gain on disposal of capital assets                                   -        (331)        (13)
                 Provision for doubtful accounts                                        857         546         164
                 Compensation expense accrued to officer/stockholder                    482         154         821
                 Deferred income taxes                                                  391          13        (433)
                 Interest accrued on stockholders'/affiliate's loans                    (26)         -         (165)
               Changes in assets and liabilities, net of effect from acquisitions:
                 Restricted cash                                                       (468)     (1,055)        270
                 Accounts receivable                                                (10,155)    (29,750)      7,486
                 Rebates receivable                                                  (1,304)     (7,986)     (8,809)
                 Other current assets                                                  (594)        387      (1,028)
                 Due to/from affiliates                                                (346)        351        (276)
                 Other assets                                                            42         (54)        (19)
                 Accounts payable and accrued expenses                               19,527      41,713       6,844
                 Income taxes payable and other current liabilities                     (56)         83        (163)
                 Other long term liabilities                                             (2)        715         308
------------ -------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                            12,091      12,415      15,685
--------------------------------------------------------------------------------------------------------------------------
------------ -------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
             Capital expenditures                                                    (3,842)     (3,196)     (2,468)
             Acquisition of Integrail, net of cash acquired                               -          -       (1,482)
             Acquisition of Centrus, net of cash acquired                                 -     (40,287)     (1,070)
             Acquisition of PAI, net of cash acquired                                (4,614)     (1,000)     (1,000)
             Acquisition of PMP, net of cash acquired                                (6,706)          -           -
             Proceeds from disposal of capital assets                                    30       1,321          22
             Repayment of note by stockholder                                             -         300           -
             Principal received on notes from stockholders                               65           -           -
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                               (15,067)    (42,862)     (5,998)
--------------------------------------------------------------------------------------------------------------------------
------------ -------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:

             Proceeds from exercise of stock options                                     -         788           485

             Proceeds from convertible note offering                                     -      11,600             -
             Repayment of convertible note offering                                      -      (3,600)       (8,000)
             Proceeds from revolving credit facility                                 4,000      28,700       688,750
             Repayment of revolving credit facility                                 (4,000)    (14,887)     (686,901)
             Deferred financing costs                                                    -        (486)          183
             Repayment of debt and capital lease obligations                          (742)       (777)         (750)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities                                   (742)     21,338        (6,233)
--------------------------------------------------------------------------------------------------------------------------
------------ -------------------------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash equivalents                                (3,718)     (9,109)        3,454
Cash and cash equivalents at beginning of year                                      14,595      10,877         1,768
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                        $   10,877    $  1,768  $      5,222
--------------------------------------------------------------------------------------------------------------------------
           See accompanying notes to consolidated financial statements
</TABLE>


<PAGE>

                          NATIONAL MEDICAL HEALTH CARD, INC. AND SUBSIDIARIES
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (All $ in thousands, except per share amounts)

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

 1.    Principal Business Activity and Summary
       of  Significant  Accounting Policies:


     National Medical Health Card Systems,  Inc. (the "Company,"  "Health Card")
provides  comprehensive  pharmacy  benefit  management  ("PBM") 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  pharmacy
benefit  management  services include electronic  point-of-sale  pharmacy claims
management,  retail  pharmacy  network  management,  mail order pharmacy  claims
management,  specialty pharmacy claims management,  benefit design consultation,
preferred  drug  management  programs,  drug  review  and  analysis,  consulting
services,  disease information services, data access,  reporting and information
analysis,  and physician  profiling.  In addition,  the Company  operates a mail
order pharmacy, a specialty pharmacy, and health informatics company.

     The audited  consolidated  financial  statements  include  the  accounts of
National Medical Health Card Systems,  Inc., and its wholly owned  subsidiaries,
Pharmacy  Associates,  Inc.  ("PAI"),  Interchange  PMP, Inc.  ("PMP"),  Centrus
Corporation  f/k/a  HSL  Acquisition  Corp.  (see Note 2)  ("Centrus")  National
Medical  Health  Card  IPA,  Inc.   ("IPA"),   Specialty   Pharmacy  Care,  Inc.
("Specialty"),  NMHCRX Contracts, Inc. ("Contracts"),  PBM Technology Inc. ("PBM
Tech"),   NMHCRX  Mail  Order,   Inc.   ("Mail  Order")  and   Integrail,   Inc.
("Integrail").  Also included on a  consolidated  basis are the accounts of NMHC
Funding,  LLC ("Funding"),  a limited liability company of which the Company and
some of its  subsidiaries  are the  owners of all of the  membership  interests.
Unless the context  otherwise  requires,  references  herein to the "Company" or
"Health  Card"  refer to the  Company and its  subsidiaries,  on a  consolidated
basis. All material  intercompany balances and transactions have been eliminated
in the consolidation.

     In October 1998, the Company acquired IPA, which is an independent practice
association  under the laws of New York.  The Company  acquired  PSCNY IPA, Inc.
(`PSCNY") as part of the Centrus Acquisition (see Note 2). Health Card's IPA was
dissolved.  PSCNY was  utilized by Centrus to contract  with Health  Maintenance
Organizations or providers  containing financial  risk-sharing  provisions which
represents some of Centrus' largest sponsors. PSCNY's name was changed to IPA in
September 2002. 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.

     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 some of these agreements
are between  Health Card and drug  manufacturers,  Specialty  administers  these
contracts on behalf of Health Card. Specialty is paid administrative fees by the
drug manufacturers and/or retains a percentage of rebates collected.  Currently,
Specialty  does not have  any  full-time  employees.  Specialty  reimburses  the
Company for the use of its employees on an as-needed basis.

     In April, 2002,  Contracts was incorporated.  This subsidiary was formed to
contract with certain larger sponsors.  The nature of the contractual terms with
these  sponsors  leads the  Company  to  recognize  revenue  on a net basis (see
revenue  recognition  policy below).  Contracts does not currently have any full
time employees.

     PBM Tech was  incorporated  in April 2002.  This  subsidiary  was formed to
manage the  Company's  intellectual  property.  PBM Tech  maintains an office in
Wilmington, Delaware and employs its own employees.

     NMHCRX Mail Order,  Inc.  was  incorporated  in August 2002 to provide mail
order  pharmacy  services to the  Company's  existing  sponsors as well as other
small regional PBMs. Prior to opening its own facility in Miramar,  Florida, the
Company  outsourced  all its mail order  business.  The  subsidiary  has its own
employees and rents the facility, including a warehouse, from an unrelated third
party.  Currently,   all  intercompany  revenue  generated  by  Mail  Order  for
fulfillment   of   prescriptions   on  behalf  of  the  PBM,  is  eliminated  in
consolidation.

     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. These also include short-term, highly
liquid  municipal  bonds with  interest  rates that are reset  monthly which are
readily  convertible into cash at par value (cost).  Restricted cash balances at
June 30, 2002 and 2003 includes  approximately $2,653 and $2,383,  respectively,
which are  restricted as to their use as related to the  maintenance  of minimum
cash balances in accordance with Ohio statute.

     The Company has historically entered into two types of arrangements for the
payment  of  administrative  fees:  fee for  service  (per  claim  charges)  and
capitation  (per  member  per  month   charges).   Under  the  fee  for  service
arrangement, the Company is paid by its sponsors for the Company's contractually
agreed upon rates based upon actual claims  adjudicated plus a fixed transaction
fee. Under the capitation arrangement, the 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.  Since
January 1, 2000,  all  services  have been  provided by the Company on a fee for
service basis only.

