NATIONAL MEDICAL HEALTH CARD SYSTEMS INC, S-1/A, 1999-04-09

NATIONAL MEDICAL HEALTH CARD SYSTEMS INC
S-1/A, 1999-04-09
MISC HEALTH & ALLIED SERVICES, NEC

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As filed with the Securities and Exchange Commission on April 9, 1999

Registration No. 333-72209

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933

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

New York 8090 11-2581812
-------- ---- ----------
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification
Number)

26 Harbor Park Drive
Port Washington, New York 11050
Telephone: (516) 626-0007

(Address and Telephone Number of Principal Executive Offices)

Bert E. Brodsky
Chief Executive Officer
National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, New York 11050
Telephone: (516) 626-0007

(Name, Address and Telephone Number of Agent for Service)

Copies to:

Steven J. Kuperschmid, Esq. Dennis N. Berman, Esq.
Certilman Balin Adler & Hyman, LLP Sonnenschein Nath & Rosenthal
90 Merrick Avenue 1221 Avenue of the Americas, 24th Floor
East Meadow, NY 11514 New York, NY 10020
Telephone: (516) 296-7000 Telephone: (212) 768-6737

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the registration statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]

<PAGE>

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

CALCULATION OF REGISTRATION FEE
====================================================================================================================================

Proposed Maximum Proposed Maximum
Title of Each Class Number of Shares to Offering Price Aggregate Offering Amount of
of Securities to be Registered be Registered Per Share (1) Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Common Stock(2) 2,300,000 Shares $10.00 $23,000,000 $6,394
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrants to
Purchase Common Stock (3) 200,000 Warrants $.001 $200 ----
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying the
Representative's Warrants (4) $12.00 $2,400,000 $668
200,000 Shares
- ------------------------------------------------------------------------------------------------------------------------------------

Total Registration Fee: ---- ---- $25,400,200 $7,062
====================================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended
(the "Securities Act").
(2) Includes 300,000 shares of common stock that may be issued upon
exercise of a 45-day option granted to the underwriters solely to cover
over-allotments, if any.
(3) No fee required pursuant to Rule 457(g) under the Securities Act.
(4) Pursuant to Rule 416 under the Securities Act, this Registration
Statement also covers such additional shares as may become issuable as
a result of the anti-dilution provisions contained in the
Representative's Warrants.
------------------------

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.

<PAGE>

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

Subject to completion, dated April 9, 1999

PROSPECTUS

NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

2,000,000 Shares

Common Stock

National Medical Health Card Systems, Inc. is offering 2,000,000 shares of
its common stock. There is currently no public market for Health Card's shares.
Our shares have been conditionally approved for quotation on the Nasdaq National
Market under the symbol "NMHC." We anticipate that the public offering price
will be between $8.00 and $10.00 per share.

This investment involves a high degree of
risk. See "Risk Factors," beginning
on page 8.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Per Share Total
<S> <C> <C>

Public Offering Price.....................................................................................$
Underwriting Discounts and Commissions....................................................................$
Proceeds to Health Card...................................................................................$
</TABLE>

Health Card has granted the underwriters an option to purchase additional
shares to cover over-allotments. It is expected that delivery of the shares will
be made to investors on or about ___________, 1999.

Ryan, Beck & Co.

_______________, 1999

<PAGE>

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

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. This prospectus may only be used where
it is legal to sell these securities. The information contained in this
prospectus may only be accurate on the date of this prospectus.

Until ____________, 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

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

<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>

Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Forward Looking Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Selected Consolidated Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Certain Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Shares Eligible for Future Resale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Underwriting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
________________________________________
</TABLE>

<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before deciding to invest in our shares. We urge you to read this entire
prospectus carefully including the "Risk Factors" section, which begins on page
8, and the consolidated financial statements and the notes to those statements.
An investment in these securities involves a high degree of risk.

In this "Prospectus Summary" section, "we," "our" and "ours" refer to
Health Card, and "you," "your" and "yours" refer to a purchaser of the shares of
Health Card offered by this prospectus.

National Medical Health Card Systems, Inc.

Our Company

We are an independent company, established in 1981, providing comprehensive
prescription benefit management services. Our programs are designed to assist
prescription benefit plan sponsors by:

- containing the cost of prescription drugs,
- monitoring the cost and quality of prescription services,
- providing sophisticated consulting services, and
- providing disease information services.

Sponsors of prescription benefit plans managed by us include managed care
organizations, local governments, unions, corporations and third party health
care plan administrators. We focus our marketing efforts on prospective sponsors
with plans covering up to 100,000 participants, although we also seek and
service sponsors with plans covering less or significantly more plan
participants. As of January 1, 1999, plans managed by us covered over 425,000
eligible employees, retirees, members and their dependents. See "Business."

We began our business as a provider of computerized prescription claims
processing services to sponsors. Subsequently, we grew to become a provider of
comprehensive prescription benefit management services. In 1995, our management
began to redirect the focus of our business, with the goal of becoming a leading
national independent company providing comprehensive prescription benefit
management services. In particular, we concentrated on (a) attracting a
management team with significant industry experience, (b) implementing a
nationwide marketing effort and (c) enhancing our information systems.

During the period July 1, 1995 to January 1, 1999, our network of
participating pharmacies grew to over 42,000; during the same period, the number
of plan participants covered by sponsors'

<PAGE>

plans grew approximately 89% from approximately 230,000 to over 425,000.
Revenues for the fiscal year ended June 30, 1998 increased 40% as compared to
revenues for the fiscal year ended June 30, 1997. Revenues for the six months
ended December 31, 1998 increased 48% as compared to revenues for the six months
ended December 31, 1997.

Our Strategy

As part of our business strategy, we intend to acquire complementary
companies and other strategic assets in order to increase revenues, realize
operating efficiencies and expand the scope of our services. In addition, we
intend to:

- expand our sponsor base,
- improve our information systems,
- expand our consulting and disease information services, and
- establish strategic relationships.

See "Risk Factors" and "Business."

Our Industry

Prescription benefit management companies evolved to address the need for
efficient, cost-effective drug delivery mechanisms. Despite cost containment
efforts in the health care industry, continued advances in medical technology,
new drug development and increasing drug utilization have led to significant
increases in related health care costs, creating a need for more efficient
systems. Industry sources estimate that 1997 U.S. purchases for prescription
drugs totaled approximately $83 billion, of which purchases from retail outlets
were approximately $46 billion and purchases from mail order were approximately
$9 billion. Industry sources indicate that prescriptions managed by prescription
benefit management companies represent an increasing proportion of such
purchases. The health care industry in general, and the prescription benefit
management business in particular, encompass many activities that are highly
regulated by state and federal government agencies. See "Risk Factors--The
health care industry is highly regulated at the federal, state and local levels.
Our failure to comply with these regulations could adversely affect our
business" for a discussion of how government regulation can affect businesses in
our industry.

We believe that the foregoing trends in the pharmaceutical industry will
foster greater consolidation within our industry, as many of the smaller
prescription benefit management companies will find it increasingly difficult to
address the sophisticated needs of health plan sponsors. We also believe there
is an increasing demand among these sponsors for comprehensive plan consulting
services and disease information services, as cost containment becomes more
dependent on improvements in the quality of care. Our consulting and disease
information services are being developed to address these demands, through the
use of traditional prescription benefit

<PAGE>

management services combined with an outcome-oriented focus and sophisticated
information systems. See "Business--Services-Consulting Services and Disease
Information Services."

Our executive offices are located at 26 Harbor Park Drive, Port Washington,
New York 11050 and our telephone number is (516) 626-0007.

The information contained in this prospectus gives effect to certain events
which have not happened yet. In particular, this prospectus gives effect to:

(a) a 0.1278447-for-one reverse split in our common stock;
(b) a reduction in the number of shares of common stock that
Health Card will have authority to issue from 200,000,000 to
25,000,000; and
(c) Health Card's election to be governed by certain recently
enacted provisions of New York State's Business Corporation
Law.

In addition, the information in this prospectus is based on the assumption
that certain other events do not happen. It is assumed throughout this
prospectus that:

(a) the underwriters do not exercise an over-allotment option,
which gives them the right to buy up to 300,000 shares
from us; and
(b) Ryan, Beck & Co., the underwriters' representative, does not
exercise the warrants to be granted to it to purchase up to
200,000 shares of common stock.
(c) Assumes no options are granted under our 1999 Stock Option
Plan.

<PAGE>

The Offering

<S> <C>

Common Stock Offered ...................................... 2,000,000 shares

Common Stock Outstanding
After the Offering...................................... 7,312,497 shares(1)

Use of Proceeds............................................. Future acquisitions, enhancement of
information systems, and working capital
including expansion of our sales and
marketing efforts and general corporate
purposes. See "Use of Proceeds."

Risk Factors................................................ This Offering involves a high degree
of risk and immediate and substantial
dilution. See "Risk Factors" and
"Dilution."

Proposed Nasdaq National Market Symbol...................... "NMHC"

</TABLE>

(1) Assumes no options are granted under our 1999 Stock Option Plan. This
figure also excludes 200,000 shares issuable upon the exercise of the
representative's warrants and 300,000 shares issuable upon the exercise
of the underwriters' over-allotment option. See "Underwriting-The
Representative's Warrants."

<PAGE>

Summary Consolidated Financial Information

Income Statement Data:
<TABLE>
<CAPTION>

Six Months Ended
Years Ended June 30, December 31,
---------------------- -------------
1996 1997 1998 1997 1998
==== ==== ==== ==== ====

Revenues $56,265,033 $71,288,411 $99,988,921 $43,530,562 $64,400,697

Cost of claims 50,799,422 64,176,942 91,230,939 39,281,591 57,981,264
=========== ============ ========== ========== ==========

Gross profit 5,465,611 7,111,469 8,757,982 4,248,971 6,419,433

Selling, general and
administrative * 4,216,259 5,855,282 7,192,027 3,214,053 4,976,489
============ ============== ========= ========= =========

Operating income 1,249,352 1,256,187 1,565,955 1,034,918 1,442,944

Other income
(expense)........... 21,530 42,595 (180,507) 94,806 314,900
-------------- -------------- ---------- ---------- ----------

Income before income
taxes............... 1,270,882 1,298,782 1,385,448 1,129,724 1,757,844

Provision for income
taxes (benefit)..... (185,275) (189,984) 569,000 464,000 626,000
--------- --------- ------- ------- -------

Net income $ 1,456,157 $ 1,488,766 $ 816,448 $ 665,724 $ 1,131,844
============ ============= ============ ============ ===========

Earnings per common
share:
Basic ............. $ 0.47 $ 0.46 $ 0.16 $ 0.13 $ 0.22
Diluted ........... $ 0.35 $ 0.37 $ 0.16 $ 0.13 $ 0.22

Weighted average
shares outstanding:
Basic ............. 3,093,085 3,258,459 4,966,885 4,962,268 5,099,423
Dilut ............. 4,182,909 4,008,481 4,969,166 4,966,395 5,099,423

- ------------------------------------------------------------------------------------------------------------------------------
*Includes amounts
charged by affiliates
aggregating:. . . . . . . $ 2,868,974 $4,511,144 $4,904,514 $2,336,618 $1,364,381
</TABLE>

<PAGE>

Balance Sheet Data:

December 31, 1998
-----------------

June 30, 1998 Actual As Adjusted (1)
------------------ ------ ------------
<S> <C> <C> <C>

Cash and cash
equivalents ......... $ 1,305,792 $ 2,338,974 $16,533,974

Working capital (8,658,324) (5,941,409) 8,253,591
(deficit)............

Total assets............ 18,343,900 22,292,169 37,931,596

Long-term debt
(including current
portion)............. 9,742 5,544 5,544

Total shareholders'
equity (deficit)..... (2,006,282) 1,068,612 16,708,039

</TABLE>

(1)Adjusted to give effect to the closing of the offering at an assumed public
offering price of $9.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses) and the application of the
estimated net proceeds therefrom as if the offering had been consummated on
December 31, 1998.

Supplemental Data(1):
<TABLE>
<CAPTION>

Year Ended Six Months Ended
June 30, December 31,

1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Retail pharmacy claims processed.............1,463,247 1,675,490 1,990,976 2,482,127 1,104,978 1,472,581
Mail pharmacy claims processed................. 17,889 29,453 62,618 131,513 51,166 85,256
Estimated Plan Participants
(at period end)................... ..........230,000 271,784 291,446 401,226 373,750 426,998

</TABLE>

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

(1) This data has not been audited. See "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Business."

<PAGE>

RISK FACTORS

You should carefully consider the following risk factors before
deciding to purchase shares of our common stock. We have separated the risks
into two categories:

- business risks inherent in our operations and our industry, and
- risks relating to our offering of shares.

Business Risks Inherent in Our Operations and Our Industry

The majority of our revenues are attributable to a few sponsors. The loss of one
of these sponsors could adversely affect our business.

We depend on a small number of sponsors for a significant portion of our
revenues. See "Business-Sponsors." The following sponsors accounted for the
percentage of revenues and approximate number of participants for the periods
indicated in the following table:

Sponsor Percent of Revenues Number of Participants
------- ------------------- ----------------------

Year Ended Six Months Ended Year Ended Six Months Ended
June 30, 1998 December 31, 1998 June 30, 1998 December 31, 1998
------------- ----------------- ------------- -----------------

Vytra Health Plans Long Island, Inc. 42% 42% 166,840 178,402

Suffolk County 15% 14% 38,893 39,416

Operating Engineers Trust Funds 8% 12% 40,000 40,607

</TABLE>

We have been providing prescription benefit management services to Vytra
Health Plans Long Island, Inc. (formerly known as ChoiceCare Long Island, Inc.)
since 1990. We provide such services under two separate arrangements. The first
one renews annually from year to year unless terminated by either party.
Pursuant to a series of letters and conversations between the parties, we also
provide services to Vytra under a second arrangement that began under a written
agreement that, as amended, expires in December 1999. Under the second
arrangement, our wholly-owned subsidiary, National Medical Health Card IPA,
Inc., provides services to Vytra. It is possible that our cost of providing
services under the second arrangement could exceed the revenue received from
that arrangement. We are in the process of negotiating a more formal amendment
to the prior written agreement. See "Business--Sponsors--Significant
Sponsors--Vytra." We cannot be certain that a more formal amendment with Vytra
will be signed, or that any agreement that is signed will contain terms as
favorable to us as the current arrangement.

<PAGE>

Under the first arrangement, the written agreement specifies prices for
certain drugs. We have verbally advised Vytra that we have been paying less than
the specified prices. In management's opinion, the prices reflected in the
agreement constitute maximum prices payable to pharmacies, although this is not
expressly stated. Based upon this assumption, and the fact that we verbally
advised Vytra of this practice over one year ago and Vytra has not objected, we
believe that we have no obligation to refund any amounts to Vytra. Although
Vytra has not objected to our paying less, we cannot assure you that Vytra will
not object in the future, nor can we assure you that its objection will not
result in our losing the contractual relationship with Vytra under this
arrangement, or all of its business.

If we were to lose Vytra as a sponsor due to a disagreement concerning
either the first or the second arrangement, or lose a significant portion of
Vytra's business, it would have a material adverse effect on our business,
operating results and financial condition.

We have been providing prescription benefit management services to Suffolk
County, a municipal corporation of the state of New York, since 1992. We are
currently providing services to Suffolk County under an oral agreement,
terminable by either party, the economic terms of which are otherwise
substantially similar to those of a written agreement that expired on December
31, 1998. In September, 1998, we received a Request for Proposal from Suffolk
County which had the effect of informing us that it had elected not to extend
the then-current agreement. We submitted a proposal in response to the request.
In February, 1999, Suffolk County provided us with a proposed amendment to the
written agreement which, among other things, would extend the term until
December 31, 1999. We have signed the amendment, although Suffolk County has not
signed it as of the date hereof. We cannot be certain that Suffolk County will
sign the proposed amendment. See "Business--Sponsors--Significant
Sponsors--Suffolk County." If we were to lose Suffolk County as a sponsor, or
lose a significant portion of Suffolk County's business, it would have a
material adverse effect on our business, operating results and financial
condition.

On December 1, 1997, we began providing prescription benefit management
services to Operating Engineers Trust Funds, IUOE Local 12, a construction
workers' union, covering approximately 40,000 plan participants. As of the date
of this prospectus, we are providing services to the Engineers Union pursuant to
an oral agreement. We cannot be certain that a definitive agreement with the
Engineer's Union will be signed, or that the agreement (if any) that is signed
will contain terms as favorable to us as the current oral agreement. If we were
to lose the Engineers Union as a sponsor, or lose a significant portion of its
business, it would have a material adverse effect on our business, operating
results and financial condition.

If we lose any of these sponsors, we cannot assure you that we will be able
to replace them with additional sponsors. See "Business-Sponsors."

<PAGE>

We have a history of working capital deficits, which could adversely affect our
business.

The following table sets out our working capital deficits and shareholders'
deficits for the periods indicated in the first column.

Period Ended Working Capital (Deficit) Shareholders' Equity (Deficit)
------------ ------------------------- ------------------------------
<S> <C> <C>
Year ended June 30, 1996 $ (7,530,351) $ (3,663,125)

Year ended June 30, 1997 $ (7,436,095) $ (2,343,671)

Year ended June 30, 1998 $ (8,658,324) $ (2,006,282)

Six months ended December 31, 1998 $ (5,941,409) $ 1,068,612

</TABLE>

We believe that the net proceeds of the offering, together with our
existing capital resources and anticipated revenues from operations, will enable
us to maintain our current and planned operations for at least 24 months after
consummation of the offering. If our plans or assumptions change or prove to be
inaccurate, or if the net proceeds of the offering or cash flow prove to be
insufficient, we may seek to minimize cash expenditures and/or obtain additional
financing in order to support our plan of operations. However, we cannot assure
you that additional financing will be available when needed or on terms
acceptable to us, if at all. See "Risk Factors-If we do find a suitable
acquisition, it may be difficult for us to get financing" and "Use of Proceeds."
Our history of working capital deficits may decrease our ability to attract new
investors or to raise additional capital.

Our possible inability to pay pharmacies could adversely affect our business.

Our agreements with pharmacies in our pharmacy network require us to pay
them. Even though our agreements with many pharmacies in our network do not
require us to make payments within a specified period of time, we know from
experience that they expect timely payment. We try to process claims promptly
and obtain funds from sponsors before making payment to the participating
pharmacies; still, we cannot assure you that the sponsors will pay us on time.
See "Business-Services-Pharmacy Network-Pharmacy Relations." We do not believe
that there has been any material negative effect on our business resulting from
our payment schedule and we believe our relationships with pharmacies are
generally good. No assurances can be made that pharmacies in our network will
not demand faster payment in the future. If any sponsor fails to pay us on a
timely basis, we may be required to pay participating pharmacies before being
paid by that sponsor. In addition, if any sponsor fails to pay us at all, we
will still be liable to pay our participating pharmacies. Sponsors' failure to
pay us, or to pay us in a timely manner, may have an adverse effect on our cash
flow and on our ability to maintain our pharmacy network, which in turn could
have a material adverse effect on our business, operating results and financial
condition.

<PAGE>

Lack of participation by pharmacies in our pharmacy network could adversely
affect our business.

The continuation of our services depends heavily on the participation of
pharmacies in our pharmacy network, which participation we cannot guarantee. If
a substantial portion of the pharmacies were to discontinue their arrangements
with us and/or we were unable to maintain a nationwide pharmacy network, our
ability to market our prescription benefit management services could be
adversely affected and sponsors could discontinue their relationships with us.
Consequently, we could experience a loss of revenues, which could have a
material adverse effect on our business, operating results and financial
condition.

The market for prescription benefit management services is very competitive and
is consolidating.

We compete with numerous companies which provide the same or similar
services, such as:

Express Scripts, Inc./ValueRx National Prescription Administrators, Inc.
PCS Health Systems, Inc. Diversified Pharmaceutical Services, Inc.
Merck-Medco Managed Care, LLC Advance Paradigm, Inc.
Provantage Health Services, Inc. MedImpact Health Care Systems, Inc.
MIM Corp. Pharmaceutical Care Network
Consultec, Inc.

Our competitors include other independent prescription benefit management
companies, those affiliated with drug companies and those affiliated with retail
pharmacy chains. In addition, present and potential sponsors may find it
desirable to perform for themselves the services we render.

Many of our competitors have been in existence for longer periods of time,
are far better established than we are, have broader public recognition, and/or
have financial and marketing resources substantially greater than ours. Some
have more experienced management and have far more extensive facilities than
those which are now, or in the foreseeable future will become, available to us.
We cannot assure you that we will remain competitive or that we will
successfully market prescription benefit management services to existing and new
sponsors. See "Business- Competition." If we are unable to market and sell our
services as well as or better than our competitors, there could be a material
decline in revenues and/or other material adverse effects on our business,
operating results and financial condition.

Consolidation and alliances among sponsors and health care providers may result
in the loss of current and potential sponsors.

Over the past several years, insurance companies, HMOs and managed care
companies have experienced significant consolidation. Our sponsors have been and
may continue to be subject to

<PAGE>

consolidation pressures. Consolidation and alliances have caused us to lose
sponsors in the past. Although we may gain sponsors from certain consolidations
and alliances in the industry, it is also possible that we will lose sponsors as
a result of consolidations and alliances. Consolidations and alliances by their
very nature reduce the number of clients who may need our services. We cannot
assure you that any new sponsors and any renewal of current contracts will
offset the revenues lost from sponsors electing not to use our services, or
sponsors who cease to exist, as a result of a consolidation or alliance. See
"Business--Sponsors." The loss of such revenues would have a material adverse
effect on our business, operating results and financial condition.

Furthermore, some health care providers are consolidating to create
integrated health care delivery systems with greater regional and national
market power. These merging systems could have increased bargaining power, which
may lead to erosion of prices for our services. Our failure to maintain adequate
margins could have a material adverse effect on our business, operating results
and financial condition.

Our possible violation of confidentiality provisions could adversely affect our
business.

We are a party to numerous agreements which contain confidentiality
provisions. We have agreed to keep confidential certain terms of our
arrangements with Vytra and our rebate administrator, Foundation Health
Pharmaceutical Services, d/b/a Integrated Pharmaceutical Services, among others.
These confidentiality provisions prohibit us from disclosing either certain
terms of the agreement or the existence of the agreement. We have not obtained
waivers of these confidentiality provisions from any of the other parties to
these agreements. Thus, the disclosure in this prospectus which describes these
agreements, and/or the filing of any such agreement as an exhibit to the
registration statement, may constitute a violation of the terms of such
agreement. Such a violation could in turn lead to liability for breach of such
contractual provision, a loss of business, or other material adverse effect on
our business, operating results and financial condition.

Our business is designed to function in the current health care reimbursement
system; changes in that system could materially adversely affect our business.

Our services are designed to function in the health care financing and
reimbursement system currently being used in the United States. During the past
several years, the U.S. health care industry has been subject to increased
governmental regulation of reimbursement rates. We cannot predict what effect,
if any, such factors might have on our business, operating results and financial
condition. We believe that the commercial value and appeal of our services may
be adversely affected if the current health care reimbursement system were to be
materially changed.

Our business could be adversely affected if our rebate administrator terminates
our agreement, or if drug manufacturers alter or discontinue rebate programs.

Pursuant to an agreement with Foundation Health Pharmaceutical Services
d/b/a Integrated Pharmaceutical Services, a rebate administrator, we submit
claims for rebates to Integrated. These rebates relate to certain prescriptions
filled under plans that we administer. Integrated submits our

<PAGE>

rebate claims, along with rebate claims of others, to the appropriate drug
manufacturer, pursuant to agreements Integrated has negotiated with various drug
manufacturers. We have signed joinder agreements, joining us to certain
agreements between Integrated and certain drug manufacturers, some of which
obligate us to include certain drugs at specified levels in our formulary in
order to receive corresponding levels of rebates; certain of these joinder
agreements obligate us to exclude certain drugs from our formulary. We have been
provided with summaries of the rebate programs which we understand to be the
subject of those agreements, but have not been provided with the actual
agreements. Although we have not experienced any problems in the past, we cannot
assure you that the terms of those agreements will not have a material adverse
effect on our business, operating results and financial condition.

Our agreement with Integrated is terminable on 90 days' prior notice by
either party. For the fiscal years ended June 30, 1998, 1997 and 1996, rebates
accounted for 1%, 1% and 3% of our revenues, respectively. If Integrated
terminates the agreement, and another rebate administrator is not engaged, it
would have a material adverse effect on our business, operating results and
financial condition. We cannot assure you that the Integrated agreement will not
be terminated. On March 31, 1999, one of our competitors, Advance Paradigm,
Inc., announced that it had acquired Integrated. We are not sure what effect, if
any, such acquisition will have on our business.

An event that is much less likely to occur but is a more significant
economic risk is that drug manufacturers might cease to offer rebates on their
products. Although we are unaware that any such cessation is planned, and we
believe that cessation of such programs is unlikely, we cannot be certain that
drug manufacturers will continue to offer rebates. If such rebate programs were
to be discontinued, we could suffer a loss of revenues which could have a
material adverse effect on our business, operating results and financial
condition.

Certain of our sponsors, including Vytra and Suffolk County, are entitled
to a portion of rebates received by us. Our participation in such rebate
programs and rebate sharing programs may expose us to investigation and/or
punishment under certain laws, rules and regulations including the federal
Anti-Kickback Statute and state laws and regulations regarding professional
misconduct applicable to pharmacies. See "Business--Government Regulation." Our
failure to obtain certain rebates could cause us to be in violation of
agreements with certain sponsors and could negatively impact our ability to
compete. See "Risk Factors-The health care industry is highly regulated at the
federal, state and local levels. Our failure to comply with these regulations
could adversely affect our business."

The health care industry is highly regulated at the federal, state and local
levels. Our failure to comply with these regulations could adversely affect our
business.

The healthcare industry is subject to extensive laws and regulations.
Compliance with such laws and regulations may impose a significant burden on our
operations. We have not, in the past, been the subject of any regulatory
enforcement action. However, the regulatory requirements we must comply with in
conducting our business vary from state to state and at the federal level, and
are not always clear as to meaning or consistently enforced. Some aspects of our
business may be

<PAGE>

subject to differing interpretations of the applicable laws and regulations by
the various agencies responsible for their enforcement. While we may not have
complied in the past, we have recently reviewed our operations for areas of
non-compliance and we believe that we substantially comply with the laws and
regulations material to the operation of our business, or are taking steps to
identify and comply with such laws and regulations.

However, regulatory authorities may disagree and take enforcement or other
actions against us. These actions may result in fines or other penalties (both
civil and criminal), or suspend, restrict or prelude us from engaging in certain
business practices in the relevant jurisdiction or subject us to injunction,
loss of license and/or exclusion from the Medicare and Medicaid programs. In
addition, we cannot predict the impact of future legislation and/or regulatory
changes on our business or assure you that we will be able to obtain or maintain
the regulatory approvals required to operate our business.

Our business is subject to the following particular risks that arise as a
result of this regulatory environment:

- some of our activities have been conducted without obtaining
licenses that may have been required.

- our participation in and activities regarding our rebate,
therapeutic interchange and formulary management programs may
violate the Anti-Kickback Statute and the laws and related
rules of professional misconduct applicable to licensed
pharmacies.

- our use of certain health information may violate certain
rights of privacy and confidentiality of plan participants.

- our activities with respect to disease information services,
drug usage monitoring, preferred drug management and
consulting services may violate certain laws and regulations
applicable to licensed professions, including medicine,
nursing, and pharmacy.

- future agreements with Vytra must be submitted to the New York
State Department of Health for review. DOH may not approve
the agreement.

- some of the services we are required to provide under the
terms of our agreements with sponsors could be found to
violate certain utilization review regulations.

- our activities as a prescription benefit manager may be
subject to regulation in any state in which our sponsors, plan
participants or participating pharmacies conduct business or
reside.

<PAGE>

A finding that we have violated any of the laws or regulations applicable
to our business could have a material adverse effect upon our business,
operating results and financial condition. Moreover, our involvement in any
judicial or regulatory proceeding regardless of its merits, and the related
costs of defending ourselves, could have a material adverse effect on our
business, operating results and financial condition. For a more detailed
discussion of the risks stated above and an analysis of government regulations
which may apply to our business, see "Business--Government Regulation."

Certain of our activities could be deemed to constitute violations of
anti-trust regulations.

Retail pharmacies have instituted lawsuits against drug manufacturers
challenging brand drug pricing practices under various state and federal
anti-trust laws. These lawsuits contend that drug manufacturers have offered
discounts or rebates to pharmacy benefit management companies while precluding
retail pharmacies from the availability of the discounts and rebates. In one
lawsuit, the parties agreed that retail pharmacies would be eligible for similar
discounts should they demonstrate the ability to affect market share in the same
or similar manner as managed care entities. Although we have not been named a
party to that lawsuit, we could face increased competition from pharmacies and
pharmacy chains. Beyond these specific instances, federal and state anti-trust
laws and trade regulations permit enforcement not only by governmental entities
but also by any person injured in business by reason of any act prohibited by
such laws or regulations. Moreover, many of these laws entitle any person
threatened with loss or damage by anti-trust violations to obtain injunctive
relief. In addition, a successful anti-trust plaintiff may be entitled to treble
damages and attorneys' fees.

Certain of our activities could be deemed to constitute violations of
ERISA regulations.

It is possible that we could be restricted from commercial activities and
relationships with pharmacies, drug manufacturers and others, if those
relationships conflicted with fiduciary duties to plan members under ERISA
statutes and regulations. These restrictions would apply only if it were
determined that we are a fiduciary under ERISA. We could be considered a
fiduciary and be subject to applicable penalties under ERISA if it were found
that we:

- have discretionary responsibility for part or all of a group
plan's administration, or
- exercise authority or control over the management or disposition
of the plan's assets.

We may not acquire complementary companies or strategic assets, or may not
successfully integrate them into our operations.

Following the consummation of the offering, we intend to identify and
pursue acquisitions of complementary companies and strategic assets, such as
sponsor bases, products and technology. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to us as well as higher acquisition prices. There can be
no

<PAGE>

assurance that we will be able to identify acquisition opportunities.

If any such opportunity involves the acquisition of a business, we cannot
be certain that:

- we will successfully integrate the operations of the acquired
business with ours,
- all the benefits expected from such integration will be realized,
- management's attention will not be diverted or divided, to the
detriment of current operations,
- amortization of acquired intangible assets will
not have a negative effect on our operating results or other
aspects of our business,
- delays or unexpected costs related to the acquisition will not
have a detrimental effect on our combined business, operating
results and financial condition,
- sponsor dissatisfaction with, or performance problems at, an
acquired company will not have an adverse effect on our
reputation, or
- our respective operations, management and personnel will be
compatible.

In most cases, acquisitions will be consummated without seeking and obtaining
shareholder approval, in which case shareholders will not have an opportunity to
consider and vote upon the merits of such an acquisition. Although we will
endeavor to evaluate the risks inherent in a particular acquisition, there can
be no assurance that we will properly ascertain or assess such risks.
See "Business--Business Strategy."

If we do find a suitable acquisition, it may be difficult for us to get
financing.

To the extent that potential acquisition candidates are unwilling to accept
our common stock as part of the acquisition payment, we may be required to use
cash resources for our acquisition program. We may be required to obtain
additional financing for future acquisitions. If we do not have sufficient cash,
our growth could be limited unless we can obtain additional capital through debt
or equity financings. We cannot assure you that we will be able to obtain
financing on commercially reasonable terms or at all. Furthermore, equity
financing will result in a dilution to our existing shareholders. The degree of
dilution may be significant. In the case of debt financing, we run the risks of
interest rate fluctuations and insufficiency of cash flow to pay principal and
interest, along with other risks traditionally associated with incurring
indebtedness. See "Use of Proceeds." If debt and/or equity financings are
undertaken, our acquisition plan may be adversely affected.

We depend on our Chairman of the Board and other executive management, who have
experience in helping companies grow.

We believe that our future success depends significantly upon the continued
services of our senior management, in particular Bert E. Brodsky, Chairman of
the Board, Chief Executive Officer and a director, and Gerald Shapiro, Vice
Chairman of the Board. Both Mr. Brodsky and Mr. Shapiro are experienced in
helping companies grow. The loss of the services of either Mr. Brodsky or Mr.

<PAGE>

Shapiro and of other persons in senior management would mean the loss of years
of experience in both general business matters and in our industry, which could
have a material adverse effect on our operations and financial condition. We
cannot assure you that we will be able to retain our current management. Upon
the consummation of the offering, we will obtain a $1,000,000 key-person life
insurance policy on Mr. Brodsky.

Our Chairman of the Board and his affiliates will own or control over 50% of our
outstanding common stock and will control Health Card.

Prior to the offering, our Chairman of the Board, Mr. Brodsky, and his
affiliates beneficially owned or controlled an aggregate of 83.8% of our issued
and outstanding common stock, including shares subject to existing options. Upon
the closing of the offering, Mr. Brodsky and his affiliates will beneficially
own or control an aggregate of 60.9% of the shares of common stock in the event
the over-allotment option is not exercised and 58.5% of the shares of common
stock in the event the over-allotment option is exercised. Accordingly, such
shareholders, acting together, for as long as they own more than 50% of the
outstanding common stock, will have the ability to significantly influence:

- the election of our Board of Directors,
- the approval of matters requiring approval of the
Board of Directors, and
- decisions on matters submitted to our shareholders for approval.

The ability of a small group of shareholders to exert such influence may
materially impair our ability to attract new investors or to obtain financing.
The voting power of these holders may also discourage or prevent any proposed
takeover of our company unless the terms thereof are approved by such holders.
See "Management" and "Principal Shareholders."

The termination of our relationship with Sandata, Inc. would materially
adversely affect our business.

Our relationship with Sandata, Inc., an affiliated third party that
supplies a significant portion of our information systems technology, is
described in the sections of this prospectus entitled "Business - Information
Systems" and "Certain Transactions-Health Card's Relationship with Sandata."
Sandata provides consulting services and leases computer hardware to us; the
termination of this relationship would have a material adverse effect on our
business due to the significant amount of equipment and services this affiliated
party supplies to us. In addition, because we lease computer hardware from a
subsidiary of Sandata, and because this subsidiary has historically developed
and maintained a significant portion or our information systems, the termination
of this relationship would have a material adverse effect on our operating
results and financial condition.

<PAGE>

Enhancement of our information systems may be costly and/or disruptive.

Our information systems constitute our primary resource for providing
integrated prescription benefit management services. Our on-line claims
management system is an integral part of our information systems. In addition,
we obtain certain components of our information systems from affiliated and
unaffiliated third party vendors. We expect that we will need to enhance these
systems from time to time. The cost of enhancements may be significant, and may
require the significant use of our operational resources, including personnel.
We cannot assure you that any such enhancements will be made without significant
disruption of our business and/or a material adverse effect on our operating
results and financial condition. If we are unable to effect these enhancements,
it may place us at a competitive disadvantage, which could in turn have a
material adverse effect on our business, operating results and financial
condition.

Computer problems associated with the Year 2000 could have an adverse effect on
our business.

We cannot assure you that the systems of other companies on which our
systems rely will be Year 2000 compliant in a timely fashion. Other than the
foregoing, our management does not believe that we will have any material Year
2000 risks, either in terms of operational difficulties or expenses, although no
assurances can be made that our assessment is correct. See "Business-
Preparation for Year 2000 Readiness." If management's assessment of our Year
2000 readiness is incorrect, or if other companies' Year 2000 problems are
significant, it could have a material adverse effect on our business, operating
results and financial condition. See "Business-Year 2000 Readiness."

There is intense competition to hire and retain individuals who are experienced
in our industry.

Our success is partly dependent upon our ability to hire and retain
additional personnel. Qualified personnel are generally in great demand in our
business, and our inability to recruit and/or retain them could have a
materially adverse effect on our business, operating results and financial
condition. We cannot assure you that we will be able to attract and retain
additional qualified personnel in the future.

Risks Related to Our Offering of Shares

Management will have significant discretion over the use of proceeds since a
large portion of the proceeds is allocated to working capital. Management may
use the proceeds in a manner which is different from their current intent.

While we intend to use the net proceeds of the offering as described in the
"Use of Proceeds" section of this prospectus, we will have broad discretion to
adjust the application and allocation of such net proceeds in order to address
changed circumstances and opportunities. The success of our acquisition plans,
and of the operations that are influenced by working capital allocations, will
be

<PAGE>

substantially dependent upon the discretion and judgment of our management with
respect to the application and allocation of the net proceeds. See "Use of
Proceeds."

There is no current public market for our common stock.

There is presently no public market for our common stock and we cannot
assure you that an active public market will develop or be sustained after the
offering. The offering price per share of the common stock will be determined by
negotiations between us and Ryan, Beck, and is not necessarily related to our
asset value, net worth or other established criteria of value, and may not be
indicative of the prices that will prevail in the public market. In addition,
the stock market has from time to time experienced price and volume fluctuations
that are often unrelated to the operating performance of particular companies.
Since there is currently no active public market, the offering price may not
bear any relationship to the actual value of our common stock. The market price
of our common stock, similar to that of securities of other growing companies,
may be highly volatile. The market price of the common stock could be subject to
significant fluctuations in response to our operating results and other factors,
and there can be no assurance that the market price of our common stock will not
decline below the offering price. See "Underwriting," "Description of
Securities" and "Financial Statements."

Representative's warrants could dilute shareholders' interests or impair our
ability to raise capital.

Ryan, Beck will buy from us, for nominal consideration, warrants to
purchase an aggregate of 200,000 shares of common stock. For the term of the
warrants, the holders thereof will have, at nominal cost, the opportunity to
profit from a rise in the market price of the common stock without assuming the
risk of ownership, with a resulting dilution in the interest of other security
holders. As long as the warrants remain unexercised, our ability to obtain
additional capital might be adversely affected. Moreover, the holders of the
warrants may be expected to exercise them at a time when we would, in all
likelihood, be able to obtain any needed capital through a new offering of our
securities on terms more favorable than those provided by the warrants. See
"Underwriting--The Representative's Warrants."

Other risks related to our offering could adversely affect the market price of
our shares.

Sales of substantial amounts of common stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
common stock. See "Shares Eligible for Future Sale." If you purchase the common
stock, you will incur immediate and substantial dilution in the book value of
your shares. See "Dilution." We have never paid any cash dividends on our common
stock and do not intend to do so in the foreseeable future. See "Dividend
Policy."

<PAGE>

FORWARD LOOKING STATEMENTS

This prospectus includes forward-looking statements which involve known and
unknown risks and uncertainties or other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The words "believes," "anticipates," "plans,"
"expects," "intends," "estimates" and similar expressions are intended to
identify forward- looking statements. Factors that might cause such differences
include, but are not limited to, those discussed under the heading "Risk
Factors," as well as factors discussed in other places in this prospectus.

USE OF PROCEEDS

The net proceeds to be received by Health Card from the sale of 2,000,000
shares of common stock offered hereby are estimated to be $15,695,000 based on
an assumed offering price of $9.00 per share. Net proceeds are estimated after
deducting underwriting discounts and commissions, and other estimated expenses
of the offering payable by Health Card.

Health Card anticipates that the net proceeds will be used as follows:

- approximately $10,000,000 for future acquisitions,
- $1,500,000 for enhancement of Health Card's information systems,
- $4,195,000 for working capital, including expansion of Health
- Card's sales and marketing efforts, and general corporate
purposes.

Health Card intends to acquire other prescription benefit management companies
and related strategic assets. Although Health Card is exploring acquisition
opportunities, no discussions have proceeded past the exploratory stage. Health
Card has no agreements or commitments with respect to any such acquisition.
Health Card has not allocated any particular portion of the net proceeds for any
specific acquisition. The net proceeds from the offering will be invested in
interest bearing government securities and other short-term investment grade
securities until needed.

DIVIDEND POLICY

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

<PAGE>

DILUTION

The difference between (a) the offering price per share of common stock and
(b) the net tangible book value per share after the offering, constitutes the
dilution to investors in the offering. Net tangible book value per share is
determined by dividing the net tangible book value of Health Card (total
tangible assets less total liabilities) by the number of outstanding shares of
common stock.

As of December 31, 1998, the net tangible book value of Health Card was
$1,068,612, or $0.20 per share. Assuming an amount of net proceeds as described
in "Use of Proceeds" above, the net tangible book value of Health Card as of
December 31, 1998, assuming the offering had been consummated on that date,
would have been $16,708,039 or $2.28 per common share. This amount represents:

- immediate dilution of approximately $6.72 (75%) per share of
common stock to new investors, and
- an immediate increase of approximately $2.08 per share of common
stock to current shareholders.

The following table illustrates the per share dilution to new investors:

Assumed offering price of common stock......................... $ 9.00
Net tangible book value
before offering. . . . .................. $ 0.20
Increase attributable to new investors ........ $ 2.08
Net tangible book value after
the offering...................................... $ 2.28
------

Total dilution to new investors (1)............................ $ 6.72
======

The following table sets forth the relative cost and ownership percentage
of the common stock offered hereby as compared to the common stock outstanding
immediately prior to the offering:

Shares Purchased(1) Total Consideration Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------

Current shareholders.......... 5,312,497 72.6% $2,906,100(2) 13.9% $ 0.55
New investors ................ 2,000,000 27.4% $18,000,000 86.1% $ 9.00
--------- ----- ----------- ----- ------

Total................. 7,312,497 100.0% $20,906,100 100%
========= ===== =========== ===
</TABLE>

(1) This figure excludes 200,000 shares issuable upon the exercise of the
representative's warrants and 300,000 shares issuable upon exercise of the
underwriters' over-allotment option. See "Description of Capital
Stock-Common Stock."

(2) Not reduced by notes receivable in the amount of $1,510,850 issued by
shareholders as payment for shares.