     Revenue  under  the fee for  service  arrangement  related  to the sales of
prescription  drugs  by  the  Company's  nationwide  network  of  pharmacies  is
recognized when the claims are adjudicated.  At the point-of-sale,  the pharmacy
claims  are  adjudicated   using  the  Company's  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 revenue  the  Company's
administrative  fees and charges  relating to  pharmaceuticals  dispensed by the
Company's  network  of  pharmacies.  Revenue is reduced by the amount of rebates
paid to the Company's sponsors.  Cost of claims includes the amounts paid to the
Company's  network of  pharmacies  for  pharmaceutical  claims  reduced by gross
rebates received from drug  manufacturers.  The Company does not take possession
or legal ownership of the pharmaceutical drugs dispensed by the pharmacy network
excluding  its  own  mail  order   facility.   The  Company  assumes  the  legal
responsibility  and  financial  risk of  paying  for  dispensed  pharmaceuticals
whether or not the Company is paid by its  sponsors.  There are several  factors
from EITF 99-19 that leads the Company to recognize  the majority of its revenue
on a gross basis.  These  include:  the Company  acts as a principal  and not an
agent and is the primary obligor in the relationship  among the pharmacies,  the
sponsors and the Company,  the Company has credit risk,  the Company has certain
latitude in  establishing  price,  and the Company  has  discretion  in supplier
selection.

     The specific  terms of the contracts  that Health Card enters into with its
sponsors will determine whether Health Card recognizes the gross revenue related
to the cost of the  prescriptions  filled. In certain cases, the Company has not
recognized  the gross  revenue  or cost  related to  prescriptions  filled for a
specific  sponsor.  The primary factor in recognizing  these  contracts on a net
basis is that the amount that the Company earns is fixed. The Company receives a
fixed charge per claim and a fixed  percentage of rebates and all other pharmacy
costs are charged to the plan sponsor. This has no impact on the Company's gross
profit  since  neither the  prescription  revenue  nor the  related  cost of the
prescriptions is recorded.

     The Company  follows the  provisions of EITF 00-14,  Accounting for Certain
Sales  Incentives  - Coupons,  Rebates  and  Discounts  in  connection  with the
Company's rebates to sponsors.  These rebates are recognized when the Company is
entitled to them in accordance with the terms of the Company's arrangements with
drug  manufacturers,  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. For
the years ended June 30, 2001, 2002 and 2003 the rebates retained by the Company
were approximately $4,255, $6,513 and $5,398, respectively.

     Mail Order  began  filling  prescriptions  out of the  Miramar  facility on
August 1, 2003. Mail Order maintains an inventory of  pharmaceuticals,  which it
purchases  from a drug  wholesaler or direct from the  manufacturer.  Mail Order
recognizes  revenue at the point of shipment for both the co-pay  collected from
the individual  member, as well as for the "sale" of the prescription to the PBM
at  specified  prices.  Revenue from this  intercompany  sale is  eliminated  in
consolidation.  Inventory  is stated at the lower of cost  (first in,  first out
method) or market.  To date, Mail Order only fills  prescriptions  for NMHC plan
sponsors.

     Integrail  invoices its customers  quarterly  primarily for annual  license
fees.  Annual license fees are billed equally over the quarters and are based on
a per  member  amount  charge.  Connectivity  charges,  analytical  support  and
implementation charges are also invoiced quarterly as incurred.  License revenue
for each  customer is  recognized  ratably  over the quarter that it relates to.
Other revenues are recognized when invoiced.

     Property and equipment is recorded at cost. Depreciation is provided for by
the  straight-line  method over the  estimated  useful lives of the property and
equipment  (generally 3 to 7 years).  Leasehold  improvements are amortized on a
straight-line  basis over the shorter of the term of the lease or the  estimated
useful lives of the assets.

     The costs of  software  developed  for  internal  use  incurred  during the
preliminary project stage are expensed as incurred. Direct costs incurred during
the application  development  stage are  capitalized.  Costs incurred during the
post-implementation/operation   stage  are  expensed  as  incurred.  Capitalized
software  development  costs are amortized on a  straight-line  basis over their
estimated  useful  lives.  During  the  years  ended  June 30,  2002  and  2003,
approximately  $824 and  $1,012,  respectively,  in software  development  costs
related to internal programming time were capitalized.

     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, which prior to June 2001 was five years
and  subsequently  has been  primarily  three  years.  Amortization  expense was
approximately $1,327, $1,834, and $2,245 for the years ended June 30, 2001, 2002
and 2003, respectively.

     A significant  portion of the Company's computer software for its reporting
system was previously developed by a company affiliated by common ownership (see
Note 4). Currently,  the Company's development is performed by its own employees
or by  unrelated  third party  consultants.  The cost  includes  development  of
software programs and  enhancements,  which may either expand or modify existing
programs  which allows the Company to do  customized  reporting  from its claims
adjudication system.

     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.

     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,  and contingently  issuable shares,
in the periods in which such options and  warrants,  and  contingently  issuable
shares have a dilutive effect under the treasury stock method.

     The  Company  accounts  for  stock  option  grants to  employees  under the
recognition  and  measurement  principles of APB No. 25,  "Accounting  for Stock
Issued to Employees," and related Interpretations. Under APB No. 25, because the
exercise  price of the Company's  employee stock options equals the market price
of the  underlying  stock on the  date of  grant,  no  compensation  expense  is
recorded.

     Pro forma information  regarding net loss applicable to common stockholders
is required by SFAS 123,  "Accounting for Stock-Based  Compensation," which also
requires that the  information be determined as if the Company has accounted for
its stock options under the fair value method of that statement. For purposes of
pro forma  disclosures,  the estimated fair value of the options is amortized to
expense over the options'  vesting period.  The fair value for these options was
estimated  using  the  Black-Scholes  option-pricing  model  with the  following
weighted-average  assumptions  used for all  grants in the years  ended June 30,
2001, 2002, and 2003: no dividend yield,  weighted-average  expected life of the
option of five  years,  risk-free  interest  rate  ranges of .84% to 5.82% and a
volatility  of 90.8%,  86.2%,  and  83.2%,  respectively,  for all  grants.  The
weighted-average  value of  options  granted is $.96,  $6.77,  and $4.99 for the
three years ended June 30, 2001, 2002, and 2003.

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

     The following  table  illustrates the effect on net loss if the Company had
applied the fair value  recognition  provisions  of SFAS No. 123 to  stock-based
compensation:

 Year  ended June 30,             2001            2002                    2003
 -------------------------------------------------------------------------------
Reported net income              $1,158          $4,467                  $6,414
Stock compensation expense
included in net income                -               -                       -
Pro forma compensation expenses    (320)           (666)                 (1,574)
--------------------------------------------------------------------------------
Pro forma net income             $  838          $3,801                  $4,840
================================================================================
Pro forma earnings per share:
Basic                            $ .12            $.53                    $ .64
Diluted                          $ .12            $.48                    $ .60
================================================================================

     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 SIPC insurance limits. Amounts on deposit with
financial institutions, which exceeded the FDIC or SIPC insurance limits at June
30, 2002 and 2003, were approximately $7,710 and $5,694, respectively.

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States 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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.

     The carrying  amounts of financial  instruments,  including cash,  accounts
receivable,   accounts  payable,  accrued  liabilities,   and  revolving  credit
facility,  approximate  fair  value  because  of the  current  nature  of  these
instruments.  Loans due from  affiliates  and an officer  bear  market  interest
rates;  therefore,  the Company  believes that the carrying amount  approximates
fair value.

     For  comparability,  certain 2001 and 2002 amounts have been  reclassified,
where appropriate,  to conform to the financial  statement  presentation used in
2003.

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
Nos. 141 and 142,  Business  Combinations  and  Goodwill and Other  Intangibles,
respectively.  FASB 141 requires all business combinations  initiated after June
30, 2001 to be accounted for using the purchase method. Under FASB 142, goodwill
is no longer subject to  amortization  over its estimated  useful life.  Rather,
goodwill is subject to at least an annual  assessment for impairment by applying
a fair-value based test.  Additionally,  an acquired  intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual  or other  legal  rights,  or if the  intangible  asset can be sold,
transferred,  licensed, rented or exchanged, regardless of the acquirer's intent
to do so. The Company has adopted  SFAS Nos.  141 and 142 as of July 1, 2001 and
has performed the requisite  impairment testing. As of June 30, 2003 there is no
impairment to the goodwill recorded on the accompanying balance sheet.