<PAGE>

CAPITALIZATION

The following table sets forth as of December 31, 1998, (i) the actual
capitalization of Health Card, and (ii) the as adjusted capitalization to give
effect to the application of the proceeds from the offering (at an assumed
public offering price of $9.00 per share of common stock and net of underwriting
discounts and commissions and estimated offering expenses). The table should be
read in conjunction with Health Card's financial statements, including the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus.

As of December 31, 1998
-----------------------

Actual As Adjusted(1)
------ --------------

Current portion of long term debt $ 5,544
==================
Long-term debt, net of current portion $ 5,544 $ - - -
=============== -----------------
$ - - -
Preferred stock, $.10 par value,
10,000,000 shares authorized; none
issued and outstanding - - -
- - -
Common stock, $.001 par value,
25,000,000 shares authorized;
5,312,497 shares issued and outstanding
(actual), 7,312,497 shares issued and
outstanding (as adjusted) ............................ 5,313 7,313

Additional paid-in capital............................... 2,900,787 18,538,214

(Accumulated deficit).................................... (326,638) (326,638)

Notes receivable-shareholders............................ (1,510,850) (1,510,850)
------------ --------------

Total shareholders' equity .............................. 1,068,612 16,708,039
------------- -------------

Total Capitalization............................... $ 1,074,156 $ 16,713,583
============= ============

</TABLE>

(1) This figure excludes 200,000 shares issuable upon the exercise of the
representative's warrants and 300,000 shares issuable upon the exercise of
the underwriters' over-allotment option. See "Description of Capital
Stock-Common Stock."

<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables summarize certain selected financial information for
each of the years in the five year period ended June 30, 1998 and for the six
months ended December 31, 1997 and 1998 and provide certain supplemental data.
The consolidated income statement data for the years ended June 30, 1996, 1997
and 1998 and the selected consolidated balance sheet data as of June 30, 1997
and 1998 have been derived from the audited consolidated financial statements of
Health Card included elsewhere in this prospectus. The consolidated income
statement data for the years ended June 30, 1994 and 1995 and the selected
consolidated balance sheet data as of June 30, 1994 and 1995 have been derived
from unaudited financial statements of Health Card which are not included in
this prospectus. The consolidated income statement data for the six months ended
December 31, 1997 and 1998 and the selected consolidated balance sheet data as
of December 31, 1997 and 1998 have been derived from Health Card's unaudited
interim consolidated financial statements, included elsewhere in this
prospectus, which in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position and results of operations for the periods presented.
The information contained in this table should be read in conjunction with
Health Card's consolidated financial statements and the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated income
statement data for the six month period ended December 31, 1998 is not
necessarily indicative of the results of operations that may be expected for a
full year.

<PAGE>

Income Statement Data:

<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
---------------------------------------------------------------------- -------------------

1994 1995 1996 1997 1998 1997 1998
==== ==== ==== ==== ==== ==== ====

Revenues ......... $38,751,636 $45,230,912 $56,265,033 $71,288,411 $99,988,921 $43,530,562 $ 64,400,697

Cost of claims.... 37,174,861 42,316,738 50,799,422 64,176,942 91,230,939 39,281,591 57,981,264
========== =========== =========== =========== ========== ========== ==========

Gross profit...... 1,576,775 2,914,174 5,465,611 7,111,469 8,757,982 4,248,971 6,419,433

Selling and general
administrative
expenses * 1,792,037 3,394,577 4,216,259 5,855,282 7,192,027 3,214,053 4,976,489
========= =========== ============ =========== ========= ========= =========

Operating income
(loss) ........... $ (215,262) $ (480,403) $ 1,249,352 $ 1,256,187 $ 1,565,955 $1,034,918 $ 1,442,944

Other income
(expense)......... 1,585 17,723 21,530 42,595 (180,507) 94,806 314,900
------ ------ ------ ------ --------- ------ -------

Income before income
taxes (loss)...... (213,677) (462,680) 1,270,882 1,298,782 1,385,448 1,129,724 1,757,844

Provision for income
taxes (benefit)... 429 850 (185,275) (189,984) 569,000 464,000 626,000
--- --- --------- --------- ------- ------- -------

Net income (loss).... $ (214,106) (463,530) $ 1,456,157 $ 1,488,766 $ 816,448 $ 665,724 $1,131,844
=========== =========== ============= =========== ============ ============= ==========

Earnings per common
share:
Basic ........... $ (0.09) $ (0.19) $ 0.47 $ 0.46 $ 0.16 $ 0.13 $ 0.22
Diluted.......... $ (0.09) $ (0.19) $ 0.35 $ 0.37 $ 0.16 $ 0.13 $ 0.22

Weighted average
number of common
shares outstanding:
Basic........... 2,459,748 2,447,057 3,093,085 3,258,459 4,966,885 4,962,268 5,099,423
Diluted......... 2,459,748 2,447,057 4,182,909 4,008,481 4,969,166 4,966,395 5,099,423

- ------------------------------------------------------------------------------------------------------------------------------------
*Includes amounts
charged by affiliates
aggregating: $ 934,561 $ 2,342,352 $ 2,868,974 $ 4,511,144 $ 4,904,514 $ 2,336,618 $ 1,364,381

</TABLE>
<TABLE>
<CAPTION>

Balance Sheet Data:

June 30, December 31,
------------------------------------------------------------------------ --------------------------

1994 1995 1996 1997 1998 1997 1998
==== ==== ==== ==== ==== ==== ====

Cash and cash
equivalents........ $7,629 $30,629 $11,137 $ 1,782,597 $ 1,305,792 $ 111,411 $2,338,974

Working capital
(deficit) ......... (3,226,240) (5,760,534) (7,530,351) (7,436,095) (8,658,324) (7,580,366) (5,941,409)

Total assets ........ 2,553,723 3,975,483 8,531,507 11,871,820 18,343,900 14,845,724 22,292,169

Long-term debt
(including current
portion)............. ---- 25,346 869,437 263,648 9,742 14,744 5,544

Total shareholders'
equity (deficit).... $(2,844,382) $ (4,527,246) $(3,663,125) $ (2,343,671) $(2,006,282) $(1,897,882) $ 1,068,612

</TABLE>

<PAGE>

Supplemental Data(1):

Year Ended Six Months Ended
June 30, December 31,
-------------------------------------------------- -----------------------

1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ----

Retail pharmacy claims processed 1,463,247 1,675,490 1,990,976 2,482,127 1,104,978 1,472,581
Mail pharmacy processed claims 17,889 29,453 62,618 131,513 51,166 85,256
Estimated plan participants 230,000 271,784 291,446 401,226 373,750 426,998
(at period end)
</TABLE>

(1) This data has not been audited. See "Prospectus Summary," "Management's
Discussion and Analysis of Operations" and "Business."

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Health Card derives its revenues from the provision of comprehensive
prescription benefit management services to sponsors of prescription benefit
plans. Sponsors of such plans managed by Health Card include managed care
organizations, local governments, unions, corporations and third party health
care plan administrators. Revenues include (i) the cost of pharmaceuticals
dispensed by pharmacies participating in Health Card's pharmacy network or by
Health Card's mail service pharmacies, (ii) related administrative and
dispensing fees, and (iii) rebates received from pharmaceutical manufacturers.
Cost of sales includes the amounts paid to network pharmacies for pharmaceutical
claims and the cost of prescriptions sold through the mail service pharmacies.
Rebates accounted for less than 2% of revenue, but contributed approximately 17%
of total gross margin during the six months ended December 31, 1998. Three
sponsors, Vytra, Suffolk and Operating Engineers, accounted for approximately
68% of revenues during the same period.

Health Card provides its sponsors with integrated prescription benefit
management services, including electronic point-of-sale pharmacy claims
management, retail pharmacy network management, mail pharmacy claims management,
benefit design consultation, preferred drug management programs, drug review and
analysis, consulting services, disease information programs, data access,
reporting and information analysis and physician profiling. Health Card
currently has a pharmacy network of approximately 42,000 participating
pharmacies including retail chains and independent pharmacies, in addition to
several mail order pharmacies.

Health Card has developed and is continuing to develop a comprehensive
prescription benefit database and performs outcome studies to develop disease
information programs which are used to reduce overall healthcare costs. Because
Health Card believes that information-based services are becoming a more
important component of managed care, Health Card believes that its disease
information programs will provide an increasing source of revenue in the future.

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

<PAGE>

Since 1995, Health Card has made key additions to its senior management
team and has invested heavily in building its information systems
infrastructure, and hiring professional staff and marketing and service
personnel and expects to continue making such investments. Health Card plans to
continue its internal growth through increased marketing of its services and by
expanding the range of services offered, particularly to include value added
consulting and information-based services which Health Card believes to be in
growing demand within the healthcare industry. In addition, Health Card intends
to use a large portion of the proceeds of this offering to supplement its
internal growth by making acquisitions of other prescription benefit management
service providers.

RESULTS OF OPERATIONS

Six month period ended December 31, 1998 compared to the six month period ended
December 31, 1997

Revenues increased $20.8 million or approximately 48% from $43.6 million
for the six months ended December 31, 1997 to $64.4 million for the six month
ended December 31, 1998. The increase resulted primarily from a $6.4 million
increase in fees related to the increase in the number of plan participants
under an agreement with one of our major sponsors and a $14.4 million increase
resulting from an increase in the volume of claims processed under Health Card's
other plans.

Cost of claims increased $18.7 million or approximately 48%, from $39.3
million for the six months ended December 31, 1997 to $58 million for the six
months ended December 31, 1998. As a percentage of revenues, cost of claims
remained constant at 90%.

Gross profit increased $2.2 million, from $4.2 million for the six months
ended December 31, 1997 to $6.4 million for the six months ended December 31,
1998, primarily as a result of the increase in revenues, offset by the increase
in the cost of claims.

Selling, general and administrative expenses, which include amounts charged
by affiliates, increased $1.8 million or approximately 56%, from $3.2 million
for the six months ended December 31, 1997 to $5 million for the six months
ended December 31, 1998. The increase resulted primarily from an increase of
$614,000 in the bad debt reserve, a $170,000 bonus accrual to certain
officers/stockholders, a $180,000 compensation accrual to an officer/stockholder
and an $836,000 increase in compensation, benefits, sales and marketing and
other expenses related to the expansion of our business.

General and administrative expenses charged by affiliates decreased
$900,000 or approximately 39%, from $2.3 million for the six months ended
December 31, 1997 to $1.4 million for the six months ended December 31, 1998.
The decrease resulted primarily from a decrease of $1.4 million due to
compensation of employees hired by Health Card who were previously engaged
through an affiliated service vendor, offset by increases of $155,000 for
equipment rental, $105,000 for consulting and $240,000 for increases in other
operating expenses.

Other income increased $220,000, from $95,000 for the six months ended
December 31, 1997 to $315,000 for the six months ended December 31, 1998, due to
a $181,000 increase in interest accrued on a loan due from an affiliate and a
$39,000 increase in interest earned on short term investments of excess cash
balances.

<PAGE>

The provision for income taxes increased $162,000, from $464,000 for the
six months ended December 31, 1997 to $626,000 for the six months ended December
31, 1998, as a result of increased taxable income.

Fiscal year ended June 30, 1998 compared to fiscal year ended June 30, 1997

Revenues increased $28.7 million or approximately 40%, from $71.3 in fiscal
1997 to $100 million in fiscal 1998. The increase resulted primarily from a $9.6
million increase in fees related to the increase in the number of plan
participants under an agreement with one of our major sponsors and a $19.1
million increase resulting from an increase in the volume of claims processed
under Health Card's other plans.

Cost of claims increased $27 million or approximately 42% from $64.2
million in fiscal 1997 to $91.2 million in fiscal 1998. As a percentage of
revenues, cost of claims increased from approximately 90% in fiscal 1997 to
approximately 91% in 1998, due primarily to a higher number of claims processed,
at a reduced billing rate, under an agreement with one of our major sponsors.

Gross profit increased $1.7 million, from $7.1 million for fiscal 1997 to
$8.8 million for fiscal 1998, as a result of the increase in revenues offset by
the increase in the cost of claims.

Selling, general and administrative expenses, which include amounts charged
by affiliates, increased $1.3 million or approximately 22%, from $5.9 million in
fiscal 1997 to $7.2 million in fiscal 1998. The increase resulted primarily from
$881,000 of additional compensation and benefits for personnel required to
process additional claims and to expand Health Card's sales and marketing
efforts. In addition, $321,000 of the increase resulted from increased
administrative, marketing and consulting fees incurred with related parties and
$90,000 of marketing and consulting costs that were incurred with a third-party
consultant. As a percentage of revenues, selling, general and administrative
expenses decreased from 8.2% in fiscal 1997 to 7.2% in fiscal 1998.

General and administrative expenses charged by affiliates increased
$400,000 or approximately 9% from $4.5 million in fiscal 1997 to $4.9 million in
fiscal 1998. The increase resulted primarily from an increase of $682,000 in
salaries offset by decreases of $259,000 for write-offs of software and $23,000
for miscellaneous expenses.

Other income decreased approximately $224,000, from income of $43,000 in
fiscal 1997 to a net expense of $181,000 in fiscal 1998, due to $445,000 of
public offering expenses. This was offset by a $114,000 increase in interest
accrued on stockholder loans, a $30,000 increase in interest accrued on a loan
due from an affiliate and a $77,000 increase in interest earned on short term
investments of excess cash balances.

The provision for income taxes increased $759,000, from a benefit of
$190,000 in fiscal 1997 to an expense of $569,000 in fiscal 1998, as a result of
the increase in taxable income and a decrease in the deferred tax valuation
allowance in the 1997 period.

Fiscal year ended June 30, 1997 compared to fiscal year ended June 30, 1996

Revenues increased $15 million or approximately 27% from $56.3 million in
fiscal 1996 to $71.3 million in fiscal 1997. The increase resulted primarily
from a $15 million increase in fees related to the increase in the number of
plan participants under an agreement with one of our major sponsors.

<PAGE>

Cost of claims increased $13.4 million or approximately 26%, from $50.8
million in fiscal 1996 to $64.2 million in fiscal 1997. As a percentage of
revenues, cost of claims remained unchanged at approximately 90%.

Gross profit increased $1.6 million, from $5.5 million in fiscal 1996 to
$7.1 million in fiscal 1997, primarily as a result of the increase in revenues,
offset by the increase in the cost of claims.

Selling, general and administrative expenses, which include amounts charged
by affiliates, increased $1.7 million or approximately 40%, from $4.2 million in
fiscal 1996 to $5.9 million in fiscal 1997. The increase resulted primarily from
an increase of $824,000 in write-offs of capitalized software costs, $636,000 in
fees related to an increase in personnel performing sales and bookkeeping
functions and $104,000 in increased sales and marketing efforts. The increases
are a result of an expanded customer base and expenses incurred by Health Card
to expand Health Card's services available to sponsors. As a percentage of
revenues, selling, general and administrative expenses increased from 7.5% in
fiscal 1996 to 8.2% in fiscal 1997.

General and administrative expenses charged by affiliates increased $1.6
million or approximately 55% from $2.9 million in fiscal 1996 to $4.5 million in
fiscal 1997. The increase resulted primarily from an increase of $824,000 for
write-offs of software, $624,000 for salaries, $114,000 for rent and $38,000 for
miscellaneous expenses.

Other income increased $21,000, from $22,000 in fiscal 1996 to $43,000 in
fiscal 1997, as a result of additional interest earned on overnight investments.

The effective income tax rate remained unchanged at an approximate benefit
of 15%, due to the reduction of the deferred income tax valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1997 and 1998 and December 31, 1998, Health Card had a
working capital deficiency of $7.4 million, $8.7 million and $5.9 million,
respectively.

Net cash provided by operating activities was approximately $1.2 million,
$3.5 million, $922,000 and $10,000 for the fiscal years ended June 30, 1996,
1997 and 1998 and the six month period ended December 31, 1998, respectively.
During fiscal 1998, net cash provided by operating activities resulted primarily
from net income and an increase in accounts payable offset by an increase in
accounts receivable and due to/from affiliates. The increases in accounts
receivable and accounts payable were due to an increase in the volume of
business. For the six month period ended December 31, 1998, net cash provided by
operating activities resulted primarily from net income offset by increases in
accounts receivable net of an increase in the bad debt reserve.

Historically, the timing of Health Card's accounts receivable and accounts
payable has generally been a net source of cash from operating activities. There
can be no assurance that such terms of trade will continue in the future. If
these terms were to materially change, Health Card could require additional
financing and there can be no assurance that such financing could be obtained at
rates or on terms acceptable to Health Card, if at all.

<PAGE>

Net cash used in investing activities amounted to approximately $387,000,
$477,000, $416,000 and $972,000 for the fiscal years ended June 30, 1996, 1997
and 1998 and the six month period ended December 31, 1998, respectively. These
uses of cash resulted primarily from capital expenditures and advances and
payments of amounts due to/from stockholders.

Net cash (used in), provided by financing activities amounted to
approximately ($823,000), ($1.2 million), ($983,000) and $2 million for the
fiscal years ended June 30, 1996, 1997 and 1998 and the six month period ended
December 31, 1998, respectively. These uses of cash resulted primarily from
capital distributions and repayment of debt. The cash provided for financing
activities for the six month period ended December 31, 1998 resulted primarily
from 340,919 shares of common stock purchased for $2 million by the principal
stockholder.

In February 1998, Health Card entered into an agreement with an
unaffiliated third party for computer software products and professional
services. The agreement required Health Card to pay an initial license fee of
$400,000, of which $100,000 was paid initially and $25,000 paid monthly through
February 1999. In addition, if certain milestones are met, based on the number
of processed claims, as defined, the license fee increases incrementally up to
$500,000 over the term of the license. As of December 31, 1998, these milestones
have not been reached. The agreement also provides for the annual payment of 18%
of the license fee, as defined, as a service maintenance fee.

Health Card anticipates that the net proceeds of the offering, together
with anticipated cash flow from operations, will be sufficient to satisfy Health
Card's contemplated cash requirements for at least 24 months following the
completion of the offering. This is based upon current levels of capital
expenditures and anticipated operating results for the next 24 months.
Alternatively, revolving credit lines and debt financing are being evaluated as
backups to anticipated cash needs. Additionally, effective June 1, 1998, Health
Card hired 11 programmers, at lower costs than previously charged by an
affiliate, which provided software development consulting services to Health
Card. The primary difference in cost resulting from hiring the programers is an

<PAGE>

administrative fee of approximately 7% which had been charged by the affiliate
based on compensation and related costs. Health Card believes this will further
increase cash flow. In the event that Health Card's plans change or its
assumptions prove to be inaccurate or the proceeds of the offering otherwise
prove to be insufficient to fund operations and implement Health Card's proposed
expansion strategy, Health Card could be required to seek additional financing
sooner than anticipated.

Health Card is presently building a customer service center for up to as
many as 60 customer service representatives. This construction is anticipated to
require approximately $150,000 in capital expenditures which will be financed
out of current cash flow. This amount includes the work for walls, ceilings,
brick, alarm, plumbing, flooring, heating, vents, air conditioning, electrical,
sprinkler, furniture, carpet, cabling and office equipment.

OTHER MATTERS

INFLATION

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

<PAGE>

YEAR 2000 COMPLIANCE

See "Business-Year 2000 Readiness" for a discussion of Health Card's Year
2000 readiness.

RECENT PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.

Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.

Statement of Financial Accounting Standards No. 131 ("SFAS No. 131")
Disclosures about Segments of an Enterprise and Related Information which
supersedes SFAS NO. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the way that public enterprises report
information about operating segments in annual financial statement and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas, and major customers. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.

Both of these new standards are effective for financial statements for
years beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Health Card's financial position, results of
operations and disclosures will be unaffected by the implementation of these new
standards.

In February 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosure about Pensions and Other Postretirement Benefits, which standardized
the disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 is not expected to materially impact Health
Card's current disclosures.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Investments
and Hedging Activities Income ("SFAS 133"), which requires the recording of all
derivative instruments as assets or liabilities measured at fair value. Among
other disclosures, SFAS 133 requires that all derivatives be recognized and
measured at fair value regardless of the purpose or intent of holding the
derivative.

SFAS 133 is effective for financial statements for years beginning after
June 15, 1999. Health Card has no derivative investments and does not
participate in hedging activities; therefore, its financial position, results of
operations and disclosures will be unaffected by the adoption of this standard.

<PAGE>

BUSINESS

General

Health Card is an independent company, established in 1981, providing
comprehensive prescription benefit management services. Health Card's programs
are designed to assist prescription benefit plan sponsors by:

- containing the cost of prescription drugs,
- monitoring the cost and quality of prescription services,
- providing sophisticated consulting services, and
- providing disease information services.

Sponsors of prescription benefit plans managed by Health Card include managed
care organizations, local governments, unions, corporations and third party
health care plan administrators. Health Card focuses its marketing efforts on
prospective sponsors with plans covering up to 100,000 participants, although it
seeks and services sponsors with plans covering less or significantly more plan
participants. As of January 1, 1999, plans managed by Health Card covered over
425,000 eligible employees, retirees, members and their dependents, increased
from 230,000 members on July 1, 1995.

Health Card provides sponsors with integrated prescription benefit
management services, including:

- electronic point-of-sale pharmacy claims management,
- retail pharmacy network management,
- mail pharmacy claims management,
- benefit design consultation,
- preferred drug management programs,
- drug review and analysis programs,
- consulting services,
- disease information services,
- data access, reporting and information analysis, and
- physician profiling.

Each of these services is described in detail below under the heading
"Services."

Each plan participant receives an identification card which may be used at
any pharmacy participating in Health Card's pharmacy network. The card entitles
the plan participant to purchase prescription drugs and certain other
physician-prescribed items by paying a deductible and "co-payment" amount as
determined by the plan sponsor. As of January 1, 1999, the pharmacy network
included an aggregate of over 42,000 retail chain and independent pharmacies as
well as four mail order pharmacies. See "Business--Services."

Health Card assists each sponsor to establish the deductible and
"co-payment" amounts and the availability of benefits under its plan. Plans
generally cover (a) prescriptions for legend drugs,

<PAGE>

which are drugs that cannot be dispensed without a prescription, (b)
prescriptions requiring compounding of ingredients, one of which is a legend
drug, (c) prescribed insulin and prescribed insulin syringes, and (d) needles
and test strips. Items generally excluded from coverage include diet
supplements, over-the-counter drugs (whether or not prescribed by a physician),
medical appliances such as glucometers and blood pressure monitors, bandages,
heat lamps, experimental drugs, drugs furnished by a hospital to inpatients, and
blood and blood plasma.

Health Card attempts to contain the cost of sponsors' plans by negotiating
favorable pricing arrangements with pharmacies participating in its pharmacy
network. Health Card also provides additional cost management through the
real-time electronic communication of claims data and plan criteria between
those pharmacies and Health Card. The claims submission, review and approval
generally occur in a matter of seconds. See "Business-Information Systems."
Claims are processed through multiple reviews in order to:

- confirm plan conformity,
- verify plan participant eligibility,
- verify correct pharmacy payment, and
- conduct drug review and analysis.

Concurrently, information is sent by Health Card's information systems to the
pharmacist about:

- drug interactions,
- premature refills of prescriptions,
- duration or duplication of therapy, and
- geriatric or pediatric precautions

based on Health Card's prescription claims history for the plan participant,
FDA-approved standards and Health Card's recommended drug and treatment
guidelines. These situations or circumstances are collectively referred to as
"contraindications."

The final claim approval or denial is immediately communicated by Health
Card to the pharmacy. If a claim is approved, the communication establishes the
claim for payment and indicates the co-payment or deductible to be charged to
the plan participant.

Health Card participates in a rebate program with Foundation Health
Pharmaceutical Services, Inc. which does business under the name Integrated
Pharmaceutical Services. Through this program, Health Card receives rebates for
processed claims relating to certain drugs. A portion of the rebates received by
Health Card may be remitted to certain of Health Card's sponsors, depending upon
the terms of Health Card's agreement with each sponsor. Through rebates from
drug manufacturers, Health Card has increased its revenues. See
"Business--Services--Electronic Point- of-Sale Pharmacy Claims
Management--Rebate Administration."

Health Card's disease information services are designed to inform and
educate sponsors, plan participants, pharmacies and prescribing physicians about
drug and treatment guidelines for various diseases. Health Card prepares drug
and treatment guidelines for various diseases based on a review of
professionally prepared health care literature which is publicly available. In
compiling the drug and treatment guidelines, Health Card may also utilize
clinical guidelines that are issued by medical specialty boards and are
available to the public. The drug and treatment guidelines are reviewed by
medical and pharmacology experts and submitted to Health Card's Pharmacy &
Therapeutic

<PAGE>

Committee for review and approval. If approved, the drug and treatment
guidelines may be made available to interested sponsors and physicians. Health
Card believes that the use of disease information services represents a market
trend in the prescription benefit management industry. Its use is designed to:

- meet sponsors' growing need for information to address cost
management pressures,
- enhance the quality, efficiency and cost-effectiveness of
pharmacy benefit utilization by plan participants, and
- reduce costs to sponsors.

In providing these services, Health Card may utilize its drug review and
analysis programs. These programs include a series of on-line reviews which
examine a plan participant's claims history for a number of contraindicated or
inappropriate dispensing patterns, among other things. Although Health Card has
only recently commenced disease information services and currently offers such
services to only one sponsor, Health Card believes that disease information
services will encourage physician and plan participant conformity with plans and
physician adherence to recommended drug and treatment guidelines. In turn, this
conformity should improve plan participant health care while reducing costs.

Business Strategy

Health Card's competitors include both independent prescription benefit
management companies and those that are affiliated either with drug
manufacturers or with retail pharmacy companies. Health Card has developed its
business without many of the restrictions inherent in the relationships of its
affiliated competitors, and by focusing on information systems and consulting
services. Health Card therefore believes that its formulary management and other
business activities are more objective than certain of its competitors. Health
Card also believes that its information systems and consulting services are
superior to that of many of its competitors. Accordingly, it is well positioned
to take advantage of the increasing information and cost management needs of the
prescription benefit management services market.

Following the consummation of the offering, Health Card intends to identify
and pursue opportunities to acquire complementary companies and strategic
assets, which we will refer to frequently in this prospectus as "acquisition
opportunities." Health Card also plans to continue development of its services
and programs and expand its operations and sales with the goal of becoming a
leading national independent company providing comprehensive prescription
benefit management services.

<PAGE>

- sales and marketing,
- information services,
- operations,
- consulting services, and
- financial.

See "Management" and "Certain Transactions."

Specifically, Health Card intends to take the following steps to implement
its strategy:

Pursue Strategic Acquisitions. Health Card intends to pursue acquisition
opportunities in order to increase its market share, realize operating
efficiencies and expand the scope of its services. Due to increasing competition
within the fragmented prescription benefit management services market, Health
Card believes that there are significant opportunities to acquire or consolidate
small to medium-sized companies and acquire strategic assets that will:

- expand Health Card's sponsor base,
- improve Health Card's information systems,
- expand Health Card's consulting and disease information
services,
- establish strategic relationships, and
- allow it to realize additional economies of scale.

Expand Core Sponsor Base. Health Card believes that it will continue to
benefit from growth in the prescription benefit management services market. From
July 1, 1995 to January 1, 1999, the number of plan participants for which
Health Card provided prescription benefit management services grew approximately
93% from approximately 230,000 to over 425,000. Health Card intends to expand
its sponsor base by focusing its sales efforts on targeted markets throughout
the U.S. and through acquisition opportunities. See "Business-Sales and
Marketing."

Continue Improvements to Information Systems. Health Card's computerized
information systems, which include an on-line real-time claims management
system, integrate many of the services offered by Health Card. Health Card's
information systems are network-based as compared to older mainframe systems
utilized by certain of its competitors. Mainframe systems generally are
comparatively slower to customize and change programs, and generally do not
allow for integration of services and programs on one system on a timely and
cost-effective basis. Conversely, the network platform typically provides Health
Card with flexibility to tailor its products to specified needs of its sponsors.
Health Card's system is scalable and intended to accommodate the processing
needs resulting from future growth. Nevertheless, Health Card intends to
continue to expand and adapt its information systems, both in response to
specific sponsor requests and based on Health Card's assessment of market needs.
See "Business-Information Systems," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Expand Consulting Services and Disease Information Services. Health Card
believes that consulting services and disease information services offer
significant opportunities for future growth. Health Card is integrating its
claims management services, information systems and the recommended drug and
treatment guidelines to create comprehensive consulting services and disease
information services for its sponsors.

Health Card believes that its disease information services will encourage
physicians and plan

<PAGE>

participants to act in conformity with plans, and physicians to adhere to
recommended drug and treatment guidelines, which, in turn, should improve plan
participant health while reducing the cost of care.

Health Card believes that through increased marketing of:

- drug coverage management services,
- disease information services,
- formulary management (i.e., the types and brands of drugs
covered by a plan), and
- therapeutic interchange services (i.e., substitution to lower
cost therapeutically equivalent drug when approved by the
prescribing physician)

Health Card can expand its sponsor base, expand the services provided to current
sponsors and solidify its relationships with current sponsors.

Establish Strategic Relationships. Health Card intends to pursue strategic
relationships with sponsors, drug manufacturers, pharmacies and others to
enhance the services it provides and to reduce the cost of health care. For
example, Health Card obtains certain rebates from manufacturers through
Integrated Pharmaceutical Services. Health Card presently has a non-exclusive
preferred relationship with Eckerd Health Services d/b/a Express Pharmacy
Services, one of the largest mail order pharmacies in the U.S. Under the
preferred relationship, Express Pharmacy acts as a participating pharmacy and
dispenses drugs to plan participants by mail. See "Business--Services."

Health Card has also engaged from time to time in joint mailing programs
with drug manufacturers designed to furnish information to plan participants and
prescribing physicians.

Industry Background

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

- mail pharmacy services,
- formulary management,
- claims management, and
- drug review and analysis

while often improving patient compliance with recommended drug and treatment
guidelines. Industry sources estimate that 1997 U.S. purchases for prescription
drugs totaled approximately $83 billion, of which purchases from retail outlets
were approximately $46 billion and purchases from mail order were approximately
$9 billion. Industry sources indicate that prescriptions managed by prescription
benefit management companies represent an increasing proportion of such
purchases.

Traditionally, prescription benefit management companies focused primarily
on cost containment by:

<PAGE>

- managing prescription claims to reduce or eliminate
duplication of treatment, i.e., redundant drug therapies and
other treatments,
- encouraging substitution of generics for branded medications,
- obtaining price discounts from participating pharmacies through
a pharmacy network, and
- obtaining rebates from drug manufacturers.

Over the last several years, in response to increasing sponsor demand,
prescription benefit management companies have begun to develop sophisticated
computerized information systems which (a) help sponsors manage their
formularies and (b) provide data, analysis and detailed reporting, which allow
sponsors to make informed decisions about drug use and costs. Sponsors have also
increasingly focused on the quality and efficiency of care, emphasizing disease
prevention and health enhancement. Health Card and its competitors have
addressed these demands by combining traditional prescription benefit management
services with consulting services and disease information programs that exploit
the sophisticated information systems.

Services

General

Sponsors retain Health Card to manage the prescription drug plans that they
maintain for the benefit of their plan participants. Health Card consults with
sponsors to assist them in customizing their prescription drug plans to meet the
particular sponsor's needs. Health Card has also developed and is continuing to
expand its consulting and disease information services to meet (a) the growing
needs of sponsors to address cost management pressures, and (b) the increasing
needs of plan participants, particularly those requiring costly long-term and
recurring therapies.

Health Card's claims management services are rendered through its on-line
real time computerize claims management system, which we sometimes refer to in
this prospectus as the "on-line claims management system." This on-line claims
management system reduces the administrative burdens of processing claims and
managing plan benefits for sponsors, plan participants and pharmacies. Claims
are typically submitted electronically to Health Card by pharmacies
participating in the pharmacy network. They are processed for plan participant
eligibility, plan coverage, any deductible limitations, co-payment amounts,
payment schedules and pharmacy eligibility. Using its on-line claims management
system, Health Card is able to provide an accurate benefit payment to the
pharmacy or plan participant.

The on-line claims management system manages the cost of the plan at the
point of service by confirming that:

- the submitted claim is in conformity with plan terms and
conditions,
- the plan participant is eligible for benefits, and pays any
applicable deductible and co-payment amounts, and
- only the negotiated discounts on prescription items will be
paid to participating pharmacies.

The data collected during the claims management process provides a basis for
reporting and analyses upon which recommendations are made to sponsors. These
recommendations are intended to assist

<PAGE>

them in lowering the costs of their plans while improving quality and service.
See "Business-Services--Data Access, Reporting and Information Analysis."

The Health Card and Claims Processing. Each sponsor's plan participant is
issued a health card which identifies the plan participant and the sponsor. The
card may be utilized at any one of over 42,000 (as of January 1, 1999)
pharmacies participating in Health Card's nationwide pharmacy network. The
health card allows the plan participant to purchase prescription drugs and other
physician-prescribed items, with the plan participant paying a deductible and
co-payment amount, if any, to the pharmacy. Each time a new sponsor is added,
Health Card provides pharmacies in the pharmacy network that serve the area in
which the new sponsor is located with documentation describing the use of the
health card, the sponsor and the summarized terms of the plan.

Plan participants present their health card together with a physician's
prescription to a participating pharmacy. The pharmacist, using standard
industry software, enters each claim on the pharmacy's computer; the claim is
electronically communicated to Health Card for on-line real time processing and
resolution. In the ordinary case where the prescription is for a drug listed on
the sponsor's formulary, the pharmacist is advised of the appropriate co-payment
to be collected from the plan participant and of the payment the pharmacy will
receive from Health Card. Health Card's on-line claims management system sends
appropriate messages regarding preferred drugs and contraindications, based upon
plan participants' existing claims history with Health Card. The prescription is
then dispensed by the pharmacist to the plan participant, who pays the
appropriate co-payment or deductible amount and signs a signature log maintained
by the participating pharmacy.

Plan participants are provided with a list of pharmacies participating in
Health Card's pharmacy network. Plan participants may alternatively choose to
fill prescriptions at a non-participating pharmacy. However, plan participants
who utilize non-participating pharmacies pay the full prescription amount, i.e.,
an amount generally in excess of the negotiated discount offered by pharmacies
in the pharmacy network. Both the plan participant and the pharmacy then
complete a direct payment claim form, which is mailed to Health Card for the
allowable payment amount to be paid to the plan participant. Alternatively, the
non-participating pharmacy may elect to immediately enroll in Health Card's
pharmacy network and participate in the on-line claims management system. See
"Business-Pharmacy Network."

Occasionally a plan participant's claim is rejected, based on plan
parameters, in which case the participant may be referred to the plan's sponsor
or to Health Card's customer service department. Also, on occasion a claim is
presented and the pharmacist is notified, during the course of processing the
claim, that prior authorization from the sponsor is needed before the claim can
be approved. In addition, mail order claims processing sometimes results in a
message to the pharmacist that a preferred drug is available for use in place of
the one prescribed. In such an event, the pharmacist must contact the physician
directly for permission to substitute the preferred drug; if such permission is
obtained, the pharmacist then contacts the plan participant to obtain his or her
permission to make a substitution. Although preferred drug messages are also
capable of being sent by Health Card's on-line claims management system to
retail pharmacists, to date no sponsor has asked Health Card to do so.

Invoicing and Payments. Often, sponsors are charged an agreed fee for each
prescription filled plus an administrative and/or dispensing fee for managing
each claim. Sometimes sponsors are charged an adjustable monthly fee or
projected maximum fee based on the number of plan participants, utilization,
costs of drugs or other criteria. Health Card provides flexibility of invoicing

<PAGE>

for its sponsors. Sponsors pay Health Card; Health Card pays an individually
negotiated amount to its participating independent and chain pharmacies. Plan
participants filing for direct payment receive an allowable payment which is
usually specified by the sponsor. See "Business-Services--Pharmacy Network" and
"Risk Factors-We Have a History of Working Capital Deficits, Which Could
Adversely Affect Our Business" and "Risk Factors-Our possible inability to pay
pharmacies could adversely affect our business."

Rebate Administration. Pursuant to an agreement dated January 1, 1996, with
Foundation Health Pharmaceutical Services, Inc., d/b/a Integrated Pharmaceutical
Services, Health Card submits to Integrated claims for rebates from drug
manufactures relating to certain prescriptions. Integrated submits Health Card's
rebate claims, along with rebate claims of others, to the appropriate drug
manufacturer. Health Card receives a percentage of the total rebates received by
Integrated from drug manufacturers regarding products dispensed to Health Card's
sponsors' plan participants, with Integrated retaining a portion of the total
rebates as an administrative fee. Part of the projected aggregate rebate will be
paid to Health Card within 120 days after the end of each quarter, with the
balance reconciled by the parties through a series of off-sets and credits, by
which the fees payable to Integrated by Health Card are off-set against the
amounts owed to Health Card by Integrated. This agreement is terminable by
either party with or without cause on 90 days prior written notice. These claims
are submitted quarterly. As of the date of this prospectus, the volume of claims
processed by Health Card may not be sufficient to enable it to obtain rebates
directly from drug manufacturers in the same aggregate amounts that could be
obtained under the Integrated agreement.

For the fiscal years ended June 30, 1998, 1997 and 1996, rebates accounted
for 1%, 1% and 3% of our revenue, respectively. A portion of the rebates
received by Health Card may be required to be remitted to certain of Health
Card's sponsors, including Vytra and Suffolk County, depending upon the terms of
Health Card's agreement with each sponsor. Termination of the agreement with
Integrated could have an adverse effect on Health Card's business, operating
results and financial condition. See "Risk Factors--Our business is designed to
function with current rebate programs. If our rebate administrator terminates
our agreement, or if drug manufacturers alter or discontinue rebate programs,
there could be a material adverse effect on our business," "Risk Factors--The
health care industry is highly regulated at the federal, state and local levels.
Our failure to comply with these regulations could adversely affect our
business."

Pharmacy Network

Retail Pharmacy Network Management. A comprehensive nationwide network of
participating pharmacies is an essential element of Health Card's business
operations. Furthermore, certain of Health Card's sponsors, including Vytra,
require Health Card to contract with specified numbers of pharmacies in various
locations to serve plan participants. As of January 1, 1999 Health Card had a
nationwide network of over 42,000 pharmacies, of which approximately 76% are
retail chain pharmacies and 24% are independent pharmacies. In addition, as of
January 1, 1999 four mail order pharmacies participated in the pharmacy network.
See "Business-Services-Pharmacy Network-Mail Pharmacy Distribution and
Management."

As part of Health Card's cost containment efforts, Health Card contacts
selected participating pharmacies, plan participants and prescribing physicians
by mail to audit the validity of claims. The information requested includes:

<PAGE>

- copies of original prescriptions from participating pharmacies,
- written confirmation from plan participants of their receipt
of prescribed drugs, and
- physician verification of prescriptions for individual plan
participants.

Health Card also performs on-site audits of records of participating pharmacies.
Pharmacies are selected for an audit based upon parameters designed into Health
Card's computer programs. Additionally, Health Card may audit a pharmacy in
response to, among other things, a plan participant's or sponsor's complaint or
comments from customer service representatives of drug manufacturers.

Health Card enjoys long term relationships with many of the pharmacies
participating in its pharmacy network, as the following table indicates:

Pharmacy Year of Initiation
-------- ------------------

Rite Aid Corporation 1982

Eckerd Health Services 1983

CVS/Pharmacy, Inc. 1983

Genovese Drugstores, Inc. 1982

Furthermore, a significant portion of Health Card's cost of claims for recent
years originates with Genovese Drugstores, Inc. and CVS/Pharmacy, Inc.

Both the retail and mail order components of the pharmacy network are
managed by Health Card's on-line claims management system. See
"Business-Services-Electronic Point-of-Sale Pharmacy Claims Management."

Mail Pharmacy Claims Management. Mail pharmacy service is generally used by
plan participants as a cost effective means of minimizing the inconvenience
resulting from repeated trips to retail pharmacies to fill prescriptions; this
is especially common when a plan participant with a chronic condition receives
long-term drug therapy. In addition, the plan participant saves money through a
reduction in the number of co-payments and deductibles he would have paid had
the prescriptions been filled repeatedly at a retail pharmacy. Further, with
mail pharmacy service the sponsor is charged a lower dispensing fee for
prescription ingredients compared to those charged by a retail pharmacy. Health
Card presently has a non-exclusive preferred relationship with Eckerd Health
Services d/b/a Express Pharmacy Services, one of the largest mail order
pharmacies in the U.S. In exchange for such preferred status, Health Card has
been granted favorable pricing based on volume and performance thresholds.

The agreement between Health Card and Express Pharmacy has an initial term
of three years ending on June 30, 1999 and is automatically renewable for
successive 12 month terms. Either party may terminate the agreement at the end
of the initial term or any successive term on 90 days prior written notice. The
agreement provides that Express Pharmacy will:

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

<PAGE>

when a generic drug is available.

This agreement further provides that Health Card will pay Express Pharmacy for
approved claims within 45 days after the two week processing cycle in which the
claim occurs.

As of January 1, 1999, four mail order pharmacies were participating in
Health Card's pharmacy network. Plan participants using a mail order pharmacy
mail in their prescriptions to the pharmacy. Claims submitted by mail order
pharmacies are managed using Health Card's on-line claims management system and
are subject to the same review and verification as those claims submitted by
retail pharmacies. If the claim is deemed eligible under the terms of the
appropriate plan, the participating mail order pharmacy mails the prescription
item to the plan participant. The mail order pharmacy typically covers the plan
participant's mailing costs through the use of prepaid envelopes (used by a plan
participant to submit his/her prescription) and typically pays to ship the
prescribed item to the plan participant.

Pharmacy Relations. According to Health Card's agreements with pharmacies
in the pharmacy network, Health Card is required to pay participating
pharmacies. Even though our agreements with many pharmacies do not require us to
make payments within a specified period of time, we know from experience that
they expect timely payment. Health Card endeavors to process claims promptly and
obtain funds from sponsors prior to making payments to participating pharmacies;
still, there can be no assurance that sponsors will pay Health Card on time.