     SFAS 142  requires  the  disclosure  of net income and  earnings  per share
computed on a pro forma basis by reversing the goodwill amortized in the periods
presented. Such pro forma disclosures are required in the period of adoption and
thereafter  until  all  periods  presented  reflect  goodwill  accounted  for in
accordance with SFAS 142. The goodwill amortized in the year ended June 30, 2001
was $396.  Therefore,  had SFAS 142 been  effective  prior to July 1, 2001,  the
Company's net income would have been $1,554 or $0.22 per basic and diluted share
for the year ended June 30, 2001.

     The Company  follows the  provisions  of SFAS No. 144,  Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets,  that is applicable to financial
statements  issued for fiscal years  beginning  after  December  15, 2001,  with
transition provisions for certain matters.  FASB's new rules on asset impairment
supersede SFAS No. 121,  Accounting for the Impairment of Long-Lived  Assets and
for Long-Lived  Assets to be Disposed of, and provide a single  accounting model
for  long-lived  assets  to be  disposed  of.  Although  retaining  many  of the
fundamental  recognition  and  measurement  provisions  of SFAS No. 121, the new
rules significantly change the criteria that would have to be met to classify an
asset as  held-for-sale.  The new rules  supersede the  provisions of Accounting
Principals  Board  Opinion No. 30 ("APB No. 30") with  regard to  reporting  the
effects of a disposal  of a segment of a business  and require  expected  future
operating  losses from  discontinued  operations to be displayed in discontinued
operations in the period in which the losses are incurred  rather than as of the
measurement  date  as  presently  required  by APB No.  30.  In  addition,  more
dispositions  will qualify for discontinued  operations  treatment in the income
statement.  The  implementation  of SFAS No. 144 had no impact on the  Company's
financial statements as of and for the year ending June 30, 2003.

     Prior to July 1, 2002, long-lived assets were evaluated for impairment when
events or changes in  circumstances  indicated  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  existed,  the
related  assets would have been written down to fair value.  No such  impairment
existed through June 30, 2002.

 2.   ACQUISITIONS:

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

     Half of the $1,400  purchase price was paid at the closing  directly to the
Sellers,  and half was deposited into escrow as security for the  performance of
certain  indemnification  obligations  of  the  Sellers.  The  Company  acquired
approximately  $500  of  HSL's  assets,  which  included  $158 of  property  and
equipment,  $225 of  software,  $76 of  prepaid  expenses,  and $41 of  accounts
receivable.  The Company also agreed to assume approximately $500 of liabilities
related to Integrail,  which included $166 of debt under capital leases,  $75 of
miscellaneous  payables,  and $259 due to HSL for prior  equipment  and services
provided to  Integrail  by HSL.  The  acquisition  was  accounted  for under the
purchase  method of accounting  and the results of Integrail's  operations  were
included in the consolidated financial statement commencing with the acquisition
date. The excess of the  acquisition  costs over the fair value of  identifiable
net assets acquired was $1,482, which consists of the following components;  (i)
software and company know how valued at $575, which will be amortized over three
(3) years;  and (ii)  goodwill  of $907,  which will not be  amortized  for book
purposes  per SFAS 142 (see Note 1). The  allocation  of the  purchase  price is
preliminary subject to final valuation. For tax purposes, the goodwill and other
intangibles  will be amortized  over fifteen years.  Funds for this  transaction
were supplied by the Company's revolving credit facility. The agreement provides
that if certain  operational  milestones  are achieved  over the next 12 months,
certain amounts will be released from the escrow to the Sellers.

     The Company  entered into an Asset Purchase  Agreement (the "Asset Purchase
Agreement"),  dated as of January 29, 2002, with HSL, HSL  Acquisition  Corp., a
Delaware  corporation and a wholly-owned  subsidiary of the Company ("Sub"), and
the security holders of HSL named therein,  pursuant to which the Company agreed
to acquire  certain  assets of HSL relating to the pharmacy  benefit  management
business conducted by HSL under the name "Centrus" (the "Acquisition").  Centrus
provides PBM services  primarily to managed care organizations in the northeast.
The  Company  intends to  continue  to use the  Centrus  assets to  provide  PBM
services.   The  Centrus  business  complements  the  Company's  business  while
significantly strengthening the Company's presence in the managed care market.

     The aggregate  purchase  price of the  Acquisition  was $40,000 in cash, of
which $3,000 was held in escrow to secure certain  indemnification  obligations.
(All escrow funds have been released as of January 2003).  The Company  acquired
approximately  $1,400  of HSL's  assets  which  included  $900 of  property  and
equipment and $500 of software.  The Company also agreed to assume approximately
$1,400 of HSL's  liabilities  relating to the Centrus  business  which  included
$1,100  of  rebates  due to  sponsors,  $100  of  capital  leases,  and  $200 of
miscellaneous  payables.  The  acquisition  was accounted for under the purchase
method of accounting and the results of Centrus' operations were included in the
consolidated  financial  statements  commencing with the  acquisition  date. The
excess of the acquisition  costs over the fair value of identifiable  net assets
acquired was $40,672,  which consists of the following components:  (i) customer
relationships  valued at $2,415,  which will be  amortized  over five (5) years;
(ii) an employment agreement valued at $83, which will be amortized over two (2)
years:  (iii) non-compete  contracts valued at $76, which will be amortized over
four (4) years,  and (iv)  goodwill of $38,098,  which will not be amortized for
book  purposes  per SFAS 142 (see Note 1). For tax  purposes,  the  goodwill and
other intangibles will be amortized over fifteen years. In addition, the Company
has agreed to pay HSL, as additional  purchase price, up to $4,000 over a period
of three (3) years if the acquired Centrus business  achieves certain  financial
performance  targets during the two-year period  following the Closing.  HSL may
also be entitled  to an  additional  incentive  payment  based on the  financial
performance of the Centrus  business  during the one-year  period  following the
Closing.

     The financial  performance  targets were achieved during the first year and
$2,000 has been earned. Of this amount,  $1,000 was paid in May 2003 and another
$1,000 will be paid in May 2004. The additional incentive payment target was not
achieved and thus, there will be no payout of this item.

     Simultaneously  with  the  consummation  of the  Acquisition,  the  Company
entered  into an  Employment  Agreement  and a Stock Option  Agreement  with the
former president of Centrus, pursuant to which he will serve as President of PBM
Services for the Company.  Additionally,  several members of Centrus' management
team have joined the Company as employees and have been granted stock options to
purchase an aggregate of 300,000  shares of Common  Stock,  under the  Company's
1999 Stock Option Plan, as amended.

     On January 29, 2002,  the Company and certain of its  subsidiaries  entered
into a $40,000  secured  revolving  credit  facility (the  "Facility")  with HFG
Healthco-4 LLC, a specialty  finance  company.  In connection with the Facility,
the Company  and certain of its  subsidiaries  have  agreed to  transfer,  on an
on-going basis,  their accounts  receivable to Funding.  Funding  utilizes those
receivables as collateral to secure  borrowing under the Facility.  The Facility
has a three  year  term,  provides  for  borrowing  up to  $40,000 at the London
InterBank Offered Rate (LIBOR) plus 2.40% (3.5% at June 30, 2003) and is secured
by receivables and other assets of the Company and certain of its  subsidiaries,
as defined.  Borrowings  of $28,700 under the Facility were used to finance part
of the purchase  price of the  Acquisition  and will also be used by the Company
and  certain  of its  subsidiaries  for  working  capital  purposes  and  future
acquisitions in support of its business plan. The outstanding balance as of June
30, 2003 was  approximately  $15,662,  which is  classified  as short term.  The
excess  available  balance  on June 30,  2003  was  approximately  $24,338.  The
Facility requires the Company to maintain certain financial and other covenants.
The Company was in compliance  with all  covenants at June 30, 2003.  Details of
this financing are disclosed in Note 9 "Commitments and Contingencies".

     On January 22, 2002 the Company  completed a convertible note offering (the
"Note Offering") in the aggregate  principal amount of $11.6 million,  which was
subordinated  to the  Facility.  Pursuant  to  the  Note  Offering,  subscribers
received a  promissory  note (each a "Note")  paying  interest  quarterly on the
unpaid  principal  balance  at the  rate  of 12%  per  annum.  The  subscribers,
including two who are directors of the Company,  were all accredited  investors.
The Notes had a term of one year,  unless  otherwise  extended  pursuant  to the
terms of the Note. The Notes were convertible at any time at the election of the
holders into shares of the common stock,  par value $.001 per share (the "Common
Stock") of the Company ("Conversion Shares") at a conversion price of $12.00 per
share,  the fair value of the Common Stock on January 22, 2002. The Note holders
were granted certain registration  rights.  Proceeds from the Note Offering were
used to finance part of the purchase  price of the  Acquisition.  The Notes were
repaid in full on June 26, 2002.  However,  as of June 30,  2002,  $8,000 of the
$11,600 had not yet cleared the bank for payment.  As a result,  this amount was
re-classified back to notes payables as of June 30, 2002. The $8,000 cleared the
bank in early July 2002 which eliminated the notes payable at that time.

     On March 5, 2001, the Company acquired substantially all of the assets, and
certain of the liabilities, of Provider Medical Pharmaceutical,  LLC ("PMP"), an
Oklahoma  limited  liability  company,  pursuant to an Asset Purchase  Agreement
among the Company, a wholly owned subsidiary of the Company, PMP and the members
of PMP.  The assets  acquired  from PMP  included,  among  other  things,  PMP's
accounts  receivable  and  intellectual  property,  PMP's rights  under  various
contracts and the goodwill value of PMP's business.

     The purchase price for the assets consisted of (i) $4,000 in cash, (ii) the
satisfaction  by the  Company of PMP's bank  indebtedness  of $1,255,  and (iii)
cancellation  of the  $1,500  promissory  note  from PMP to the  Company,  dated
January 16, 2001. Part of the cash portion of the purchase price ($722) was paid
into an escrow account to provide security for the  indemnification  obligations
of PMP and its members to the Purchaser. The acquisition was accounted for under
the  purchase  method of  accounting  and the results of PMP's  operations  were
included  in  the  consolidated   financial   statements   commencing  with  the
acquisition  date.  The excess of the  acquisition  costs over the fair value of
identifiable  net assets  acquired  was $6,475 which  consists of the  following
components:  (i) customer  relationships valued at $305, which will be amortized
over 2.5 years using the straight-line method of amortization, and (ii) goodwill
of $6,170,  which has not been amortized for book purposes since July 1, 2001 in
accordance  with  SFAS  142.  For  tax  purposes,   the  goodwill  and  customer
relationships will be amortized over fifteen years. The Company will be required
to pay up to  $1,000 of  additional  cash  consideration  if  certain  financial
targets  relating  to PMP's  business  are met over the first  three years after
closing,  which would be accounted  for as an addition to goodwill.  The targets
which were related to retaining  specific  contracts were not achieved in either
of the first two years and consequently no additional consideration was paid for
those periods.

     Two claims  were filed  against  the  sellers of PMP by the Company for non
collection   of   certain   accounts    receivable   and   for   certain   other
misrepresentations.  A settlement  was reached  whereby the Company  received in
July 2003,  $540 out of  escrowed  funds to cover both  claims of which $346 was
applied towards reducing goodwill.

     Pursuant  to the  terms of the  Agreement  and Plan of Merger  between  the
Company and Pharmacy  Associates,  Inc.  ("PAI"),  dated July 20, 2000 (the "PAI
Agreement"),  the Company acquired PAI, a regional  pharmacy benefit  management
company operating in Arkansas, Louisiana and Mississippi. Under the terms of the
merger  agreement,  stockholders  of PAI received an aggregate of $6,000 in cash
and 400,000 shares of the Company's  common stock,  which was valued at $850, on
the acquisition  date. Of the 400,000 shares,  200,000 were placed in escrow for
two years to secure  certain  indemnification  obligations.  All of those shares
were released  from escrow in July of 2002.  The  acquisition  was accounted for
under the purchase method of accounting and the results of PAI's operations were
included  in  the  consolidated   financial   statements   commencing  with  the
acquisition  date.  The excess of the  acquisition  costs over the fair value of
identifiable  net assets  acquired was $6,345,  which  consists of the following
components:  (i)  customer  relationships  valued at $131,  which was  amortized
entirely over the first year,  (ii)  noncompete  contracts  valued at $44, which
will  be  amortized   over  five  years  using  the   straight-line   method  of
amortization,  and (iii)  goodwill of $6,170,  which has not been  amortized for
book  purposes,  since July 1, 2001 in  accordance  with SFAS 142.  The goodwill
associated  with  this  acquisition  is not  deductible  for tax  purposes.  PAI
stockholders were entitled to receive  additional  consideration of up to $2,000
payable in a combination of cash and  unregistered  common stock over a two-year
period if certain  financial targets of PAI are met, which will be accounted for
as an addition to goodwill.  The financial targets were achieved for both years;
therefore,  $750 in cash and $250 in Common Stock (62,500 shares valued at $4.00
per share) was paid and  issued in  August,  2001,  and $750 in cash and $250 in
Common Stock  (41,668  shares valued at $6.00 per share) were paid and issued in
August, 2002.

     The following  summarized  unaudited  pro forma  results of operations  set
forth  below for the years  ended June 30,  2002 and 2003 assume the Centrus and
Integrail acquisitions had occurred as of the beginning of these periods:

                              June 30,               2002              2003
--------------------------------------------------------------------------------
 Revenue                                           $619,562             $573,485
 Net income                                          $1,145               $4,827
 Net income per common share:
    Basic                                             $0.16                $0.64
    Diluted                                           $0.14                $0.60
 Pro forma weighted-average number of common shares
   outstanding:
       Basic                                      7,212,536            7,590,425
       Diluted                                    7,909,054            8,036,398
--------------------------------------------------------------------------------

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






     The change in the  carrying  amount of goodwill for the year ended June 30,
2003 is as follows:

  Balance as of July 1, 2002                                           $52,035
  Centrus additional consideration earned                                1,073
  Integrail acquisition                                                    907
  Settlement of PMP pre-acquisition claim                                 (346)
                                                                     ----------
                                                                     ----------
                  Balance as of June 30, 2003                           $53,669

     Approximately $45,796 of the Company's June 30, 2003 goodwill is deductible
for income tax purposes on a straight-line basis over 15 years.