No assurances can be made that pharmacies in our network will not demand
faster payment in the future. In particular, in May, 1996, Health Card
restructured $900,000 of outstanding overdue claims payable to Genovese into a
promissory note obligating Health Card to pay such amount over 18 months. That
note has been repaid in full. Health Card believes that there has been no
material negative affect on its business resulting from our payment schedule and
we believe our relationships with pharmacies are generally good.

Health Card may be required to pay participating pharmacies whether or not
it has been paid by its sponsors. The loss of a substantial portion of the
pharmacies in the pharmacy network could have a material adverse effect on
Health Card's business, operating results and financial condition. See "Risk
Factors--We have a history of working capital deficits, which could adversely
affect our business" and "Risk Factors--Our possible inability to pay pharmacies
could adversely affect our business." See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Benefit Design Consultation

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

- levels of co-payments,
- covered and excluded drugs,
- generic substitution guidelines,
- number of days supply of medication per prescription,

<PAGE>

- maximum benefit cost,
- maximum plan participant out-of-pocket cost, and
- coverage for prescription drugs dispensed by non-participating
pharmacies.

The staff also produces customized periodic reports, and disseminates publicly
available FDA approved or peer reviewed nationally recommended treatment data
regarding generic substitution guidelines. Once a plan design has been
implemented, the sales and marketing staff monitors plan performance
periodically and may recommend changes to the plan.

Preferred Drug Management

Almost all of Health Card's sponsors use its generic substitution and
preferred drug management programs. In administering preferred drug programs,
Health Card may recommend that a sponsor offer incentives so that the lower cost
brand name drug listed on its formulary is prescribed rather than a more
expensive therapeutically equivalent drug. Health Card believes there are
substantial savings to be realized by encouraging plan participants to use
generic instead of brand name drugs, since the cost of a generic prescription
drug can be as much as 95% (typically 40% to 60%) lower than the cost of the
therapeutically equivalent brand name prescription drug. Through a generic
substitution program, a plan participant pays a lower co-payment than he would
otherwise, and thereby benefits directly from the savings. Through its preferred
drug programs, Health Card encourages physicians and plan participants to use
drugs that are preferred by plan sponsors, usually for lower cost but sometimes
for efficacy. Health Card does this, typically, through contacts with
physicians. With a preferred drug program, typically the savings are
distributed, for the first year of the program, among the sponsor, the pharmacy,
and Health Card; starting with the second year, all of the savings are received
by the sponsor. This type of plan is most frequently used in connection with
long-term therapies.

Plan participants are encouraged by Health Card to use generic drugs by a
variety of methods. These methods include:

- utilizing differential co-payments (that is, allowing a plan
participant accepting a generic drug to pay a lower co-payment
than if the same prescription were filled with the brand name drug),
- eliminating the co-payment for generic drugs, and
- offering a financial incentive to pharmacists to fill
prescriptions using generic drugs, when permitted by law,
therapeutically permissible and in all cases subject to the
physician's prior approval.

The differential co-payment is the method most commonly used by Health Card to
encourage acceptance of generic substitutes for brand name drugs. See "Risk
Factors--The health care industry is highly regulated at the federal, state and
local levels. Our failure to comply with these regulations could adversely
affect our business."

If a physician prescribes a specific drug and the prescription includes a
"dispense as written" ("DAW") notation, a pharmacist is not permitted to
substitute a generic drug without the physicians' consent. In such event, the
pharmacist must contact the physician directly for permission to substitute a
generic equivalent or a less expensive brand name drug. Depending on state law,
if no DAW notation is made, the pharmacist must obtain the consent of only the
plan participant to dispense a generic substitute. In New York, if no DAW
notation is made and the physician does not

<PAGE>

prohibit substitution, the pharmacist is required to dispense the generic
equivalent if it is available. Other states may have different laws, rules and
regulations. Health Card's detailed quarterly reports to sponsors assist in
determining if this program is being utilized effectively. See
"Business-Services-Data Access, Reporting Information and Analysis."

Health Card also provides preferred drug management programs including
therapeutic interchange and formulary management. These programs are based upon
the effectiveness, quality and cost of specific drugs. Programs of interchange
or formulary inclusion are implemented to give sponsors lower cost with equal
quality. All chosen drugs are reviewed by Health Card's Pharmacy and
Therapeutics Committee in terms of their efficacy, quality (including side
effects) and cost. See "Business -- Consulting Services and Disease Information
Services" and "Risk Factors--The health care industry is highly regulated at the
federal, state and local levels. Our failure to comply with these regulations
could adversely affect our business."

Drug Review and Analysis

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

- drug interactions,
- premature refills of prescriptions,
- duration or duplication of therapy,
- pregnancy and breast feeding precautions,
- geriatric or pediatric precautions,
- compliance with prescriptions, both as to dosage and timing, and
- other contraindications.

Health Card transmits such information to the dispensing pharmacist for
information purposes only -- not to replace the prescribing physician's or the
dispensing pharmacist's professional judgment. Health Card's consulting
department retrospectively analyzes the drug utilization patterns of plan
participants for each sponsor. Health Card may then recommend changes in the
sponsor's plan design, preferred drug management, and disease information
systems initiatives to contain costs or to better serve the plan participants.
See "Risk Factors--The health care industry is highly regulated at the federal,
state and local levels. Our failure to comply with these regulations could
adversely affect our business."

Consulting Services and Disease Information Services

Prescription Benefit Plan Consulting. Health Card's consulting services are
designed to enable sponsors to enhance the quality of plan participants' care
while reducing related costs. Using data relating to the progression and
treatment of diseases, Health Card disseminates information regarding therapies
that are aimed at treating a disease in a cost-effective manner. Health Card's
information systems, which include a comprehensive database, allow Health Card
to provide (a) drug review and analysis, (b) appropriate reports and
information, and (c) disease information services. Health Card believes that
technology and information systems advances will allow for future integration of
health care claims information, including hospital, laboratory and clinical
costs. Health Card further believes that integration will enable it to assess
outcomes on a statistical basis

<PAGE>

and based on such statistical assessments to make recommendations regarding
effective prescribing practices. Health Card believes this should allow for
improved patient care while controlling therapy costs. See "Risk Factors--The
health care industry is highly regulated at the federal, state and local levels.
Our failure to comply with these regulations could adversely affect our
business."

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

- provides information to sponsors to ensure that the covered
drugs of each plan reflect the current standard of medical
practice and pharmacology,
- evaluates drugs for inclusion in a plan as a preferred drug,
- analyzes current literature for safety, efficacy and
cost-effectiveness of covered drugs,
- provides recommendations on drug therapy and utilization,
- evaluates drug review and analysis programs and criteria by
sponsors,
- determines those drugs which require prior authorization
from the sponsor, and
- reviews the associated guidelines for those drugs' proper use.

The P&T Committee currently consists of six members: Martin Edelstein, M.D.
and Paul Cohen, M.D., each of whom is a practicing physician and medical school
professor, Jack M. Rosenberg, a university professor of clinical pharmacy and
pharmacology, Joseph B. Laudano, a manager of medical affairs of a major drug
company, Howard G. Levine, a pharmacist, who is the Chairman of the Board of an
independent pharmacy group, and John Ciufo, who is Health Card's liaison with
the P&T Committee. Mr. Ciufo is the only member of the P&T Committee otherwise
affiliated with Health Card. Vytra has the right to designate one member of the
P&T Committee, but has not exercised its right. Each Committee member must
disclose his or her affiliation with any drug company; no current Committee
member besides Mr. Laudano has disclosed any such affiliation.

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

- reviews and analyzes drugs prescribed and prescriptions
dispensed,
- recommends plan guidelines, and
- conducts plan participant and physician profiling.

By analyzing plan participants' pharmacy claim patterns and health information
provided by prescribers and sponsors (when medical records are available to
Health Card), Health Card can provide information to sponsors and health care
providers, assisting in the early identification of

<PAGE>

patients whose care might be improved through additional or alternative
treatment or medication. Health Card has developed disease information systems
covering cardiovascular and gastrointestinal conditions, migraines, diabetes,
and asthma, among others.

Health Card's disease information services utilize the recommended drug and
treatment guidelines to create a series of mathematic formulae which are then
implemented in Health Card's computerized information systems. These formulae
are periodically updated by Health Card based upon its own assessments, changes
in the drug and treatment guidelines, and review of current medical literature.

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

Health Card is currently marketing its disease information programs on a
very limited basis, and is actually providing this service to only two sponsors
presently. Health Card believes that sponsors' demand for these services will
grow as their needs for information to address cost containment increase. See
"Risk Factors--The health care industry is highly regulated at the federal,
state and local levels. Our failure to comply with these regulations could
adversely affect our business."

Data Access, Reporting and Information Analysis

Data Access. Health Card's computerized information systems allow each
sponsor to access on-line data relating to the sponsor's plan. With this
capability, the sponsor is able to maintain and update plan participant
eligibility information and override denials of claims if it so chooses.

Reports. Sponsors receive quarterly executive reports and ad-hoc reports,
in addition to the executive and billing reports which accompany invoices. The
quarterly executive reports provide:

- financial and claims information,
- information on age group utilization,
- amounts spent on prescriptions,
- most frequently dispensed drugs in terms of claims and dollar
amounts,
- information about retail pharmacy and mail order mix, and
- information about generic and brand drug mix.

The billing reports indicate, by plan participants' names:

<PAGE>

- the prescriptions filled,
- dates dispensed,
- drugs dispensed, and
- the dispensing pharmacies utilized by plan participants.

Based on these reports, Health Card representatives provide information and
assist sponsors regarding benefit design, cost containment initiatives, disease
information initiatives and formulary management.

Decision Support Systems. Health Card's proprietary computerized HCFocus
decision support tool is part of Health Card's report generation system and
utilizes Health Card's proprietary database. Sponsors can use HCFocus to analyze
particular information, including, among other things:

- comparison of physician prescription practices for the same
disease or condition,
- analysis and review of a plan participant's drug history,
- analysis of the top drugs dispensed by number or dollar value,
- analysis of generic drug for brand name drug substitution rates,
and
- analysis of the dispensing patterns of particular pharmacies.

Physician Profiling

Health Card will, at either a physician's or a sponsor's request, analyze
(i.e., profile) a physician's prescription history and consult with either the
physician or the sponsor about the physician's prescribing pattern. Health Card
might, for example, discuss alternatives to therapies that the physician
regularly prescribes based on the drug and treatment guidelines. This practice
is designed to enhance the therapeutic benefits received by the plan participant
and, where possible, to achieve cost savings. They are also designed to promote
conformity with plan benefits and the recommended drug and treatment guidelines.
Occasionally, Health Card merely provides the profile information because the
requesting party has not asked for information about alternative therapies.
Presently, Vytra is the only Health Card sponsor using the physician profiling
services, although one more sponsor has expressed interest in using this service
later in 1999 or 2000. Health Card believes that other sponsors may be
interested in this service in the future.

Sponsors

Sponsors include managed care organizations, local governments, unions,
employers and third party health care plan administrators of prescription drug
programs. As of January 1, 1999, sponsors' plans covered over 425,000 plan
participants. As of January 1, 1999, Health Card had 226 sponsors, with
concentrations in the Northeast, Southeast and West Coast. Between May 1, 1998
and February 1, 1999, 18 new sponsors began utilizing Health Card's services.

Health Card's sponsors are asked to sign a standard form of managerial
agreement that governs Health Card's relationship with that sponsor. Pursuant to
this standard agreement, Health Card pays claims and furnishes other related
services through a network of pharmacies. The sponsor

<PAGE>

provides the details of the plan to be managed, along with a list of all covered
participants and eligibility updates. The sponsor is liable for all charges
incurred by unauthorized people unless Health Card was notified in writing of
ineligibility. If the participant receives prescription drugs from a non-member
pharmacy, a claim for direct payment must be made. Health Card is obligated to
ensure that an adequate number of member pharmacies are available, furnish a
description of the plan to the pharmacies, require such pharmacies to comply
with the member pharmacy agreement, process claims and determine whether claims
qualify for payment. Health Card is also obligated to furnish the sponsor with a
bi-weekly account statement which sets forth a summary of claims costs in the
preceding period, provide a description of the drugs which are included and
excluded from the plan, and provide the contracting party with a monthly member
termination report.

The sponsor is obligated to pay a negotiated cash advance per eligible
employee, to be applied to the amounts owed, as indicated on each bi-weekly
account. The bi-weekly account statement will also include an amount due to
Health Card for the auditing, approval and payment of claims processed during
the preceding period. The contracting party agrees to make all payments within
ten business days from receipt of the bi-weekly account statement, except that
any additional charges for which a separate fee is agreed to by the parties will
be remitted by the contracting party within 30 days after receipt of billing
from Health Card. Health Card agrees to maintain, in electronic form, current
and complete files of all claims received, and records to establish the cost of
drugs to each client. The sponsor can review these records. While most of Health
Card's larger sponsors negotiate other agreements with Health Card, many
sponsors sign the standard form or a modified version of the standard form.

Significant Sponsors

Health Card depends on a limited number of sponsors for a significant
portion of its revenue.

For the fiscal years ended June 30, 1998, 1997 and 1996, Vytra and Suffolk
County were the only sponsors that accounted for 10% or more of Health Card's
revenues. For the six months ended December 31, 1998, Vytra, Suffolk County and
Operating Engineers Trust Funds were the only sponsors that accounted for 10% or
more of Health Card's revenues. The loss of any one of these sponsors would have
a material adverse effect on our business, operating results and financial
condition. The business relationship with each of these sponsors is detailed in
the immediately following sections.

Vytra

Vytra Health Plans Long Island, Inc. (formerly known as ChoiceCare Long
Island, Inc.)("Vytra"), a health maintenance organization, is a particularly
significant sponsor, as the following table indicates:

<PAGE>

Percent of Health
Period Card Revenues Number of Participants
------ ------------- ----------------------

Year ended June 30, 1997 44% 128,404

Year ended June 30, 1998 42% 166,840

Six months ended December 31, 1998 42% 170,116

Health Card has been providing services to Vytra since 1990.

A. Prescription Arrangement.

Health Card provides prescription benefit management services to Vytra
under two separate arrangements. Pursuant to a series of letters and
conversations, Health Card provides services to Vytra under an arrangement that
began under a written agreement that, as amended, expires in December 1999.
Under this arrangement (the "Prescription Arrangement"), National Medical Health
Card IPA, Inc., our wholly-owned subsidiary, provides services to Vytra. Health
Card is in the process of negotiating a more formal amendment to the
Prescription Arrangement. Health Card cannot be certain that a more formal
amendment with Vytra will be signed, or that any agreement that is signed will
contain terms as favorable to it as the current arrangement.

Under the Prescription Arrangement, Health Card IPA provides prescription
benefit management services and charges a preset amount based on the number of
plan participants covered at the beginning of each month. The amount payable
under this arrangement is adjusted retrospectively to take into account actual
utilization and cost of claims. The party that benefitted from any difference in
such amount pays a percentage of the difference to the other party. Vytra pays
Health Card additional fees for certain information services, claims processed
and other services.

The Prescription Arrangement accounted for the approximate percentage of
Health Card's revenues indicated in the following table:

Percent of Health
Period Card's Revenues
------ ---------------

Year ended June 30, 1997 33%

Year ended June 30, 1998 33%

Six months ended December 31, 1998 34%

<PAGE>

Pursuant to the Prescription Arrangement, Health Card is Vytra's primary
provider of prescription benefit management services. Vytra has the right to
place a percentage of its claims with other prescription benefit management
companies. If Vytra processes more than such percentage of its claims with other
parties, Health Card can terminate the Prescription Arrangement. Under the
Prescription Arrangement, should Health Card offer rates more favorable than
those offered to Vytra to a competing sponsor whose plan design and
demographics, service area and services received from Health Card are
substantially similar to those of Vytra, Health Card must promptly notify Vytra.
Vytra then may:

- terminate the Prescription Arrangement, if the competing
sponsor has more participants (but less than twice more) than
Vytra and we do not offer the same rates to Vytra; and
- receive the more favorable rates, if the number of the
competing sponsor's participants is equal to or less than the
number of Vytra's participants.

As a result of adoption of new contract drafting guidelines for HMOs and IPAs in
New York, Health Card IPA will not be permitted to offer this same contract
benefit. See "Risk Factors--The health care industry is highly regulated at the
federal, state and local levels. Our failure to comply with these regulations
could adversely affect our business."

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

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

- processing certain percentages of claims within certain
periods,
- making all reasonable efforts to process all claims within a
maximum period,
- answering all calls within a minimum time frame,
- ensuring that a certain percentage of mail order prescriptions
that are not eligible for substitution of therapeutic
equivalents are dispensed within certain periods, and
- making all reasonable efforts to make sure all mail order
prescriptions are dispensed within a maximum time period.

<PAGE>

Health Card is required to pay a penalty for failing to meet the
processing-period and call-answering guarantees; however, there is no specific
penalty provision if the mail order prescription guarantees are not met.

Health Card must maintain a Pharmacy and Therapeutics Committee. Vytra has
the right to designate one representative to serve on the Pharmacy and
Therapeutics Committee, but has not exercised that right. See
"Business-Services-Clinical Consulting and Disease information." A portion of
the rebates actually received by Health Card for pharmacy benefit management
services to plan participants must be remitted to Vytra. See
"Business-Services-Electronic Point-of-Sale Pharmacy Claims Management-Rebate
Administration."

Pursuant to the Prescription Arrangement, a portion of certain financial
risks is shifted from Vytra to Health Card. Vytra is an HMO established under
the laws of the State of New York. Under New York law, an HMO may share risk
only with reinsurers or, pursuant to a written agreement which complies with
certain drafting guidelines issued by the DOH, with "providers" and independent
practice associations. Recently, Health Card acquired National Medical Health
Card IPA, Inc., which is an IPA under the laws of New York State. Pursuant to a
letter agreement signed in March 1999, Vytra has agreed that the Prescription
Arrangement will govern its relationship with Health Card IPA. While the letter
agreement does not comply with the DOH drafting guidelines, a more formal
amendment, anticipated to be entered into with Vytra, contemplates full
compliance with those guidelines. Health Card cannot be sure that the March 1999
letter agreement satisfies all applicable regulatory requirements. See "Risk
Factors--The health care industry is highly regulated at the federal, state and
local levels. Our failure to comply with these regulations could adversely
affect our business."

As of September 25, 1998, Health Card executed a letter agreement with
Vytra which extended the term of the original Prescription Arrangement until
December 31, 1998. This letter agreement also listed new and additional terms
which were to be included in a formal amendment to the Prescription Arrangement.
Among other things, the March 1999 letter agreement extends the term of the
September letter to December 31,1999. Even though Health Card, Health Card IPA
and Vytra signed the March 1999 letter agreement, Health Card anticipates that a
more formal amendment will be signed and govern the parties' relationship from
January 1 to December 31, 1999, and will include, among other things, the terms
of a proposal issued by Health Card in response to a request for proposal which
was issued by Vytra, as contemplated to be modified by the September 25, 1998
letter. As of the date of this prospectus, the more formal amendment has not
been entered into. Although negotiations are continuing and we expect a more
formal amendment to be executed by both parties, no assurances can be given that
a more formal amendment will be executed, or that it will be executed on terms
favorable to Health Card. Failure to enter into a more formal amendment or new
agreement with Vytra would have a material adverse effect on Health Card's
business, operating results and financial condition. See "Risk Factors--The
majority of our revenues are attributable to a few sponsors. The loss of one of
these sponsors could adversely affect our business."

<PAGE>

B. Fee for Service Agreement.

Health Card also provides prescription benefit management services to Vytra
under an agreement that commenced March 15, 1990 (the "Fee for Service
Agreement") with an initial term ended on March 31, 1991. The Fee for Service
Agreement renews annually from year to year, unless terminated by either party.
Under this Agreement, Health Card performs prescription benefit management
services and charges a fee based on the number and type of claims processed. See
"Risk Factors--The majority of our revenues are attributable to a few sponsors.
The loss of one of these sponsors could adversely affect our business."

The Fee for Service Agreement accounted for the approximate percentage of
Health Card's revenues indicated in the following table:

Percent of Health
Period Card's Revenues
------ ---------------

Year ended June 30, 1997 11%

Year ended June 30, 1998 9%

Six months ended December 31, 1998 8%

Suffolk County

Health Card has been providing prescription benefit management services to
Suffolk County, a municipal corporation of the State of New York, since 1992.
Health Card is currently providing services to Suffolk County under an oral
agreement, terminable by either party, the economic terms of which are otherwise
substantially similar to those of a written agreement that expired on December
31, 1998.

In February 1999, Suffolk County provided us with a proposed amendment to
the written agreement which Health Card has signed but Suffolk County has not.
We cannot be certain that the proposed amendment to the agreement with Suffolk
County will be signed. See "Risk Factors--The majority of our revenues are
attributable to a few sponsors. The loss of one of these sponsors could
adversely affect our business."

Suffolk County accounted for a substantial portion of Health Card's business, as
indicated in the following table:

Percent of Number of
Period Revenues Participants
------ -------- ------------

Year ended June 30, 1997 19% 37,833

Year ended June 30, 1998 15% 38,893

Six months ended December 31, 1998 14% 39,416

<PAGE>

Health Card guarantees an effective blended average wholesale price
discount per prescription and an average blended dispensing fee per
prescription. Health Card is required to pay certain percentages of rebates to
Suffolk County pursuant to a complex formula. Health Card offers Suffolk County
a minimum initial rebate guarantee for each paid claim, which applies until the
rebate per claim equals a threshold amount. The percentage rebate to which
Suffolk County is entitled increases based on a formula tied to the per claim
rebate rate.

Operating Engineers

On December 1, 1997, Health Card began providing prescription benefit
management services to Operating Engineers Trust Funds, IUOE Local 12, a
construction workers' union, in Southern California. As of January 1, 1999,
Operating Engineers cover approximately 40,000 plan participants. As of the date
of this prospectus, Health Card is providing services pursuant to an oral
agreement but is negotiating for a written agreement. No assurances can be given
that a formal agreement will be executed, or that it will be executed on terms
favorable to Health Card. Pursuant to such oral agreement, Health Card is
required to pay a certain percentage of rebates to Operating Engineers. For the
six months ended December 31, 1998, Operating Engineers accounted for
approximately 12% of Health Card's revenues.

In the event that any of these sponsors choose to discontinue using Health
Card's services, Health Card's business, operating results and financial
condition will be materially adversely affected. In the event of the loss of any
of these sponsors, there can be no assurance that Health Card will be able to
replace such sponsors. See "Risk Factors--Consolidation and alliances among
sponsors and health care providers may result in loss of sponsors" and "Risk
Factors--The majority of our revenues are attributable to a few sponsors. The
loss of one of these sponsors could adversely affect our business."

Sales and Marketing

Health Card markets its services through a sales and marketing department
led by the Executive Vice President of Sales and Marketing. The sales and
marketing department includes a marketing manager, marketing assistant, a
proposal writer, one regional sales manager, seven sales executives, and one
sales coordinator. There is a sales executive for each targeted geographic sales
region - Northeast, Mid-Atlantic, Southeast, Southwest, Midwest and West, and
one for the public sector market with a national focus. The members of Health
Card's sales and marketing department have approximately 135 years of combined
experience in the prescription benefit management services industry. In
addition, Health Card contracts with independent brokers who are retained to
market Health Card's services to prospective sponsors for agreed upon fees based
on the number of plan participants enrolled in a Health Card-supported plan. See
"Risk Factors--The health care industry is highly regulated at the federal,
state and local levels. Our failure to comply with these regulations could
adversely affect our business."

Health Card maintains a prospect list in which each prospect is identified
by market segment and geographic sales location; the list includes sponsors
which, in the aggregate, target over 5,000,000 plan participants. Health Card
has completed market studies of and has identified various managed care
organizations, local governments, unions, corporations, and third party health
plan administrators who are potential sponsors. Health Card focuses its
marketing efforts on sponsors with plans covering up to 100,000 participants
although it provides services to, and seeks sponsors

<PAGE>

with, plans covering less or significantly more plan participants. Health Card
is beginning a market research effort to determine the profitability and
marketability of developing prescription benefit management programs for the
U.S. retiree population. Health Card also markets to all major employee benefit
consultant groups.

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

Further, Health Card is continuing to expand its World Wide Web site.
Currently, the Web site describes Health Card's products and services and lists
frequently asked questions, among other things. It is anticipated that the Web
site will have a page dedicated to on-line services which will allow plan
participants to fill out customer service surveys and direct payment claims
forms, and to access the pharmacy network listings. The Web site is anticipated
to be available for physician access to the Health Card formulary drug listing.
Security firewalls have been developed and implemented to protect patient
confidentiality.

Competition

Health Card competes with numerous companies which provide the same or
similar services, such as:

Express Scripts, Inc. / Value Rx National rescription Administrators, Inc.
PCS Health Systems, Inc. Diversified Pharmaceutical Services, Inc.
Merck-Medco Managed Care, LLC Advance Paradigm, Inc.
Provantage Health Services, Inc. MedImpact Health Care Systems, Inc.
MIM Corp. Pharmaceutical Care Network
Consultec, Inc.

Many of Health Card's competitors have been in existence for longer periods
of time and are far better established than Health Card. Many of them also have:

- broader public recognition,
- financial and marketing resources substantially greater than
Health Card,
- more experienced management, and
- far more extensive facilities than those available to Health Card.

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

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

<PAGE>

- a broad base of experience in the information technology and
pharmacy benefit management industries,
- flexible and sophisticated on-line computerized information
systems, and
- a focus on customer service.

See "Risk Factors--Competition from other prescription benefit managers, and
sponsors administering their own plans, may reduce the market for our services."

There can be no assurance that Health Card will remain competitive or
successfully market integrated prescription benefit management services and
disease information services to existing and new sponsors. Furthermore, there is
a distinct possibility that consolidation and alliances within the industry will
adversely impact the operations and prospects for independent prescription
benefit management companies such as Health Card. See "risk factors--competition
from other prescription benefit managers, and sponsors administering their own
plans, may reduce the market for our services" and "Risk Factors--Consolidation
and alliances among sponsors and health care providers may result in loss of
sponsors" and "Risk Factors--The health care industry is highly regulated at the
federal, state and local levels. Our failure to comply with these regulations
could adversely affect our business."

Employees

As of January 1, 1999 Health Card had 75 employees, including:

- 9 officers,
- a sales and marketing department of 14 employees,
- an information services department of 14 employees,
- an operations department of 31 employees (4 of which are
part-time),
- consulting department of 5 employees, and
- financial department of 2 employees.

Health Card's employees are not subject to collective bargaining agreements and
Health Card considers its relations with its staff to be satisfactory. See
"Certain Transactions."

Information Systems

Health Card's information systems integrate all of the:

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

provided by Health Card, and Health Card believes that its information systems
provide it with a competitive advantage. See "Risk Factors--Business-General."

Health Card's on-line claims management system depends in large part on
software licensed from Prospective Health Incorporated ("PHI"). By a license
agreement dated February 18, 1998, Health Card was granted a nonexclusive and
nontransferable perpetual license to use PHI's claims

<PAGE>

adjudication software system. This system is an integral part of Health Card's
on-line claims management system. Health Card agreed to an initial license fee
of $400,000, of which $100,000 was paid upon execution of the agreement and the
balance was paid at the rate of $25,000 per month through February 1999. In
addition, if certain milestones are met based on the number of processed claims,
as defined, the license fee increases incrementally, up to an additional
$500,000 over the term of the agreement. As of December 31, 1998, these
milestones have not been reached. The agreement also provides for the annual
payment of 18% of the license fee, as defined, as a service maintenance fee.

In addition, Health Card entered into a non-exclusive licensing agreement
on March 16, 1998 with Medi-Span, Inc. for a three-year term. This agreement
permits Health Card to use Medi-Span's master drug database, drug utilization
review databases, price-checking software and state claims- review programs for
New York and Virginia. Health Card pays license fees annually, which increase as
the number of claims processed with Medi-Span's software increases. In addition,
Health Card pays an annual base fee of $16,000. On June 1, 1998, Health Card
entered into an agreement with Sandata, of which Bert E. Brodsky is the Chairman
of the Board, President, Treasurer and a principal stockholder. This agreement,
which was amended on the same date, relates to the hiring of 11 Sandata
employees by Health Card to provide development, enhancement and maintenance of
Health Card's information systems internally. Health Card paid Sandata $208,000
in consideration for Sandata's assigning to Health Card certain rights relative
to such employees. Health Card also assumed a liability of $86,000 relating to
these employees. In addition, on June 1, 1998, Health Card purchased from
Sandata certain computer equipment, furniture and fixtures for $100,000. Sandata
is expected to continue to provide, on a limited basis, consulting services
related to Health Card's information systems. Also, Sandata confirmed Health
Card's proprietary rights in certain software developed by Sandata for Health
Card, among other things.

A significant portion of Health Card's information systems has historically
been developed, enhanced, modified and maintained by Sandsport Data Services,
Inc., a wholly-owned subsidiary of Sandata. Furthermore, Health Card leases
computer hardware for its data processing center at a monthly cost of $24,000
from Sandsport pursuant to a oral agreement. Based on competitive fee quotations
obtained by Health Card, Health Card believes that the terms of the rental
agreement are as fair to Health Card as those which could be obtained from an
unaffiliated third party. See "Certain Transactions-Health Card's Relationship
with Sandata."

Year 2000 Readiness

The Year 2000 problem is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any of Health
Card's programs that have time- sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000, which could result in
miscalculations or system failures. Health Card has implemented a Year 2000
compliance program designed to ensure that its computer systems, applications
and embedded operating systems will function properly beyond 1999. This
compliance program involves assessing the risks of the Year 2000 issue, and
planning and instituting mitigation actions to minimize those risks. Health
Card's standard for compliance requires that for a computer system or business
process to be Year 2000 compliant, it must be designed to operate without error
in date and date-related data

<PAGE>

prior to, on and after January 1, 2000. Health Card believes that all of its
"mission critical" systems have been identified, and will be brought into
compliance by August 31, 1999.

Information Technology Systems

Health Card recently completed a comprehensive review of its information
technology systems and is involved in a program to update its information
systems and applications in preparation for the Year 2000. Health Card will
incur internal staff costs as well as outside consulting and other expenditures
related to this initiative. For the period January 1, 1999 to August 31, 1999,
which is the only period during which Health Card expects to incur Year
2000-related expenses, both historical and anticipated expenditures related to
remediation, testing, conversion, replacement and upgrading system applications
are expected to total approximately $100,000. Total expenses, including
depreciation and amortization of new package systems, are not expected to have a
material impact on Health Card's financial condition during the conversion
process. Year 2000 costs are expensed as incurred. Health Card expects to be
fully Year 2000 compliant by August 31, 1999.

Non-IT Technology

An inventory and assessment of all non-IT systems (including items
containing embedded chips, such as elevators, electronic door locks, telephones)
has been completed. The great majority of these non-IT systems are not believed
to be potential sources of significant disruption, although the contingency
plans (described below) will address non-IT Year 2000 failure as well as IT
systems failure. Health Card's telephone system was determined to be the only
non-IT system not Year 2000 compliant. A new system was purchased and is
expected to be installed by April 15, 1999.

Health Card's management intends to develop a "worst-case scenario" with
respect to Year 2000 non-compliance and to develop contingency plans designed to
minimize the effects of such scenario. The contingency plans will involve
analysis of the use of alternative, non-IT methods of processing claims,
including manual processing, in the event of IT system failure on the part of
outside parties. The manual processing of claims would also be assisted, in a
worst case scenario, by the use of paper claim forms rather than the computer
formats currently being used. As to claims management, the worst case scenario
would require that another switching company be used to process claims. This
option has already been researched and contingency plans formulated. Switching
companies electronically route pharmacy claims to the appropriate prescription
benefit management company. Each of the two major vendors of claims management
services with which Health Card does business, NDC and PHI, has certified that
it is Year 2000 compliant. Furthermore, adjudication software recently purchased
by Health Card from PHI has been certified to be compliant as of November 22,
1998. All client formats have been reviewed and have been found to be either
Year 2000 compliant or very nearly so. There has also been communication between
vendors and Health Card with respect to the exchange of billing tape formats, in
an effort to be certain that our formats are acceptable to the vendors, and vice
versa. The executive management of Health Card intends to have its worst-case
scenario and contingency plans fully developed and in place by August 31, 1999.

Health Card is attempting to contact vendors and others on whom it relies
to assure that their systems will be converted in a timely fashion. However,
there can be no assurance that the systems

<PAGE>

of other companies on which Health Card's systems rely will also be converted in
a timely fashion, so that any such failure to convert by another company would
not have an adverse effect on Health Card's information systems. Furthermore, no
assurance can be given that any or all of Health Card's information systems are
or will be Year 2000 compliant, or that the ultimate costs required to address
Year 2000 issues or the impact of any failure to achieve substantial Year 2000
compliance will not have a material adverse effect on Health Card's business,
operating results and financial condition.

There is still uncertainty about the broader scope of the Year 2000 issue
as it may affect Health Card and third parties that are critical to our
operations. For example, lack of readiness by electrical and water utilities,
financial institutions, governmental agencies or other providers of general
infrastructure could pose significant impediments to our ability to carry on our
normal operations. In the event that we are unable to complete our remedial
actions and are unable to implement adequate contingency plans in the event that
problems are encountered, there could be a material adverse effect on our
business, operating results and financial condition.

Facilities

Health Card occupies approximately 7,225 square feet of space at 26 Harbor
Park Drive, Port Washington, New York 11050, under an amended sublease at a
monthly cost of $20,980 (including utilities). The sublessor is BFS Realty, LLC,
which is affiliated with Mr. Brodsky. The sublease expires as of December 31,
2000. Effective April 1, 1999, the area leased by Health Card will be increased
by 7,375 square feet to a total of 14,600 square feet, and the rent for the
period April 1, 1999 to March 31, 2000 will increase to $31,000 per month.
Furthermore, the term of the sublease is extended to March 31, 2004. Rent under
the sublease increases by five percent annually following the first year of the
lease. The BFS sublease was assigned by Sandata, Inc. to BFS in November 1996.
Mr. Brodsky is the Operating Manager and holder of a majority of the membership
interests of BFS. Based on competitive fee quotations obtained by Health Card,
Health Card believes that the terms of this sublease are as fair to it as those
which could be obtained from an unaffiliated third party. Pursuant to an
agreement entered into in June 1995, Health Card paid $700,000 in connection
with certain allocated leasehold improvements. See "Certain Transactions."

Health Card is in the process of building a new customer service center at
its headquarters. It will initially be equipped with between 30 and 35 service
representatives' desks, and there is space for an additional 25 to 30 service
representatives. Health Card anticipates that the customer service center will
open on or about May 1, 1999, and that the additional 30 service representative
work areas will be equipped and operational as needed. Sponsors, plan
participants, pharmacies and physicians will be able to call the customer
service center.

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 will be used as a pharmacy. The landlord for
these premises is 61 Manorhaven Boulevard, LLC, of which Muriel Brodsky, Mr.
Brodsky's wife, is the sole member. The rent for the twelve (12) month period
ending August 31, 1999 is $1,500 per month; the annual rent increases by 5% per
year. Additional rent, in the form of Health Card's pro rata share of common
expenses, is also payable.

<PAGE>

Pursuant to a lease commencing December 15, 1998, and expiring on December
14, 1999, Health Card leases an apartment, for use by two members of its
management, at premises located at 77 Juniper Road, Port Washington, New York.
The annual rent is $20,400. Utilities and maintenance service (if any
maintenance service is contracted for) are payable by Health Card as additional
rent.

Government Regulation

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

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

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

See "Risk Factors--The health care industry is highly regulated at the
federal, state and local levels. Our failure to comply with these regulations
could adversely affect our business."

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

Anti-Kickback Regulations

The federal Anti-Kickback Statute prohibits knowingly paying or receiving
remuneration in return for referring an individual for the furnishing of an item
or service, or for the purchasing, ordering or arranging for any item or service
for which payment may be made in whole or in part under a federal health care
program, including Medicare or Medicaid. The term "remuneration" in

<PAGE>

the statute expressly includes any kickback, bribe or rebate. Violation of this
law is a felony, punishable by fines up to $25,000 per violation and
imprisonment for up to five years. Violation may also give rise to civil
penalties of up to $50,000 per violation and exclusion from the Medicare and
Medicaid programs.

Safe harbor regulations have been adopted under the Anti-Kickback Statute
which immunize certain remuneration arrangements which might otherwise violate
that statute. Failure to fall within a safe harbor, however, does not mean that
such practice constitutes a violation of the law.

Health Card believes that it is not in violation of the Anti-Kickback
Statute because (i) it does not receive any remuneration directly from Medicare,
Medicaid or any other government sponsored health care program, and (ii) it does
not believe the payments to it from any of its sponsors, other than Vytra, are
derived from funds from Medicare, Medicaid or other federal government sponsored
health care programs. Health Card believes that its arrangement with Vytra falls
within the HMO safe harbor exemption to the Anti-Kickback Statute because that
safe harbor applies to any written risk sharing arrangement with an HMO. Health
Card cannot be sure, however, that a government regulatory agency or judicial
tribunal would not view the receipt and sharing of such rebates as a violation
of the federal Anti-Kickback Statute.

With respect to other sponsors, we cannot be sure that without our
knowledge some portion of a sponsor's payment is not derived from a government
health care program source thereby implicating the Anti-Kickback Statute.
However, even if Health Card were found to receive indirectly a benefit from
such a government sponsored health care program in the form of a rebate from
Integrated or otherwise, Health Card believes that its conduct does not violate
the Anti- Kickback Statute because it receives and shares rebates with its
sponsors and participates in the therapeutic interchange program, only to share
cost savings and reduce the cost of prescription benefit services and not to
induce referrals.

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

Health Card is not aware of any instance in which the Anti-Kickback Statute
has been applied (i) to prohibit independent prescription benefit management
companies from receiving rebates from drug manufacturers based on drug sales by
pharmacies to plan participants, formulary management programs, or therapeutic
substitution programs, or (ii) to the contractual relationships between
independent prescription benefit management companies and their sponsors and
participating pharmacies. See "Risk Factors--The health care industry is highly
regulated at the federal, state and local levels. Our failure to comply with
these regulations could adversely affect our business."

In the last few years, private citizens have commenced litigation, known as
Qui Tam actions, against health care providers and suppliers on behalf of the
federal government alleging that such providers and suppliers filed false claims
with the Medicare and/or Medicaid programs. While the law on the issue is still
unsettled, if Health Card's activities with respect to its receipt and sharing
of rebates were challenged as a kickback in such a Qui Tam proceeding and
determined to form the

<PAGE>

basis for a false claim under the Anti-Kickback Statute, Health Card could be
subject to substantial penalties and treble damages in addition to the
punishments described above. Health Card's exposure to litigation and
enforcement actions is increased because of the availability of such Qui Tam
actions to a broader class of plaintiffs. See "Risk Factors--The health care
industry is highly regulated at the federal, state and local levels. Our failure
to comply with these regulations could adversely affect our business."

State Insurance Regulations

One of Health Card's arrangements with Vytra involves the shifting of some
of the financial risk of providing prescription benefits from Vytra to Health
Card. Under New York law, financial risk sharing arrangements may constitute
engaging in the business of insurance which requires a license from the state.
Health Card recently acquired National Medical Health Card IPA, Inc., an
independent practice association licensed in New York State. Health Card, Health
Card IPA and Vytra entered into a letter agreement in March 1999, which
contemplates that services to Vytra will be performed by Health Card IPA. Health
Card IPA is also expected to be the contracting party to the more formal
amendment or any new agreement with Vytra. To the extent it enters into risk
sharing agreements with HMOs or providers in the future, Health Card intends
that Health Card IPA will be the contracting party.

In negotiating the terms of the formal amendment or new agreement, Vytra
and Health Card plan to follow the DOH drafting guidelines. However, the
existing agreement with Vytra does not follow those guidelines. Health Card
cannot be sure that its arrangement with Vytra will not be subject to a claim
that it is engaged in the unlicensed business of insurance. Health Card has not
determined, and does not believe that it could determine with any degree of
accuracy, the nature or extent of any sanctions that might be imposed on it as a
result of such a claim. See "Risk Factors - The health care industry is highly
regulated at the federal, state and local levels. Our failure to comply with
these regulations could adversely affect our business."

Independent Practice Association Regulations

Health Card IPA, is an independent practice association under the laws of
New York. Under New York law, an HMO may share risk only with reinsurers or,
pursuant to a written agreement which complies with certain drafting guidelines
issued by the DOH, with "providers" and independent practice associations.
Health Card intends that the IPA will be the contracting party with respect to
any contracts with HMOs or providers containing financial risk sharing
provisions. Health Card IPA is subject to the regulatory authority of the DOH
and the laws, rules and regulations applicable to independent practice
associations in New York. Under such laws, rules and regulations, Health Card
IPA's contracts with HMOs and providers will be subject to the DOH's contract
drafting guidelines and must be reviewed and approved by the DOH.

In July 1998, the DOH issued new HMO and contract drafting guidelines.
These guidelines are to be used in connection with the approval process for HMO
and IPA contracts. Health Card has negotiated with Vytra to incorporate into
their anticipated more formal amendment the provisions required by the drafting
guidelines. Health Card cannot be sure that Vytra will sign the more formal
amendment which failure would have a material adverse effect on its business,
operating results and financial condition. While Health Card does not believe
that the implementation of the contract drafting guidelines will have a material
adverse effect on its business, operating results and financial condition, it
cannot be sure that DOH, in the exercise of its discretion will not withhold or
delay its approval of the more formal amendment with Vytra, which could have
such a material adverse effect.