     Acquired  intangible  assets  subject  to  amortization  consisted  of  the
following as of June 30:

                                  2002                                 2003
                     ================================    =======================
                      ===============================    =======================
                        Gross       Accumulated       Gross        Accumulated
  Asset Class         Carrying      Amortization     Carrying      Amortization
                       Amount       ------------      Amount      -------------
                      --------                         --------
  Customer            $ 2,720        $   362         $ 2,720            $ 967
  relationships
   Non-compete            120             25             120               53
   agreements
  Employment               89             19              86               62
   agreements
  Company know how          -              -             575              128
                   -----------    ------------    ------------    -------------
                   -----------    ------------    ------------    -------------
                   $    2,929       $    406         $ 3,501        $   1,210
                   ===========    ============    ============    =============

     The  weighted  average  remaining  amortization  period for all  intangible
assets is  approximately  3.2  years at June 30,  2003.  Amortization  period by
intangible asset class is as follows:

     Asset  Class                Amortization  Period

Customer  relationships               2.5 - 5  years
Non-compete  agreements                 4 - 5 years
Employment  agreements                  2 years
Company know how                        3 years









     The  aggregate  amortization  expense was  approximately  $804 for the year
ended June 30, 2003, and the estimated  amortization for future years ended June
30 is as follows:

     Year ending June 30,

        2004                                                               $749
        2005                                                                703
        2006                                                                561
        2007                                                                278
--------------------------------------------------------------------------------
                                                                         $2,291
================================================================================
<TABLE>
<S>                                                      <C>    <C>    <C>    <C>    <C>    <C>

 3. PROPERTY,   Property, equipment and software development costs consist
   EQUIPMENT     of the following:
   AND SOFTWARE                                                                              Estimated
   DEVELOPMENT       June 30,                                2002              2003         Useful Life
   COSTS:           --------------------------------------------------------------------------------------
                  Equipment                              $   3,748         $   4,602        3 to 5 years
                  Software                                   9,673            11,241        3 to 5 years
                  Leasehold improvements                       528               935       Term of lease
                  Automobile                                    44                44             5 years
                  Equipment acquired under
                   capital leases                            2,575             2,575        5 to 8 years
----------------------------------------------------------------------------------------------------------
                                                            16,568            19,397
                 Accumulated depreciation
                   and amortization                          7,537            11,158
----------------------------------------------------------------------------------------------------------
                                                            $9,031          $  8,239
==========================================================================================================

</TABLE>

     Accumulated   depreciation  on  equipment   acquired  under  capital  lease
obligations was $867 and $1,240 as of June 30, 2002 and 2003, respectively.

     Depreciation and amortization  expense on property,  equipment and software
development  costs  for the years  ended  June 30,  2001,  2002,  and 2003,  was
approximately $2,028, $2,898, and $3,150, respectively.


<PAGE>

4. RELATED PARTY
    TRANSACTIONS:

     Due to affiliates  historically  represented  trade  payables for developed
software, other software services, operating leases and maintenance costs.

     The  Company  had  historically  entered  into  various  verbal and written
agreements  with Sandata  Technologies,  Inc.  ("Sandata")  and its wholly owned
subsidiaries.   The  Company's  Chairman  of  the  Board  is  also  a  principal
stockholder of Sandata.  Sandata provides  computerized data processing services
and custom software and programming services.

     As of  June  30,  2001,  Sandata  owed  Health  Card  $504,  pursuant  to a
promissory note,  dated May 31, 2000, in the original  principal amount of $500,
plus interest at the rate of 9 1/2%; interest on such note was payable quarterly
and such note was paid in full on May 31, 2001.  On June 9, 2001,  Sandata again
gave a  promissory  note to Health Card in the  principal  amount of $500,  with
interest at the rate of 7%, which was to have been due on June 8, 2002. The note
was paid in full on August 15, 2001.  As of June 30,  2003,  Sandata owed Health
Card $11 for pharmacy benefit services.

     Due from  affiliates  includes a note from another  company  affiliated  by
common  ownership.  As of June 30,  2003,  the balance  due from this  affiliate
including  accrued  interest was $3,782.  Such amount bore  interest at 8.5% per
annum,  payable  quarterly.  The note was  collateralized by 1,022,758 shares of
$.001  par  value  common  stock of the  Company  registered  in the name of the
Company's Chairman of the Board and was subject to his personal  guarantee.  The
note was payable in annual  installments  of $400,  consisting  of principal and
interest  at the  rate of 8 1/2%  per  annum  on each of the  first  and  second
anniversary  dates,  with the total remaining  balance of principal and interest
due and payable on July 31, 2003. The first two $400 payments due under the note
as of July 31, 2001 and 2002 were  satisfied by  offsetting an equal amount owed
by the Company to the Chairman of the Board. The balance of the note,  including
accrued  interest,  was paid in full on July 31,  2003.  The note was  satisfied
through a combination of monies owed by the Company to the Chairman of the Board
and a cash payment made by the  affiliate  to the  Company.  Effective  July 31,
2001, the interest rate on the note was changed to the prime rate in effect from
time to time (4.25% at June 30, 2003).  For the years ended June 30, 2001, 2002,
and 2003,  the  amount  of  interest  income  accrued  related  to this note was
approximately $340, $206, and $163, respectively.

     On February 8, 2001, the President gave to the Company his Promissory  Note
in the amount of $34 as evidence of the loan by the Company to the President. On
April 12,  2002,  the  Promissory  Note was amended  and the  Company  agreed to
increase  the loan to $100.  The loan bears  interest at 8%, and is due on April
25, 2003.  The interest rate was lowered  effective  July 1, 2002 to the rate at
which  the  Company  borrows  money  (3.5% at June 30,  2003).  The  President's
repayment obligation under the Promissory Note has been absolved by the Company.
The Company  set-off from the bonus paid the  President in July 2003, as part of
his annual compensation,  the amount that was otherwise payable by the President
under the Promissory Note including accrued interest.

     In  connection  with  a  potential  bonus,  to  be  earned  pursuant  to an
employment  agreement  dated  September  30, 2002,  between the President of the
Company's mail order operations and the Company, the Company has loaned him $250
as an advance against the potential bonus. The loan is evidenced by a promissory
note  executed by the Mail Order  President  in favor of the  Company.  The loan
bears an interest rate of 9% and is due and payable on September 30, 2003 in the
event the bonus is not earned.

     The  Company  has  accrued  approximately  $176  of  interest  income  from
affiliates  arising from the three loans  described  above during the year ended
June 30, 2003.

     Certain costs paid to affiliates were  capitalized as software  development
costs.  For the year ended June 30, 2002, the amounts  charged by affiliates and
capitalized was approximately $96.

     The Company  purchased  computer  equipment and furniture and fixtures from
affiliates during the years ended June 30, 2002 and 2003 for approximately  $122
and $4, respectively.

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

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

     General and administrative expenses related to transactions with affiliates
included in the consolidated statement of income are:

 Year ended June 30,                    2001            2002              2003
--------------------------------------------------------------------------------
 Software maintenance and
  Related services and supplies (a)   $   1,244     $   496                 $0
  Management and consulting fees (b)      1,294         303                 84
  Administrative, accounting
  services and supplies (c)                 894         548                236
 Rent and utilities (d)                     649         542                542

--------------------------------------------------------------------------------
                                         $4,081      $1,889               $862
================================================================================


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

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

     (c) A company  affiliated  by common  ownership  provides  the Company with
various administrative, legal and accounting services.

     (d) See Note 9 for information regarding leases with related parties.

     Notes  receivable -  stockholders  represented a loan to a  stockholder  to
purchase  the  Company's  stock.  This  note  bore  interest  at 8.5%  and had a
repayment date of July 1, 2002. The note was paid in full in January 2002.

     For the years  ended June 30, 2002 and 2003,  the  Company  paid the annual
premium of  approximately  $60 on behalf of the Company's  Chairman of the Board
for a life  insurance  policy.  The  aggregate  amount of premiums paid for such
policy will be repaid to the Company upon the payment of the  policy's  benefits
to the beneficiary.