<PAGE>

Pharmacy Regulations

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

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

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

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

Health Card receives rebates from Integrated through contracts between
Integrated and pharmaceutical companies to which Health Card has agreed to be
joined. While Health Card shares the proceeds of those rebates with its
sponsors, it does not share any rebates with pharmacies.

In connection with its formulary management program, the P&T Committee
considers the net cost of various drugs as one factor in determining which drugs
should be included in the Health Card formulary. While the determination to
include or exclude drugs from the formulary is primarily based on the quality
and efficacy of the drugs, their net cost after any available rebate is also
considered. If Health Card chooses to include certain drugs on its formulary for
which it receives rebates, it may be required under the terms of its agreements
with Integrated and the joinder agreements with pharmaceutical companies to
exclude certain other drugs from its formulary in order to receive those
rebates.

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

<PAGE>

Although it is licensed as a pharmacy, Health Card does not believe that
its activities as a prescription benefit manager constitute the rendering of
pharmacy services that would subject it to the professional misconduct
regulations for its prescription benefit management activities. Even if it were
determined that Health Card's activities constitute the practice of pharmacy,
Health Card does not believe that any of its activities are of the type
prohibited by the pharmacy law or the rules of professional misconduct
applicable to pharmacies. Health Card cannot be sure, however, that the New York
Department of Education would not come to a different conclusion and commence a
regulatory investigation or seek to impose sanctions on it for such conduct. See
"Risk Factors--The health care industry is highly regulated at the federal,
state and local levels. Our failure to comply with these regulations could
adversely affect our business."

Regulations Regarding Certain Rights of Privacy and Confidentiality.

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

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

Based on the information Health Card obtains regarding a plan participant's
inferred disease state, Health Card may make recommendations to sponsors on how
to reduce costs and improve the plan to better serve plan participants. Health
Card routinely shares such information with its sponsors through its computer
network. Under the terms of most plans, Health Card also may be required to
provide patient specific information directly to sponsors, including drug
history information that may suggest an inferred disease state. In utilizing the
data received by us in this manner, it is possible that Health Card could be
found to have violated the privacy rights of plan participants under the laws of
New York and other states in which we do business. Such a determination could
have a material adverse effect on Health Card's ability to provide disease
information services, an area of its business that Health Card believes gives it
a competitive advantage and is anticipated to be an important element of its
future success. See "Risk Factors--The health care industry is highly regulated
at the federal, state and local levels. Our failure to comply with these
regulations could adversely affect our business."

The Secretary of Health and Human Services has circulated recommendations
regarding legislation intended to protect the privacy of personally identifiable
health information. Several legislative bills on the subject have also been
introduced in the U.S. Senate. While none of these measures have been adopted
into law, we cannot be sure that the subject will not be addressed in one manner
or another at the federal level. If federal legislation regulating access to and
dissemination of personally identifiable health information is adopted, it could
have an adverse effect on the business operations of Health Card as currently
conducted.

<PAGE>

Regulations Applicable to Health Care Professionals

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

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

Utilization Review Regulations

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

FDA Regulation

The United States Food and Drug Administration has asserted general
authority to regulate promotional activities of, and materials disseminated by,
prescription benefit management companies that are owned or influenced by or
subject to contractual relationships with drug companies. In January, 1998, the
FDA published a draft guidance concerning certain promotional practices
performed by such prescription benefit management companies. Among the practices
discussed in the FDA's commentary to the draft guidance were the use of
product-specific financial incentives to influence drug selection and
prescribing decisions, disease information programs, and the use of specified or
preferred drug formularies.

Since Health Card is neither owned, nor directly controlled or influenced
by a drug company, we believe the existing regulations and draft guidelines do
not apply to Health Card. However, due to its contractual relationship with
Integrated and its joinder in agreements between Integrated and various drug
companies, there can be no assurance that some of Health Card's activities may
not be subject to FDA review and regulation as set forth in the draft guidance.
In such event, some of Health Card's activities and Integrated's rebate program
may require modification or elimination. See "Risk Factors--The health care
industry is highly regulated at the federal, state and local levels. Our failure
to comply with these regulations could adversely affect our business."

<PAGE>

Regulation in Other States

Health Card is in the process of evaluating its involvement with sponsors
and plan participants located in states other than New York. Health Card is
conducting that review systematically, focusing its attention initially on those
states where it has the most sponsors and/or plan participants. As a result of
that review, Health Card has determined that it is required to become licensed
as a third party administrator of insurance benefits in several states,
including Ohio, Florida, Tennessee, Kentucky and Michigan. Health Card has
applied to become a third party administrator in each of these states and has
received a license in Ohio.

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

New York does not regulate prescription benefit management companies.
Health Card cannot be sure that New York or any other state will not assert
regulatory authority over it or its activities as a prescription benefit
management company or otherwise, now or at any time in the future. If a state
does assert such regulatory authority, Health Card will seek to comply with all
applicable regulations, however, we cannot be sure compliance will be achieved.
If we are unable to comply we may not be permitted to conduct our activities in
those states as we currently conduct them, or at all. See "Risk Factors--The
health care industry is highly regulated at the federal, state and local levels.
Our failure to comply with these regulations could adversely affect our
business."

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

Legal Proceedings

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

By letter dated February 9, 1999, Health Card was informed by counsel for
the West Contra Costa Unified School District that it had filed suit in the
Superior Court of Contra Costa, in the State

<PAGE>

of California, against Health Card. The complaint was filed with the Superior
Court on December 8, 1998, and enumerates five grounds for its claim to damages.
The complaint alleges, among other things, that the parties entered into a
contract in December of 1996, and that on December 11, 1996, Health Card
unilaterally terminated that contract, effective December 16, 1996. The
complaint further alleges that this termination was in violation of the terms of
the contract and of one or more statutory provisions; that the termination
resulted in the School District incurring approximately $150,000 in costs due to
its having to enter then into a fee for service arrangement in order to continue
providing prescription benefits to its plan members; and that, due to the
wrongful termination of the contract, the school district was forced to seek a
replacement for the benefits and services that were to have been provided under
the contract with Health Card. The complaint alleges, in connection with this
last circumstance, that the School District incurred roughly $400,000 in
additional expenses as a result. The complaint also seeks treble damages. If
treble damages were allowable in this case, and a judgment were to be entered
against Health Card, Health Card could be liable for damages in excess of $1.5
million. Health Card denies the allegations set forth in the complaint, and
intends to vigorously defend against the allegations made in the complaint, and
has engaged local counsel in Los Angeles to assist it in such defense.
Notwithstanding the foregoing, because of the uncertainties of litigation, no
assurances can be given as to the outcome of this litigation. In the event that
Health Card were not to prevail in this litigation, Health Card could be
required to pay significant damages to the School District, which could in turn
have a material adverse affect on Health Card's business, operating results and
financial condition.

<PAGE>

MANAGEMENT

Executive Officers and Directors

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

Name Age Positions Held
- ---- --- --------------

Bert E. Brodsky 56 Chairman of the Board, Chief Executive
Officer and Director

Gerald Shapiro 68 Vice Chairman of the Board, Secretary and
Director

Marjorie O'Malley 48 President, Chief Operating Officer

Linda Portney 54 Executive Vice President of Operations and
Director

Mary Casale 58 Executive Vice President of Sales and
Marketing

John Ciufo 45 Vice President of Clinical Services

Barry Denaro 43 Treasurer and Chief Financial Officer

Richard J. Strauss, M.D.,
F.A.C.S. 52 Director

Gerald Angowitz 49 Director

Bert E. Brodsky has served as Chairman of the Board of Health Card since
December 7, 1998, and as Chief Executive Officer since June, 1998. Mr. Brodsky
has been a Director of Health Card since 1988. From June 26, 1998 until December
7, 1998, Mr. Brodsky served as President of Health Card. Mr. Brodsky previously
served as Chairman of the Board of Health Card from August, 1983, through
November, 1984 and from December, 1988 through January, 1991. Mr. Brodsky has
served as Chairman of the Board and Treasurer of Sandata, Inc. since June 1983
and as President of Sandata, Inc. since December 1989. From October 1983 though
December 1993, Mr. Brodsky served as Chairman of the Board of Compuflight, Inc.,
a provider of computerized flight planning services. Since August 1980, Mr.
Brodsky has served as Chairman of the Board and President of P.W. Medical
Management, Inc., which provides financial and consulting services to
physicians. For more than the past five years, Mr. Brodsky has also served as
President of P.W. Capital Corp., a consulting services firm, Chairman of
Sandsport Data Services, Inc., a computer services firm, President of Brodsky
Sibling Realty, Inc., a real estate company, President of Document Storage and
Management, Inc., a document storage company, Operating Manager of BFS Realty,
LLC, a real estate company, since November 1996, BFS Realty II, LLC, a real
estate company, since November 1996 and Four B's Realty, LLC, a real estate
company, since July 1996. See "Management -- "Certain Transactions." From
August, 1977 until October, 1980, Mr. Brodsky served as the President of the
medical services division of Itel Corporation, where his responsibilities
included identifying and consummating acquisitions in medical and health related
industries.

<PAGE>

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

Marjorie G. O'Malley has served as President and Chief Operating Officer of
Health Card since December 7, 1998. From July 1995 to December 1998, Ms.
O'Malley was the Principal of Strategic Healthcare Consultants, a consulting
firm to various health care companies, pharmacy benefit managers, pharmacy
chains and pharmaceutical companies. Ms. O'Malley has served as a consultant to
Health Card since August 1995. From 1980 until July 1995, Ms. O'Malley was
employed by CIGNA Corporation in a variety of positions. Ms. O'Malley formed and
served as President of RxPrime, CIGNA Corporation's pharmacy benefit management
business, from 1993 until July 1995. From 1990 to 1993, Ms. O'Malley was Vice
President, Finance and Planning for CIGNA HealthCare, one of the largest health
care management organizations in the United States. Prior to joining CIGNA
Corporation, Ms. O'Malley served as Senior Vice President and Treasurer of Old
Stone Bank and Old Stone Corporation, a bank holding company.

Linda Portney has served as Executive Vice President of Operations of
Health Card since June 1,1998 and as a Director of Health Card since 1982. Ms.
Portney served as Secretary of Health Card from June 26, 1998 until October 28,
1998. From 1995 until June 1, 1998, Ms. Portney served as President of Health
Card and as Vice President and Secretary of Health Card from 1983 to 1995. Ms.
Portney has been employed by Health Card since 1981.

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

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

John T. Ciufo joined Health Card as Vice President of Clinical Services in
December 1998. Prior to this, he served as Director of Pharmaceutical
Contracting at United Health of Wisconsin, in Appleton, Wisconsin from March
1998 until December 1998. From January 1997 until January

<PAGE>

1998, Mr. Ciufo was Director of Clinical Services with Provantage Health
Services, Inc. From January 1996 until January 1997, Mr. Ciufo was Director of
Clinical Services for Managed Prescription Services, a pharmacy benefit
management firm, in St. Louis, Missouri, owned by Humana of Louisville,
Kentucky. From January 1995 to April 1996, Mr. Ciufo was Director of Managed
Care for Muro Pharmaceuticals in Tewksbury, Massachusetts. Mr. Ciufo was
Director of Pharmacy Services for Pilgrim Health Care in Boston, Massachusetts
from 1992 until 1994. From 1980 until 1992, Mr. Ciufo was Director of Pharmacy
at Harvard Community Health Plan in Boston, Massachusetts. Mr. Ciufo was a
founder and member of Board of Directors from 1989 through 1991 for the Academy
of Managed Care Pharmacy, a national managed care pharmacy association with over
4,500 members representing over 600 managed care organizations.

Gerald Angowitz has served as a Director of Health Card since June 26,
1998. Mr. Angowitz has served as Senior Vice President of Human Resources and
Administration for RJR Nabisco, Inc. ("RJR"), a consumer products manufacturer,
since March 1995. Mr. Angowitz previously served as Vice President of Human
Resources for RJR from February 1994 to March 1995 and Vice President of
employee benefits at RJR from January 1992 to February 1994. Mr. Angowitz is the
brother-in-law of Hugh Freund, a Vice President, principal stockholder and
Director of Sandata, Inc.

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

Committees of the Board of Directors

Health Card has established an Audit Committee consisting of Messrs.
Shapiro, Angowitz and Dr. Strauss. The Audit Committee is responsible for making
recommendations regarding:

- Health Card's retention of independent auditors,
- the annual audit of Health Card's financial statements, and
- Health Card's internal accounting controls, practices and
policies.

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

Directors' and Officers' Terms and Directors' Fees

Health Card's Board of Directors consists of five members. Each director is
elected for a period of one year and serves until his or her successor is duly
elected and qualified. During the last three fiscal years, no directors' fees
were paid. Each of the executive officers serves at the pleasure of Health
Card's Board of Directors.

<PAGE>

Executive Compensation

Summary Compensation Table

The following table sets forth certain information with respect to the
compensation paid or awarded by Health Card to the Chief Executive Officer and
other executive officers (the "Named Executive Officers") whose cash
compensation exceeded $100,000 in all capacities for the fiscal years ended June
30, 1996, 1997 and 1998, respectively:
<TABLE>
<CAPTION>

Name and Annual Securities
Principal Compensation Other Annual Underlying
Position Year Salary Bonus Compensation Options
-------- ------ ------ ----- ------------ -------

Bert E. 1998 $751,096(1) $ 30,000(2) $17,377(3) ----
Brodsky,
Chairman of the 1997 $474,000(1) ---- $13,714(3) ----
Board and Chief
Executive 1996 $510,000(1) ---- $12,000(3) ----
Officer

Linda Portney, 1998 $125,000 ---- $19,514(4) ----
Executive Vice
President of 1997 $125,000 $ 50,000 $13,828(4) ----
Operations
1996 $ 80,350 ---- $11,671(4) ----

Mary Casale, 1998 $100,000 $ 50,031 $ 4,800(5)(6) ----
Executive Vice
President of 1997 $100,000 $ 15,000 $ 4,800(5) 255,689(7)
Sales and
Marketing 1996 $ 82,543 ---- $ 1,200(5) ----

Kenneth 1998 $100,327 ---- ---- ----
Hammond, Vice
President of 1997 $13,462(8) ---- ---- ----
Operations
1996 ---- ---- ---- ----

</TABLE>

(1) Represents salary and consulting fees paid to certain entities affiliated
with Mr. Brodsky. See "Certain Transactions."
(2) Represents one-twelfth of an annual bonus of $360,000 to be paid on behalf
of Mr. Brodsky to P.W. Capital Corp. This bonus was approved by the Board
of Directors on June 1, 1998.
(3) Represents automobile lease payments to an entity affiliated with Mr.
Brodsky. See "Certain Transactions."
(4) Represents automobile lease payments to an entity affiliated with Mr.
Brodsky and amounts for automobile insurance and travel allowance.
(5) Represents automobile allowances paid to Ms. Casale.
(6) Does not include annual payments of $20,400 made by Health Card for the
lease of an apartment for the benefit of Ms. Casale and Marjorie G.
O'Malley.
(7) Includes a currently unexercisable option granted on July 1, 1997 to
purchase an aggregate of 255,689 shares of Health Card common stock from
Bert E. Brodsky at a price of $5.87 per share. Such option is exercisable
over a five year period ending December 7, 2002 and vests

<PAGE>

in increments of 20% on the second, third, fourth, fifth and sixth
anniversaries of such option, respectively.
(8) Represents amounts paid to Mr. Hammond from the commencement of his
employment with Health Card on April 28, 1997 until June 1, 1997.

Marjorie G. O'Malley, Health Card's President and Chief Operating Officer,
was not an executive officer at the end of the last fiscal year. She has served
as President and Chief Operating Officer since December 7, 1998. Ms. O'Malley's
current annual salary is $175,000. In addition, on December 7, 1998, Bert E.
Brodsky granted a currently unexercisable option to Ms. O'Malley to purchase
63,922 shares of Health Card common stock at a price of $5.87 per share. Such
option is exercisable over a four year period commencing on December 7, 1998 and
vests in one third increments on the first, second and third anniversaries of
such options. Mr. Ciufo, Health Card's Vice President, Clinical Services, was
not an executive officer at the end of the last fiscal year. He has served as
Vice President, Clinical Services since December 1998. Mr. Ciufo's current
annual salary is $130,000. In addition, on December 7, 1998, Mr. Brodsky granted
a currently unexercisable option to Mr. Ciufo to purchase 25,569 shares of
common stock of Health Card at a price of $5.87 per share. Such option is
exercisable over a five year period commencing on December 7, 1998 and vests in
one third increments on the first, second and third anniversaries of such
options, respectively.

Option/SAR Grants in Last Fiscal Year

There were no individual grants of stock options to Named Executive
Officers during the fiscal year ended June 30, 1998.

Stock Plans

1999 Stock Option Plan

On February 9, 1999, Health Card's Board of Directors adopted, subject to
the shareholder approval, the 1999 Stock Option Plan (the "1999 Plan") which
provides for the grant of options intended to qualify, as "incentive stock
options"("ISOs") under Section 422 of the Internal Revenue Code of 1986 as
amended (the "Code"), and options that are not intended to so qualify
("Nonstatutory Stock Options"). The total number of shares of common stock
reserved for issuance under the 1999 Plan is 1,650,000 (subject to adjustment in
the event of a stock split, stock dividend, recapitalization or similar capital
change) plus an indeterminate number of shares of common stock issuable upon the
exercise of "reload options."

The 1999 Plan is presently administered by the Compensation Committee,
which selects the eligible persons to whom options will be granted, determines
the number of shares of common stock subject to each option, the exercise price
therefor and the periods during which options are exercisable, interprets the
provisions of the 1999 Plan and, subject to certain limitations, may amend the
1999 Plan. Each option granted under the 1999 Plan will be evidenced by a
written agreement between Health Card and the optionee.

<PAGE>

Options may be granted under the 1999 Plan to all full-time employees
(including officers) and directors of, and certain consultants and advisors to,
Health Card or any subsidiary of Health Card.

The exercise price for ISOs granted under the 1999 Plan may not be less
than the fair market value of the shares of common stock on the date the option
is granted, except for ISOs granted to 10% shareholders which must have an
exercise price of not less than 110% of the fair market value of the shares of
common stock on the date the option is granted. The exercise price and term for
Nonstatutory Stock Options is determined by the Compensation Committee. ISOs
granted under the 1999 Plan have a maximum term of ten years, except for grants
to 10% shareholders which are subject to a maximum term of five years. The
exercise price of options granted under the 1999 Plan may be paid by check, note
or common stock any combination of the foregoing at the option of the holder.
Options granted under the 1999 Plan are not transferable, except by will and the
laws of descent and distribution. The total amount of ISOs that may be granted
to any individual person in any calendar year is limited; however, there is no
limit as to Nonstatutory Stock Options. No options have been granted under the
1999 Plan.

Employment Contracts, Termination of Employment and
Change-in-Control Arrangements

Except as described below, there are no written employment or similar
agreements with any of the Named Executive Officers. See "Certain Transactions"
for a discussion of certain fees paid and payable to Mr. Brodsky. Mr. Brodsky
has verbally agreed with Health Card that, as of the consummation of the
offering, he will receive, as the total compensation payable to him or his
affiliates for services rendered by Mr. Brodsky in his capacity as Chairman of
the Board and Chief Executive Officer of the Company, an annual salary of
$200,000 plus a bonus and annual adjustments to be determined by the Board of
Directors. Amounts payable to P.W. Capital Corp., of which Mr. Brodsky is the
President, for consulting services discussed below, will be included in the
computation of his annual salary.

Pursuant to an agreement dated April 14, 1994 with P.W. Medical Management,
Inc. and assigned to P.W. Capital Corp., P.W. Capital provides services in
connection with the day-to-day activities of Health Card, including marketing,
customer service, financial advice and general business advice. Fees payable to
P.W. Capital are a minimum of $25,000 per year in monthly installments.
Currently actual fees are being paid at the rate of approximately $55,000 per
month, although no assurance can be given that that amount will not be higher
for any particular month or months. Although the agreement has no specified
term, if either P.W. Capital or Health Card fails materially to materially
fulfill its obligations under the agreement, following notice and an opportunity
to cure, the other party has the right to terminate this agreement.

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended June 30, 1998, Health Card did not have a
Compensation Committee or other committee of the Board of Directors performing
similar functions. Decisions concerning the compensation of executive officers
were made by the Board of Directors.

Gerald Shapiro, the Vice Chairman of the Board of Directors of Health Card,
and Bert E. Brodsky, Health Card's Chairman of the Board, Chief Executive
Officer and a director, are each

<PAGE>

members of the Board of Directors and/or officers of the following companies
(unless otherwise stated, such affiliations have been maintained for more than
the past five years): (1) P.W. Capital Corp., a consulting services firm
(Brodsky since June 1996 and Shapiro since October 1994), (2) Brookhaven M.R.I.,
Inc., a company that operates magnetic resonance imaging machines, (3) Mobile
Health Management Services, Inc., a provider of medical testing services, (4)
780 Bay Walk Land Co., Inc., a real estate company (since August 1994), (5)
Accutrak Media, Inc., a computer duplication disk company, (6) Bert Brodsky
Associates, Inc., an insurance consulting firm (since February 1996), (7) Island
Mermaid Restaurant Corp., a company that operates a restaurant, (8) Wilder Woods
Estates, LLC, a real estate company (since April 1997), (9) Document Storage and
Management Inc., a document storage company (since 1994), (10) Lee Management
Associates, Inc., a billing and collections firm, (11) United States Information
Corp., a facsimile subscription service company, and (12) Medical Arts Office
Services, Inc., a company that provides personnel and administrative services
(since November 19, 1998). See "Certain Transactions."

CERTAIN TRANSACTIONS

Health Card's Relationship with Sandata

On June 1, 1998: Health Card entered into an agreement with Sandata, Inc.,
of which Bert E. Brodsky is the Chairman of the Board, President, Treasurer and
a principal stockholder. This agreement, which was amended on the same date,
relates to the hiring of 11 employees of Sandata by Health Card to provide
development, enhancement and maintenance of Health Card's information systems
internally. Health Card paid Sandata $208,000 in consideration for Sandata's
assigning to Health Card certain rights relative to such employees. Health Card
also assumed liability of $86,000 relating to these employees. In addition,
Health Card purchased from Sandata certain computer equipment, furniture and
fixtures for $100,000. Sandata is expected to continue to provide, on a limited
basis, consulting services related to Health Card's information systems, on such
terms and conditions as may be agreed to between the parties from time to time.
Also, Sandata confirmed Health Card's proprietary rights in certain software
developed by Sandata for Health Card, among other things.

A significant portion of Health Card's information systems has historically
been developed, enhanced, modified and maintained by Sandsport Data Services,
Inc., a wholly-owned subsidiary of Sandata. Furthermore, Health Card leases
computer hardware for its data processing center at a monthly cost of $24,000
from Sandsport pursuant to an oral agreement, terminable at will by either
party. Based on competitive fee quotations obtained by Health Card, Health Card
believes that the terms of the rental agreement are as fair to Health Card as
those which could be obtained from an unaffiliated third party.

During the fiscal years ended June 30, 1997 and 1998 and the six month
period ended December 31, 1998, Health Card incurred fees to Sandsport in the
aggregate amounts of approximately $2,539,000, $2,492,299 and $372,908 for such
services, sublicense fees and property. As of January 1, 1999, Health Card owed
$ 135,649 to Sandsport.

Employee Management Relationship with Medical Arts Office Services, Inc.

Medical Arts Office Services, Inc. may be deemed an affiliate of Health
Card. Certain persons employed by companies affiliated with Mr. Brodsky are also
officers and directors of Medical Arts, of which Mr. Brodsky is the sole
shareholder. As of January 1993, Medical Arts

<PAGE>

owned 807,467 shares of common stock of Health Card. Health Card purchased such
stock from Medical Arts stock through a series of transactions, the last of
which occurred in May 1996. Health Card paid an aggregate amount of $638,400 for
such stock.

Until May 31, 1998, Medical Arts provided employee leasing and
administrative services, such as payroll processing, to Health Card, and all of
Health Card's staff (then 52 persons, excluding persons formerly employed by
Sandata) were paid through Medical Arts. Health Card would pay Medical Arts an
amount equal to each such person's salary, medical benefits, social security and
the like, as well as an administrative fee. In addition, Medical Arts provided
Health Card with accounting, paralegal and bookkeeping services. On May 31, 1998
Health Card directly hired these individuals that had previously been paid
through Medical Arts.

For the fiscal year ended June 30, 1998, the total payments made by Health
Card to Medical Arts were approximately $2,618,155, of which $2,248,331 was paid
for salaries of leased employees, $92,383 was paid for accounting services,
$33,593 was paid for bookkeeping services, $180,000 was paid for consulting
services, $31,531 was paid to a medical plan, $28,438 was paid for paralegal
services and $3,879 was paid to a pension plan.

Until May 31, 1998, Health Card employees who were paid through Medical
Arts could contribute to a 401(k) plan maintained by Sandata. As of January 1,
1999, Health Card has joined that plan. For the fiscal year ended June 30, 1998,
Health Card made matching contributions of approximately $3,879 to such plan.

It is anticipated that, following the consummation of the offering, Medical
Arts will continue to provide paralegal and bookkeeping services to Health Card,
pursuant to an oral agreement, terminable at will by either party. It is further
anticipated that the annual amounts to be paid to Medical Arts for paralegal and
bookkeeping services will be approximately $95,000, of which approximately
$20,000 will be paid for paralegal services and approximately $75,000 will be
paid for bookkeeping services, which amounts will most likely be paid on a
monthly basis. These amounts are estimated based upon current hourly rates
charged by Medical Arts for such services. Currently, these rates are as
follows: paralegal services at $75 per hour and bookkeeping services at $50 per
hour.

Consulting Fees

For the fiscal year ended June 30, 1998, Health Card paid aggregate
consulting fees of $746,929 for services rendered by Mr. Brodsky. Pursuant to
agreements among Health Card, Mr. Brodsky, and the entities named below,
portions of those fees were paid as follows:

Medical Arts $ 180,000
P.W. Capital 552,000

Mr. Brodsky provides managerial expertise and advice, including but not
limited to advice regarding hiring of executive management and other personnel,
marketing and sales matters, and negotiation of contracts with sponsors and
other parties. Mr. Brodsky's services are rendered in his capacity as Chairman
of the Board of Directors. See "Management-Executive Compensation."

In addition, Health Card paid P.W. Capital $17,377, representing lease
payments for a car leased for Mr. Brodsky's benefit. Based on competitive fee
quotations obtained by Health Card,

<PAGE>

Health Card believes that the terms of the lease agreement are as fair to Health
Card as those which could be obtained from an unaffiliated third party. See
"Management-Executive Compensation."

Real Estate

On November 1, 1996, Health Card signed a lease with Four B's Realty, LLC,
of which Mr. Brodsky is the managing member, for office space in Southampton,
New York. Prior to occupancy, such lease was terminated by an agreement dated as
of July 30, 1997. Prior to such termination Health Card paid Four B's Realty,
LLC an aggregate of $102,675 under such lease.

On August 1, 1997, Health Card signed a lease with BFS Realty II, LLC, of
which Mr. Brodsky is the managing member, for office space in Hicksville, New
York. Prior to occupancy, such lease was terminated by an agreement dated as of
April 1, 1998. Prior to such termination Health Card paid BFS II an aggregate of
$91,266 under such lease.

On August 10, 1998, Health Card signed a lease with 61 Manorhaven
Boulevard, LLC, of which Muriel Brodsky, Mr. Brodsky's wife, is the sole member,
for space in Port Washington to be used as a pharmacy. See
"Business-Facilities."

Health Card occupies approximately 7,225 square feet of space at 26 Harbor
Park Drive, Port Washington, New York 11050, under a sublease at a monthly cost
of $20,980 (including utilities). The sublessor is BFS Realty, LLC, which is
affiliated with Mr. Brodsky. The sublease expires as of December 31, 2000.
Pursuant to a second amendment to the sublease, effective April 1, 1999, the
area leased by Health Card is increased by 7,275 square feet, and the rent for
the period April 1, 1999 to March 31, 2000 increases to $31,000 per month.
Furthermore, the term of the sublease is extended to March 31, 2004. Rent under
the sublease increases by five percent annually. The BFS sublease was assigned
by Sandata to BFS in November 1996. Mr. Brodsky is the Operating Manager and
holder of a majority of the membership interests of BFS. Based on competitive
fee quotations obtained by Health Card, Health Card believes that the terms of
this sublease are as fair to it as those which could be obtained from an
unaffiliated third party. Pursuant to an agreement entered into in June 1995,
Health Card paid $700,000 in connection with certain allocated leasehold
improvements. See "Certain Transactions."

Pursuant to a lease commencing December 15, 1998, and expiring on December
14, 1999, Health Card leases an apartment, for use by two of its members of its
management, at premises located at 77 Juniper Road, Port Washington, New York.
The annual rent is $20,400. Utilities and maintenance service (if any
maintenance service is contracted for) are payable by Health Card as additional
rent.

Stock Transactions

On July 1, 1997, Bert E. Brodsky surrendered to Health Card currently
exercisable options to purchase 1,022,758 shares of common stock of Health Card.
On July 1, 1997, Gerald Shapiro

<PAGE>

surrendered to Health Card currently exercisable options to purchase 383,534
shares of common stock of Health Card.

The following transactions also occurred as of July 1, 1997: Bert E.
Brodsky purchased 1,278,447 shares of common stock of Health Card by delivery of
a promissory note made payable to the order of Health Card in the original
principal amount of $1,000,000. This note is secured by the 1,278,447 shares of
common stock of Health Card purchased by Mr. Brodsky and is without recourse to
Mr. Brodsky. Gerald Shapiro purchased 383,534 shares of common stock of Health
Card by delivery of a promissory note made payable to the order of Health Card
in the original principal amount of $300,000. This note is secured by the
383,534 shares of common stock of Health Card purchased by Mr. Shapiro and is
without recourse to Mr. Shapiro. Sandra Rothstein, Mr. Brodsky's administrative
assistant, purchased 51,137 shares of common stock of Health Card by delivery of
a promissory note made payable to the order of Health Card in the original
principal amount of $40,000. This note is secured by the 51,137 shares of common
stock of Health Card purchased by Ms. Rothstein and is without recourse to Ms.
Rothstein. Each of the promissory notes mentioned above bears interest at the
rate of 8.5% per annum, payable quarterly, commencing October 1, 1997 and is
payable 5 years from the date thereof, except that payment of Ms. Rothstein's
note may be accelerated upon termination of her employment with Sandata.

On October 30, 1998, Bert E. Brodsky executed a promissory note made
payable on demand to the order of Marine Midland Bank in the principal amount of
$2,000,000. Mr. Brodsky used the proceeds of the loan to purchase 340,919 shares
of common stock of Health Card. In addition, Mr. Brodsky pledged such shares to
the bank as security for the loan. On October 30, 1998, Health Card executed an
unlimited continuing Guaranty Agreement for the indebtedness of Mr. Brodsky to
Marine Midland Bank. By the Guaranty Agreement, Health Card unconditionally
guaranteed the full and prompt payment to Marine Midland Bank of the
indebtedness of Mr. Brodsky. On November 3, 1998, the promissory note from Bert
E. Brodsky to Marine Midland Bank, dated October 30, 1998, was converted from a
demand note to an installment note, payable in full by October 28, 1999, bearing
interest at a per annum rate of 7.72%. This note has been repaid in full and Mr.
Brodsky is not currently otherwise indebted to Marine Midland Bank.

Indebtedness of Management

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

Largest aggregate amount
owed by Debtor during Debt owed as of
fiscal year ended February 28,
Debtor June 30, 1998 1999
- ------ ------------- ----

P.W. Capital LLC.(1)(2) $ 4,284,902 $ 4,343,106

Port Charitable Foundation(1)(3) 258,500 0

Sandata, Inc.(4) 550,599 0

Bert E. Brodsky(5) 1,684,700 1,014,167

P.W. Medical Management, Inc.(1) 785,000 0

</TABLE>

<PAGE>

Medical Arts Office Services, Inc.(1) 93,485 0

Wilder Woods Estates, LLC(1) 214,000 0

Document Storage & Management(1) 0
95,000

Hugh Freund(3) 8,000 0

Carol Freund(3) 8,000 0

BFS Realty II, LLC(1) 5,000 0

J&A Construction, LLC(6) 15,000 20,000

Gerald Shapiro(7) 325,500 304,250

Sandra Rothstein(8) 43,400 40,567

Mediclaim, Inc.(7) 52,866 0

Linda Portney(9) 5,394 2,374

Muriel Brodsky, as trustee under
certain trusts established for the
benefit of Mr. Brodsky's
children(1) 78,600 0

Camp Poyntelle, Inc.(1) 12,500 0

US Information Group, Inc.(9) 7,000 0

</TABLE>

(1) On June 1, 1998, Health Card assigned certain indebtedness aggregating
$4,254,785 in principal and accrued interest, if any, from the following
affiliates to P.W. Capital, LLC, a company affiliated with Mr. Brodsky. On
June 1, 1998, P.W. Capital, LLC executed a demand promissory note made
payable to the order of Health Card in the principal amount of $4,254,785
with interest at the rate of 8.5 percent per annum payable quarterly. On
June 1, 1998, Bert E. Brodsky executed an unconditional guaranty in favor
of Health Card for the full and prompt payment to Health Card of all
amounts payable under the P.W. Capital, LLC promissory note dated June 1,
1998. Such note is secured by 1,022,757 shares of common stock of Health
Card and is without recourse to the maker.

Bert E. Brodsky
P.W. Medical Management, Inc.
Medical Arts Office Services, Inc.
Wilder Woods Estates, LLC
Document Storage & Management, Inc.
BFS Realty II, LLC
J&A Construction, LLC
Muriel Brodsky as trustee under certain trusts established for the
benefit of Mr. Brodsky's children
Camp Poyntelle
Port Charitable Foundation

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

<PAGE>

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

(4) Mr. Brodsky is the Managing Member of Wilder Woods Estates, LLC, and the
President, director, and the principal stockholder of Document Storage &
Management Inc.

(5) Includes principal and interest due under a non-recourse promissory note
dated July 1, 1997 made payable by Mr. Brodsky to the order of Health Card
in the original principal amount of $1,000,000, secured by a pledge of
1,278,447 shares of common stock of Health Card. Interest on such note is
payable quarterly and together with principal 5 years from the date of the
note.

(6) As of December 5, 1998, Mr. Brodsky was no longer an affiliate of J&A
Construction, LLC.

(7) Mr. Shapiro, Vice Chairman of the Board and a Director of Health Card, is
the Chairman of the Board and Treasurer of Mediclaim, Inc.

(8) Sandra Rothstein is Mr. Brodsky's administrative assistant.

(9) Linda Portney is Executive Vice President of Operations and a Director of
Health Card.

(10) Gerald Shapiro and Muriel Brodsky, Mr. Brodsky's wife, each own 50% of the
outstanding shares of U.S. Information Group, Inc.

SunStar Healthcare, Inc.

SunStar Healthcare, Inc., a Delaware corporation, is engaged in providing
managed health care services in the state of Florida by operating an HMO. Its
service territory covers fifty two counties in central, northern and other parts
of Florida, including the metropolitan areas of Tampa, Orlando, Jacksonville,
and others. As of November 1, 1998, SunStar served approximately 57,000 enrolled
plan members. On February 19, 1999, Mr. Brodsky, as trustee for the irrevocable
trusts of each of his children, subscribed for $250,000 (an aggregate of
$1,000,000) in preferred stock and warrants offered by SunStar. In addition, it
is anticipated that, effective May 1, 1999, Health Card will begin providing
services to SunStar.

National Medical Health Card IPA, Inc.

National Medical Health Card IPA, Inc. was incorporated in September 1998.
Mr. Brodsky's son was its sole shareholder. In October 1998, Mr. Brodsky's son
transferred ownership of Health Card IPA to Health Card for no consideration.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information concerning the
beneficial ownership of Health Card's common stock, before and after giving
effect to the sale of shares offered by this prospectus, for:

- each person who is known by Health Card to be the beneficial
owner of more than five (5%) percent of Health Card's shares
of common stock,
- each of the Named Executive Officers,
- each of Health Card's directors, and
- all of Health Card's executive officers and directors as a group.

<PAGE>

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

Number of Shares Approximate Percentage of
of Common Stock Outstanding Shares of
Beneficially Common Stock
Owned Before the Before the After the
Name and Address(1) Offering Offering Offering
- ------------------- -------- -------- --------

<S> <C> <C> <C>
Bert E. Brodsky 4,451,164(2) 83.8%(2) 60.9%(2)

Irrevocable Trust of
David C. Brodsky 383,559 7.2% 5.3%

Gerald Shapiro 383,534 7.2% 5.3%

Linda Portney 219,162 4.1% 3.0%

Mary Casale 0 0% 0%

Richard J. Strauss, M.D., F.A.C.S. 0 0% 0%

Gerald Angowitz 0 0% 0%

All executive officers and
Directors as a group (7 persons) 5,053,861 95.1% 69.1%

</TABLE>

(1) The address of each person named in the table is c/o National Medical
Health Card Systems, Inc. at 26 Harbor Park Drive, Port Washington, New
York 11050.

(2) Includes (i) an aggregate of 965,585 shares of common stock beneficially
owned by Mr. Brodsky's children's trusts, of which Mr. Brodsky is a trustee
and (ii) 1,725 shares of common stock beneficially owed by P.W. Capital
Corp., of which Mr. Brodsky is President. Includes an aggregate of 345,179
shares of common stock subject to options granted to certain executive
officers of Health Card. See "Management-Executive Compensation."

DESCRIPTION OF CAPITAL STOCK

Certain amendments to Health Card's Certificate of Incorporation are
contemplated to be effected prior to completion of the offering. The following
discussion assumes that those amendments have been made.

The authorized capital stock of Health Card consists of

- 25,000,000 shares of common stock, $.001 par value per share, and
- 10,000,000 shares of preferred stock, $.10 par value per share.

As of February 4, 1999, there were 5,312,497 shares of common stock and no
shares of preferred stock outstanding. Upon the completion of the offering there
will be 7,312,497 shares of common stock and no preferred stock outstanding,
excluding 200,000 shares of common stock issuable upon

<PAGE>

exercise of the representative's warrants and 300,000 shares of common stock
issuable upon exercise of the over-allotment option. There were 33 shareholders
of record as of January 1, 1999.

The following summary of certain provisions of the capital stock is not
complete. It is qualified in its entirety by New York law, and provisions of
Health Card's Certificate of Incorporation, as contemplated to be amended prior
to the consummation of the offering.

Common Stock

Holders of common stock are entitled to one vote for each share of common
stock held on all matters submitted to a vote of shareholders. The common stock
does not have cumulative voting rights. Holders of common stock are entitled to
receive ratably any dividends that may be declared by the Board of Directors.
Upon the liquidation, dissolution or winding up of Health Card, the holders of
common stock are entitled to receive ratably the net assets of Health Card
available after the payment of all debts and other liabilities. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of common stock are, and the shares of common stock
offered hereby, when issued and paid for will be, validly issued, fully paid and
nonassessable. Any common shares issued by Health Card are subject to the
provisions of Section 630 of the New York Business Corporation Law (the "BCL").
The rights and privileges of common stock are subject to the rights and
privileges of any preferred stock which Health Card may issue in the future; the
common stock's rights may be diminished or impaired by such preferred stock's
rights.

In addition, the stock market has from time to time experienced price and
volume fluctuations that are often unrelated to the operating performance of
particular companies. The market price of the common stock, similar to that of
securities of other growing companies, may be highly volatile. The market price
of the common stock could be subject to significant fluctuations in response to
Health Card's operating results and other factors, and there can be no assurance
that the market price of the common stock will not decline below the offering
price.

Preferred Stock

Health Card's Certificate of Incorporation, as contemplated to be amended,
authorizes 10,000,000 "blank check" shares of preferred stock, par value $.10
per share. The Board of Directors of Health Card will have the authority,
without shareholder approval, to:

- issue shares of preferred stock in one or more series,
- fix the number of shares constituting any series, and
- fix the terms of any such series, including:
- dividend rights,
- dividend rates,
- conversion or exchange rights,
- voting rights,
- rights and terms of redemption (including sinking
fund provisions),
- redemption price, and
- the liquidation preference of such series.

The issuance of preferred stock may have the effect of discouraging, delaying,
or preventing a change in control of Health Card. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of preferred stock Health

<PAGE>

Card may issue in the future. Health Card has no present plans to issue any
shares of preferred stock.

Registration Rights

Ryan, Beck, the representative of the underwriters, as holder of the
representative's warrants, has "piggyback" rights to include the shares
underlying the representative's warrants in any registration statement filed by
Health Card. These rights exist during the period commencing one (1) year from
the date of this prospectus and ending six (6) years from the date of this
prospectus. Ryan, Beck also has "demand" rights during the period commencing one
(1) year from the date of this prospectus and ending five (5) years from the
date of this prospectus. This demand right is exercisable, by holders of a
majority of the representative's warrants, to require registration by Health
Card of the shares underlying the representative's warrants. Furthermore, any
holder of the representative's warrants has "demand" rights during the same
period, to require one "demand" registration of the shares underlying such
holder's warrants, solely at the expense of such holder.

Limitation on Liability of Directors; Indemnification

Article 6 of Health Card's Certificate of Incorporation, as contemplated to
be amended, eliminates the personal liability of directors for breach of
fiduciary duty as a director to the fullest extent permitted by the BCL. The BCL
itself, however, provides that the Article 6 provision may not eliminate or
limit the liability of a director for:

- any breach of the director's duty of loyalty to Health Card or
its shareholders,
- acts or omissions in bad faith or which involve intentional
misconduct or a knowing violation of law,
- acts or omissions in violation of Section 719 of the BCL (with
respect to unlawful dividend payments, unlawful share
purchases or redemption, unlawful distributions of assets to
shareholders after dissolution without providing for known
liabilities and unlawful loans to directors under BCL Section
714 without shareholders approval), unlawful uses of corporate
funds or assets, or
- any transaction from which the director gained an improper
personal financial or other advantage.

Additionally, Health Card has included in its Certificate of Incorporation
and By-Laws provisions to indemnify its directors and officers, as permitted by
the BCL. The BCL provides further that the indemnification permitted thereunder
will not be deemed exclusive of any rights to which the directors or officers
may be entitled under Health Card's By-Laws, and if permitted under Health
Card's Certificate of Incorporation under any agreement, by vote of
shareholders, by vote of directors, or otherwise.

The effect of the foregoing is to require Health Card to indemnify the
officers and directors of Health Card, to the extent permitted by law, for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of Health Card, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing

<PAGE>

provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is therefore unenforceable.

Transfer Agent and Registrar

The transfer agent and registrar for Health Card's common stock is
Continental Stock Transfer and Trust Company, 200 Broadway, New York, New York
10004.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, Health Card will have outstanding
7,312,497 shares of common stock. Of these shares, the 2,000,000 shares sold in
the Offering (2,300,000 shares if the over-allotment option is exercised), as
well as 5,312,497 currently issued and outstanding shares of common stock will
be freely tradeable without restriction under the Securities Act, unless held by
"affiliates" of Health Card as that term is defined in Rule 144 under the
Securities Act (an "Affiliate").

In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from Health Card and the date
they were acquired from an Affiliate, then the holder of such restricted shares
(including an Affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding common stock or the average weekly reported volume of trading of the
common stock on the Nasdaq National Market during the four calendar weeks
preceding such sale. The holder may only sell such shares through unsolicited
brokers' transactions or directly to market makers. Sales under Rule 144 are
also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning Health Card. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period.

Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from Health Card and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above.

Health Card's executive officers, directors and certain shareholders who
collectively own 5,053,861 shares of common stock issued prior to the offering
have agreed that they will not directly or indirectly, offer to sell or
otherwise encumber or dispose of any securities issued by Health Card, whether
or not beneficially owned by them, for a period of nine months after the date of
this prospectus, without the prior written consent of Ryan, Beck, Ryan, Beck
may, in its sole discretion, and at any time without notice, release all or any
portion of the shares subject to such lock-up agreements. After the nine month
period, all of the common stock subject to the sale restriction will be eligible
for sale in the public market pursuant to Rule 144 under the Securities Act,
subject to the volume limitations and other restrictions contained in Rule 144,
except that 1,713,118 shares will not be saleable until the full consideration
has been paid. See "Certain Transactions."

<PAGE>

At the present time, there is no public market for the common stock of
Health Card and no predictions can be made as to the effect, if any, that sales
of common stock will have on the market price of the common stock prevailing
from time to time. Nevertheless, sales of significant numbers of common stock in
the public market, or the perception that such sales may occur, could adversely
affect the market price of the common stock and could impair Health Card's
future ability to raise capital through an offering of its equity securities.
See "Risk Factors--Shares eligible for future sale."

In 1988, Health Card successfully completed an initial public offering of
an aggregate of 28,126 units with each unit consisting of 6.37 shares of common
stock and two-year redeemable common stock purchase warrants to purchase 3.20
shares of common stock at $43.02 per share, raising gross proceeds of
$1,210,000.

UNDERWRITING

The underwriters named below, for whom Ryan, Beck is acting as the
representative, have separately agreed, subject to the terms and conditions of
the underwriting agreement, to purchase from Health Card, and Health Card has
agreed to sell to them, on a firm commitment basis, the respective number of
shares of common stock set forth opposite their names below:

Underwriter Number of Shares
----------- ----------------
Ryan, Beck & Co. .....................................
[ ].....................................

Total............................................

The underwriters are committed to purchase all the shares of common stock
offered hereby, if any of such shares are purchased. The underwriting agreement
provides that the obligations of the underwriters are subject to the conditions
precedent specified in that agreement.

Health Card has been advised by the representative that the underwriters
initially propose to offer the shares of common stock (a) to the public at the
offering price set forth on the cover page of this prospectus and (b) to certain
dealers at that price less concessions of not in excess of $____ per share. Such
dealers may re-allow a concession not in excess of $.__ per share to other
dealers. After the commencement of the offering, the public offering price,
concession and reallowance may be changed.

The underwriters have been granted an option by Health Card, exercisable
within 45 days of the date of this prospectus, to purchase up to an additional
300,000 shares of common stock from Health Card at the offering price, less
underwriting discounts, the non-accountable expense allowance and the financial
advisory fee. Such option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the shares offered hereby. To
the extent such option is exercised, in whole or in part, each underwriter will
have a firm commitment, subject to certain conditions, to purchase the number of
the additional shares of common stock proportionate to its initial commitment.
If such option is exercised in full, the total price to the public, underwriting
discounts and commissions, and proceeds to Health Card will be $______________,
$___________, and $______________, respectively.

<PAGE>

The representative has advised Health Card that it does not anticipate
sales to discretionary accounts by the underwriters to exceed five percent of
the total number of shares of common stock offered hereby.

Health Card has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute to
payments that the underwriters may be required to make in connection with this
offering. Health Card has also agreed to pay the underwriters an expense
allowance on a non-accountable basis equal to one percent (1%) of the gross
proceeds of the offering, as well as a financial advisory fee equal to one
percent (1%) of the gross proceeds of the offering, none of which has been paid
to date.

All of Health Card's officers, directors and certain shareholders have
agreed not to, directly or indirectly, offer to sell, sell, transfer, assign,
hypothecate, pledge or otherwise dispose of any securities of Health Card owned
by them for a period of nine months following the date of this prospectus,
without the prior written consent of the representative. An appropriate legend
shall be marked on the face of the certificates representing all of such
securities. See "Shares Eligible for Future Sale."

The Representative's Warrants

In connection with the offering, Health Card has agreed to sell to the
underwriters, for nominal consideration, the representative's warrants. These
warrants entitle the underwriters to purchase 200,000 shares of common stock
from Health Card. The representative's warrants are initially exercisable at a
price per share equal to 120% of the offering price. The representative's
warrants are exercisable for four years commencing one year after the date of
this prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of the representative. The representative's warrants also provide for
adjustment in the number of shares of common stock issuable upon the exercise
thereof as a result of certain subdivisions or combinations of the common stock
of Health Card. The representative's warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise of the
representative's warrants. See "Description of Capital Stock--Registration
Rights." The representative will be required to deliver a prospectus in
connection with the sale of any shares underlying the representative's warrants.

At the present time, there is no market for Health Card's shares of common
stock. Consequently, the offering price for the common stock will be determined
by negotiations between Health Card and the representative and is not
necessarily related to Health Card's asset value, net worth or other established
criteria of value. The offering price may not be indicative of the prices that
will prevail in the public market. The factors to be considered in such
negotiations, in addition to prevailing market conditions, will include:

- the history of and prospects for the industry in which Health
Card competes,
- an assessment of Health Card's management,
- the prospects of Health Card,
- Health Card's capital structure, and
- certain other factors deemed relevant.

In connection with the offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market

<PAGE>

price of the common stock. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M, pursuant to
which such persons may bid for or purchase common stock for the purpose of
stabilizing its market price. The underwriters also may create a short position
for the account of the underwriters by selling more common stock in connection
with the offering than they are committed to purchase from Health Card, and in
such case may purchase common stock in the open market following completion of
the offering to cover all or a portion of such short position. The underwriters
may also cover all or a portion of such short position, up to 300,000 shares of
common stock, by exercising the over-allotment option. In addition, the
representative may impose "penalty bids" under contractual arrangements with the
underwriters, whereby it may reclaim from an underwriter (or dealer
participating in the offering) for the account of other underwriters, the
selling concession with respect to common stock that is distributed in the
offering but subsequently purchased for the account of the underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the shares of common stock at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph are required, and, if they are undertaken, they may
be discontinued at any time.

The foregoing is a summary of the principal terms of the underwriters
agreement and the warrant agreement and does not purport to be complete.
Reference is made to the copy of each such agreement which is filed as an
exhibit to the registration statement. See "Available Information."

LEGAL MATTERS

The validity of the shares of common stock offered hereby and certain legal
matters in connection with the offering will be passed upon for Health Card by
Certilman Balin Adler & Hyman, LLP. Ruskin Moscou Evans & Faltischek, P.C. has
acted as special counsel to Health Card with respect to insurance, health,
licensing and certain other regulatory matters. Sonnenschein Nath & Rosenthal
has acted as counsel for the underwriters in connection with the offering.

EXPERTS

The financial statements and financial statement schedule of Health Card
included in this prospectus, and in the registration statement, have been
audited by BDO Seidman, LLP, independent public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and in the
registration statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

Health Card has filed with the Commission a registration statement (of
which this prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the common
stock being offered. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain portions of the registration statement, and the exhibits and schedules
thereto, are omitted as permitted by the Commission. Statements made in this
prospectus about the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to any such contract,
agreement or other document filed as an exhibit to the registration statement,
reference is made to the exhibit itself for a more complete description of the
matter involved. Each such

<PAGE>

statement shall be deemed qualified in its entirety by reference to the
registration statement exhibits filed as a part thereof.

This registration statement and all other information filed by Health Card
with the Commission may be inspected without charge at the principal reference
facilities maintained by the Commission at:

450 Fifth Street, N.W.
Washington, D.C. 20549,

Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661,

7 World Trade Center
13th Floor
New York, New York 10048.

Copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.

The common stock is expected to be listed on the Nasdaq National Market
and, upon listing, copies of such reports, proxy statements and other
information concerning Health Card can also be inspected and copied at the
library of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.

<PAGE>

2,000,000 Shares

NATIONAL MEDICAL HEALTH
CARD SYSTEMS, INC.

Common Stock

_____________ PROSPECTUS

Ryan, Beck & Co.

___________, 1999

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the estimated expenses (other than
underwriting discounts and the non-accountable expense allowance) expected to be
incurred in connection with the offering described in this Registration
Statement:

Securities and Exchange Commission Registration Fee $ 7,062
NASD Filing Fee 3,040
The Nasdaq National Market Listing Fee 69,375
Blue Sky Fees and Expenses 20,000
Legal Fees and Expenses 200,000
Accounting Fees and Expenses 275,000
Printing and Engraving Expenses 125,000
Transfer Agent and Registrar's Fees and Expenses 25,000
Miscellaneous Expenses 50,523
---------
Total $775,000

All amounts except the Securities and Exchange Commission Registration Fee, the
NASD Filing Fee and the Nasdaq National Market Listing Fee are estimated. All
expenses will be borne by the Company.

Item 14. Indemnification of Directors and Officers.

Under the laws of the State of New York, the officers and directors of the
Registrant are entitled to indemnification by the Registrant, under certain
circumstances, pursuant to Sections 721-727 of the New York Business Corporation
Law which authorizes the Registrant, generally, to indemnify officers and
directors against both expenses and liabilities in connection with any
proceeding involving any such officer or director, other than in a proceeding by
or in the right of the Registrant to procure a judgment in its favor, if (i)
such officer or director acted in good faith and in a manner he reasonably
believed to be in the best interests of the Registrant; and (ii) with respect to
any criminal proceeding, such officer or director also had no reasonable cause
to believe his conduct was unlawful. In addition, such statute authorizes the
Registrant, generally, to indemnify officers and directors against amounts paid
in settlement and their expenses in connection with any proceeding by or in the
right of the Registrant to procure a judgment in its favor which involved the
officer or director, if such officer or director acted in good faith for a
purpose which he reasonably believed to be in the best interests of the
Registrant.

The Registrant is required to indemnify an officer or director, as set
forth above, if such officer or director has been successful on the merits or
otherwise in the defense of any matter referred to herein. Otherwise,
indemnification of an officer or director, unless ordered by a court, may be
made by the Registrant only as authorized in a specific case upon a
determination that indemnification is proper in the circumstances because the
officer or director met the applicable standard of conduct or because
indemnification is permitted pursuant to Section 721 of the Business Corporation
Law. Such determination must be made generally (a) by the Board of Directors of
the

II-1

<PAGE>

Registrant, acting by a quorum consisting of directors who were not parties to
the proceeding; or (b) if a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs (i) by the Board of Directors upon
the written opinion of independent legal counsel that indemnification is proper
under the circumstances, or (ii) by the shareholders.

The Registrant's Certificate of Incorporation and By-Laws, as contemplated
to be amended prior to the consummation of the offering, provide that the
Registrant shall, to the fullest extent permitted by law, indemnify all its
officers and directors.

The Registrant's Certificate of Incorporation contains the provisions of
Section 402(b) of the Business Corporation Law of the State of New York relating
to the elimination of directors' liability for damages for breach of duty in
such capacity.

The Company expects to maintain directors' and officers' liability
insurance policies covering certain liabilities of persons serving as officers
and directors and providing reimbursement to the Company for its indemnification
of such persons.

Pursuant to the Underwriting Agreement to be entered into among the Company
and the underwriters, officers and directors of the Company are indemnified for
certain liabilities, including liabilities incurred under the Securities Act of
1933, as amended.

INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT MAY
BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY PURSUANT
TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT, IN THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT AND IS THEREFORE UNENFORCEABLE.

Item 15. Recent Sales of Unregistered Securities.

The Company sold the following shares of common stock during the past three
years. The number of shares of common stock referred to herein gives effect to a
.1278447-for-one reverse stock split of the Company's shares of common stock
contemplated to be effected prior to the consummation of the offering.

On February 14, 1995, the Company granted an option to purchase 1,022,757
shares of common stock at an exercise price of $.0782 per share to Mr. Bert E.
Brodsky (the "February Option").

On November 1, 1995, the Company granted an option to purchase 1,022,757
shares of common stock at an exercise price of $.0782 per share to Mr. Brodsky.
The February Option was exercised on November 1, 1995 by Mr. Brodsky's payment
of $8,000 and delivery of a promissory note made payable to the order of the
Company in the original principal amount of $72,000. In February, 1998, Mr.
Brodsky paid such promissory note in full.

On February 14, 1995, the Company granted an option to purchase 383,534
shares of common stock at an exercise price of $.0782 per share to Mr. Gerald
Shapiro.

II-2

<PAGE>

On July 1, 1997, Mr. Bert E. Brodsky purchased 1,278,447 shares of common
stock by delivery of a promissory note made payable to the order of the Company
in the original principal amount of $1,000,000. This note is secured by the
1,278,447 shares of common stock purchased by Mr. Brodsky on July 1, 1997.

On July 1, 1997, Mr. Gerald Shapiro purchased 383,534 shares of common
stock by delivery of a promissory note made payable to the order of the Company
in the original principal amount of $300,000. This note is secured by the
383,534 shares of common stock purchased by Mr. Shapiro on July 1, 1997.

On July 1, 1997, Ms. Sandy Rothstein purchased 51,138 shares of common
stock by delivery of a promissory note made payable to the order of the Company
in the original principal amount of $40,000. This note is secured by the 51,138
shares of common stock purchased by Ms. Rothstein on July 1, 1997.

On October 23,1998, Mr. Bert E. Brodsky purchased 340,919 shares of common
stock for $2,000,000 cash. The funds used for this purchase were borrowed from
Marine Midland Bank. The indebtedness of $2,000,000 to Marine Midland Bank was
secured by the 340,919 shares of common stock purchased by Mr. Brodsky on
October 23, 1998. The Company also executed an unlimited continuing Guaranty
Agreement for the indebtedness of Mr. Brodsky to Marine Midland Bank. In January
1999, Mr. Brodsky paid such promissory note in full.

All the foregoing transactions were private transactions not involving a
public offering and were exempt from the registration provisions of the Act
pursuant to Section 4(2) thereof. Sales of the securities were without the use
of an underwriter, and the certificates evidencing the securities relating to
the foregoing transactions bear restrictive legends permitting the transfer
thereof only upon registration of such securities or an exemption under the Act.

Item 16. Exhibits.

Exhibit Number Description of Exhibit
- -------------- ----------------------

<S> <C>

1.1 Form of Underwriting Agreement by and between the Company and the
Underwriter(1)

3.1 Certificate of Incorporation of the Company(2)

3.2 Amendment, dated January 9, 1987, to Certificate of Incorporation of the
Company(2)

3.3 Amendment, dated April 21, 1987, to Certificate of Incorporation of the
Company(2)

3.4 Form of Proposed Amendment to Certificate of Incorporation of the
Company(1)

3.5 By-Laws of the Company(2)

3.6 Form of Proposed Amendment to By-Laws of the Company(1)

II-3

<PAGE>

4.1 Form of Specimen common stock Certificate(1)

4.2 Warrant Agreement, including form of Representative's Warrants(1)

5.1 Opinion of Certilman Balin Adler & Hyman, LLP, counsel for the
Company(1)

5.2 Opinion of Ruskin Moscou Evans & Faltischek, P.C.(1)

10.1 Agreement, dated April 1, 1990, between the Company and ChoiceCare Long
Island, Inc. d/b/a Vytra Healthcare(2)

10.2 Prescription Drug Service Agreement, dated December 1, 1995, between the
Company and ChoiceCare Long Island, Inc. d/b/a Vytra Healthcare(3)

10.3 Amendment to Prescription Drug Service Agreement, dated September 25,
1998 between the Company and Vytra Healthcare

10.4 Letter Agreement dated March 30, 1999 between National Medical Health
Card Systems IPA, Inc., the Company and Vytra Healthcare

10.5 Agreement, dated January 1, 1995, between the Company and Suffolk
County(2)

10.6 Agreement, dated March 15, 1998, between the Company and Medi-Span, Inc.

10.7 Formulary Agreement, dated January 1, 1996, between the Company and
Foundation Health Pharmaceutical Services d/b/a Integrated Pharmaceutical
Services(3)

10.8 Mail Service Provider Agreement, dated July 1, 1996, between the Company
and Thrift Drug, Inc. d/b/a Express Pharmacy Services(2)

10.9 Amendment to Mail Service Provider Agreement, dated January 1, 1997,
between the Company and Thrift Drug, Inc. d/b/a Express Pharmacy
Services(2)

10.10 Agreement, dated June 1,1998, between Sandata, Inc. and the Company(2)

10.11 Amendment to Agreement, dated June 1, 1998 between Sandata, Inc. and the
Company(2)

10.12 Bill of Sale, dated June 1, 1998, between Sandata, Inc. and the Company(2)

10.13 Software License Agreement and Professional Service Agreement, dated
February 18, 1998, between the Company and Prospective Health, Inc.(2)

10.14 1999 Stock Option Plan(2)

II-4

<PAGE>

10.15 Stock Option Agreement, dated July 1, 1997, between Bert Brodsky and Mary
Casale(2)

10.16 Stock Option Agreement, dated December 7, 1998, between Bert Brodsky and
Marjorie O'Malley(2)

10.17 Stock Option Agreement, dated December 7, 1998, between Bert Brodsky and
John Ciufo(2)

10.18 Lease, dated January 1, 1996, between Sandata, Inc. and the Company(2)

10.19 Assignment, dated November 1, 1996, from Sandata, Inc, to BFS Realty,
LLC(2)

10.20 First Amendment to BFS Realty, LLC Lease, dated June 1, 1998, between
BFS Realty, LLC and the Company(2)

10.21 Lease, dated August 10, 1998, between 61 Manor Haven Boulevard, LLC and
the Company(2)

10.22 Promissory Note, dated July 1, 1997, made payable by
Bert Brodsky to the order of the Company in the
original principal amount of $1,000,000(2)

10.23 Promissory Note, dated July 1, 1997, made payable by
Gerald Shapiro to the order of the Company in the
original principal amount of $300,000(2)

10.24 Promissory Note, dated June 1, 1998, made payable by
P.W. Capital, LLC to the order of the Company in the
original principal amount of $4,254,785(2)

10.25 Agreement of Guaranty, dated June 1, 1998, by Bert E. Brodsky in favor of
the Company(2)

10.26 Promissory Note, dated October 30, 1998, made payable
by Bert Brodsky to Marine Midland Bank in the
principal amount of $2,000,000(2)

10.27 Agreement of Guaranty, dated October 30, 1998, by the Company in favor of
Marine Midland Bank(2)

10.28 Promissory Note, dated November 3, 1998, made payable
by Bert Brodsky to Marine Midland Bank in the
principal amount of $2,000,000(2)

10.29 Demand Promissory Note, dated January 2, 1999, made payable by P.W.
Capital, LLC to the order of the Company, in the original principal amount of
$90,100

10.30 Consulting Agreement, dated April 14, 1994, between P.W. Medical
Management, Inc. and the Company(2)

II-5

<PAGE>

10.31 Assignment, dated July 1, 1996, between P.W. Medical Management, Inc. and
P.W. Capital Corp.(2)

10.32 Form of Lock-up Agreement(1)

21 Subsidiaries of the Company

23.1 Consent of BDO Seidman, LLP

23.2 Consent of Certilman Balin Adler & Hyman, LLP (included in its opinion
filed as Exhibit 5.1 hereto)(1)

23.3 Consent of Ruskin Moscou Evans & Faltischek, P.C. (included in its opinion
filed as Exhibit 5.2 hereto)(1)

24.1 Powers of Attorney (included in signature page forming a point hereof)

27.1 Financial Data Schedule

</TABLE>

____________________

(1) To be filed by amendment.
(2) Filed previously.
(3) Contains confidential material omitted and filed separately
with the Securities and Exchange Commission. Brackets denote
such omission.

Item 17. Undertakings.

(a) Rule 415 Offering.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, in-
dividually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and

II-6

<PAGE>

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement, provided, however, that paragraphs
(l)(i) and (l)(ii) do not apply if the registration statement is
on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(4) That, for purposes of determining any liability under the
Securities Act of 1933, as amended, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(b) Equity Offerings of Nonreporting Registrants.

The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(d) Rule 430A.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance

II-7

<PAGE>

upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective;

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

II-8

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Port Washington, State of
New York, on the 9th day of April, 1999.

NATIONAL MEDICAL HEALTH
CARD SYSTEMS, INC.

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

By: /s/ Barry Denaro
-------------------------------------
Barry Denaro
Chief Financial Officer

POWER OF ATTORNEY

Know all men by these presents, that each person whose signature
appears below constitutes and appoints Bert E. Brodsky his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

II-9

<PAGE>

National Medical Health
Card Systems, Inc.
and Subsidiary

Consolidated Financial Statements
and Supplemental Material

For the years ended June 30, 1996, 1997 and 1998
and the six months ended December 31, 1998 and 1997

<PAGE>

National Medical Health
Card Systems, Inc.
and Subsidiary

Contents

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Report of Independent Certified Public Accountants F-2

Consolidated financial statements:

Balance sheets as of June 30, 1997 and 1998, and unaudited
as of December 31, 1998 F-3

Statements of Income for each of the years ended June 30, 1996,
1997 and 1998, and unaudited for the six months ended
December 31, 1997 and 1998 F-4

Statements of Stockholders' Equity (Deficit) for each of the
years ended June 30, 1996, 1997 and 1998, and unaudited
for the six months ended December 31, 1998 F-5

Statements of Cash Flows for each of the years ended June 30,
1996, 1997 and 1998, and unaudited for the six months ended
December 31, 1997 and 1998 F-6

Notes to Financial Statements F-7 - F-29

F-1

<PAGE>

[This is the form of report we will issue upon completion of the reverse stock
split described in Note 12]

Report of Independent Certified Public Accountants

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

We have audited the accompanying consolidated balance sheets of National Medical
Health Card Systems, Inc. and subsidiary as of June 30, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of the management of National
Medical Health Card Systems, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National Medical
Health Card Systems, Inc. and subsidiary as of June 30, 1997 and 1998, and the
results of their operations and cash flows for each of the three years in the
period ended June 30, 1998 in conformity with generally accepted accounting
principles.

BDO Seidman, LLP

September 2, 1998, except for
Note 12 which is as of ___________

F-2

<PAGE>

National Medical Health
Card Systems, Inc.
and Subsidiary

Consolidated Balance Sheets
[GRAPHIC OMITTED][GRAPHIC OMITTED]
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------------
1997 1998 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(unaudited)
Assets
Current:
Cash and cash equivalents $ 1,782,597 $ 1,305,792 $ 2,338,974
Accounts receivable, less allowance for possible
losses of $200,000, $244,189, and $861,337 3,312,329 6,079,079 8,069,053
Rebates receivable 1,487,667 4,064,868 4,321,818
Deferred income tax 120,000 141,000 382,000
Other current assets 69,376 98,514 170,303
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 6,771,969 11,689,253 15,282,148
Property, equipment and software development
costs, net 900,979 1,596,443 2,146,675
Due from affiliates 2,846,851 4,300,902 4,316,745
Due from stockholders 386,493 10,774 -
Other assets 14,528 12,528 17,028
Deferred income tax 951,000 734,000 474,000
Deferred offering costs - - 55,573
- -----------------------------------------------------------------------------------------------------------------------------
$11,871,820 $18,343,900 $22,292,169
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current:
Accounts payable and accrued expenses $13,353,884 $19,730,110 $20,044,555
Current portion of long-term debt 256,221 7,137 5,544
Due to officers/stockholders - 30,000 290,750
Due to affiliates 560,599 451,669 158,376
Income taxes payable - 59,881 541,075
Other current liabilities 37,360 68,780 183,257
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,208,064 20,347,577 21,223,557
Long-term debt, less current portion 7,427 2,605 -
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,215,491 20,350,182 21,223,557
- -----------------------------------------------------------------------------------------------------------------------------
Commitments (Note 7)
Stockholders' equity (deficit):
Preferred stock $.10 par value; 10,000,000
shares authorized, none outstanding - - -
Common stock, $.001 par value, 25,000,000
shares authorized, 3,258,459, 4,971,578 and
5,312,497 shares issued and outstanding 3,259 4,972 5,313
Additional paid-in capital - 901,128 2,900,787
Accumulated deficit (2,274,930) (1,458,482) (326,638)
Notes receivable - stockholders (72,000) (1,453,900) (1,510,850)
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (2,343,671) (2,006,282) 1,068,612
- -----------------------------------------------------------------------------------------------------------------------------
$11,871,820 $18,343,900 $22,292,169
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements

</TABLE>

F-3

<PAGE>
National Medical Health
Card Systems, Inc.
and Subsidiary

Consolidated Statements of Income

[GRAPHIC OMITTED][GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Years Ended Six Months Ended
June 30, December 31,
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)

Revenues $56,265,033 $71,288,411 $99,988,921 $43,530,562 $64,400,697
Cost of claims 50,799,422 64,176,942 91,230,939 39,281,591 57,981,264
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 5,465,611 7,111,469 8,757,982 4,248,971 6,419,433
*Selling, general and
administrative 4,216,259 5,855,282 7,192,027 3,214,053 4,976,489
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 1,249,352 1,256,187 1,565,955 1,034,918 1,442,944
- -------------------------------------------------------------------------------------------------------------------------------
Other income
(expense):
Other income, net 21,530 42,595 264,666 94,806 351,804
Public Offering
costs - - (445,173) - (36,904)
- -------------------------------------------------------------------------------------------------------------------------------
21,530 42,595 (180,507) 94,806 314,900
- -------------------------------------------------------------------------------------------------------------------------------
Income before income
taxes 1,270,882 1,298,782 1,385,448 1,129,724 1,757,844
Provision for income
taxes (benefit) (185,275) (189,984) 569,000 464,000 626,000
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,456,157 $ 1,488,766 $ 816,448 $ 665,724 $ 1,131,844
- -------------------------------------------------------------------------------------------------------------------------------

Earnings per common
share:
Basic $ 0.47 $ 0.46 $ 0.16 $ 0.13 $ 0.22
Diluted $ 0.35 $ 0.37 $ 0.16 $ 0.13 $ 0.22
Weighted average
number of common
shares outstanding:
Basic 3,093,085 3,258,459 4,966,885 4,962,268 5,099,423
Diluted 4,182,909 4,008,481 4,969,166 4,966,395 5,099,423
- -------------------------------------------------------------------------------------------------------------------------------

*Includes amounts
charged by
affiliates
aggregating: $ 2,868,974 $ 4,511,144 $ 4,904,514 $ 2,336,618 $ 1,364,381
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
</TABLE>

F-4

<PAGE>

National Medical Health Card Systems, Inc.
and Subsidiary

Consolidated Statements of Stockholders' Equity (Deficit)

[GRAPHIC OMITTED][GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
Notes Receivable --------------- ------------ Paid-in Accumulated --------------
Stockholders Shares Amount Shares Amount Capital Deficit Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $ - - $ - 3,804,984 $3,805 $ 25,958 $(3,580,281) 1,357,927 $ (976,728)
Exercise stock options (72,000) - - 1,022,758 1,023 78,977 - - -
Capital distribution,
net of income taxes - - - - - (104,935) (346,051) - -
Purchase of treasury stock - - - - - - - 211,356 (149,050)
Treasury stock retired - - - (1,569,283) (1,569) - (1,124,209) (1,569,283) 1,125,778
Net income - - - - - - 1,456,157 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 (72,000) - - 3,258,459 3,259 - (3,594,384) - -
Capital distribution,
net of income taxes - - - - - - (169,312) - -
Net income - - - - - - 1,488,766 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 (72,000) - - 3,258,459 3,259 - (2,274,930) - -
Sale of stock (1,340,000) - - 1,713,119 1,713 1,338,287 - - -
Interest on notes
receivable (113,900) - - - - - - - -
Capital distributions,
net of income taxes - - - - - (437,159) - - -
Repayment of loan by -
stockholder 72,000 - - - - - - -
Net income - - - - - - 816,448 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 (1,453,900) - - 4,971,578 4,972 901,128 (1,458,482) - -
Interest on notes
receivable (unaudited) (56,950) - - - - - - - -
Sale of stock (unaudited) - - - 340,919 341 1,999,659 - - -
Net income (unaudited) - - - - - - 1,131,844 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998
(unaudited) $(1,510,850) - $ - 5,312,497 $5,313 $2,900,787 $ (326,638) - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
</TABLE>

F-5

<PAGE>

National Medical Health
Card Systems, Inc.
and Subsidiary

Consolidated Statements of Cash Flows

[GRAPHIC OMITTED][GRAPHIC OMITTED]
<TABLE>
<CAPTION>

Years Ended Six Months Ended
June 30, December 31

- ------------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:

Operating activities:
Net income $1,456,157 $1,488,766 $ 816,448 $ 665,724 $1,131,844
Depreciation and amortization 184,708 240,744 368,644 177,131 332,353
Bad debt expense 214,046 115,000 70,000 70,000 683,943
Bonus accrued to
officers/stockholders - - - - 170,850
Compensation expense accrued
to officer/stockholder - - 30,000 - 180,000
Deferred income taxes (225,000) (200,000) 488,000 399,000 19,000
Gain on sale of investment (15,885) - - - -
Interest accrued on
stockholders' loans - - (113,900) (56,950) (56,950)
Changes in assets and
liabilities:
Accounts receivable (651,957) (974,319) (2,836,750) (2,719,833) (2,673,917)
Other current assets (22,732) (7,195) (27,138) (79,529) (65,515)
Rebates receivable (1,132,195) 253,743 (2,577,201) (1,448,078) (256,950)
Due to/from affiliates (2,983,896) 511,512 (1,562,981) (1,467,862) (309,136)
Accounts payable and
accrued expenses 4,328,056 2,104,949 6,175,665 3,274,433 258,872
Income taxes payable - - 59,881 65,000 481,194
Other liabilities 38,900 (38,900) 31,420 9,398 114,477

- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,190,202 3,494,300 922,088 (1,111,566) 10,065
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Capital expenditures (448,163) (444,646) (864,108) (364,988) (882,585)
Sale of investment 25,114 - - - -
Loans to stockholders - (32,093) (792,200) (155,000) (90,100)
Repayment of loans by
officer/stockholder 36,300 - 1,167,919 428,000 -
Repayment of note by
stockholder - - 72,000 72,000 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities (386,749) (476,739) (416,389) (19,988) (972,685)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Sale of common stock 8,000 - - - 2,000,000
Purchase of treasury stock (149,050) - - - -
Capital distribution (625,986) (640,312) (728,598) (275,984) -
Repayment of debt (55,909) (605,789) (253,906) (263,648) (4,198)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities (822,945) (1,246,101) (982,504) (539,632) 1,995,802
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (19,492) 1,771,460 (476,805) (1,671,186) 1,033,182
Cash and cash equivalents,
beginning of period 30,629 11,137 1,782,597 1,782,597 1,305,792
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 11,137 $1,782,597 $1,305,792 $ 111,411 $2,338,974
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>

F-6

<PAGE>

National Medical Health
Card Systems, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Information as of December 31, 1998 and for the six
months ended December 31, 1997 and 1998 is unaudited)

[GRAPHIC OMITTED][GRAPHIC OMITTED]

1. Significant Nature of business
Accounting
Policies
National Medical Health Card Systems,
Inc. provides comprehensive
prescription benefit management
services to plan sponsors which include
managed care organizations, local
governments, unions, corporations and
third party health care plan
administrators through its network of
licensed pharmacies throughout the
United States.

Pharmacies are paid for the cost
of the drugs dispensed plus dispensing
fees which are set by contracts. The
Company entered into two types of
payment arrangements; fee for
service and capitation. Under the fee
for service arrangement, the Company is
paid by the plans for their
disbursements plus a set transaction
fee. Under the capitation arrangement,
the Company receives its fee based on
the number of participants per month
and pays for the cost of prescriptions
filled and thus shares the risk of
operating profit or loss with these
plans.

Basis of Consolidation

In October 1998, the Company acquired
National Medical Health Card IPA, Inc.,
which is an independent practice
association under the laws of New York.
This wholly owned subsidiary is a
recently formed inactive company
acquired from a relative of the
principal shareholder, for no
consideration. The Company intends
that the IPA will be the contracting
party with respect to any contracts
with Health Maintenance Organizations
or providers containing financial risk
sharing provisions. The IPA is subject
to the regulatory authority of the
Department of Health and the laws,
rules and regulations applicable to
independent practice associations in
New York. Activities conducted through
December 31, 1998 included
organization, planning and development
of the IPA's activities and securing
regulatory approvals.

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

Cash equivalents

The Company considers all highly liquid
debt instruments and other short-term
investments with an initial maturity
date of three months or less from
purchase date to be cash equivalents.

F-7

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Revenue recognition

Revenue under the fee for service
arrangement from the sales of
prescriptions drugs by the Company's
nationwide network of pharmacies are
recognized when the claims are
adjudicated. At the point-of-sale, the
pharmacy claims are adjudicated using
the Company's on-line processing
system. The Company invoices plan
sponsors and includes as revenues the
Company's administrative service fees
and the pharmacies' dispensing fees
plus the ingredient cost of
pharmaceuticals dispensed by the
Company's network of pharmacies. Cost
of claims include pharmacy claims for
the costs of prescription
pharmaceuticals and other direct costs
associated with the dispensing of
prescriptions.

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

The Company obtains rebates from drug
manufacturers through a rebate
administrator.Rebate fees are received
in connection with the Company
providing services to its sponsors.
When a sponsor's formulary includes
certain covered drugs, the Company may
be able to keep all of a portion of the
rebates offered by the various drug
manufacturers, depending on the
Company's agreement with a particular
sponsor. Rebates are recognized
as they are earned in accordance with
contractual agreements. These revenues
are based on estimates which are
subject to final settlement with the
rebate administrator. Net rebates are
recorded as revenue by the Company.
For the years ended June 30, 1996,
1997 and 1998, net rebate revenue
recorded by the Company was $1,956,161,
$883,243 and $1,460,537, respectively.
For the six months ended December 31,
1997 and 1998, net rebate revenue was
$768,484 and $1,117,615, respectively.

Property,equipment and software

Office equipment and furniture and
fixtures are being depreciated over
five years using accelerated
recovery methods which approximate
the double-declining-balance method of
depreciation.

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

F-8

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Expenditures relating to the
development of software to be used in
the claims adjudication process are
charged to expense until technological
feasibility is established. Thereafter,
the remaining software development
costs up to the date such software is
completed are capitalized and included
on the balance sheet as software
development costs. During the years
ended June 30, 1996, 1997 and 1998
$386,161, $373,884, and $422,316 in
software development costs were
capitalized, respectively and $212,456
and $765,139 during the six months
ended December 31, 1997 and 1998,
respectively.

Amortization of capitalized amounts
commences on the date the software is
placed into use and is computed using
the straight-line method over the
estimated economic life of the
software. Amortization expense was
$128,808, $182,949, and $213,340
for the years ended June 30, 1996,
1997, and 1998, respectively and
$122,477 and $174,010 for the six
months ended December 31, 1997 and
1998, respectively.

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

Deferred offering costs

Deferred offering costs in connection
with the Company's proposed public
offering are capitalized and will be
charged to equity upon consummation of
the public offering or charged to
operations should the public offering
prove to be unsuccessful.

F-9

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Long lived assets

Long lived assets are evaluated for
impairment when events or changes in
circumstances indicate that the
carrying amount of the assets may not
be recoverable through the estimated
undiscounted future cash flows from the
use of these assets. When any such
impairment exists, the related assets
will be written down to fair value. No
such impairment existed through
December 31, 1998.

Taxes on income

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

Computation on earnings per common
share

In 1997, the Financial Accounting
Standards Board issued Standard No.
128 ("SFAS No. 128"), Earnings per
Share. SFAS No. 128 replaced the
calculation of primary and fully
diluted earnings per share with
basic and diluted earnings per share.
Basic earnings per share has been
computed using the weighted average
number of shares of common stock
outstanding. Diluted earnings per share
has been computed using the basic
weighted average shares of common stock
issued plus outstanding stock options,
in accordance with Staff Accounting
Bulletin No. 98.

Accounting for stock based compensation

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

F-10

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Concentration of credit risk

The Company may be subject to a
concentration of credit risk with
respect to its trade receivables. The
Company performs ongoing credit
evaluations of its customers and
generally does not require collateral.
The Company maintains allowances to
cover potential or anticipated losses
for uncollectible accounts. (See Note
5.)

Financial instruments which
potentially subject the Company to
concentrations of credit risk are cash
balances deposited in financial
institutions which exceed FDIC
insurance limits. Amounts on deposit
with financial institutions which
exceeded the FDIC insurance limits at
June 30, 1997, 1998 and December 31,
1998 were $2,156,566, $2,954,241 and
$2,562,907, respectively.

Use of estimates

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

Estimated fair value of financial
instruments

The carrying amounts of financial
instruments, including cash, accounts
receivable, accounts payable and
accrued liabilities, approximate
fair value because of the current
nature of these instruments. The fair
value of the loans due from
stockholders and affiliates is
difficult to estimate due to their
related party nature. Certain Loans
from stockholders do not bear interest
and have no set repayment terms.
Certain loans from affiliates are due
on demand under a note receivable
agreement personally guaranteed by the
majority stockholder and bear market
interest rates; therefore, the Company
believes that the carrying amount
approximates fair value.

F-11

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Interim financial information

The consolidated financial statements
and related notes thereto as of
December 31, 1998 and the six months
ended December 31, 1997 and 1998 are
unaudited and have been prepared on a
basis consistent with the Company's
annual consolidated financial
statements. In the opinion of
management, such unaudited consolidated
financial statements include all
adjustments (consisting of normal
recurring adjustments) that the Company
considers necessary for a fair
presentation of such data. Results for
the six months ended December 31, 1998
are not necessarily indicative of the
results that may be expected for the
entire year ended June 30, 1999.

Effect of recently issued accounting
standards

In June 1997, the Financial Accounting
Standards Board issued two new
disclosure standards.

Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income,
establishes standards for reporting and
display of comprehensive income, its
components and accumulated balances.
Comprehensive income is defined to
include all changes in equity except
those resulting from investments by
owners and distributions to owners.
Among other disclosures, SFAS No.
130 requires that all items that are
required to be recognized under current
accounting standards as components of
comprehensive income be reported in a
financial statement that is displayed
with the same prominence as other
financial statements.

F-12

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an
Enterprise and Related Information,
which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business
Enterprise, establishes standards for
the way that public enterprises report
information about operating segments in
annual financial statements and
requires reporting of selected
information about operating segments in
interim financial statements issued to
the public. It also establishes
standards for disclosures regarding
products and services, geographic areas
and major customers. SFAS No. 131
defines operating segments as
components of an enterprise about which
separate financial information is
available that is evaluated regularly
by the chief operating decision maker
in deciding how to allocate resources
and in assessing performance.

Both of these new standards are
effective for financial statements for
years beginning after December 15, 1997
and require comparative information for
earlier years to be restated. The
Company's results of operations,
financial position, and disclosures
will be unaffected by implementation of
these new standards.

In February 1998, the Financial
Accounting Standards Board issued
Statement of Financial Accounting
Standards No. 132 ("SFAS No. 132"),
Employers' Disclosures about Pensions
and Other Postretirement Benefits,
which standardizes the disclosure
requirements for pensions and other
postretirement benefits. The adoption
of SFAS No. 132 in 1998 is not expected
to materially impact the Company's
current disclosures.

In June 1998, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 133,
Accounting for Derivative Investments
and Hedging Activities Income ("SFAS
133"), which requires the recording of
all derivative instruments as assets or
liabilities measured at fair value.
Among other disclosures, SFAS 133
requires that all derivatives be
recognized and measured at fair value
regardless of the purpose or intent of
holding the derivative.

F-13

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

SFAS 133 is effective for financial
statements for years beginning after
June 15, 1999. The Company has no
derivative investments and does not
participate in hedging activities;
therefore, its financial position,
results of operations and disclosures
will be unaffected by the adoption of
this standard.