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

 5.    ACCOUNTS PAYABLE    Accounts payable and accrued expenses consist of the
   AND ACCRUED EXPENSES:        following:
                           June 30,                                                       2002              2003
                         ----------------------------------------------------------------------------------------

                          Claims payable                                              $78,436            $76,195
                          Rebates payable to sponsors                                  17,921             24,082
                          Trade payables, accrued expenses and other payables           4,168              6,398

------------------------------------------------------------------------------------------------------------------
                                                                                     $100,525           $106,675
==================================================================================================================
</TABLE>

 6.  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, 2003:

                              Payments for the year ending June 30,

                                    2004                                $533
                                    2005                                 336
 ------------------------------------------------------------------------------
-------------------------------------------------------------------------------

                     Total minimum lease payments                         869

                     Less amount representing interest                     61
-------------------------------------------------------------------------------

                     Present value of net minimum lease payments          808
                     Less current portion                                 481

-------------------------------------------------------------------------------
                     Long-term lease obligations                         $327
===============================================================================

 7.    MAJOR CUSTOMERS AND PHARMACIES:

     For the year ended June 30, 2001, approximately 16% of revenue was from one
plan sponsor,  which was the only sponsor that  represented more then 10% of the
Company's revenues. For the year ended June 30, 2002,  approximately 15% and 10%
of  revenue  was from two plan  sponsors.  For the  year  ended  June 30,  2003,
approximately  28% of revenue  was from one plan  sponsor.  Amounts due from the
respective  sponsors at June 30, 2002 and 2003 approximated  $13,386 and $7,049,
respectively.  As of June 30, 2003, the Company's  arrangement  with its current
major sponsor is for three years ending  December 31, 2005. One of the Company's
major  sponsors  terminated  its  contract  as of June 30,  2002 and another one
terminated its contract as of December 31, 2002.

     During the year ended June 30, 2001, the Company  settled  certain fees due
from a major sponsor related to a capitation arrangement for calendar year 1999.
The impact of this  settlement  was to reduce revenue by $733. The calendar year
2000 and 2001 contract with this sponsor was no longer a capitation arrangement.
During the year ended June 30, 2001,  the Company also reached an agreement with
a former major sponsor to settle amounts due. This settlement increased selling,
general and administrative expenses by $588.

     For the year ended June 30, 2001,  approximately 44% and 26%, respectively,
of the cost of claims were from two pharmacy chains. For the year ended June 30,
2002,  approximately  22% of the cost of claims was from one pharmacy chain. For
the year ended June 30, 2003,  approximately 21% and 11%,  respectively,  of the
cost of  claims  were  from two  pharmacy  chains.  Amounts  payable  to the two
pharmacy chains at June 30, 2003 was approximately $23,189.

 8. TAXES ON INCOME:

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

-------------------------------------------------------------------------------
      Year ended June 30,              2001               2002           2003
                Current:
                 Federal               $364          $   2,149       $  3,953
                   State                 89                738          1,085
-------------------------------------------------------------------------------
                                        453              2,887          5,038
-------------------------------------------------------------------------------

                Deferred:
                 Federal                324                 23           (356)
                 State                   66                (10)           (80)

-------------------------------------------------------------------------------
                                        390                 13           (436)
-------------------------------------------------------------------------------
    Total provision                    $843             $2,900         $4,602

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

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

    Year ended June 30,                    2001           2002        2003
----------------------------------------------------------------------------
   Statutory rate                         34.0%         34.0%        35.0%
   State taxes - net of federal taxes      5.1           5.1          6.7
   Permanent differences                   4.2           0.3          0.1
   Other                                  (1.2)           --           --

-------------------------------------------------------------------------------
                                          42.1%         39.4%        41.8%
===============================================================================
Deferred  income tax assets  (current and  noncurrent)  resulting from temporary
differences are as follows:


 June 30,                                 2002                 2003
--------------------------------------------------------------------------------

  Accounts receivable allowances         $1,004               $  836
  Vacation expense accrual                  100                  138
  Officer/stockholder bonus accrual         326                  973
  Deferred revenue                          102                  118
  Other                                      10                    -
--------------------------------------------------------------------------------
                                         $1,542               $2,065
================================================================================

     Deferred  income tax  liabilities of $2,154 and $2,245 at June 30, 2002 and
2003, respectively, resulted from temporary differences between depreciation and
amortization of property and equipment.



 9.    COMMITMENTS AND CONTINGENCIES:

     The Company currently occupies  approximately  26,500 square feet of office
space at 26 Harbor  Park Drive,  Port  Washington,  New York 11050 (the  "Leased
Premises").  The Company subleases the Leased Premises from BFS Realty,  LLC, an
affiliate of the Chairman of the Board (the  "Affiliate").  The Affiliate leases
the  Leased  Premises  from the Nassau  County  Industrial  Development  Agency,
pursuant to a lease which was entered  into by the agency and the  Affiliate  in
July 1994,  and which  expires in March  2005.  The  Affiliate  has the right to
purchase  the Leased  Premises  upon  expiration  of this lease.  The  Affiliate
subleases a portion of the Leased  Premises to the Company (the "Lease").  As of
November 1, 2001,  the Company and the  Affiliate  amended the Lease.  The Lease
provides that,  effective  August 1, 2001, the rent payable by the Company shall
be an aggregate  annual rent of $308.  While formerly the Company made estimated
monthly  real estate tax,  utilities  and  maintenance  expense  payments to the
Affiliate,  the Lease now provides that the Company will pay its pro-rata  share
of such  expenses  directly,  to the entities to whom payment must be made.  The
Company  estimates that such monthly  expenses will  approximate an aggregate of
$336,  per year. The annual rent will increase by 5% per year during the term of
the Lease.  The annual  expenses  are also  expected to  increase,  although the
Company cannot estimate by how much. The Lease expires in July, 2010. Additional
space is  currently  being  built in the  Leased  Premises  which will allow the
Company to reconfigure  its existing space and to move all its employees in Port
Washington  into  contiguous  space.  As part of this process,  the Company will
reassess its space needs and occupy additional space as required. It is expected
that any additional space taken would not exceed an annual rent of $200,000. The
space  is  currently  planned  to  be  available  by  January,  2004.  Leasehold
improvements  made to this space  during the years  ended June 30, 2002 and 2003
were approximately $60 and $1, respectively.

     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 office storage space. The landlord
for these  premises is 61  Manorhaven  Boulevard,  LLC,  of which the  Company's
Chairman is the sole member.  The current  rent is $1,914 per month.  The annual
rent increases by 5% per year. Additional rent, in the form of certain expenses,
is also payable.

     In August 2001, the Company entered into a lease with P.W. Capital, LLC, an
affiliated  Company,  to rent a two  family  home  for  the  use of  out-of-town
employees while in Port Washington. The Company evaluated the cost of hotels for
these individuals and determined it was more cost efficient to rent the house at
a monthly  rate of  $5,500.  During the fiscal  year  ended June 30,  2003,  the
Company paid P.W. Capital, LLC, $66,000 in rent for this facility.  For the same
reasons, the Company rents two houses from Living in Style, LLC, an entity owned
by three of the Company's  executive  officers.  Pursuant to leases dated May 1,
2002 and expiring  April 30, 2007,  the Company paid an aggregate of $127,050 in
rent for these two  facilities  during the fiscal year ended June 30, 2003.  The
annual rent for each of the facilities increases by 5% per year.

     Additionally,  the Company leases office space through its  subsidiaries in
Little Rock,  Arkansas,  Tulsa,  Oklahoma and Latham, New York. The Company also
leases space for its mail order  pharmacy,  plus  warehouse  space,  in Miramar,
Florida.  The aggregate  annual rental  payments for leased space in Little Rock
are  approximately  $194; for leased space in Tulsa are  approximately  $24; for
Latham,  approximately  $383;  and for Miramar  approximately  $142. The Company
intends to move its current office space in Portland,  Maine, which was acquired
on July 31, 2003 (see Note 16), to a larger office and warehouse  space in South
Portland, Maine.

     Real estate rental expense,  including utilities,  for the years ended June
30,  2001,  2002,  and  2003,  was   approximately   $792,  1,169,  and  $1,792,
respectively.   Of  these   amounts,   approximately   $564,   $542,  and  $542,
respectively, were charged by affiliates under operating leases.

     The Company has entered into various other operating  leases with unrelated
third parties for office  equipment.  These leases have different  payment terms
and expiration dates.