2. Property, Property, equipment and software
Equipment and development costs consist of the
Software following:
Development
Costs

June 30, December 31,
------------------------
1997 1998 1998
- -------------------------------------------------------------------------------

Furniture and fixtures $ 284,846 $ 386,480 $ 428,440
Software 1,183,130 2,145,606 2,918,360
Leasehold improvements - - 67,871
- -------------------------------------------------------------------------------
1,467,976 2,532,086 3,414,671
Accumulated
depreciation/amortization 566,997 935,643 1,267,996
- -------------------------------------------------------------------------------
$ 900,979 $ 1,596,443 $ 2,146,675
- -------------------------------------------------------------------------------

Depreciation and amortization expense
for the years ended June 30, 1996, 1997
and 1998 was $184,708, $240,744 and
$368,644, respectively, and $171,131
and $332,353 for the six months ended
December 31, 1997 and 1998,
respectively.

3. Related Party (a) Distributions - capital
Transactions

F-14

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

The Company leases office space in Port
Washington, New York from a company
affiliated by common ownership under a
five-year agreement expiring December
31, 2000 (Note 7(a)). The Company also
leased certain space from companies
affiliated by common ownership during
fiscal 1997 and fiscal 1998. These
additional leases were terminated in
July 1997 and April 1998, respectively.

In September 1998 the Company leased
space for a pharmacy in Port
Washington, New York, from a Company
affiliated by common ownership under a
seven year agreement expiring August
31, 2005 (Note 7(a)).

Rent expense including utilities for
the years ended June 30, 1996, 1997
and 1998 under operating leases
amounted to $153,330, $264,727 and
$304,193, respectively, and $152,180
and $107,271 for the six months ended
December 31, 1997 and 1998,
respectively.

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

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

1996 1997 1998
- -------------------------------------------------------------------------------
Software
development $ 625,986 $ 640,312 $ 520,122
Acquisition of
employees - - 208,476
Tax effect* (175,000) (471,000) (291,439)
- -------------------------------------------------------------------------------
Net charge to
stockholders'
equity (deficit) $ 450,986 $ 169,312 $ 437,159
- -------------------------------------------------------------------------------

F-15

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

* Approximately $215,000 of the tax
benefit for 1997 was offset by a
decrease in the deferred income tax
valuation reserve. (Note 6)

(B) Other

Due from affiliates represents loans to
companies affiliated by common
ownership or companies controlled by
the majority stockholder. Effective
June 1, 1998, the majority of the loan
balances were consolidated into a
promissory note due from one affiliated
company controlled by the majority
stockholder. The amount is due on
demand and bears interest at 8.5% per
annum, payable quarterly, and has no
set repayment date. Due to the
uncertainty of the repayment date, this
note has been classified as a
non-current asset. The note is
collateralized by 1,022,758 shares of
$.001 par value common stock of the
Company registered in the name of the
majority stockholder and the personal
guarantee of the majority stockholder.
For the year ended June 30, 1998, the
amount of interest income accrued was
$30,117. For the six months ended
December 31, 1998, interest income
accrued was $180,828. Interest paid by
the affiliate in December 1998
aggregated $183,000. Prior to June 1,
1998, the outstanding balances did not
bear any interest.

Prior to June 1, 1998, the Company
leased all of its employees from an
affiliated company at an agreed upon
price equal to the affiliate's cost
plus a 7% admnistrative fee. Effective
June 1, 1998, the Company hired these
employees (which included programmers
as discussed above) and paid its own
payroll and related costs. For the
years ended June 30, 1996, 1997 and
1998 the administrative fee charged by
the affiliate was approximately
$97,000, $131,000 and $157,000,
respectively and $79,000 and $0 for the
six months ended December 31, 1997 and
1998, respectively.

F-16

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Certain costs paid to the affiliates
were capitalized as software
development costs. For the years ended
June 30, 1996, 1997 and 1998, the
amounts charged by affiliates and
capitalized were $386,161, $373,884 and
$422,315, respectively. For the six
months ended December 31, 1997 and
1998, the amounts charged by affiliates
and capitalized were $212,456 and
$359,582, 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 general management,
information systems maintenance,
financial consulting, employee benefits
administration, legal, communications
and other miscellaneous services.

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

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

Six months ended
Year ended June 30, December 31,
-----------------------------------------------------------------------
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Software
maintenance
and related
services(i) $ 551,083 $1,443,470 $1,124,626 $ 528,283 $ 339,904
Management and
consulting
fees(ii) 538,058 600,654 857,540 348,169 797,271
Administrative
and
bookkeeping
services(iii) 1,626,503 2,202,293 2,618,155 1,307,986 119,935

Rent and utilities 153,330 264,727 304,193 152,180 107,271
- --------------------------------------------------------------------------------------
$2,868,974 $4,511,144 $4,904,514 $ 2,336,618 $1,364,381
- --------------------------------------------------------------------------------------

</TABLE>

F-17

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

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

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

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

Due from stockholders primarily
represent loans to the majority
stockholder. These loans do not bear
interest and have no set repayment
dates.

On June 1, 1998 the Company agreed to
pay the majority stockholder annual
compensation of $360,000 in the form
of a bonus for continued services. The
Company accrued $360,000 for the year
ended June 30, 1998 and $180,000 for
the six months ended December 31, 1998
as a result of this agreement. In
addition for the six months ended
December 31, 1998, the Company accrued
compensation in the form of a
bonus to certain officers/stockholders
in the amount of $170,850. At December
31, 1998 net amounts due to these
officers/stockholders aggregated
$290,750.

F-18

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

4. Accounts Payable Accounts payable and accrued expenses consist of the following:
and Accrued
Expenses

June 30 December 31
-------------------------------
1997 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Claims payable $10,676,936 $13,571,796 $13,760,876
Rebates payable to
sponsors 1,891,174 4,470,404 5,156,898
Other payables 785,774 1,687,910 1,126,781
- --------------------------------------------------------------------------------
$13,353,884 $19,730,110 $20,044,555
- --------------------------------------------------------------------------------
</TABLE>

5. Major Customers
and Pharmacies

For the years ended June 30, 1996, 1997
and 1998, approximately 66%, 63% and
57% of the revenues were from two plan
sponsors administering multiple plans.
Amounts due from these two customers at
June 30, 1997 and 1998 approximated
$925,000 and $2,751,000, respectively.

For the six months ended December 31,
1997 and 1998, approximately 65% and
68% of the revenues were from three
plan sponsors. Amounts due from the
three customers at December 31, 1998
approximated $3,744,000.

For the years ended June 30, 1996,
1997 and 1998, approximately 22%, 30%
and 25% of the cost of claims were from
two pharmacy chains. Amounts payable to
these two pharmacy chains at June 30,
1997 and 1998 were approximately
$1,714,000 and $2,679,000,
respectively.

For the six months ended December 31,
1997 and 1998, approximately 27% of
the cost of claims were from two
pharmacy chains. Amounts payable to
these two chains at December 31, 1998
were approximately $3,919,000.

F-19

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

6. Taxes on Income Provisions (benefit) for federal, and
state income taxes consist of the
following:

Six months ended
Year ended June 30, December 31
-------------------------------------------------------------------
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 26,700 $ 6,038 $ 60,000 $ 48,000 $469,000
State 13,025 3,978 21,000 17,000 138,000
- --------------------------------------------------------------------------------------
39,725 10,016 81,000 65,000 607,000
- --------------------------------------------------------------------------------------
Deferred:
Federal (174,400) (154,900) 363,000 297,000 15,000
State (50,600) (45,100) 125,000 102,000 4,000
- --------------------------------------------------------------------------------------
(225,000) (200,000) 488,000 399,000 19,000
- --------------------------------------------------------------------------------------
Total $(185,275) $(189,984) $569,000 $464,000 $626,000
- --------------------------------------------------------------------------------------
</TABLE>

In 1996, 1997 and 1998, $175,000,
$471,000 and $291,439, respectively, of
income tax benefits reduced the capital
distribution in those years (Note
3(a)).

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

Six months ended
Year ended June 30, December 31
------------------------------------------------------------
1996 1997 1998 1997 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State taxes - net of
federal taxes .7 - 7.1 7.1 5.7
Decrease in deferred
income tax valuation
reserve (see Note 3(a))(49.3) (48.6) - -
Utilization of net - -
operating loss
carryforward - - (6.1)
Permanent differences - - - - 2.0
- -------------------------------------------------------------------------------------
(14.6%) (14.6%) 41.1% 41.1% 35.6%
- -------------------------------------------------------------------------------------
</TABLE>

F-20

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

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

June 30, 1997 1998
- -------------------------------------------------------------------------------
Accounts receivable allowances $ 120,000 $100,000
Vacation expense accrual - 41,000
Property and equipment 951,000 734,000
- -------------------------------------------------------------------------------
$1,071,000 $875,000
- -------------------------------------------------------------------------------

7. Commitments and (a) Future minimum rent payments under the
Contingencies noncancellable operating leases with
related parties (Note 3) at June 30, 1998
are as follows:

Year ending June 30,
- ----------------------------------------------------------------------------
1999 $250,000
2000 264,000
2001 141,000
2002 21,000
2003 22,000
Thereafter 51,000
- ----------------------------------------------------------------------------
$749,000
- ----------------------------------------------------------------------------

F-21

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

(b) In February 1998, the Company
entered into an agreement for computer
software products and professional
services with an unrelated company. The
agreement requires the Company to pay
an initial license fee of $400,000, of
which $100,000 was paid upon signing
and $25,000 is payable monthly
through February 1999. In addition, if
certain milestones are not based on the
number of processed claims, as defined,
the license fee increases
incrementally, up to an additional
$500,000 over the term of the
agreement. As of December 31, 1998
these milestones have not been
reached. The agreement also provides
for the annual payment of 18% of the
license fee, as defined, as a service
maintenance fee. The agreement contains
several performance guarantees on PHI's
part; monthly installments of the
license fee may be withheld by Health
Card if the software does not comply
with the guarantees, until the software
is compliant.

F-21

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

8. Stock Options (a) The Company had an incentive
stock option plan, under which it may
have granted up to 2,301,205 shares of
common stock. The Company also had a
non-qualified stock option plan under
which it may have granted up to 383,534
shares. Both plans have expired.

On February 14, 1995, the Company
granted the principal stockholder an
option to purchase 1,022,758 shares of
common stock at $.08 per share and a
director of the Company 383,534 shares
of common stock at $.08 per share which
would expire in ten years.

On November 1, 1995, the principal
stockholder exercised his option to
acquire 1,022,758 shares of common
stock for cash and a promissory note
for $72,000 which was paid to the
Company in October 1998. Additionally,
on November 1, 1995, the Company issued
to the principal stockholder a new
option for the purchase of an
additional 1,022,758 shares of common
stock at $.08 per share, which would
expire in five years.

On July 1, 1997, the principal
stockholder and the director forfeited
the options to purchase 1,022,758
shares and 383,534 shares of common
stock at $.08, respectively.

(b) On July 1, 1997 the principal
stockholder granted options to an
employee of the Company to purchase
255,689 shares of the Company's common
stock at $5.87 per share from his
personal holdings. In accordance with
Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123")
Accounting for Stock-Based
Compensation, the options were
accounted for as granted to the
employee directly by the Company. These
options vest and become exercisable as
follows:

(i) 20% on July 1, 1999
(ii) 20% on July 1, 2000
(iii) 20% on July 1, 2001

F-22

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

(iv) 20% on July 1, 2002
(v) 20% on July 1, 2003

These options terminate on July 1, 2005.

On December 7, 1998 the principal
stockholder granted options to an
employee of the Company to purchase
63,922 shares of the Company's common
stock at $5.87 per share from his
personal holdings. In accordance with
Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123")
Accounting for Stock-Based
Compensation, the options were
accounted for as granted to the
employee directly by the Company. These
options vest and become exercisable as
follows:

(i) 1/3 on December 7, 1999
(ii) 1/3 on December 7, 2000
(iii) 1/3 on December 7, 2001
These options terminate on
December 7, 2002.

On December 7, 1998 the principal
stockholder granted options to an
employee of the Company to purchase
25,569 shares of the Company's common
stock at $5.87 per share from his
personal holdings. In accordance with
Statement of Financial Accounting
Standards No. 123("SFAS No. 123")
Accounting for Stock-Based
Compensation, the options were
accounted for as granted to the
employee directly by the Company. These
options vest and become exercisable as
follows:
(i) 1/3 on December 7, 1999
(ii) 1/3 on December 7, 2000
(iii) 1/3 on December 7, 2001
These options terminate on December 7, 2003.

There was no charge to operations for
the issuance of these options.

F-23

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

(c) SFAS No. 123 requires the
Company to provide pro forma
information regarding net income and
earnings per share as if compensation
cost for the Company's stock option
grants had been determined in
accordance with the fair value method
prescribed in SFAS No. 123.

The Company estimates the fair
value of each stock option at the grant
date by using the Black-Scholes
option-pricing model with the following
weighted average assumptions used for
grants in 1997 and 1998, respectively:
no dividends paid for all years; 0.1%
expected volatility for all years;
risk-free interest rates of 6.3% and
4.5%; and expected lives of
7.0 and 4.3 years, respectively.

Based on the above calculation
the weighted fair value of options
granted in 1997 and 1998 was $2.03 and
$.87, respectively.

Under the provisions of SFAS No. 123,
the Company's net income and earnings
per share would have been decreased
to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>

Six months ended
Year ended June 30, December 31
---------------------------------------------------------------------
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income:
As reported $1,456,157 $1,488,766 $816,448 $665,724 $1,131,844
Proforma 1,456,157 1,488,766 764,466 639,733 1,103,687
- ----------------------------------------------------------------------------------------
Basic earnings
per share:
As reported $ .47 $ .46 $ .16 $ .13 $ .22
Proforma .47 .46 .15 .13 .22
- ----------------------------------------------------------------------------------------
Diluted
earnings
per share:
As reported $ .35 $ .37 $ .16 $ .13 $ .22
Proforma .35 .37 .15 .13 .22
- ----------------------------------------------------------------------------------------

</TABLE>

F-24

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

(d) The following table summarizes
information about stock options as of
December 31,1998:

Shares of Weighted Average
Common Stock Exercise Price
- -------------------------------------------------------------------------------
Shares under option at
June 30, 1995 2,940,428 $ .08
Granted 1,022,758 .08
Cancelled (1,534,136) .08
Exercised (1,022,758) .08
- -------------------------------------------------------------------------------
Shares under option at
June 30, 1996 1,406,292 .08
Granted, cancelled,
exercised - -
- -------------------------------------------------------------------------------
Shares under option at
June 30, 1997 1,406,292 .08
Granted 255,689 5.87
Cancelled (1,406,292) .08
- -------------------------------------------------------------------------------
Shares under option
at June 30, 1998 255,689 5.87
Granted 89,491 5.87
- -------------------------------------------------------------------------------
Shares under option at
December 31, 1998 345,180 $5.87
- -------------------------------------------------------------------------------

None of the above outstanding
options were exercisable at
December 31, 1998 (Note 11).

F-25

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

9. Supplemental Cash
Flow Information
<TABLE>
<CAPTION>

Six months ended
Year ended June 30, December 31
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
- -----------------------------------------------------------------------------------------------
Cash paid:
Interest $2,589 $ 2,254 $ 4,136 $1,096 $ 575
Income taxes 825 48,916 20,901 - 125,800
Non cash investing
and financing
activities:
Conversion of
claims
payable into
a non-
interest
bearing note 900,000 - - - -
Issuance of
common stock
for notes from
stockholders 72,000 - 1,340,000(i) 1,340,000(i) -
- -----------------------------------------------------------------------------------------------

</TABLE>
(i) These non-recourse
promissory notes dated July
1, 1997 are due and payable
in five years and bear
interest at 8 1/4% per annum
payable quarterly. The
1,713,119 shares issued in
connection with these notes
included 1,278,447 shares to
the majority stockholder. The
notes are collateralized by
the shares of stock
purchased.

F-26

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

10. Employee Benefit Effective June 1, 1998, the Company
adopted a 401(k) plan Plan covering
substantially all employees.Participants
may elect to contribute to the plan a
minimum of 1% to a maximum of 18% of
their annual compensation, not to exceed
a dollar limit set by law. Annually, the
Company will determine a discretionary
matching contribution equal to a
percentage of each participant's
contribution. No such contributions
were made for the year ended
June 30, 1998 or the six mnonths
ended December 31, 1998.

11. Earnings Per A reconciliation of shares used in
Share calculating basic and diluted earnings
per share follows:

Six months ended
Year ended June 30, December 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------------------
Basic 3,093,085 3,258,459 4,966,885 4,962,268 5,099,423

Effect of
assumed
conversion
of employee
stock options 1,089,824 750,022 2,281 4,127 -
- -------------------------------------------------------------------------------------------
Diluted 4,182,909 4,008,481 4,969,166 4,966,395 5,099,423
- -------------------------------------------------------------------------------------------
</TABLE>

F-27

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Outstanding options to purchase shares
of common stock were not included in
the computation of diluted earnings per
share because upon exercise, the common
stock would be issued by the majority
stockholder in accordance with the
option agreements. (See Note 8.)
These options were as follows:

<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
- ---------------------------------------------------------------------------------------------
Number of
options - - 255,689 255,689 345,180
Weighted-
average
exercise
price - - $5.87 $5.87 $5.87
- ---------------------------------------------------------------------------------------------
</TABLE>

12. Subsequent Events (a) In connection with a proposed public
offering ("the Offering"), the Company
signed a letter of intent with an
underwriter to complete an offering of
its common stock. The Company
anticipates generating net proceeds of
approximately $____ million upon the
sale of its common stock. If the
Offering is consummated, the net
proceeds will be used in whole or in
part for acquisitions, enhancement of
the Company's information systems,
expansion of the Company's sales and
marketing efforts, and working capital.

(b) In connection with the Offering the
Company on _____, filed an amendment to
its Certificate of Incorporation to
adjust its authorized preferred stock
to ____ shares, to adjust its
authorized common stock to ____ shares
and affect a .1278447 for-one reverse
stock split. All applicable share and
per share amounts in the accompanying
financial statements have been
retroactively adjusted to reflect the
stock split.

F-28

<PAGE>

[GRAPHIC OMITTED][GRAPHIC OMITTED]

(c) On February 9, 1999 the Company's
Board of Directors adopted, subject to
stockholder approval, the 1999 stock
option plan which provides for the
grant of options intended to qualify as
"incentive stock option" under Section
422 of the Internal Revenue Code and
options that are not intended to so
qualify-"nonstatutory stock options".
The total number of shares of common
stock reserved for issuance under the
plan is 1,650,000 plus an indeterminate
number of shares of common stock
issuable upon the exercise of "reload
options".

The plan is administered by the
compensation committee and options
may be granted to all full-time
employees (including officers) and
directors of the Company or its
subsidiary. No options have been
granted under this plan.

F-29

<PAGE>

National Medical Health
Card Systems, Inc.
and Subsidiary
Schedule II - Valuation and Qualifying Accounts

[GRAPHIC OMITTED][GRAPHIC OMITTED]

Additions
Balance at charged to
beginning of costs and Other Balance at
Description period expense Write-offs Changes end of period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves and allowances
deducted from asset
accounts:
Allowance for possible
losses from uncollectible
accounts receivable
Year ended June 30, 1996 $100,000 $214,046 $214,046 $ - $100,000
Year ended June 30, 1997 $100,000 $115,000 $ 15,000 $ - $200,000
Year ended June 30, 1998 $200,000 $ 70,000 $ 70,000 $ - $244,189

</TABLE>

F-30

<PAGE>

[This is the form of report we will issue upon completion of the reverse stock
split described in Note 12 to the financial statements]

Report of Independent Certified Public Accountants on Financial
Statement Schedule

The audit referred to in our report to National Medical Health Card Systems,
Inc. and Subsidiary, dated September 2, 1998, except for Note 12 which is as of
______________, which is contained in the Prospectus constituting part of this
Registration Statement included the audit of the schedule listed under Item
16(b) for each of the three years in the period ended June 30, 1998. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based upon our audits.

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

September 2, 1998

<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Capacity Date
- --------- -------- ----

Chairman of the Board
and Director
(Principal Executive
/s/ Bert E. Brodsky Officer) April 9, 1999
- -----------------------
Bert E. Brodsky

Vice Chairman of the
/s/ Gerald Shapiro Board, Secretary and
- ------------------------- Director April 9, 1999
Gerald Shapiro

/s/ Majorie G. O'Malley President and Chief
- ------------------------ Operating Officer April 9, 1999
Marjorie G. O'Malley

Executive Vice President
/s/ Linda Portney of Operations
- ----------------------- and Director April 9, 1999
Linda Portney

/s/ Richard J. Straus Director April 9, 1999
- ------------------------
Richard J. Strauss, M.D,
F.A.C.S.

/s/ Gerald Angowitz Director April 9, 1999
- ------------------------
Gerald Angowitz

Chief Financial Officer
/s/ Barry Denaro (Principal Accounting
- ------------------------ Officer) April 9, 1999
Barry Denaro

/s/ Mary Casale Executive Vice President
- ----------------------- of Sales and Marketing April 9, 1999
Mary Casale

II-10

<PAGE>

<PAGE>
EXHIBIT 10.2

Prescription Drug Service Agreement

Between

ChoiceCare Long Island, Inc. d/b/a Vytra Healthcare

And

National Medical Health Card Systems, Inc.

THIS AGREEMENT, between ChoiceCare Long Island, Inc. d/b/a Vytra Healthcare, a
New York corporation hereinafter referred to as "Vytra Healthcare", and National
Medical Health Card Systems, Inc., a New York corporation, hereinafter referred
to as "Health Card", shall be effective for a period of three (3) years
commencing on December 1, 1995 and terminating on November 30, 1998, unless
sooner terminated pursuant to the terms hereof.

WHEREAS, Vytra Healthcare is a health maintenance organization; and

WHEREAS, Vytra Healthcare desires to obtain high quality Pharmacy Services for
its Members; and

WHEREAS, Health Card has developed a system for paying claims and furnishing
other related services through a network of pharmacies and mail order
facilities; and

WHEREAS, Health Card desires to arrange for quality Pharmacy Services to Vytra
Healthcare Members; and

WHEREAS, Health Card and Vytra Healthcare desire to set forth herein their
mutual agreement as to the terms and conditions under which Health Card will
arrange for pharmacy services to Vytra Healthcare Members, as well as the
delegation of credentialling and recredentialling of pharmacies and claims
processing related to the furnishing of such services to Members.

NOW, THEREFORE in consideration of the mutual promises and considerations to be
paid, the parties hereto agree and covenant with the other, as follows:

1. DEFINITIONS

(a) "Actual Costs" shall mean the total amounts paid to the
Participating Pharmacies or the Members for the Covered Products.

(b) "Base Rate" shall mean a dollar amount per member per month for
Covered Products based on a specified Utilization Rate. The initial
Base Rates for each calendar month during the term of this Agreement
is as set forth on Exhibit A.

Page>

<PAGE>

However, the Base Rates are subject to change pursuant to Paragraph
4 of this Agreement.

(c) "Capitation Rate" shall mean the Base Rate plus the amount, on a per
member per month basis, equal to Health Card's administrative fee
and profit, all as set forth on Exhibit A.

(d) "Claim" shall mean a request for payment received by Health Card
from a Participating Pharmacy or a Member for Pharmacy Services
rendered to a Member.

(e) "Copayment" shall mean the amount required by a Subscriber Agreement
for Pharmacy Services and paid to the Participating Pharmacy by the
eligible Member at the time the Covered Product is dispensed.

(f) "Covered Products" include those drugs that require Prescription by
federal law, dispensed in a maximum amount sufficient to treat an
acute phase of illness: (i) up to the greater of a maximum amount of
100 unit doses or a 34 day supply of medication per Copayment,
except certain maintenance medications that may be dispensed in a
quantity in excess of 100 unit doses or a 34-day supply through a
mail order provider; (ii) a 90-day supply for mail orders; (iii)
nutritional supplements (formulas) for the therapeutic treatment of
phenylketonuria, branched-chain ketonuria, galactosernia, and
homosystinurial ("Nutritional Supplement"); and (iv) insulin,
diabetic equipment, and other diabetic supplies obtained on the same
day for up to a 60 day supply per Copayment. Covered Products
exclude federal legend drugs with over-the-counter (OTC)
equivalents, except for those Members enrolled in Vytra Healthcare's
Medicaid HMO program, for whom such drugs are included, as set forth
in Paragraph 3(g).

(g) "Enrollee" shall mean an individual who, through an agreement with
Vytra Healthcare which is entered into by such individual or by a
group on his or her behalf, is entitled to receive benefits from
Vytra Healthcare pursuant to the terms of a Subscriber Agreement.

(h) "Generic Equivalent" shall mean a prescription drug available from
more than one drug manufacturer which has the same active
therapeutic ingredient as a brand or trade name innovator
prescription drug.

(i) "Member" or "Members" shall mean, in the case of family coverage,
the Enrollee, the Enrollee's spouse, and each of the Enrollee's
unmarried dependent children, if those persons are declared by the
Enrollee to be eligible for coverage in the Enrollee's application
for membership in Vytra Healthcare and have met the requirements of
eligible dependent under the Enrollee's Subscriber Agreement. In the
case of single coverage Member refers to the Enrollee only.

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(j) "Non-Participating Pharmacies" shall mean pharmacies which are not
Participating Pharmacies in the Health Card network of pharmacies.

(k) "Participating Pharmacies" shall mean those retail and mail order
licensed pharmacies which have been credentialed in accordance with
Health Card's credentialling program and criteria and which have
contracted with Health Card under the terms of the Health Card's
Pharmacy Provider Service Agreement to provide Pharmacy Services to
Members in accordance with the terms of this Agreement.

(l) "Health Card's credentialling program and criteria" shall be
applicable to all Participating Pharmacies and shall meet the
criteria defined in Exhibit B attached hereto and made part hereof.

(m) "Pharmacy Services" shall mean dispensing of Covered Products
pursuant to a Prescription written by a Prescriber, excluding
Covered Products dispensed by a Hospital or other inpatient
facility.

(n) "Prescriber" shall mean a licensed Physician or other person duly
licensed to prescribe drugs.

(o) "Prescription" shall mean a verbal or written order by a Prescriber
authorizing the dispensing of Covered Products which includes the
name and identification of the Member, the date and sufficient
information for compounding, labeling, and dispensing.

(p) "OTC Drug Equivalent" shall mean an adequate substitute for a
prescription medication i.e., a drug product that contains the same
therapeutic moiety (chemical entity) but may have a different salt
or ester, or is a different dosage form or strength. As a way of
example and illustration purposes only - the drug "Naprosyn" has an
OTC Drug Equivalent in the product "Aleve".

(q) "Subscriber Agreement" shall mean a written description of medical,
health and hospital services to which Members are entitled to
receive including each of the following: (i) the Agreement for
Comprehensive Health Services or other Certificate of Coverage
between a Member and Vytra Healthcare describing medical, hospital
and health benefits; (ii) the Vytra Healthcare Platinum Subscriber
Agreement or other document or description of services by which
Vytra Healthcare provides services to a Medicare beneficiary
enrolled in Vytra Healthcare's Medicare Risk HMO Program; (iii) the
Medicaid Services Members Benefit Package of Nassau County, Suffolk
County and Queens County or other document or description of
services by which Vytra Healthcare provides services to a Medicaid
recipient enrolled in Vytra Healthcare's Medicaid HMO program and
(iv) all applicable benefit amendments issued to Members under such
agreements, documents and description of services, whether now
existing or

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hereinafter adopted. Vytra Healthcare shall be responsible for
delivering to Health Card copies of the applicable Pharmacy Services
provisions of the Subscriber Agreements regarding the respective
benefit levels and coverages for the different categories of Members
and all amendments thereto.

(r) "Utilization Rate" shall mean the number of Pharmacy Services per
member per month.

(s) "Variance" shall mean the difference between the Base Rate and the
Actual Costs calculated on a per Member per month basis (e.g. Base
Rate minus Actual Costs).

(t) "Formulary" shall mean the therapeutic drug listing established from
time to time by Vytra Healthcare. No changes to the then existing
Formulary shall be effective unless and until Vytra Healthcare
notifies Health Card, in writing, of any such changes.

2. PROVISION OF PHARMACY SERVICES AND COVERED PRODUCTS

(a) In consideration for and subject to the payment of the Monthly Fee,
as hereinafter defined, and such other sums to be paid by Vytra
Healthcare to Health Card hereunder, Health Card shall arrange and
pay for the provision of Pharmacy Services to Members in accordance
with the benefit levels and coverages set forth in the Members'
Subscriber Agreements, provided complete copies of the provisions of
the Subscriber Agreements containing such benefit levels and
coverages have been delivered to Health Card. Health Card
understands that the benefit levels and coverage (including the
amount of Copayments) for Pharmacy Services may vary based upon a
particular Member's respective Subscriber Agreement and that Health
Card shall arrange for Pharmacy Services to be provided to Members
in accordance with the applicable benefit level and coverage
described within the applicable provisions, delivered to Health
Card, of each such Subscriber Agreement. In the event of a Material
Change, as hereinafter defined, in the cost of providing Pharmacy
Services, other than a Material Change resulting from a change in
the credentialling obligations of Health Card as set forth in
Paragraph 2(g), either party may request an adjustment to the
Capitation Rates by written notice to the other, which notice shall
contain the proposed new Capitation Rates. For purposes hereof, a
"Material Change" shall have occurred if the Actual Costs equal 115%
or more of the Base Rate for any three (3) consecutive months or any
two quarters in any one year. If, within ten (10) business days
after delivery of such notice the parties cannot agree upon the
Capitation Rates, the requesting party shall have the right to
obtain and submit to the disputing party, within thirty (30) days
after the expiration of such ten (10) business days' period, a
report prepared by a nationally recognized actuarial firm retained
by the requesting party at the requesting party's expense providing
the basis for such requested changes. The disputing party may
thereupon dispute such report by submitting, within thirty (30) days
after receipt of the requesting party's report,

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a written report prepared by a nationally recognized actuarial firm
retained by the disputing party at the disputing party's expense. In
the event that the actuaries cannot reach an agreement within ten
(10) business days after the submission of the disputing party's
report, the two actuaries shall within ten (10) days after the
expiration of such ten (10) business days' period select a mutually
acceptable third nationally recognized actuarial firm to submit a
report within thirty (30) days after the expiration of such ten (10)
business day's period, the findings of which shall bind the parties,
but which shall not exceed the greater or be less than the lesser of
the findings of the original actuaries. The fees of the third
actuary shall be equally borne by the parties. The final, binding
decision of the actuaries shall be effective retroactively to the
date of the notice sent by the party requesting the change in the
Capitation Rates as set forth above.

(b) Special Requirements for Medicare. Health Card acknowledges that a
portion of the Members receiving Pharmacy Services pursuant to this
Agreement are enrolled in the Medicare Risk HMO program of Vytra
Healthcare, and that, to the extent applicable and subject to any
applicable adjustment in the Capitation Rates pursuant to Paragraph
2(a), Health Card shall, upon receipt of same from Vytra Healthcare,
comply with the agreements between Vytra Healthcare and Health Care
Financing Administration ("HCFA") governing the operation of Vytra
Healthcare's Medicare Risk HMO program and Health Card shall, as
applicable to Health Card, comply with all applicable laws, rules
and regulations, governing the provision of Pharmacy Services to
Medicare recipients and the operation of Vytra Healthcare's Medicare
Risk program, including but not limited to, laws and regulations
commonly known as the Medicare Anti-Kickback Statute and Stark I and
Stark II. Vytra Healthcare will provide Health Card with copies of
all of such agreements and amendments thereto and shall also provide
Health Card with such laws, rules and regulations and amendments
thereto which come to its attention in the normal course of
business.

(c) Special Requirements for Medicaid. Health Card acknowledges that a
portion of the Members receiving Pharmacy Services pursuant to this
Agreement are enrolled in Vytra Healthcare's HMO program for New
York Medicaid recipients, and that to the extent applicable to
Health Card and subject to any applicable adjustment in the
Capitation Rates pursuant to Paragraph 2(a), Health Card shall, upon
receipt of same from Vytra Healthcare, provide or arrange for the
provision of the Pharmacy Services in accordance with the following
documentation and requirements as the same may be amended from time
to time, copies of which are attached hereto as Exhibit C: (i)
Memorandum of Understanding; (ii) the NYS Department of Health
Reporting Requirements, including any modifications that may be
imposed on HEDIS type reporting; (iii) Network requirements,
including those necessary in order to avoid any financial penalties
or reductions in the amount of payment available for Medicaid HMO
Enrollees and Health Card shall comply with same as applicable to
Health Card; and (iv) Site visits and record reviews (to be provided
in accordance with Health Card's auditing procedures

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<PAGE>

discussed below) imposed by any County government, the City of New
York, and/or the State of New York by law, rule, regulation,
contract or guideline for the provision of Pharmacy Services for
Members enrolled in Vytra Healthcare's HMO program for New York
Medicaid recipients. Vytra Healthcare will provide Health Card with
copies of all of such agreements and amendments thereto and shall
also provide Health Card with such laws, rules and regulations and
amendments thereto which come to its attention in the normal course
of business.

(d) Availability of Pharmacy Services. Health Card shall maintain and
make available an adequate and accessible delivery system for
Pharmacy Services for Members in accordance with the terms of this
Agreement. For purposes of this Agreement, the obligation to
maintain an adequate and accessible delivery system will be met if
there is one or more Participating Pharmacy located in each zip code
in the Vytra Healthcare Service Area (which, as of the date of this
Agreement, consists of Nassau, Suffolk and Queens Counties in New
York State), except when there is no pharmacy within a zip code or a
pharmacy has chosen not to participate due to circumstances beyond
the reasonable control of Health Card. Each of the Participating
Pharmacies shall provide all Pharmacy Services and Covered Products
to Members according to the benefit levels and coverages set forth
in the copies of the applicable provisions, delivered to Health
Card, of the Subscriber Agreements. A Participating Pharmacy shall
not be obligated to provide Pharmacy Services and Covered Products
subject to this Agreement unless and until the Participating
Pharmacy satisfies itself that the person requesting the
prescription products is an eligible Member and the Participating
Pharmacy has received the applicable Copayment required by the
applicable Subscriber Agreement from the eligible Member.
Notwithstanding any provision herein to the contrary, the
Participating Pharmacy shall not be required to provide Pharmacy
Services or Covered Products to a Member if the dispensing
pharmacist determines, based on his or her professional judgment,
that such Pharmacy Services and Covered Products should not be
provided.

(e) Health Card shall pay for Pharmacy Services rendered to a Member
from a Non-Participating Pharmacy if Health Card shall reasonably
determine that such services are not available from a Participating
Pharmacy or in the event of a medical emergency such that a Member
is unable to obtain Pharmacy Services from a Participating Pharmacy.
In such event, a Member shall be required to submit to Health Card a
Direct Reimbursement claim form and will be reimbursed at the
incurred cost of the prescription minus the Copayment required by
the applicable Subscriber Agreement.

(f) Participating Pharmacies shall dispense Generic Equivalent Covered
Products to Members, subject to applicable state law and Health
Card's generic price list. Should a Prescription provide for a trade
name product when a Generic Equivalent drug is available, then a
Member whose Subscriber Agreement so provides shall be required to
pay the Participating Pharmacy the price difference at the

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contracted rate between the Generic Equivalent drug and the trade
name product, plus the applicable Copayment required by the
applicable Subscriber Agreement.

(g) Delegation of Credentialling. Health Card understands and
acknowledges that Vytra Healthcare has delegated to Health Card the
obligations of recruiting, credentialling and recredentialling
Participating Pharmacies (the "Delegated Programs"). Health Card
shall perform the Delegated Programs in the manner described in
Exhibit B, as the same may be amended as hereinafter provided. Vytra
Healthcare shall give Health Card written notice of any changes
Vytra Healthcare desires to the manner in which Health Card performs
the Delegated Programs. In the event any such changes shall result
in an increase in costs to Health Card, as reasonably determined by
Health Card, such costs shall result in a like increase to the
administrative fee portion of the Capitation Rates. Health Card
shall notify Vytra Healthcare of the amount of such increase before
implementing any changes requested by Vytra Healthcare. In the event
Vytra Healthcare disputes the amount of the resulting increase in
costs to Health Card, and the parties cannot agree upon an
acceptable increase to the administrative costs portion of the
Capitation Rates within ten (10) business days after Health Card
notifies Vytra Healthcare of such increase, either party may refer
the matter to binding arbitration before an arbitrator selected by
the President of the American Arbitration Association and conducted
in Suffolk County, New York, in accordance with the commercial
arbitration rules of the American Arbitration Association then in
effect, including the expedited procedures if applicable. The
arbitrator shall be an individual experienced in the field of
credentialling pharmacies. The unsuccessful party shall pay the full
cost of the arbitrator and the American Arbitration Association in
connection with the matter. Until the final decision of the
arbitrator, the amount of the increase to the Capitation Rates
determined by Health Card shall apply, unless Vytra Healthcare shall
have directed Health Card, in writing within two (2) business days
after Vytra Healthcare's receipt of Health Card's notice, not to
implement such changes. In such event, Health Card shall not be
obligated to implement such changes until the sooner of the parties
agreeing on the increase in costs of implementing such changes or
the final and binding decision of the arbitrator. Vytra Healthcare
shall have the right to periodically audit Health Card's performance
of the Delegated Programs.

3. RESPONSIBILITIES AND RIGHTS OF HEALTH CARD

(a) In consideration for, and subject to the payment of the Monthly Fees
and such other sums to be paid by Vytra Healthcare to Health Card
hereunder, Health Card shall perform Claims processing,
administrative drug services, disbursements to Participating
Pharmacies and Members, reconciliation of Participating Pharmacy
disbursements, provider relations, credentialling of Participating
Pharmacies as outlined in Exhibit B, and periodic reporting of drug
utilization and other

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management information provided in Health Card standard report
format as described in Exhibit D attached hereto and made part of
this Agreement.

(b) Health Card shall notify a Participating Pharmacy of any denial, in
whole or in part, of a Claim, and shall, as necessary, advise such
Participating Pharmacy that the Member may not be billed for any
Pharmacy Services or for monies in excess of the permitted
reimbursement, except to the extent permitted by subparagraph of
this Paragraph 3.

(c) Health Card shall notify Members by way of an explanation of
benefits, in such form as Health Card may use, from time to time,
regarding Claims submitted directly by such Member to Health Card (a
Direct Reimbursement Claim). Health Card shall forward, to Vytra
Healthcare, a copy of any such explanation of benefits upon request
therefor by Vytra Healthcare.

(d) Health Card shall maintain current and complete files of all Claims
received and of payments made to Participating Pharmacies and
Members under this Agreement. Such files shall be available for
review and copying by Vytra Healthcare pursuant to subparagraph (aa)
of this Paragraph 3.

(e) Health Card will provide Vytra Healthcare with standard utilization
and management information reports and standard drug utilization
review (DUR) reports, the format and schedule for delivery of such
reports are attached hereto as Exhibit D. During the first six (6)
months of the term of this Agreement (the "Transition Period"),
Health Card shall allocate sum of ** Dollars
(the "Transition Costs") to pay the costs incurred by Health Card in
revising and producing such reports at Vytra Healthcare's request,
which revised additional reports, shall be incorporated in Exhibit
D. All requests directed to Health Card for revisions or additions
to such reports shall be made only by the Vice President for
Professional Services or the Senior Director for Business Operations
or such other representative or representatives designated by Vytra
Healthcare in writing from time to time ("Account Representatives").
Health Card shall provide Vytra Healthcare with an estimate of the
costs to be incurred in revising or preparing the reports prior to
commencing any such services. The costs incurred by Health Card in
providing such services shall be at the rates scheduled in Exhibit
H. The parties agree that the costs incurred by Health Card in
revising or producing such reports shall be the costs incurred in
design and programming, including all ancillary costs. No costs
shall incur for time expended by other Health Card personnel. At the
end of each month during the Transition Period, Health Card shall
deliver to Vytra Healthcare a statement indicating the services
provided during that month and the costs associated therewith. Any
costs incurred during the Transition Period in excess of the
Transition Costs shall be paid to Health Card by Vytra Healthcare.

** Confidential portion filed separately with the Commission.

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(f) Health Card will instruct the Participating Pharmacies to collect
the Copayment required by a Subscriber Agreement from each Member
for Covered Products dispensed pursuant to a Prescription.

(g) Health Card will instruct the Participating Pharmacies that, except
for Medicaid Members, no over-the-counter (OTC) drug, except
Nutritional Supplements or insulin, including otherwise prescription
drugs with OTC equivalents, shall be provided to a Member unless the
OTC drug has been especially included in the Vytra Healthcare
Formulary. However, the foregoing shall not apply to those Members
covered by Medicaid, to whom OTC drugs may be provided, regardless
of their inclusion in the Vytra Healthcare Formulary.

(h) Health Card shall provide Pharmacy Services in accordance with the
then applicable benefit levels and coverages provided in the
Subscriber Agreements, provided copies of the applicable provisions
of such Subscriber Agreements setting forth the benefit levels and
coverages have theretofore been delivered by Vytra Healthcare to
Health Card.

(i) Health Card shall contract with Participating Pharmacies to fill
Prescriptions for Pharmacy Services and Covered Products for the
quantity prescribed by the Prescriber, up to a maximum of the
greater amount of 100 Unit doses or a 34-day supply per Prescription
at a retail Participating Pharmacy or up to a 90 day supply by a
mail order Participating Pharmacy. In the event that either of the
above quantity limitations significantly exceed the Member's
remaining period of eligibility, as shown on the identification card
or as determined through other eligibility information, the
Participating Pharmacy may provide a supply limited to five (5) days
beyond the indicated term of eligibility.

(j) Health Card shall include in all of its Health Card Pharmacy
Provider Service Agreements a requirement that, except for
collecting the applicable Copayment from Members, the Participating
Pharmacy shall look solely to Health Card for any other sums due the
Participating Pharmacy in connection with Pharmacy Services and the
Participating Pharmacy shall not bill, charge, collect a deposit
from, attempt to obtain compensation or reimbursement from or have
any recourse against the Members. Health Card agrees to take all
reasonable steps necessary to protect the Members and Vytra
Healthcare from any such claims. Notwithstanding the foregoing, the
Participating Pharmacy may seek payment from a Member provided that
Health Card has previously agreed that the drug is not a Covered
Product, the Participating Pharmacy has informed the Member that the
drug is not a Covered Product and the Member understands that he or
she is solely responsible for the Participating Pharmacy's fee for
such service, or if a Member is ineligible for coverage. In
connection therewith, should a dispute arise, Health Card agrees to
take all steps necessary to protect Vytra Healthcare from a
Participating Pharmacy or Member who may seek redress against Vytra
Healthcare, except in connection with disputes resulting from the
design of

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benefits provided by Vytra Healthcare or Vytra Healthcare's decision
to not cover a specific item or to hold a specific member ineligible
for benefits, for which no indemnity is provided hereunder.
Notwithstanding anything to the contrary contained herein, the
forgoing indemnity shall in no way affect the validity or
enforceability of any claims Health Card may have against the
Members or Vytra Healthcare, including, but not limited to claims
against Vytra Healthcare for nonpayment of sums due or other
defaults, if any, by Vytra Healthcare, pursuant to this Agreement.

(k) Health Card shall receive Vytra Healthcare's approval of all
communications regarding the Vytra Healthcare Formulary prior to
distribution. Health Card shall provide Vytra Healthcare with copies
of all communications that it provides to its network of
Participating Pharmacies from time to time regarding management and
operation of the Participating Pharmacy network and Pharmacy
Services for Vytra Healthcare.

(l) Health Card shall perform fraud review and maintain a drug
utilization management program. In administering the drug
utilization management program, Health Card shall:

(i) produce and provide to Vytra Healthcare quarterly drug
utilization management reports including exception screening
of high-use Members, by number or dollars; Members using
multiple pharmacies; and Members with greater than four (4)
Prescriptions for controlled substances in a quarter;

(ii) provide to Vytra Healthcare Prescriber profiles, including
incidence of generic prescribing and DUR alerts and Formulary
Compliance reports within 60 days of the Vytra Healthcare
Formulary being finalized and receipt of readable physician
file data with all required data elements. Such reports shall
be delivered to Vytra Healthcare pursuant to the time periods
noted on each report listed in Exhibit D.

(iii) provide Vytra Healthcare with clinical reviews used in Health
Card P&T Committee and provide support in conjunction and
cooperation with Vytra Healthcare case management team. During
the Transition Period, Health Card shall provide one thousand
(1,000) hours of clinical support to assist Vytra Healthcare
in managing drug utilization. Following the Transition Period,
Health Card shall provide Vytra Healthcare each month fifty
(50) hours of clinical support for the services to be provided
herein. Any services rendered by Health Card in excess of the
foregoing respective amounts shall be provided at the clinical
rate outlined in Exhibit H attached hereto and made part
hereof.

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(iv) pay for mailings concerning formulary management to
Participating Pharmacies.

(m) Health Card shall perform periodic audits of the prescription
records of a percentage of Participating Pharmacies to review
compliance with coverage limitation as set forth in this Agreement
and professional practice standards and to confirm that proper
documentation is maintained pursuant to federal and state law, rule
and regulation. Upon request by Vytra Healthcare, Health Card shall
perform on-site audits of specific Participating Pharmacies to
review compliance with this Agreement up to 20 per quarter. A
description of Health Card's Participating Pharmacy audit process,
including the frequency and selection process, is attached hereto as
Exhibit E.

(n) Health Card shall provide Vytra Healthcare with a magnetic tape of
encounter information, two times per month, with the following
information for each Prescription dispensed by Participating
Pharmacies: store identification, Member identification, date of
service, prescription number, designation of new or refill
Prescription, quantity, drug identification (NDC number and/or drug
name), Prescriber identification, total price, Copayment and net
cost.

(o) Health Card shall be the exclusive provider to Vytra Healthcare of
Pharmacy Services and Covered Products as defined in this Agreement.
However, notwithstanding the foregoing, up to ** per annum of the
number of Claims by Members for Pharmacy Services may be arranged or
provided by other pharmacy service providers, by individual
physicians or groups of physicians associated with Vytra Healthcare.
If more than ** per annum of the number of such Claims are
contracted to other pharmacy providers, Health Card shall have the
right to terminate this Agreement upon ninety (90) days' prior
notice to Vytra Healthcare or to renegotiate with Vytra Healthcare
the Capitation Rate per Member.

It is understood that in the event physician groups associated with
Vytra Healthcare arrange to have Pharmacy Services provided or
arranged by another provider, Health Card can no longer perform DUR,
case management or reporting functions for Members using the
services of such physician groups. Health Card would not be
responsible for the analyses and reporting of prescribing habits of
any physician group providing pharmacy prescription benefits to
Members independently or through another pharmacy vendor.

(p) Health Card shall exercise its best efforts to maintain network
pharmacy participation at no less than the number of pharmacies
available on the first day of this contract period. Health Card will
not be deemed responsible for shrinkage of the network due to
pharmacy closings, consolidations, or changes in the reimbursement
schedule, provided however, that in such event, Vytra Healthcare may
elect to terminate this Agreement upon ninety (90) days' prior
notice to Health Card if a sufficient network is not maintained, as
provided in

** Confidential portion filed separately with the Commission.

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subparagraph (d) of Paragraph 2 of this Agreement. Health Card
agrees not to terminate a major chain of Participating Pharmacies
participating in the Health Card pharmacy network as of the date of
this Agreement without the prior approval of Vytra Healthcare,
provided however, if Vytra Healthcare withholds its consent and the
continued inclusion of any such pharmacy as a Participating Pharmacy
results in an increase to Actual Costs, Vytra Healthcare shall pay
the amount of such increase in Actual Costs, quarterly, to Health
Card. Vytra Healthcare shall have the right during the term of this
Agreement to request, in writing, that Health Card add specific
pharmacies as Participating Pharmacies, provided however, if the
inclusion of such pharmacy or pharmacies results in an increase to
Actual Costs, Vytra Healthcare shall pay the amount of increase in
Actual Costs, quarterly to Health Card. Health Card shall notify
Vytra Healthcare of the amount of such increase before adding such
pharmacies as Participating Pharmacies. In the event of a dispute as
to the amount of the increase to the Actual Costs, as set forth
above, either party may avail itself of the procedure set forth in
Paragraph 2(a). Until the final decision of the actuaries, the
amount of the increase to the Actual Costs determined by Health Card
shall apply, unless Vytra Healthcare shall have directed Health
Card, in writing within two (2) business days after Vytra
Healthcare's receipt of Health Card's notice, not to add such
pharmacies as Participating Pharmacies. In such event, Health Card
shall not be obligated to add such pharmacies as Participating
Pharmacies until the sooner of the parties agreeing on the increase
in Actual Costs of adding such pharmacies as Participating
Pharmacies or the final and binding decision of the actuaries.

(q) Health Card shall continue to maintain a Pharmacy and Therapeutics
Committee.

(r) Health Card shall exercise best efforts to assist Vytra Healthcare
in developing physicians' profiles and identifying and implementing
cost-effective disease management programs

(s) In addition to the reports described in Exhibit D, Health Card
shall, from time to time following the Transition Period, provide
such additional reports as Health Card and Vytra Healthcare shall
mutually agree (the "Additional Reports"), in accordance with
procedures agreed upon by Health Card and Vytra Healthcare. In
addition to the compensation set forth herein, Vytra Healthcare
shall compensate Health Card for the Additional Reports as set forth
in the rate schedule in Exhibit H attached hereto and made part of
this Agreement. All requests for Additional Reports must be made by
a designated Account Representative.

(t) Health Card shall process 90% of all Claims submitted within 10 days
and 99% within 15 days of receipt by Health Card of a completed
claim form, provided the claim form contains all the information
necessary for Health Card to process such claim. Health Card shall
make all reasonable efforts to process each Claim within 30 days of
receipt of such Claim form and shall answer telephone calls from

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Members or Participating Pharmacies within an average of 30 seconds
or less. Health Card shall reimburse to Vytra Healthcare the sum of
fifty ($0.50) cents for each Claim not processed as provided above.
Vytra Healthcare shall be permitted to audit Health Card's
conformance with the foregoing requirements pursuant to the
provisions of Paragraph 3(aa).

(u) Health Card shall ensure that 95% of mail order prescriptions, which
do not require pharmacy or physician intervention, for Covered
Products be dispensed to the Member within 48 hours and 99% within
72 hours of receipt of a complete Prescription setting forth all
information necessary to fulfill the Prescription. Health Card shall
make all reasonable efforts to ensure that all mail order
prescriptions are dispensed within 120 hours of receipt of a
complete Prescription.

(v) Health Card will maintain a reasonable disaster recovery program
with respect to computer malfunctions.

(w) Health Card shall provide additional support services to Vytra
Healthcare which may be agreed upon between Health Card and Vytra
Healthcare at rates mutually agreed upon between Vytra Healthcare
and Health Card.

(x) Health Card shall be responsible for performing those administrative
services which are directly related to the arrangement of Pharmacy
Services to Members under this Agreement. Such services shall
include but not be limited to: (i) maintenance of an adequate
pharmacy network as required by Paragraph 2(d), (ii) member services
customer relations staff to answer Participating Pharmacies,
Member's and Vytra Healthcare's questions, (ii) data collection and
report generation, and (iii) the services of operational staff to
coordinate and administer the payment or reimbursement of all
Claims.

(y) Health Card shall require each Participating Pharmacy to be
licensed, certified or otherwise duly authorized to operate as a
pharmacy in accordance with all applicable federal and state law and
Health Card's credentialling program and criteria outlined in
Exhibit B. Upon request of Vytra Healthcare, pursuant to Paragraph
5(j), Health Card shall remove a pharmacy as a Participating
Pharmacy for provision of Pharmacy Services to Members.

(z) Health Card will be assisted by Integrated Pharmaceutical Services
("IPS") (or a successor/replacement organization) in providing
formulary management services to Members. All inquiries regarding
such services shall be directed to Health Card's Director of DUR or
such other person designated by Health Card. If Health Card
determines same is necessary or is otherwise unable to answer any
such inquiry to Vytra Healthcare's reasonable satisfaction, Health
Card shall refer such inquiries, within one (1) business day of
receipt of such inquiry or notice from Vytra Healthcare that Health
Card's response is unsatisfactory, to IPS and shall notify Vytra
Healthcare of IPS' response. If such response is not

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satisfactory, Health Card shall either seek clarification or, in its
discretion, use reasonable efforts to arrange for direct
communication between Vytra Healthcare and IPS as to such inquiry.

(aa) Upon request, but not more than once every quarter, Health Card
agrees to provide Vytra Healthcare and its authorized
representatives access to all information, records and other
documents relating to Health Card's performance of its
responsibilities under this Agreement for Vytra Healthcare's audit,
inspection or copying, without cost to Vytra Healthcare, during
regular business hours. Use and disclosure of such documents by
Vytra Healthcare shall be subject to Paragraph 17 of this Agreement.
Vytra Healthcare's audit results may be used to measure Health
Card's compliance with its obligations under this Agreement,
including but not limited to, Health Card's conformance with the
Delegated Program and for quality assurance purposes. The parties
agree that this Paragraph 3(aa) shall survive the termination of
this Agreement.

4. COMPENSATION

(a) The parties agree that for purposes of the calculations and other
determinations required hereunder, and as is otherwise necessary for
purposes of this Agreement, each Member shall be deemed assigned to
one of the following categories of Members, as applicable: (i) those
Members enrolled in Vytra Healthcare's Medicare Risk HMO program;
(ii) those Members enrolled in Vytra Healthcare's HMO program for
New York Medicaid recipients; and (iii) all other Members. The
calculations and determinations required hereunder, and as is
otherwise necessary for purposes of this Agreement shall be made
separately for each of the foregoing categories of Members using
such category's applicable components and other information (e.g.
each category of Members shall have its own Monthly Fee, Capitation
Rate, Risk Sharing Amount, Base Rate, Utilization Rate, Variance,
Actual Costs, etc.)

(b) Vytra Healthcare shall pay to Health Card during the term of this
Agreement, without any set-off, prior to demand therefor or any
deductions whatsoever, in advance on the first day of each and every
calendar month during the term of this Agreement, a fee (the
"Monthly Fee") equal to the product obtained by multiplying the then
applicable Capitation Rate times the total number of Members
enrolled on the first day of such month. The initial Capitation
Rates are as set forth on Exhibit A attached hereto and made a part
hereof and are subject to change as herein provided.

(c) Effective as of December 1, 1996 and as of the first day of each and
every December thereafter, the Base Rate (and as a result, the
applicable Capitation Rate) shall change by applying to the
calculation of the Base Rate a new Utilization Rate equal to the
actual Utilization Rate for the previous Fiscal Year, as mutually
agreed to by the parties. If by December 10 of the applicable Fiscal

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<PAGE>

Year, the parties have not agreed upon the Utilization Rate for such
Fiscal Year, either party may immediately refer the dispute to
resolution pursuant to the procedure set forth in Subparagraph 2(a).
The new Utilization Rate shall then be in effect for the entire
Fiscal Year commencing as of such first day of December. For
purposes hereof, Fiscal Year shall mean the one year period
commencing December 1 and expiring on the immediately following
November 30. The parties agree that to account for the effect of
mail order Pharmacy Services on the actual Utilization Rate, when
determining the actual Utilization Rate, Health Card shall determine
and add to the total number of Pharmacy Services per Member, the
additional number of Pharmacy Services that would have been filled
if such mail order Pharmacy Services were for a 30 day maximum
supply of the respective Covered Product.

(d) The parties acknowledge that due to circumstances beyond their
control, Actual Costs may exceed Base Rate during any given period
of time and, as a result thereof, the parties are at risk of bearing
an unintentioned financial burden. Accordingly, the parties have
agreed to share the risk of such an occurrence by calculating, on a
quarterly basis, the sum of the Variances for the three (3) months
comprising the previous calendar quarter (the "Aggregate Variance)
and the appropriate party making a lump-sum payment to the other of
the Risk Sharing Amount, as hereinafter defined, if any. Such
payment will be due and payable ten (10) days after the Risk Sharing
Amount is determined.

(i) The "Risk Sharing Amount", shall be calculated at the
beginning of each and every calendar quarter during the term
of this Agreement and shall equal the product obtained by
multiplying the total number of Members enrolled during each
month of the previous calendar quarter by the sum of the
following amounts

(1) 50% of the following: The Aggregate Variance up to the
amount of the First Risk Sharing Corridor, as defined
below.

(2) 75% of the following: The Aggregate Variance, less the
amount of the First Risk Sharing Corridor, up to the
amount of the Second Risk Sharing Corridor, as defined
below.

(3) 85% of the following: The Aggregate Variance, less the
amount of the First and Second risk sharing corridors,
up to the amount of the Third Risk Sharing Corridor, as
defined below.

(4) 90% of the following: The Aggregate Variance, less the
amount of the First, Second and Third Risk Sharing
Corridors, up to the amount of the Fourth Risk Sharing
Corridor, as defined below.

(ii) For purposes of calculating the Risk Sharing Amount:

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* First Risk Sharing Corridor shall be 10% of the Base Rate.

* Second Risk Sharing Corridor shall be 5% of the Base Rate.

* Third Risk Sharing Corridor shall be 5% of the Base Rate.

* Fourth Risk Sharing Corridor shall be 80% of the Base Rate.

(iii) If: (x) the Aggregate Variance for the previous calendar
quarter is a positive number, then Health Card shall pay the
Risk Sharing Amount to Vytra Healthcare or at Vytra
Healthcare's option offset such amount against the next
amounts to be paid by Vytra Healthcare to Health Card under
this Agreement, and if (y) the Aggregate Variance for the
previous quarter is a negative number, then Vytra Healthcare
shall pay the Risk Sharing Amount to Health Card.

Payments of Risk Sharing Amount shall account for retroactive terminations and
additions effective during the previous quarter. All rebates actually received
by Health Card for Pharmacy Services received by Members shall be delivered by
check to Vytra Healthcare.

Any decrease or reduction to the Actual Costs which is attributable to the
utilization of mail order Pharmacy Services by Members shall be for Vytra
Healthcare's sole benefit. Health Card shall monitor mail order utilization and
calculate the savings, if any. The savings resulting from mail order Pharmacy
Services that have been remitted to Health Card as a result of the Risk Sharing
Amount calculation shall be paid to Vytra Healthcare on a quarterly basis.

Except as specifically provided in this Agreement, Vytra Healthcare shall have
no obligation to pay to Health Card any other amounts or payments for costs or
expenses incurred by Health Card in providing or arranging the Pharmacy
Services; it being understood by the parties that any other amounts shall be the
sole obligation and responsibility of Health Card.

(e) Retroactive Member eligibility additions are permitted. Payment by
Vytra Healthcare to Health Card for permitted retroactive additions
shall be made at the applicable Capitation Rate for each month or a
portion of a month, as applicable, of retroactivity. Retroactive
terminations of Members are permitted. In the event of a retroactive
termination, Health Card shall promptly refund to Vytra Healthcare
(or, at Vytra Healthcare's option, such amount may be offset against
other payments due to Health Card under this Agreement) the
Capitation Rate applicable to a Member for each month of retroactive
termination; provided however, that in the event a Member has been
provided Pharmacy Services during any months subject to retroactive
termination, then Health Card shall be entitled to retain an amount
equal to the Actual Cost incurred by Health Card, but shall, in no
event include any amount attributable to administrative expenses or
profit.

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<PAGE>

(f) Vytra Healthcare shall pay the Capitation Rate to Health Card for
Members who first become eligible to receive Pharmacy Services on a
day other than the first day of the month on a prorated basis. By
way of example and illustration only, if a Member becomes eligible
to receive or becomes no longer eligible to receive Pharmacy
Services on the fifteenth (15th) day of the month, Vytra Healthcare
shall pay to Health Card or Health Card shall pay to Vytra
Healthcare, as the case may be, fifty (50%) percent of the
Capitation Rate attributable to such Member for that month. At Vytra
Healthcare's option, Vytra Healthcare shall be entitled to make an
appropriate adjustment in the next month's payment of the Capitation
Rate.

(g) (i) In the event Health Card grants, to any health maintenance
organization, health insurer, self-insured fund or trust, or
any other similar type of organization (1) whose plan is
substantially similar to Vytra Healthcare's in design and
demographic; (2) whose service area is substantially similar
to Vytra Healthcare; and (3) who will receive substantially
similar services to those received by Vytra Healthcare
hereunder (hereinafter after a "Comparable Insurer") more
favorable capitation rates than those provided in this
Agreement, Health Card shall promptly notify Vytra Healthcare
and: (x) if the number of members enrolled with the Comparable
Insurer is greater than, but does not exceed twice the number
of Vytra Healthcare Members and Vytra Healthcare and Health
Card does not offer such better capitation rates to Vytra
Healthcare, Vytra Healthcare shall have the right, within ten
(10) days of receipt of such notice to terminate this
Agreement; and (y) if the number of members enrolled with the
Comparable Insurer is equal to or less than the number of
Vytra Healthcare Members, Vytra Healthcare shall thereupon
receive the more favorable capitation rates on a prospective
basis to the date such prices and terms were implemented for
such Comparable Insurer and if requested by Vytra Healthcare,
Health Card shall amend this Agreement to contain the more
favorable capitation rates.

(ii) Failure by Health Card to promptly deliver to Vytra Healthcare
the notice required in (i) above shall be considered a
material breach of this Agreement entitling Vytra Healthcare
to immediately terminate this Agreement and/or to receive from
Health Card the difference between the Capitation Rates paid
by Vytra Healthcare and the more favorable capitation rates
commencing on the date the more favorable capitation rate were
implemented for such Comparable Insurer.

(iii) Notwithstanding (i) and (ii) above, Health Card shall have no
responsibility or obligations to Vytra Healthcare with regard
to capitation rates implemented for a Comparable Insurer with
enrolled members in excess of twice the number of Vytra
Healthcare Members.

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<PAGE>

5. RESPONSIBILITIES AND RIGHTS OF Vytra Healthcare

For all purposes of this Agreement, Vytra Healthcare shall have the
following responsibilities and rights:

(a) Vytra Healthcare shall provide Health Card with a list of all
eligible Members for each month, including designation of current
additions and deletions, in the electronic format mutually agreed
upon.

(b) Vytra Healthcare shall designate one representative to serve on the
Health Card P & T Committee.

(c) The Vice President for Professional Services of Vytra Healthcare, or
others as designated by Vytra Healthcare, will have the assistance
of Health Card in the education of Prescribers as indicated by DUR
exception reports and other drug utilization review activities, in
the pursuit of proper and appropriate drug utilization. Vytra
Healthcare will be responsible for all communications, including
formulary information, to its physicians.

(d) Vytra Healthcare will electronically deposit the Monthly Fee into a
bank account designated by Health Card by the 7th day of each month
during the term of this Agreement. If the Monthly Fee is not so
deposited by 5:00 p.m. on the 15th day of the month in which such
payment is due, Vytra Healthcare shall pay to Health Card a late fee
in an amount equal to the greater of one thousand ($1,000.00)
dollars per day from the first day of such month date due or
interest at the rate of one and one-half percent (1.5%) per month,
both calculated from the first day of the calendar month in which
such payment was due to the date of payment. The payment of any such
late fee shall not be deemed a cure of any default hereunder or act
as a waiver by Health Card of any of its rights hereunder.

(e) Provided that such information is provided to Vytra Healthcare by
Health Card, Vytra Healthcare shall periodically publish and
distribute the names, addresses, and/or telephone numbers
Participating Pharmacies and such other information as desired by
Vytra Healthcare for purposes of informing Members and for Vytra
Healthcare marketing purposes.

(f) Vytra Healthcare will provide its Members with membership
identification cards or other identification of eligibility for
Pharmacy Services in a form that is approved by Health Card, which
approval shall not be unreasonably withheld.

(g) The parties will work cooperatively to contain unnecessary drug use,
waste, and over-utilization and to provide Members with a high
quality of care. The parties will support a drug utilization
management program. In connection therewith, Health Card will assist
Vytra Healthcare in communicating to Vytra Healthcare's

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physicians prior authorization standards for the use of those high
cost drugs listed on Exhibit F.

(h) Vytra Healthcare will pay for all costs in connection with any
mailings Vytra Healthcare elects to send to its Members concerning
formulary management or otherwise.

(i) Vytra Healthcare shall be entitled to audit the books and records of
Health Card pursuant to the terms of Paragraph 3(aa).

(j) Vytra Healthcare shall be entitled to request that a Participating
Pharmacy not provide Pharmacy Services to Members if in its
reasonable belief, the removal of such pharmacy as a Participating
Pharmacy is in the best interest of its Members. However, provided
such Participating Pharmacy satisfies Health Card's credentialling
criteria, Vytra Healthcare shall indemnify and hold Health Card
harmless from any claims resulting from Health Card's compliance
with such determination.

(k) Vytra Healthcare shall deliver, to Health Card, all information
regarding the respective benefit levels and coverages for the
different categories of Members as is necessary for Health Card to
provide Pharmacy Services to such Members in accordance with the
applicable provisions of such Members' Subscriber Agreements as same
may be amended from time to time.

6. REPRESENTATIONS AND WARRANTIES OF HEALTH CARD

Health Card represents and warrants to Vytra Healthcare as follows:

(a) It is duly organized as a New York corporation and validly existing
in the State of New York and has all right, power and authority to
enter into, execute and perform this Agreement.

(b) The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby are duly authorized and
approved by all necessary corporate action and that the person
signing this Agreement on behalf of Health Card has the necessary
authority to bind Health Card. The execution and performance of this
Agreement and any agreement contemplated hereby, will not constitute
a breach or violation of (i) Health Card's Certificate of
Incorporation, (ii) any law, statute, ordinance, rule, regulation,
order or decree of any governmental authority to which Health Card
is subject or by which it is bound; or (iii) any mortgage, deed,
agreement or other instrument to which Health Card is subject or by
which it is bound.

(c) During the term of this Agreement, Health Card shall: (i) comply
with all applicable professional standards and criteria, as required
by the New York Public

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Health Law, New York State licensure requirements and all federal
and state applicable laws, rules and regulations; (ii) maintain
appropriate prescription drug records for a Member receiving
Pharmacy Services; and (iii) participate in clinical, educational
and administrative meetings and activities, as appropriate.

(d) During the term of the Agreement Health Card shall comply with all
of the terms and conditions of the Delegated Program with regards to
credentialling of Participating Pharmacies.

7. REPRESENTATIONS AND WARRANTIES OF Vytra Healthcare

Vytra Healthcare represents and warrants to Health Card as follows:

(a) It is duly organized as a not-for-profit Individual Practice
Association Health Maintenance Organization and validly existing in
the State of New York and has all right, power and authority to
enter into, execute and perform this Agreement.

(b) The execution and delivery of this Agreement and the performance
contemplated hereby are duly authorized and approved by all
necessary corporate action and that the person signing this
Agreement on behalf of Vytra Healthcare has the necessary authority
to bind Vytra Healthcare. The execution and performance of the
Agreement and any agreements contemplated hereby, will not
constitute a breach or violation of; (i) Vytra Healthcare's
Certificate of Incorporation; (ii) any law, statute, ordinance,
rule, regulation, order or decree of any governmental authority to
which Vytra Healthcare is subject or by which it is bound; or (iii)
any mortgage, deed, agreement or other instrument to which Vytra
Healthcare is subject or by which it is bound.

8. INDEPENDENT RELATIONSHIP

The relationship between Health Card and Vytra Healthcare is a contractual
relationship between independent parties. Neither Health Card nor Vytra
Healthcare nor any employee of Health Card or Vytra Healthcare is an
agent, employee or representative of the other.

9. INSURANCE AND MUTUAL HOLD HARMLESS

(a) Health Card shall maintain and, upon the request of Vytra
Healthcare, provide documentation of, policies of adequate
comprehensive general liability insurance, in the amount of no less
than $1 million per occurrence with an umbrella policy of $5
million. Such insurance policy or policies shall include a provision
providing Vytra Healthcare with reasonable notice, and in any event
not less than sixty (60) days prior written notification of the
expiration and/or cancellation of such policies. In the event Health
Card fails to continuously maintain the insurance required by this
Paragraph 9(a), Vytra Healthcare may secure or pay the

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charges for such policy or policies and charge Health Card the cost
thereof. Securing or paying the charges for such policies shall not
affect Vytra Healthcare's option to terminate the Agreement pursuant
to Paragraph 10(b).

(b) Vytra Healthcare shall maintain and, upon the request of Health
Card, provide documentation of, policies of adequate comprehensive
general liability and professional liability insurance, such
professional liability to be in amounts no less than $3 million per
occurrence and $5 million in the aggregate. Such insurance policy or
policies shall include a provision providing Health Card with
reasonable notice, and in any event not less than sixty (60) days
prior written notification of the expiration and/or cancellation of
such policies. In the event Vytra Healthcare fails to continuously
maintain the insurance required by this Paragraph 9(b), Health Card
may secure or pay the charge for such policy or policies and charge
Vytra Healthcare the cost thereof. Securing or paying the charges
for such policies shall not affect Health Card's option to terminate
this Agreement pursuant to Paragraph 10(b).

(c) Vytra Healthcare and Health Card agree to indemnify, defend, and
hold harmless each other, including each other's agents, officers,
directors, shareholders, owners, members and employees from and
against any and all liability or expense, including defense costs
and legal fees, and claims for damages of any nature whatsoever,
including but not limited to, bodily injury, death, personal injury,
medical malpractice, property damage, breach of contract or any
worker's compensation suits, liability or expense arising from
their respective negligence or other wrongful act or omission or
breach or default of any obligation hereunder, or of any
representation, covenant or agreement contained herein.

10. TERMINATION

(a) The initial term of this Agreement shall commence as of December 1,
1995 and end at midnight on November 30, 1998. Thereafter, unless
this Agreement shall have terminated in accordance with the terms
and conditions of this Agreement, the term of this Agreement shall
be automatically extended for successive one (1) year periods, each
commencing from the expiration of the initial term or extended term,
as applicable, and running for the successive twelve (12) month
period. Notwithstanding the foregoing, either party may elect not to
extend the term of this Agreement by giving written notice thereof
on or before the date that is 180 days prior to the commencement of
the applicable extended term. Additionally, either party may
terminate this Agreement for a material breach by the other upon a
ninety (90) day notice of termination ("Termination Notice")
delivered by certified mail, provided that the Termination Notice
specifies the nature of the breach or failure to perform. If the
party upon whom the Termination Notice is served fails to cure such
default within thirty (30) days of receipt of the Termination Notice
then this Agreement shall terminate upon the ninety (90) day date
specified in the Termination Notice.

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(b) Notwithstanding subparagraph (a), either party may elect to
terminate this Agreement immediately upon written notice to the
other in the event the other party: (i) files a voluntary petition
for bankruptcy or reorganization; or (ii) makes a general assignment
in favor of creditors; or (iii) has an involuntary petition in
bankruptcy filed against it which petition is not dismissed within
ninety (90) days of the return date of said petition; or (iv) is the
subject of a reorganization, dissolution, liquidation or similar
proceeding; or (v) fails to continuously maintain the types and
amounts of insurance required by Paragraph 9 of this Agreement. In
addition, Vytra Healthcare may elect to immediately terminate this
Agreement in accordance with the provisions of Paragraph 4(g) or if
Health Card fails to render or stops providing or arranging for
Pharmacy Services to Members. The termination of this Agreement by a
party pursuant to this Subparagraph (b) shall not be deemed a
limitation or waiver of any of the other rights or remedies
available to such party pursuant to this Agreement.

(c) In the event of the termination of this Agreement for any reason,
Health Card shall, at the option of Vytra Healthcare, continue to
arrange for the provision of Pharmacy Services for the Members
receiving Pharmacy Services from a Participating Pharmacy as of the
effective date of termination, until such time as the Members are
receiving Pharmacy Services from another appropriate provider. Vytra
Healthcare shall compensate Health Card for such services in
accordance with the prior agreement between the parties dated May 1,
1994.

11. COMPLAINTS AND GRIEVANCES

(a) Health Card shall maintain and make available to Members and
Participating Pharmacies an initial complaint and resolution
procedure for the purpose of fairly and expeditiously resolving a
complaint initiated by a Member or a Participating Pharmacy with
respect to the delivery of Pharmacy Services.

(b) Health Card agrees to cooperate with Vytra Healthcare in resolving
any grievance which a Member may have relating to the provision of
Pharmacy Services and Covered Products by a Participating Pharmacy.
In this regard, both parties agree to bring to the attention of the
other all Member grievances involving the provision of Pharmacy
Services. Health Card agrees to investigate promptly such grievances
and use its best efforts to resolve the grievance in accordance with
the Vytra Healthcare Grievance Procedure, a copy of which is
attached hereto as Exhibit G.

12. DISPUTE RESOLUTION

(a) Except as specifically provided elsewhere in this Agreement, with
respect to any dispute or controversy arising from or relating to
this Agreement between the parties, the issue shall be decided by a
single arbitrator chosen by the then President of the American
Arbitration Association and held in Suffolk County,

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New York, in accordance with the commercial arbitration rules of the
American Arbitration Association then in effect, including the
expedited procedures, if applicable. At the request of either Health
Card or Vytra Healthcare, arbitration proceedings will be conducted
in private with no information concerning the proceedings being
distributed or disseminated to the public; in such case, all
documents, testimony, and records shall be received, heard, and
maintained by the arbitrators in private, available for inspection
by Health Card or Vytra Healthcare and by their respective attorneys
and experts who shall agree, in advance and in writing, to receive
all such information confidentially unless otherwise required to be
disclosed by law or legal process and to maintain such information
in secrecy until such information shall become generally known.

(b) Notwithstanding the foregoing provisions of Subparagraph (a) above,
in the event that either party has initiated arbitration proceedings
alleging that the other party (i) is in violation of the provisions
of paragraph 17 hereof; or (ii) has violated the provisions of
Subparagraph 10 (c) hereof, the party initiating such arbitration
proceedings shall be entitled to seek, in any court having competent
jurisdiction, temporary injunctive relief in order to compel the
performance of said provisions in accordance with their terms. In
furtherance of the foregoing, the parties agree that the merits of
any such dispute shall be resolved in such arbitration proceeding.

13. AMENDMENT

This Agreement may be amended only by the written and mutual agreement of
the parties hereto. Notwithstanding the foregoing, it is understood that
any material amendment or change in payment methodology under this
Agreement is subject to the prior approval of the New York State
Commissioner of Health at least thirty (30) days in advance of their
anticipated implementation.

14. SEVERABILITY

If any provision of this Agreement is found to be void or illegal or
unenforceable, the validity or enforceability of any and all other
portions of this Agreement shall not be affected, provided however that if
the void, illegal or unenforceable provision is material to the overall
purpose and operation of the Agreement then the parties agree to attempt
to mutually resolve the provision which was found void, illegal or
unenforceable. In the event the parties are unable to mutually resolve the
void, illegal or unenforceable provisions, this Agreement may be
terminated by either party upon the date such provision is found to be
void, illegal or unenforceable.

15. GOVERNING LAW

In the event of any dispute hereunder, the laws of the State of New York
shall govern the validity, interpretation, performance, enforcement,
construction, and all other aspects of

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this Agreement, without giving effect to the principles of conflict of
laws. Should any of the provisions of this Agreement require
interpretation, whether by a court or by an arbitrator it is agreed that
the reviewing entity shall not apply a presumption that any provision
shall be more strictly construed against one party by reason of the rule
of construction that a document is to be construed more strictly against
the party who prepares or through its agent prepares the same, it being
agreed that all parties and their respective agents have participated in
the preparation of this Agreement and such other agreements and exhibits
attached hereto.

16. ATTACHMENTS, SCHEDULES AND APPENDICES

Any and all attachments to this Agreement, including any and all schedules
and appendices referred to in any such attachment, are incorporated
hereunder by reference and made a part thereof as if the same were fully
set forth in the body of this Agreement. In the event of a conflict
between any provision of any schedule or exhibit hereto, and any provision
contained in this Agreement, the provision of the schedule or exhibit
shall control.

17. CONFIDENTIALITY AND MEMBER'S RECORDS

(a) Vytra Healthcare and Health Card acknowledge a duty to maintain the
confidentiality of the payment terms of this Agreement, except (i)
where disclosure is required by law, or legal process and then only
after reasonable prior notice to the other party with sufficient
time to protest or (ii) where the disclosure is made on a need to
know basis to a parent, subsidiary, or affiliate corporation, and
where such parent, subsidiary, or affiliate agrees to maintain the
confidentiality obligations imposed by this paragraph.

(b) Each party may, in the course of the relationship established by
this Agreement disclose to the other party in confidence non-public
information concerning credentialling criteria Members' names and
addresses, patient treatment and/or finances, and such party's
earnings, volume of business, methods, systems, practices, plans and
other confidential or commercially valuable proprietary information
(collectively, "Confidential Information"). Each party acknowledges
that the disclosing party shall at all times be and remain the owner
of all Confidential Information disclosed by such party, and that
the party to which Confidential Information is disclosed shall use
its best efforts, consistent with the manner in which it protects
its own Confidential Information, to preserve the confidentiality of
any such Confidential Information which such party knows or
reasonably should know that the other party deems to be Confidential
Information. Neither party shall use for its own benefit or disclose
sell, transfer, publish or otherwise make available to third parties
any Confidential Information of the other party without such other
party's written consent except (i) as may be necessary for the
effective treatment of a Member, or (ii) as may be necessary to
provide such information to IPS or any such replacement organization
to provide formulary management services, or (iii) as may be
required by federal or state law, rule or regulation.

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(c) The parties shall maintain the confidentiality of the medical and/or
prescription drug records of Members to the extent required by all
applicable Federal and State laws and regulations and applicable
professional standards regarding the confidentiality of patient
records, and the release of any information reflected in such
records to any third party shall require the consent of the Member
unless otherwise permitted or required under applicable law.
Notwithstanding the foregoing, Member prescription drug records
maintained by Health Card shall be made available: (i) to Vytra
Healthcare and the New York State Department of Health upon Vytra
Healthcare's or the Department of Health's request, or (ii) as may
be necessary for the effective treatment of a Member, or (iii) as
may be necessary to provide such information to IPS or any such
replacement organization to provide formulary management services,
or (iv) as may be required by federal or state or federal law, rule
or regulation. Neither party shall be in breach of this Agreement
for failure to supply information from medical and/or prescription
drug records to a third party which cannot be supplied due to
prevailing law or for supplying such information required or
permitted to be supplied under prevailing law. Consistent with the
standards of confidentiality and applicable law, Health Card and
Vytra Healthcare shall adopt procedures for the sharing of the
Member's prescription drug records with Vytra Healthcare as needed
for the continuity of care, peer review, HEDIS studies and as may be
necessary for Vytra Healthcare to perform its responsibilities
pursuant to this Agreement and as a health maintenance organization
and to receive and maintain accreditation from the NCQA. Health Card
shall include a provision in its Health Card Pharmacy Provider
Service Agreement executed in 1996 and thereafter during the term of
this Agreement, requiring the Participating Pharmacies maintain the
confidentiality of the Members' prescription drug records to the
extent required by all applicable Federal and State laws and
regulations and professional standards.

18. NOTICES

(a) Any bill, notice or other communication which either party may
desire or be required to give to the other under this Agreement
shall be deemed sufficiently given or served if in writing and
delivered personally or by registered or certified mail, return
receipt requested, or by recognized overnight carrier as follows:

(i) If to Health Card:

TO: National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, NY 11050

Attn: Linda Portney, President

(ii) If to Vytra Healthcare:

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TO: Vytra Healthcare
Corporate Center
395 North Service Road
Melville, New York 11747

Attn: Neil Vogel, Sr. Director for Business
Operations

The time of rendition of a bill and of the giving of such notice or other
communication shall be deemed to be the time when the same is personally
delivered to addressee, or three (3) business days after mailing or the first
business day after delivery to the recognized overnight carrier, as herein
provided.

(b) Any communication or notice regarding a dispute pursuant to this
agreement shall be deemed to have been duly made upon receipt of
Health Card or Vytra Healthcare at the address specified in
subparagraph (a) above with copies to:

National Medical Health Card Systems, Inc.
c/o Stuart Angowitz, Esq.
430 Park Avenue - 11th Floor
New York, NY 10022

and

Vytra Healthcare Long Island, Inc.
395 North Service Road
Melville, New York 11747

Attn: Susan W. Lawlor, Corporate Counsel

(c) Either party shall have the right to substitute addresses for such
notices upon prior written notice to the other given in the manner
set forth above provided that notice of such change of address shall
be effective only upon receipt.

19. ENTIRE AGREEMENT

This Agreement and attachments embody the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter and there are no other
agreements relating to the subject matter hereof. The parties expressly
acknowledge that all understandings and agreements heretofore had between
the parties are merged into this Agreement and attachments, which alone
fully and completely expresses their agreement, and that the same is
entered into after full investigation, no party relying upon any other
statement or representation made by any party not embodied in this
Agreement. No party shall be liable in any manner whatsoever to any other
party for any promises, statements, representations or information
pertaining to the substance

-26-

<PAGE>

of this Agreement, except as expressly set forth herein. All schedules and
exhibits attached hereto shall constitute integral parts of this Agreement
and are specifically incorporated herein.

20. FURTHER ASSURANCES

Following the execution of this Agreement, each party hereto will, at any
time, as may be permitted by law, at the request of the other party,
execute, acknowledge and deliver to or upon the request of such other
party, such further instruments and take such other action as said party
may reasonably request, in order to effectuate this Agreement and the
transactions referred to herein or contemplated hereby.

21. NO WAIVER

No waiver by either party of any rights hereunder shall be effective
unless in writing signed by the party to be charged, and in any event
shall be effective only in the specific instance for which given and shall
not effect the meaning or interpretation of this Agreement or any other
waiver. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.

22. SECTION HEADINGS

The captions of the various sections of this Agreement have been included
for reference purposes only and shall not effect the meaning or
interpretation of this Agreement.

23. ASSIGNMENT

Except for the dispensing of prescription drugs by third party pharmacies
and formulary management, Health Card may not, in whole or in part,
assign, delegate, sublet or transfer this Agreement without the express
written consent of Vytra Healthcare, such consent shall not be
unreasonably withheld, except that Health Card may assign, delegate,
sublet or transfer this Agreement to an affiliate, subsidiary or related
entity. Vytra Healthcare may not assign, delegate, sublet or transfer this
Agreement without the express written consent of Health Card, such consent
shall not be unreasonably withheld, except that Vytra Healthcare may
assign, delegate, sublet or transfer this Agreement to an affiliate,
subsidiary, or related entity.

24. GENDER AND NUMBER

The use of the masculine, feminine or neuter gender and the use of
singular and plural shall not be given the effect of any exclusion or
limitation herein.

-27-

<PAGE>

25. GOVERNMENTAL ACTION

To the extent that state insurance or health regulators determine that any
provision in this Agreement fails to comply with applicable State law or
regulations, the parties agree to make the necessary and appropriate
amendments to the Agreement to bring it into compliance with such laws and
regulations.

26. COMPLIANCE WITH LAWS

In performing its obligations hereunder, Health Card and Vytra Healthcare
shall abide by all applicable State and Federal laws, rules and
regulations including but not limited to those laws, rules and regulations
governing a health maintenance organization's obligation to provide
services to its members.

27. FORCE MAJEURE

Either party shall not be held liable for any failure to perform caused by
force majeure events, including, but not limited to, industrial disputes,
strikes, lockouts, riots, mobs, fire, flood, wars (declared or
undeclared), civil strife, embargo, delivery delays, defects or shortages
of raw materials from suppliers, defects or delays in deliveries by
subcontractors which the party cannot reasonably remedy in any way, power
shortages, currency or other restrictions caused by reason of laws,
regulations, or orders by any government, governmental agency or by any
supervening unforeseeable circumstances whatsoever beyond the control of a
party.