     Future minimum payments under the  noncancelable  operating leases for real
estate and office  equipment with related and other parties at June 30, 2003 are
as follows:

       Year ending June 30,
                 2004                                              $  2,414
                 2005                                                 2,405
                 2006                                                 1,965
                 2007                                                 1,059
                 2008                                                   875
               Thereafter                                             2,488
-------------------------------------------------------------------------------
                                                                    $11,206
===============================================================================
In  addition  to  the  operating  leases  above,  the  Company  entered  into  a
sale-leaseback  operating  lease of certain fixed assets  (principally  computer
hardware and externally  developed  software) with an affiliate of the Company's
Vice Chairman.  The minimum future operating lease payments at June 30, 2003 are
as follows:

  Year ending June 30,

       2004                                                         $ 444
       2005                                                           148
-------------------------------------------------------------------------------
                                                                    $ 592
===============================================================================

     In  February  1998,  the  Company  entered  into an  agreement  to purchase
computer software products and professional  services with an unrelated company.
The  agreement  required the Company to pay an initial  license fee of $400,  of
which $100 was paid upon signing and $25 was payable  monthly  through  February
1999. The initial  license fee of $400 has been  capitalized and fully amortized
as of June 30, 2002. In addition, if certain milestones are reached based on the
number of processed claims, as defined, the license fee increases incrementally,
up to an additional $500 over the term of the agreement.  In February 1999, 2001
and 2002,  the Company met certain  milestones,  resulting  in total  additional
license fees of $400.  These amounts were  capitalized  and are being  amortized
over three years.  The agreement  also provides for the annual payment of 18% of
the then current  cumulative license fee, as defined,  as a service  maintenance
fee which is expensed as incurred.

     An action was commenced against the Company on December 8, 1998 by the West
Contra Costa Unified School  District (the "School  District") and an individual
plaintiff in the State of California. The case was subsequently moved to Federal
court. The complaint alleged,  among other things, that the parties entered into
a contract in November  1996, and that the Company  unilaterally  terminated the
contract  on  December  16,  1996.  The  complaint   further  alleged  that  the
termination  resulted in the School  District  incurring  approximately  $150 in
costs and $867 in expenses to obtain  coverage  from December 1996 until October
1997. The complaint also sought treble damages. The parties reached an agreement
pursuant to which the Company  paid to the  plaintiffs  an amount that was lower
than the  amount of costs and  expenses  claimed,  and is  funding a part of the
plaintiffs' litigation against another defendant. The proceeds of any settlement
with or verdict  against such defendant will be divided  between the Company and
the School District.

     An action was  commenced  against  the Company on April 30, 2002 by Midwest
Health Plan Inc.  ("MHP") in the United  States  District  Court for the Eastern
District of Michigan.  The amended complaint alleges,  among other things,  that
the  parties  entered  into a contract  dated July 1999 (the  "Agreement"),  and
further alleges that the Company has overcharged MHP for the  administration  of
prescription benefit services in contravention to the terms of the Agreement and
breached  its  fiduciary  duties by making a profit.  MHP is  seeking  $3,000 in
damages.  The Company filed an answer and  counterclaim on June 12, 2002. In the
counterclaim, the Company claimed damages in excess of $2,800 based on Midwest's
failure to pay under a contract.  In late June 2002,  Midwest agreed to make two
payments in the amount of $1,340 and $1,360 to  partially  settle the  Company's
claims  against  Midwest.  Midwest  has now added a fiduciary  duty  claim.  The
Company continues to have  counterclaims  totaling over $200 against Midwest for
Midwest's  failure to pay the amounts it agreed to pay Health Card for goods and
services.  The  Company's  motion for  partial  summary  judgment  and motion to
dismiss the  fiduciary  duty claim will be heard on November 6, 2003.  Discovery
will close  September 30, 2003.  The court has not set a trial date. The Company
intends to  vigorously  defend the  action.  The Company is unable to provide an
estimate of any particular  loss, if any,  which may be associated  with the MHP
claims.

     The Company has entered into employment agreements with its Chairman, Chief
Executive  Officer and  President,  Chief  Marketing  Officer,  Chief  Financial
Officer,   President  of  PBM  Services,  and  Chief  Information  Officer.  The
agreements   provide  for  (i)  participation  in  the  bonus  pool  for  senior
executives,  (ii)  eligibility  for stock option grants under the Company's then
current  stock  option  plan,  and (iii)  certain  termination  benefits  which,
depending  upon the reason for  termination,  can equal up to one year of salary
for all of these senior executives.

     On January 29, 2002,  the Company and certain of its  subsidiaries  entered
into the  Facility,  a $40 million  secured  revolving  credit  facility  with a
specialty  finance  company.  In connection  with the Facility,  the Company and
certain of its  subsidiaries  have agreed to sell, on an on-going  basis,  their
accounts receivable to Funding. Funding utilizes those receivables as collateral
to secure  borrowings  under the Facility.  The Facility has a three-year  term,
provides for  borrowing up to $40 million at the London  InterBank  Offered Rate
(LIBOR)  plus 2.4% (3.5% at June 30,  2003) and is secured  by  receivables  and
other  assets of the Company and certain of its  subsidiaries.  The  outstanding
balance as of June 30, 2003 was $15,662, which was all classified as short term.
The  Facility  requires  the Company to  maintain  certain  financial  and other
covenants. The Company was in compliance with all covenants at June 30, 2003.

10.   STOCK OPTIONS AND WARRANTS:

     During the years ended June 30, 2001,  2002, and 2003, the Company  granted
stock options under the 1999 Stock Option Plan (the  "Plan").  During 2002,  the
Company  amended  the Plan and  increased  the  number  of  shares  issuable  in
connection  with options  granted under the Plan.  The total number of shares of
common stock  reserved by the Company for  issuance  under the Plan is 2,850,000
plus an  indeterminable  number  of shares of  common  stock  issuable  upon the
exercise of "reload options." There are no options  outstanding that contain the
"reload"  provision.  Stock options outstanding have a life of 4 to 10 years, as
defined in Section 422 of the Internal Revenue Code.  Incentive  options may not
be  granted  for a price less than 100% of the fair  market  value of the common
stock as of the date of the grant or 110% in the case of an individual  who owns
more  than  10% of the  combined  voting  power of all  classes  of stock of the
Company.  All options to date have been issued with an option  exercise price at
or above the fair market value of those options on the date of grant.

     The following tables summarize  information about stock option activity for
the years ended June 30, 2001, 2002, and 2003:

                                                              Weighted-Average
                                        Number of              Exercise Price
                                         Options                  Per Share
-------------------------------------------------------------------------------
Outstanding options at June 30, 2000       656,469                $     5.98
 Canceled                                 (251,127)                     6.23
 Granted                                   837,942                      2.92
-------------------------------------------------------------------------------
 Outstanding options at June 30, 2001    1,243,284                      3.87
 Canceled                                 (222,775)                     8.46
 Granted                                 1,015,760                     10.36
 Exercised                                (175,243)                     4.49
 ------------------------------------------------------------------------------
 Outstanding options at June 30, 2002    1,861,026                      6.77
 Canceled                                  (73,634)                     6.99
 Granted                                   402,498                      8.46
 Exercised                                (221,000)                     2.20
-------------------------------------------------------------------------------
 Outstanding options at June 30, 2003    1,968,890                 $    7.61
===============================================================================

                              The following table summarizes information about
stock options outstanding at June 30, 2003:

<TABLE>
<S>                                                              <C>    <C>    <C>    <C>    <C>    <C>
                                                            Outstanding                            Exercisable
                                              --------------------------------------------    --------------------------
                                              -------------- --------------- -------------    ------------ -------------
                                                               Weighted-      Weighted-                     Weighted-
                                                                average        average                       average
                       Option                  Number of       Remaining      Exercise        Number of     Exercise
                    Price Range                  Shares          Life           Price           Shares        Price
                    ---------------------------------------------------------------------- -----------------------------
                    ---------------------------------------------------------------------- -----------------------------
                    $  1.67  to $  2.51            365,995     2.65 years       $1.81         165,995         $1.77
                    $  2.52  to $  3.78             26,000     3.09 years       $3.12          15,435         $3.07
                    $  3.79  to $  5.69            192,900     2.57 years       $4.60         132,955         $4.73
                    $  5.70  to $  8.55            300,801     2.39 years       $7.67         105,782         $7.48
                    $  8.56  to $ 12.84          1,081,355     4.44 years      $10.19         147,277        $10.41
                    $ 12.85  to $ 15.10              1,839     3.63 years      $14.68             617        $14.68

                    ---------------------------------------------------------------------- -----------------------------
                    ---------------------------------------------------------------------- -----------------------------
                    $ 1.67 to   $15.10           1,968,890     3.13 years       $7.61         568,061         $5.81
                    ====================================================================== =============================

</TABLE>
     The  Company  granted  the  underwriters  of the  Public  Offering  200,000
warrants for nominal consideration.  The warrants entitle the holders thereof to
purchase  200,000 shares of common stock from the Company at $9.00 per share and
are  exercisable  for four years  commencing on July 29, 2000. Of such warrants,
80,000  were  subsequently  purchased  from the  underwriters  by the  Company's
Chairman of the Board and are exercisable for four years  commencing on July 29,
2000.

 11.   2000 RESTRICTED STOCK GRANT PLAN:

     On October 16, 2000,  the board of  directors  approved the adoption of the
Company's 2000 Restricted  Stock Grant Plan (the "Stock Grant Plan").  The Stock
Grant Plan was subsequently  adopted by the shareholders at the Company's annual
meeting on November 20, 2000.  The Stock Grant Plan provides for the issuance of
shares that are subject to both standard restrictions on the sale or transfer of
such shares (e.g.,  the standard  seven-year  vesting  schedule set forth in the
Stock  Grant  Plan)  and/or  restrictions  that the  board may  impose,  such as
restrictions  relating  to length of  service,  corporate  performance  or other
restrictions. As of June 30, 2003, no grants had been made under the Stock Grant
Plan and, therefore,  no shares had vested under it. There are 700,000 shares of
common  stock  reserved for  issuance in  connection  with grants made under the
Stock Grant Plan.

<PAGE>


    Supplemental cash flow information is as follows:


   Year ended June 30,                2001              2002               2003
 -------------------------------------------------------------------------------

   Cash paid:
   Interest                    $      236       $     1,110          $   1,194
   Income taxes                     1,287             2,277              4,039

Noncash investing and financing
 activities:
Issuance of common stock
in connection with the
acquisition of PAI                    850               250                250
--------------------------------------------------------------------------------
 13.   EMPLOYEE BENEFIT PLAN:

     The Company  maintains a 401-K plan that covers  substantially  all Company
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. Monthly, 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, 2001, 2002, and 2003 were approximately
$109, $79, and $228, respectively.

14.  EARNINGS PER SHARE:

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

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

                              Year ended June 30,                                   2001            2002          2003
-------------------------------------------------------------------------------------------------------------------------------

                              Basic                                            7,100,674       7,212,536     7,590,425
                              Effect of assumed conversion
                               of employee stock options                          65,406         661,999       445,973

                               Contingently issuable shares (see Note 2)          33,446          34,519             -

--------------------------------------------------------------------------------------------------------------------------------
                              Diluted                                          7,199,526       7,909,054     8,036,398
================================================================================================================================

     Outstanding  options and warrants to purchase  shares of common stock which
were  antidilutive  were not included in the computation of diluted earnings per
share (see Note 10). These options were as follows:

                              Year ended June 30,                            2001              2002               2003
---------------------------------------------------------------------------------------------------------------------------------

                              Number of options and warrants              866,284           435,700            922,787

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

=================================================================================================================================
                              Weighted-average exercise price         $     5.22        $     12.23         $    10.47
</TABLE>


<PAGE>


                     NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
    ----------------------------------------------------------------------------
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (All $ in thousands, except per share amounts)






15.      QUARTERLY FINANCIAL DATA (UNAUDITED):

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

   (In thousands, except per share amounts)                FY 2003                                                  FY 2002
------------------------------------------------------------------------------------------------------------------------------------
Quarters ended                                6/30       3/31         12/31       9/30      6/30       3/31      12/31      9/30
------------------------------------------------------------------------------------------------------------------------------------

Revenue                                   $148,397    $126,538      $150,964   $147,367  $145,995  $145,683    $87,509     $80,645

Income before provision
  for income taxes                           2,986       2,941         2,777      2,313     2,323     1,839      1,799       1,406

Net income                                   1,676       1,735         1,638      1,365     1,327     1,103      1,048         989

Earnings per common share:
  Basic                                        .22         .23           .22        .18       .18       .15       .15         .14
  Diluted                                      .21         .22           .20        .17       .16       .14       .13         .13

Common share prices:
  High                                       11.84        9.65          9.75      10.80     12.90     15.61     10.40        4.82
  Low                                         8.00        8.00          6.58       6.40      7.90      9.10      2.65        1.45



</TABLE>


 16.  SUBSEQUENT EVENTS:

     On July 31, 2003, the Company entered into a Stock Purchase  Agreement with
Portland  Professional  Pharmacy  ("PPRX"),   Professional  Pharmacy  Associates
("PRXA",  and together with PPRX,  "PPP") and the individual  shareholders  (the
"PPP  Shareholders")  to purchase  all of the shares of PPP for $3,150 (the "PPP
Acquisition"). In addition, the Company agreed to pay to the PPP Shareholders up
to  $7,000  over a  three-year  period  if the  PPP  business  achieved  certain
financial targets. PPP provides  specialty-pharmacy services in a broad range of
areas,  including  women's health,  pediatric care, men's health and transplant.
Funds for the PPP Acquisition  were supplied by the Company's  revolving  credit
facility.

     In connection with the PPP Acquisition, several members of PPP's management
team have joined the Company as  employees,  and have been granted stock options
to purchase an aggregate of 150,000 shares of Common Stock,  under the Company's
1999  Stock  Option  Plan,  as  amended.  As of August 1,  2003,  the  Company's
wholly-owned  subsidiary,  Ascend Specialty Pharmacy Services,  Inc.  ("Ascend")
assumed  all of the shares of PPP.  Each of PRXA and PPRX  continues  to operate
under their respective  names, as subsidiaries of Ascend, in the State of Maine.
The Company  intends to position PPP as a preferred  provider  with PPP's target
markets  while  focusing on the  extension  of their  specialty  services to the
Company's PBM division.




<PAGE>




REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
 FINANCIAL STATEMENT SCHEDULE




Board of Directors
National Medical Health Card Systems, Inc.


     The audit  referred to in our report to the board of  directors of National
Medical  Health Card  Systems,  Inc.  and  Subsidiaries,  dated August 31, 2001,
relating to the  consolidated  financial  statements of National  Medical Health
Card Systems,  Inc. and Subsidiaries,  included the audit of the schedule listed
under  Item 15 of Form 10-K for the year  ended June 30,  2001.  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 audit.

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




GOLDSTEIN GOLUB KESSLER LLP
New York, New York

August 18, 2001







<PAGE>




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

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
----------------------------------------------------------------------------------------------------------------------
                                ($ in thousands)

                                                         Additions
                                       Balance at       Charged to                                          Balance
                                        Beginning        Costs and                          Other           at End
Description                              of Year        Expense (a)     Write-offs         Changes          of Year
----------------------------------------------------------------------------------------------------------------------

Reserves and allowances
deducted from asset accounts:

  Allowance for doubtful accounts

  Year ended June 30, 2001              $   727         $   942          $   (96)       $  274 (b)       $   1,847
  Year ended June 30, 2002                1,847             546             (145)            -               2,248
  Year ended June 30, 2003                2,248             164             (279)         (119)(c)           2,014
</TABLE>

(a) Charged to bad debts
(b) Opening reserve balances of acquisitions
(c) Collection of acquisition opening balance applied against goodwill