28. TRADEMARKS AND COPYRIGHTS

The parties reserve the right to the control and use of their names and
all symbols, trademarks, or service marks presently existing or later
established. Neither party shall use the other party's name, symbol,
trademarks, or service marks or such marks as such party controls in
advertising or promotional materials or otherwise without the prior
written consent of such other party except that: Vytra Healthcare may list
the name, address, telephone number of all Participating Pharmacies in its
Medical Directory and inform others that it has an arrangement with Health
Card for the provision of Pharmacy Services. Any other use by a party,
without the approval of the other party, of the name, symbol, trademarks
or service marks of such other party shall cease immediately upon written
notice by the grieving party.

29. This Agreement shall only apply to the Vytra Healthcare Service Area. As of
the date hereof, the Vytra Healthcare Service Area is comprised of Nassau,
Suffolk and Queens Counties in New York. However, if the Vytra Healthcare
Service Area, as approved by applicable regulatory authorities, if necessary,
expands to any additional parts of New York State, or to any parts of New Jersey
or Connecticut, then Vytra Healthcare shall promptly so notify Health Card,
whereupon, the Vytra Healthcare Service Area, for purposes of this Agreement,
shall

-28-

<PAGE>

automatically include such other applicable areas and this Agreement shall be in
effect for such other areas.

IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives, on the 15 day of April, 1996.

ChoiceCare Long Island, Inc., National Medical Health Card Systems, Inc.
d/b/a Vytra Healthcare

By: /s/ David S. Reynolds By: /s/ Linda Portney
------------------------------ -------------------------------

Name: David S. Reynolds, PhD. Name: Linda Portney
Title: President Title: President

-29-

<PAGE>

EXHIBITS

Exhibit A - Capitation Rates and Base Rates

Exhibit A1 - Example of computation to determine Compensation

Exhibit B - Health Card's Credentialling Program and Criteria

Exhibit C - Medicaid Protocols

Exhibit D - Format of Utilization and Management Information Reports, DUR
Reports

Exhibit E - Health Card's Audit Process of Participating Pharmacies

Exhibit F - High Cost Drugs Requiring Prior Authorization

Exhibit G - Vytra Healthcare's Grievance Procedure

Exhibit H - Additional Charges

<PAGE>

Exhibit A

Rate Schedule

National Medical Health Card Systems, Inc.
Hcrate1 Rate Schedule Everyone Else, Medicaid, & Medicare
December 1995-November 1998

<TABLE>
<CAPTION>
Everyone Else Medicaid Medicare*
Month Base Rate Base Rate Base Rate
----- --------- --------- ---------
<S> <C> <C> <C>
December 1995 ** **
January 1996
February 1996
March 1996
April 1996
May 1996
June 1996
July 1996
August 1996
September 1996
October 1996
November 1996

December 1996
January 1997
February 1997
March 1997
April 1997
May 1997
June 1997
July 1997
August 1997
September 1997
October 1997
November 1997

December 1997
January 1998
February 1998
March 1998
April 1998
May 1998
June 1998
July 1998
August 1998
September 1998
October 1998
November 1998
</TABLE>
*$1000 maximum per year.

** Confidential portion filed separately with the Commission.

<PAGE>

National Medical Health Card Systems, Inc.
Hccapr1 Rate Schedule Everyone Else, Medicaid, & Medicare
December 1995-November 1998
<TABLE>
<CAPTION>

Everyone Else Medicaid Medicare*
Month Capitation Rate Capitation Rate Capitation Rate
----- --------------- --------------- ---------------
<S> <C> <C> <C>
December 1995 ** **
January 1996
February 1996
March 1996
April 1996
May 1996
June 1996
July 1996
August 1996
September 1996
October 1996
November 1996

December 1996
January 1997
February 1997
March 1997
April 1997
May 1997
June 1997
July 1997
August1997
September 1997
October 1997
November 1997

December 1997
January 1998
February 1998
March 1998
April 1998
May 1998
June 1998
July 1998
August 1998
September 1998
October 1998
November 1998
</TABLE>

*$1000 maximum per year.

**Confidential portion filed separately with the Commission.

<PAGE>

Exhibit I

Sample Rate Adjustment Calculation

ChoiceCare HealthCard
first 10% 50.00% 50.00%
next 5% 75.00% 25.00%
next 5% 85.00% 15.00%
remainder 90.00% 10.00%

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Example # 1 Example # 2 Example # 3
<S> <C> <C> <C> <C> <C> <C>
Base $15.00 $15.00 $15.00

actual $18.00 $11.00 $14.70
variance ($3.00) $4.00 $0.30
variance % -20.00% 26.67% 2.00%

10% = $1.50 $1.50 $1.50
5% = $0.75 $0.75 $0.75

ChoiceCare HealthCard ChoiceCare HealthCard ChoiceCare HealthCard
first 10% $0.75 $0.75 $0.75 $0.75 $0.15 $0.15
next 5% $0.56 $0.19 $0.56 $0.19 $0.00 $0.00
next 5% $0.64 $0.11 $0.64 $0.11 $0.00 $0.00
remainder $0.00 $0.00 $0.90 $0.10 $0.00 $0.00

Total $1.95 $1.05 $2.85 $1.15 $0.15 $0.15

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

VYTRA
HEALTH PLANS

Vytra Health Plans
Corporate Center
395 North Service Road
Melville, NY 11747
Phone: (516) 694-4000
Fax: (516) 694-5780

VIA FACSIMILE AND OVERNIGHT MAIL

September 25, 1998

Mr. Bert E. Brodsky
National Medical Health Card System, Inc.
26 Harbour Park Drive
Port Washington, NY 11050

Re: Proposal by National Medical Health Card System, Inc. (`Health Card')
for Prescription Management Services

Dear Mr. Brodsky:

Vytra Health Plans (`Vytra') has reviewed your proposal pertinent to performing
prescription management services. This letter is to notify Health Card that its
proposal, as amended and further modified here, has been accepted by Vytra
subject to and conditioned upon Health Card's agreement with each of the
following terms:

The existing agreement will be extended for 31 days, through December
31, 1998, under the current terms and conditions.

The term of any agreement beyond December 31, 1998 will be for one
year beginning January 1, 1999 and ending December 31, 1999.

The agreement will be an extension of the existing agreement, by and
between Vytra and Health Card dated April 15, 1996, as amended
herein, which is due to expire on December 31, 1998.

Health Card's acceptance is further subject to execution of an
amendment to the existing agreement which incorporates all the terms
stated herein, as well as all of the terms and conditions of your
recent proposals as referenced herein and in the attachment to this
letter specifying the financial terms.

Vytra will require a minimum of 120 days advance notice before Health
Card can terminate the agreement under any circumstance (except in
the event of non-payment).

<PAGE>

Mr. Bert E. Brodsky
September 25, 1998
Page 2

Health Card will issue to Vytra an irrevocable standby letter of
credit in the amount of $1 million which Vytra may present to the
issuing bank upon Health Card's default (i.e. terminating the
agreement in contravention with its terms, Health Card's failure to
issue to Vytra all rebates to which it is entitled to receive under
the agreement, or failure to pay penalties for not meeting generic
utilization targets). The letter of credit shall always have
available $1 million dollars and shall be automatically renewable
from year to year until resolution of all rebates accruing to Vytra
or penalties regarding generic utilization.

The amount of the letter of credit shall not be deemed liquidated
damages and Vytra shall have the right to recover all damages
attributable to a default by Health Card.

All rebates referred to in the various proposals shall not be
included in the risk sharing calculation.

All services not included in the fee quote require Vytra's prior
written approval before Vytra becomes obligated to pay said amounts.
If approval is not received within 10 days then same shall be deemed
a denial.

The agreement shall be assignable by Vytra in whole or in part.

Please acknowledge your agreement with the terms and conditions stated above,
which include by reference all the terms and conditions of your recent proposals
to the extent same is not modified by the terms hereof. In order to proceed with
the preparation of an amendment to the existing agreement, please return your
written acknowledgment evidencing your agreement with the terms hereof on or
before Friday, October 2, 1998, or this conditional acceptance of your proposal
will expire without further communication, in which case, neither party will
have further obligation to the other.

Sincerely,

/s/ Philip Gandolfo
Philip Gandolfo
Sr. Vice President/CFO

CJK:dd
cc: Susan W. Lawlor, Esq.

AGREED AND ACCEPTED:

National Medical Heath Card Systems, Inc.

By: /s/ Bert E. Brodsky
Bert E. Brodsky, Chairman of the Board

National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, NY 11050
Phone 516/484-4400
Fax 516/484-3290

March 30, 1999

Vytra Health Plans Long Island, Inc.
395 N. Service Road
Melville, NY 11747

Reference is made to that certain letter agreement dated
September 25, 1998 between Vytra Health Plans Long Island, Inc. and National
Medical Health Card Systems, Inc. (the "Letter Agreement"). Each of the
undersigned hereby agrees that the Letter Agreement shall govern the
relationship between the undersigned through December 31, 1999.

The parties will continue the process of preparing a more
formal agreement.

Please acknowledge your agreement to the foregoing by signing
a copy of this letter in the space provided below.

Yours truly,

NATIONAL MEDICAL HEALTH CARD IPA, INC.

By:/s/ Bert E. Brodsky
------------------------
Bert E. Brodsky

Acknowledged and Agreed:

VYTRA HEALTH PLANS LONG ISLAND, INC.

By:/s/ Philip Gandolfo
---------------------
Philip Gandolfo

NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

By:/s/ Bert E. Brodsky
---------------------
Bert E. Brodsky

<PAGE>

<PAGE>
MEDI-SPAN, INC.
LICENSING AND NONDISCLOSURE AGREEMENT

The Licensing and Nondisclosure Agreement ('Agreement') is between MEDI-SPAN,
INC. (MEDI-SPAN), an Indiana Corporation and the party identified below, and on
EXHIBIT 1 as the 'CUSTOMER.'

Recitals

1. MEDI-SPAN owns or is a licensee of, and licenses or sublicenses various
copyrighted databases of pharmaceutical information, and periodic updates
thereto ('DATABASES') and related software products, including software
maintenance and enhancements thereto ('SOFTWARE') (referred to, together with
the DATABASES, as the 'Medi-Span Products').

2. CUSTOMER desires to obtain the use of one or more of the Medi-Span Products
as indicated in paragraph A of EXHIBIT 1 (LICENSED PRODUCTS) within CUSTOMER's
data processing or other computer system (the 'System') as defined in paragraph
B (Use by Customer) of EXHIBIT 1 attached hereto and made a part hereof for all
purposes ('EXHIBIT 1').

3. Subject to the terms and conditions of this Agreement, MEDI-SPAN is willing
to grant to CUSTOMER a nonexclusive license or sublicense to use the Licensed
Products indicated in paragraph A of EXHIBIT 1 for the purposes defined in
paragraph B of EXHIBIT 1.

Agreement

THEREFORE, in consideration of the foregoing and the mutual covenants contained
in this Agreement, MEDI-SPAN and CUSTOMER agree as follows:

1. DEFINITIONS OF CERTAIN TERMS. As used in this Agreement, the term 'Licensed
Products' means those Medi-Span Products identified in paragraph A of EXHIBIT 1
as being licensed to CUSTOMER, and all implementation manuals, user manuals, and
other materials delivered to CUSTOMER pursuant to this Agreement;

The term 'Execution Date' means the date identified in paragraph D of EXHIBIT 1
as being the 'Execution Date,' which is the effective date of this Agreement and
the term 'Fee Term' means the twelve month period beginning on the Execution
Date and each successive twelve-month period.

2. LICENSE. Subject to the terms and conditions of this Agreement, MEDI-SPAN
grants to CUSTOMER a limited, nonexclusive, and nontransferable sublicense
(the 'License') to use the Licensed Products: (a) for purposes of programming
the System to use the Licensed Products, and (b) in its business operations
as defined in paragraph B of EXHIBIT 1 during the term of this Agreement.
Although some tangible objects may be delivered to CUSTOMER pursuant to this
Agreement, title to such objects shall not pass to CUSTOMER, and this
Agreement is not for the sale of goods. The then current versions of the
Licensed Product shall be delivered to CUSTOMER not later than fifteen (15)
days after the date this Agreement is executed by both parties. Updates
thereto shall be delivered with the frequency indicated in EXHIBIT 1.

3. TERM. The term of this Agreement and of the License will begin on the
Execution Date, and will end when terminated in accordance with the terms of
this Agreement. This Agreement may be terminated by either party at the end of
any Fee Term, by giving notice to the other party in writing not later than
thirty (30) days prior to the end of the Fee Term. Upon termination of this
Agreement, CUSTOMER shall immediately cease use of the Licensed Products, and
shall take such steps as are necessary to prohibit further use of the Licensed
Products within CUSTOMER's System and shall furnish MEDI-SPAN a written
description of the steps so taken. This Agreement and the term of the License
may be terminated, upon written notice to the other party: (a) by MEDI-SPAN, if
CUSTOMER shall fail to pay any License Fee within 30 days of the date when due
under the terms of this Agreement; (b) by MEDI-SPAN, if CUSTOMER engages in or
enables or permits any other person or entity to engage in any unauthorized use
or distribution of any of the Licensed Products or any part thereof; (c) by
MEDI-SPAN or CUSTOMER, if the other party becomes bankrupt, insolvent, is placed
in receivership, or becomes unable to pay its debt when they become due and such
condition is not fully cured or eliminated within thirty (30) days after it
occurs: and (d) by CUSTOMER, if MEDI-SPAN shall fail to perform in any material

<PAGE>
respect any of its obligations under this Agreement and such failure shall
continue for a period of fifteen (15) days after written notice of such default
by CUSTOMER.

4. PAYMENT OF LICENSE FEES. In consideration of the grant of the License,
CUSTOMER agrees to pay the Fees ('License Fees') listed in paragraph C of
EXHIBIT 1. License Fees may consist of annual Fees or Annual Base Fee plus User
Fees and Annual Maintenance Fees as specified in paragraph C of EXHIBIT 1. The
Fee for the first Fee Term is payable by CUSTOMER to MEDI-SPAN on the date this
Agreement is executed by CUSTOMER, and Annual Fees for subsequent Fee Terms are
due and payable on each anniversary of the Execution Date. User Fees, when
applicable, are billed quarterly and are due upon receipt. Failure by Customer
to pay any License Fees when due shall entitle MEDI-SPAN to suspend its
performance under this Agreement and, as provided in paragraph 3 above, to
terminate the License. CUSTOMER's obligation to pay License Fees for periods
preceding termination will survive termination of this Agreement.

5. MODIFICATION OF FEES. MEDI-SPAN may change the License Fee for any of the
Licensed Products by sending CUSTOMER written notice of the change not later
than thirty (30) days prior to the beginning of a new Fee Term. Failure of
CUSTOMER to give MEDI-SPAN written notice of termination of the License for the
Licensed Products for which the License Fee has been changed before the
effective date of the change shall constitute acceptance of the change, and an
agreement by CUSTOMER to pay the new License Fee for the next Fee Term.

6. IMPLEMENTATION. CUSTOMER assumes all responsibility to program, or obtain
compatible software, for use of the LICENSED PRODUCTS. At the request of the
CUSTOMER, MEDI-SPAN will provide technical consultation in the design,
programming and implementation of the Licensed Products in CUSTOMER's system.
Such consultation shall be provided at MEDI-SPAN's then current rates. CUSTOMER
agrees that programming shall be done in conformance with specifications
included in Medi-Span's Documentation and/or implementation Manuals including
successful execution of testing and quality control protocols. CUSTOMER agrees
that when implemented, the System shall display Copyright notices, Disclaimers,
and Expiration Dates as specified in individual product manuals.

7. COVENANTS OF CUSTOMER. CUSTOMER hereby covenants and agrees with MEDI-SPAN as
follows:

a. CUSTOMER will not alter, amend, modify, or change in any respect, any of
the Licensed Products unless instructed to do so in writing by MEDI-SPAN and
such changes are clearly identified as Customer Modifications. CUSTOMER assumes
all liability for any such Customer Modification, and CUSTOMER agrees to assign
all right, title, and interest to such Customer Modifications to MEDI-SPAN.

b. CUSTOMER will not use the name of MEDI-SPAN, INC., or 'MEDI-SPAN,' the
names of any of the Medi-Span Products, or any trademark owned by or licensed to
MEDI-SPAN, except as authorized in writing by MEDI-SPAN.

<PAGE>

c. If any of the Licensed Products are delivered to CUSTOMER in magnetic
tape, tape cartridge or cassette format, CUSTOMER shall return to MEDI-SPAN the
tapes or cassettes immediately upon reading them into the System.

d. COPYRIGHT. CUSTOMER shall abide by all copyright laws applicable to the
Licensed Products.

e. CONFIDENTIAL INFORMATION. CUSTOMER acknowledges that the Licensed
Products are the proprietary property of MEDI-SPAN and that the processes,
formulas, and methodology in producing the Licensed Products are valuable trade
secrets. CUSTOMER shall secure and protect the Licensed Products in a manner
consistent with the maintenance of the proprietary rights of MEDI-SPAN and
covenants that it will not reveal to any third party any information contained
in or relating to the Licensed Products except as expressly permitted in
writing. CUSTOMER acknowledges and agrees that any breach by CUSTOMER of this
subparagraph e. will result in irreparable harm to MEDI-SPAN and that MEDI-SPAN
shall be entitled to injunctive relief for such a breach. In the event of any
such breach by CUSTOMER, in addition to other relief to which MEDI-SPAN shall be
entitled, MEDI-SPAN shall be entitled to terminate the License and to recover
from CUSTOMER all costs, expenses, and reasonable attorney's fees incurred by it
in seeking (i) enforcement of the provisions of this subparagraph e, and (ii)
relief for violation of any covenant contained within this subparagraph e.

f. USAGE. CUSTOMER shall use the Licensed Products solely for CUSTOMER's
business operations as described in paragraph B of EXHIBIT 1, 'Use by Customer'
CUSTOMER may not, without the prior written consent of MEDI-SPAN, transmit the
Licensed Products to other data processing systems or units that are 'on-line'
with CUSTOMER's data processing unit, or use the Licensed Products in a computer
service business, network, time-sharing, multiple CPU, or multiple user
arrangement except at satellite units or user sites identified in EXHIBIT 2, if
applicable. CUSTOMER shall not copy, reproduce, store in a retrieval system;
sell, assign, pledge, sublicense, convey, transfer, redistribute, transmit,
grant other rights in, or permit the unauthorized use of the Licensed Products,
or any of them, in any form or by any media (electric, mechanical, photocopying,
recording, or otherwise), on either a permanent or temporary basis to any third
party except as authorized in paragraph B of EXHIBIT 1. CUSTOMER acknowledges
and agrees that the covenants and agreements made in this Paragraph 7 are made
for the benefit of MEDI-SPAN and shall survive the termination of this
Agreement. In the event of any breach by CUSTOMER of the terms of this
Agreement, in addition to other relief to which MEDI-SPAN shall be entitled,
MEDI-SPAN shall be entitled to terminate the License.

8. PROPRIETARY RIGHTS INDEMNIFICATION. Except for Customer Modifications,
MEDI-SPAN shall indemnify, defend, and hold harmless CUSTOMER against all
losses, damages, expenses, judgements, costs, and attorneys' fees arising out of
any claims that the Licensed Products infringe and/or misappropriate the patent,
copyright, trade secret, and/or trade mark rights of another, provided CUSTOMER
promptly notifies MEDI-SPAN of such a claim; allows MEDI-SPAN to control the
defense, settlement and compromise of such a claim; and provides reasonable
cooperation to MEDI-SPAN in the defense of such a claim.

9. DISCLAIMERS. MEDI-SPAN has utilized due diligence in collecting and reporting
the information contained in the Licensed Products and has obtained such
information from sources believed to be reliable. MEDI-SPAN, however, does not
warrant the accuracy of codes, prices, or other data contained in the Licensed
Products. Information reflecting prices is not a quotation or offer to sell or
purchase. The clinical information contained in the Licensed Products is
intended as a supplement to, and not a substitute for, the knowledge, expertise,
skill, and judgment of physicians, pharmacists, or other health-care
professionals in patient care. The Licensed Products do not contain all possible
drug-drug interactions, food-drug interactions, or adverse reactions. The

<PAGE>

absence of a warning to given drug or drug combination should not be construed
to indicate that the drug or drug combination is safe, appropriate or effective
in any given patient. MEDI-SPAN shall not be held responsible for any failure of
the Licensed Products to function due to any neglect, misuse or unauthorized
alteration or modification by the CUSTOMER. MEDI-SPAN EXPRESSLY DISCLAIMS ALL
EXPRESS WARRANTIES AND ALL IMPLIED WARRANTIES OF ANY KIND, WITH RESPECT TO THE
LICENSED PRODUCTS, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR TO FITNESS FOR A PARTICULAR PURPOSE. MEDI-SPAN SHALL NOT BE
LIABLE TO CUSTOMER OR TO ANY PERSONS CLAIMING UNDER OR THROUGH CUSTOMER FOR
ANY LOSS, COST, LIABILITY OR DAMAGE, CONSEQUENTIAL OR OTHERWISE, INCURRED
IN CONNECTION WITH THE USE OF THE LICENSED PRODUCTS OR AS A RESULT OF ANY
INACCURATE OR INCOMPLETE INFORMATION OR ERROR IN THE LICENSED PRODUCTS, OR
INCURRED IN CONNECTION WITH THE USE THEREOF OR OF ANY PRODUCT.

10. FORCE MAJEURE. Failure of MEDI-SPAN to perform or delay in the performance
of MEDI-SPAN's obligations under the Agreement due to any cause or event not
reasonably with MEDI-SPAN's control, including but not limited to casualty,
labs, disputes, failure of equipment, compliance with governments authority,
or Act of God shall not constitute a breach of the Agreement, and MEDI-SPAN's
performance shall be excused during such period of delay. In the event
MEDI-SPAN's performance is delayed by such causes or events for a period of
thirty (30) days or more, CUSTOMER may terminate the Agreement with respect to
the Licensed Products affected by the delay by written notice to MEDI-SPAN. In
the event of such termination a pro rata portion of the License Fee for such
Licensed Product representing the portion of the Fee Term during which MEDI-SPAN
did not perform and will not perform due to termination of this Agreement shall
be refunded to CUSTOMER.

11. NOTICES. All notices required or permitted under this Agreement shall be in
writing and sent by first-class mail, postage prepaid, at the address for
CUSTOMER or MEDI-SPAN given on EXHIBIT 1. or at such other address as indicated
by either party to the other by notice in accordance with this Paragraph.

12. MISCELLANEOUS. This Agreement may not be assigned by CUSTOMER without the
prior written consent of MEDI-SPAN, which consent shall not be unreasonably
withheld. This Agreement shall be construed and interpreted in accordance with
the laws of the State of Indiana. This Agreement constitutes the entire
understanding and agreement between MEDI-SPAN and CUSTOMER pertaining to the
License and the Licensed Products and supersedes all prior and contemporaneous
agreements and understanding of the parties with respect thereto. In the event
of a conflict between terms contained in this Agreement and terms contained in
an EXHIBIT, the terms of the EXHIBIT shall prevail.

IN WITNESS WHEREOF, MEDI-SPAN and CUSTOMER have executed this Agreement as
of the date indicated below.

MEDI-SPAN, INC.

BY [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
............................................

DATE 3/19/98 3/19/98
..........................................

CUSTOMER NMHCS
.....................................

BY /s/ Linda Portney
............................................

NAME & TITLE Linda Portney, Pres.
...................................

DATE 3/13/98
.........................................

<PAGE>

<PAGE>
EXHIBIT 10.7

FORMULARY AGREEMENT

This Formulary Agreement (the "Formulary Agreement") is entered into as of
January 1, 1996, between Foundation Health Pharmaceutical Services, d.b.a.
Integrated Pharmaceutical Services (" Integrated"), a California corporation,
with a principal office located at 3400 Data Drive, Rancho Cordova, California
95670 and National Medical Health Card Systems, Inc. ("Sponsor") a New York
corporation with a principal office located at 26 Harbor Park Drive, Port
Washington, New York 11050.

RECITALS

A. Sponsor desires to include a drug formulary as part of its service to
health plans. Integrated and Sponsor wish to implement the Formulary
Program under the terms and conditions stated herein.

B. Sponsor wishes to utilize Integrated's manufacturer volume discount
program, whereunder Integrated and Sponsor will share certain rebates from
the selected drug manufacturers offering rebates specifically with respect
to the existence of Sponsor's Formulary Program.

Integrated will arrange for printing of the initial and subsequent annual
updates of the Formularies (including pocket formularies) and their
delivery to Covered Persons. All expenses for such printing, and delivery
shall be shared equally between Integrated and Sponsor and Integrated's
portion will be deducted from the total rebate collected from drug
manufacturers under the Formulary Program prior to calculation of the
rebate amount.

C. Sponsor and Integrated will establish a process to provide for the regular
review and updating of the Formulary, including additions and deletions of
medications. Integrated shall consult with Sponsor, to suggest changes to
the Formulary made desirable by changes in the pharmaceutical industry,
new legislation and regulations, the experience of Sponsor with the
existing Formulary and recommendations developed by Integrated based on
its experience.

D. Integrated and Sponsor shall use reasonable efforts to ensure that their
respective activities relative to the provision of prescription drugs
through their mail order operations, drug utilization review and other
education programs support the Formulary Program. Integrated shall hold
all contracts with manufacturers for any such manufacturer's volume
discount programs related to prescriptions received by Covered Persons and
shall be the sole administrator of such programs. Sponsor agrees not to
maintain or enter into any volume discount or rebate contracts directly or
indirectly with pharmaceutical manufacturers during the term of this
Agreement unless agreed upon by Integrated.

<PAGE>

E. The parties agree that the terms and conditions of this Formulary
Agreement shall remain confidential. Neither party shall distribute this
Formulary Agreement, or any part thereof, to other parties unless required
by law or regulation, or if such disclosure is necessary to carry out the
terms hereof. Sponsor agrees that Integrated's performance under this
Formulary Agreement relating to clinical management services and details
respecting a manufacturer's volume discount program including, but not
limited to, contracts, documents and arrangements with manufacturers and
third party providers, and Integrated's reporting programs, shall remain
confidential and shall be treated as proprietary to Sponsor and shall not
be disclosed to any third party. The respective obligations of the parties
to maintain confidentiality under this Formulary Agreement shall survive
the termination of this Formulary Agreement.

I. DEFINITIONS

The following definitions shall apply to this Formulary Agreement:

"Business Day" shall mean each day other than a Saturday or Sunday or a
day on which Integrated is closed for business.

"Claim" shall mean a Prescription Product claim made by a Covered Person
for reimbursement in accordance with a health plan of Sponsor so long as
such claim:

a) Is received by Integrated within thirty (30) days following the last
day of the calendar quarter in which the Prescription Product was
dispensed; and

b) Contains sufficient information for Integrated to process such claim
in accordance with the terms and conditions of the health plan, and
process and/or cause to be processed a request for a Rebate.

"Drug Manufacturer" means a pharmaceutical corporation which has entered
into an agreement with Integrated to participate in the Formulary Program.

"Product" means a pharmaceutical product of a Drug Manufacturer for which
reimbursement is available under the Formulary Program.

"Rebates" shall mean all amounts received by Integrated from a Drug
Manufacturer with respect to Products dispensed to Covered Persons under a
health plan during such period.

"Reports" shall mean the reports provided by Integrated pursuant to
Section IV of this Formulary Agreement.

"Covered Persons" shall mean those individuals eligible for prescription
benefits pursuant to the terms of a health care or prescription benefits
plan.

<PAGE>

II. TERM

This Formulary Agreement shall be effective as of January 1, 1996, and
shall remain in effect until terminated in accordance with the terms of
this Formulary Agreement.

III. REPRESENTATIONS

A. Sponsor represents and warrants as follows:

1. This Formulary Agreement, and the agreements referenced herein
to which Sponsor is a party, constitutes the legal, valid and
binding obligation of Sponsor, and is enforceable in
accordance with their terms.

2. Sponsor has reviewed the Formulary Program and approved the
contents. terms and conditions thereof.

3. That the Formulary Program is consistent with the terms and
conditions of its health plan and that it will provide Covered
Persons with notice of the Formulary Program.

4. Sponsor's agreements with its Customers are in compliance with
all applicable laws, rules and regulations including, but not
limited to, ERISA.

B. Integrated represents and warrants that Sponsor shall be eligible to
participate in the Formulary Program as long as it:

1. Provides client/program specific information as required by
Drug Manufacturers to qualify for Rebates. The parties
acknowledge that Drug manufacturers may periodically change
such requirements. Integrated will update Sponsor as to any
changes in eligibility criteria required by individual Drug
Manufacturers.

2. Provides Claims data for Customers to Integrated, or its
designee, within thirty (30) days, after the end of each
calendar quarter in which such Claims were adjudicated, in a
mutually agreeable format for Rebate submission to Drug
Manufacturers.

IV. DUTIES OF INTEGRATED

Following the effective date. Integrated will, upon receipt of the
required information from Sponsor:

A. Provide to Drug Manufacturers the necessary claims data in the
format required for the purpose of obtaining Formulary Rebates. and
disburse the

<PAGE>

Rebates to Sponsor in accordance with Section VI(A) of this
Formulary Agreement.

B. Provide clinical support for Sponsor presentations, not to exceed
six (6) meetings annually including "Pharmacy and Therapeutics"
Committee meetings, at the expense of Integrated.

C. Provide a representative to attend quarterly meetings of Sponsor's
Pharmacy and Therapeutics Committee, at Integrated's expense.

D. The opportunity to allow National Medical Health Card Systems, Inc.
to participate jointly in risk/capitation programs with Integrated
through use of its parent company's insurance operations. Terms are
to be negotiated and agreed upon by each opportunity National
Medical Health Card Systems, Inc. presents.

E. Assist in development of gain sharing methods for National Medical
Health Card Systems, Inc.'s, HMO clients for meeting targeted
requirements.

F. Provide opportunity for National Medical Health Card Systems, Inc.
to participate in disease management programs at a financially
agreed upon rate to clients when and where they are applicable.

V. DUTIES OF SPONSOR

Sponsor shall:

1. Provide Integrated on an on-going basis with sufficient and accurate
information concerning quarterly utilization data in a format
mutually agreeable that will facilitate report generation and
invoicing to participating Drug Manufacturers: such information to
be provided in Sponsor format and contain all data elements required
for processing or NCPDP format, whichever Sponsor selects.

2. Provide all Covered Persons with complete and accurate information
describing the Formulary;

3. Not participate in any other formulary or similar discount program
during the Term of this Agreement:

4. Take reasonable steps on its own initiative and upon the request of
Integrated, to encourage physicians to utilize the formulary:

5. Distribute the formulary, amendments thereto and other related
formulary information to the physician network:

<PAGE>

6. Enter into agreements ("Joinder Agreements") with each of the Drug
Manufacturers participating in the Formulary, to join Sponsor to the
agreements between Integrated and such Drug Manufacturers; and

7. The parties acknowledge and agree that Integrated's performance
under this Formulary Agreement, and Sponsor participation in
Integrated's Manufacturer Charge Back Program, is contingent upon
Sponsor providing to Integrated claims data for all prescription
drug claims from Participating Pharmacies for Prescription Drug
Services dispensed to Covered Persons. On a quarterly basis, Sponsor
shall submit to Integrated, by magnetic tape which is in a format
acceptable to Integrated, as outlined in V(i) above, prescription
claims information, including at least the following items for each
claim:

a) Physician ID number;
b) Pharmacy ID number;
c) Covered Person ID number;
d) Date of service;
e) Prescription number;
f) Refill indication;
g) Quantity;
h) Days supply;
i) National Drug Code (NDC) number;
j) Submitted ingredient cost;
k) Dispensing fee;
l) Covered Person copayment;
m) Amount paid.

The information for Claims processed in a particular quarter shall
be received by Integrated by the last day of the month immediately
following the end of the quarter.

All information will be submitted by magnetic tape. The tape layout
will be sent in an addendum in an agreed format between Integrated
and Sponsor as outlined in V(1) above. Any tape which does not meet
the requirements of this section may be rejected by Integrated, and
Sponsor shall resubmit an acceptable tape.

VI. REBATES

A. In consideration of the performance by Sponsor of its obligations
hereunder, Sponsor shall receive an amount equal to **
** of the Rebates provided that the Drug Manufacturer pays the
Rebate. Integrated will remit to Sponsor ** of the
projected quarterly rebate no later than **
** after the end of the applicable quarter.

** Confidential portion filed separately with the Commission.

5
<PAGE>

Integrated and Sponsor will reconcile the remainder due until
Sponsor receives a total of ** of the total
rebates collected.

1. The reports reconciling the amounts billed to the Drug
Companies and the rebate provided will be included with the
payment. Such payment shall be by check payable to:

National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, NY 11050
Attention: Linda Portney, President

B. In consideration of the performance by Integrated of its obligations
hereunder, Integrated shall receive an amount (the "Integrated
Rebate") equal to ** of the Rebates.

C. Integrated may from time to time adjust Sponsor Rebates to reflect
revised accounting from Integrated or a Drug Manufacturer. Any
Rebates overpaid to the parties at Integrated's option shall be
either repaid to Integrated within five (5) days of written notice
specifying the amount overpaid, or credited again the next Rebate
amounts due to the parties. All amounts which previously were
underpaid shall be disbursed to the parties by Integrated within
five (5) days of receipt from the Drug Manufacturer.

D. Sponsor acknowledges and agrees that Integrated shall not be
responsible in any manner for any failure of a Drug Manufacturer to
pay any Rebate amount or otherwise perform any of its obligations
under the Rebate Agreements or the Joinder Agreements.

VII. INCOME FROM INTEGRATED DRUG DATA BANK

Income derived by Integrated in the marketing of the Drug Data Bank shall
be shared equally between Integrated and the Sponsor. It is the
understanding of the parties that such income may be based, in part, on
the volume of certain prescription drug services provided to Covered
Persons.

VIII. REPORTS, RECORDS AND DATA

A. Integrated may change the Reports at any time with the approval of
Sponsor, such approval shall not be unreasonably withheld, provided
that any change does not materially reduce the overall amount,
character or frequency of information provided to Sponsor.
Integrated may also change the Reports in any manner at the same
time and in the manner provided for administrative fee changes in
the Sponsor Agreement provided such change does not compromise

** Confidential portion filed separately with the Commission.

<PAGE>

that information which is necessary for Sponsor to document credits
for monies received.

B. Ownership rights over all compilations, analyses, reports,
recommendations property and services generated by Integrated and/or
Sponsor shall be retained equally by Integrated and Sponsor.
Ownership rights shall include, but are not limited to, all rights
associated with publication, trade secrets, copyrights, trademarks
and patents. Integrated shall retain the right to use all data and
information received from Sponsor, Drug Manufacturers, or
participating Pharmacies in any manner it sees fit, provided such
use shall not violate the right of privacy of Sponsor, any client of
Sponsor, and/or any Covered Person.

C. All records, reports and other data provided by Integrated to
Sponsor or a Drug Manufacturer under this Agreement are for such
entity's use in Claims administration and Rebate calculation, and
Integrated disclaims all liability arising out of Sponsor's or a
Drug Manufacturer's other use or dissemination of the reports, data,
information and/or summaries. Sponsor and Drug Manufacturers shall
treat as confidential any information which individually identifies
a participating Pharmacy, a Covered Person and/or client of Sponsor.

D. Integrated shall maintain complete and accurate records relating to
all amounts payable to Sponsor by Integrated. These records shall
remain accessible to Sponsor for examination and audit by Sponsor or
an auditor selected by Sponsor, throughout the calendar year in
which they are established and for three (3) calendar years
thereafter. Such audits may be conducted, upon written notice, at
reasonable intervals during the regular business hours of
Integrated.

IX. LIMITATION OF LIABILITY

A. Nothing in this Formulary Agreement shall be construed or be deemed
to create any rights or remedies in any third party, including but
not limited to a Covered Person.

B. The parties disclaim and in no event shall either have any liability
for consequential, incidental, exemplary, punitive or special
damages incurred directly or indirectly in connection with their
performance hereunder. Each party's liability with respect to any
Claim processed hereunder shall be limited to Rebates earned by such
party hereunder with respect to such Claim.

C. The parties agree that neither party shall be responsible to the
other party, its officers, directors, employees, successors and
assigns (collectively, the "Other Party") for and each hereby
waives, releases and forever discharges the Other Party from, any
and all claims, demands, losses, attorney's fees, costs,

<PAGE>

expenses and liabilities of any nature whatsoever, whether or not
now existing, known or unknown. Suspected or claims, arising from:

1. Any failure by Drug Manufacturer to pay any Rebate;

2. Any breach of an agreement related to the Formulary Program or
the transactions contemplated by this Formulary Agreement by
any Drug Manufacturer; or

3. Any negligence or willful misconduct of any Drug Manufacturer.

X. TERMINATION

Each party may terminate this Formulary Agreement with or without cause at
any time upon ninety (90) days written prior notice to the other party.
The liability of the parties hereto for obligations incurred prior to the
effective termination dates shall survive termination.

XI. MISCELLANEOUS

1. Assignment. This Formulary Agreement may not be assigned by either
party without the prior written consent of the other and consent
will not be unreasonably withheld.

2. Construction. In all cases, the language in all parts of this
Formulary Agreement shall be construed simply, according to its fair
meaning and not strictly for or against any party.

3. Governing Law. This Formulary Agreement and the instruments and
documents herein referred to shall be governed by and construed in
accordance with the laws of the State of the defending party.

4. Further Documentation. The parties hereby agree to execute such
further documents as from time to time may reasonably be required in
order to give full force and effect to this Formulary Agreement.

5. Counterparts. The parties may execute this Formulary Agreement in
any number of counterparts, each of which shall be deemed an
original instrument but all of which together shall constitute one
agreement.

6. Entire Agreement. This Formulary Agreement together with the other
agreements referenced herein, reflect the entire agreements between
the parties and supersedes all prior agreements, including any oral
understandings with respect to Claims and Rebates or any other
transactions contemplated under this Formulary Agreement.

<PAGE>

7. Exhibits. All exhibits attached hereto are hereby incorporated into
the Formulary Agreement by this reference for all purposes.

8. Captions. The captions and paragraph headings contained herein are
for convenience only and shall not be used in construing or
enforcing any of the provisions of this Formulary Agreement.

9. Modification. Any change to this Formulary Agreement shall be made
only in writing and executed by all of the parties hereto.

10. Recitals. The Recitals of this Formulary Agreement are incorporated
into and made a part hereof.

11. Independent Contractor. It is expressly understood that the parties
are independent contractors of one another, and that neither has the
authority to bind the other to any third person or otherwise to act,
in any way as the representative of the other, unless otherwise
expressly agreed to in writing signed by both parties hereto.

12. Force Majeure. Neither party shall be liable in any manner for any
delay or failure to perform its obligations hereunder due to
strikes, labor disputes, riots, earthquakes, storms, floods or other
outbreak of hostilities, delay of carriers or other acts of nature.

13. Neutral. Binding Mandatory Arbitration. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof,
whether in tort or in contract, in law or equity, shall be settled
by arbitration in accordance with the laws governing arbitration in
the county of the defending party, and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. If any arbitration action is brought to
enforce or interpret the provisions of this Agreement in regard
to any controversy or claim arising out of or related to this
Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs of the action, in addition to any other
relief deemed just and proper by the arbitrator.

14. Exclusivity. During the term of this Agreement and for a period of
twenty-four (24) months thereafter, Integrated shall not endorse,
market or provide to Customers of Sponsor any product or service
that directly competes with any product or service endorsed,
marketed or provided by Sponsor. Integrated represents and warrants
that its execution and delivery of this Agreement does not violate
or conflict with any Agreement to which it is presently a party.

9
<PAGE>

The parties have duly executed this Agreement as of the Effective Date.

National Medical Health Card Integrated Pharmaceutical Services
Systems, Inc.

/s/ Linda Portney /s/ Garry N. Garrison
- -------------------------------- -------------------------------------------
Name Name

Linda Portney Garry N. Garrison
- -------------------------------- -------------------------------------------
Print Name Print Name

President President and Chief Operating Officer
- -------------------------------- -------------------------------------------
Title Title

1/24/96 1/16/96
- -------------------------------- -------------------------------------------
Date Date

PROMISSORY NOTE

$******90,100.00****** Date January 2, 1999
- ---------------------- ------------------------

ON DEMAND after date WE promise to pay to
- ----------------------------- -----------

the order of NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
------------------------------------------

******************NINETY THOUSAND ONE HUNDRED AND 00/100********* Dollars
- ------------------------------------------------------------------

Payable at 26 HARBOR PARK DRIVE
------------------------------------------------------
PORT WASHINGTON, NEW YORK 11050
------------------------------------------------------

for value received with interest at -0- per cent per annum.

P.W. CAPITAL, LLC

/s/ Bert E. Brodsky
-----------------------
BERT E. BRODSKY, MEMBER
Witness:

/s/ Linda Scarpantonio
- ----------------------

/s/ Crystal Stanley
- ----------------------

<PAGE>

Exhibit 21

Subsidiaries of the Company

(1) The Subsidiary of the Company is:

(a) National Medical Health Card IPA, Inc. (New York)

<PAGE>

CONSENT FOF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

National Medical Health Card Systems, Inc.
Port Washington, New York

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 2, 1998, except for Note 12
which is as of __________, relating to the financial statements of National
Medical Health Card Systems, Inc., which is contained in that Prospectus, and of
our report dated September 2, 1999, relating to the schedule, which is contained
in Part II of the Registration Statement.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

BDO SEIDMAN, LLP

Melville, New York
April 9, 1999

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