NATIONAL MEDICAL HEALTH CARD SYSTEMS INC, S-1/A, 1999-07-19

NATIONAL MEDICAL HEALTH CARD SYSTEMS INC
S-1/A, 1999-07-19
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999

REGISTRATION NO. 333-72209
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 4
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)

<TABLE>
<S> <C> <C>
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)
</TABLE>

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:

<TABLE>
<S> <C>
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 11554 NEW YORK, NY 10020
TELEPHONE: (516) 296-7000 TELEPHONE: (212) 768-6737
</TABLE>

------------------------
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: [ ]

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: [ ]

(cover continued on following page)
------------------------
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>
(cover continued from previous page)

CALCULATION OF REGISTRATION FEE

PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS NUMBER OF SHARES OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>

Common Stock(2)................ 2,875,000 Shares $10.00 $28,750,000 $7,993
Representatives' Warrants to
Purchase Common Stock(3)..... 250,000 Warrants $ .001 $ 250 --
Common Stock underlying the
Representatives'
Warrants(4).................. 250,000 Shares $12.00 $ 3,000,000 $ 834
Total Registration
Fee................ -- -- $31,750,250 $8,827(5)
</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 375,000 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 Representatives' Warrants.

(5) Paid previously.

<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 JULY 16, 1999

PROSPECTUS
2,500,000 SHARES

[LOGO]
COMMON STOCK

National Medical Health Card Systems, Inc. is offering 2,000,000 shares of
its common stock. The selling stockholder identified in this prospectus is
offering an additional 500,000 shares. There is currently no public market for
Health Card's shares. Upon consummation of this offering, we will receive 73% of
the proceeds from the sale of shares by the selling stockholder, net of
underwriting discounts and commissions and certain fees payable to the
representatives, as partial repayment of certain indebtedness owed by certain
affiliates of the selling stockholder to us. The net proceeds to be received by
us from the sale of the 500,000 shares of common stock offered by the selling
stockholder are estimated to be $2,989,350 based on an assumed offering price of
$9.00 per share. See 'Certain Transactions.' 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 5.
------------------------

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.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Health Card..................................... $ $
Proceeds to Selling Stockholder............................. $ $
</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.

[Logo] [Logo]

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

, 1999

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Dilution.................................................... 15
Capitalization.............................................. 16
Selected Consolidated Financial Information................. 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 26
Management.................................................. 54
Certain Transactions........................................ 60
Principal and Selling Stockholders.......................... 66
Description of Capital Stock................................ 67
Shares Eligible for Future Sale............................. 69
Underwriting................................................ 70
Legal Matters............................................... 72
Experts..................................................... 72
Available Information....................................... 72
Index to Financial Statements............................... F-1
</TABLE>

------------------------
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.

<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
5, 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 AND THE SELLING STOCKHOLDER OFFERED BY THIS PROSPECTUS.

NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

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 May 1, 1999, plans managed by us covered over 515,000
eligible employees, retirees, members and their dependents. See 'Business.'

We began our business as a provider of computerized prescription claims
processing services to sponsors and subsequently, increased our capabilities 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 May 1, 1999, our network of participating
pharmacies grew to over 44,000. During the same period, the number of plan
participants covered by our sponsors' plans grew approximately 115% from
approximately 240,000 to over 515,000. Revenues for the fiscal year ended June
30, 1998 increased approximately 40% as compared to revenues for the fiscal year
ended June 30, 1997. Revenues for the nine months ended March 31, 1999 increased
approximately 39% as compared to revenues for the nine months ended March 31,
1998.

OUR STRATEGY

Our goal is to become a leading national independent prescription benefit
manager. To achieve this goal we intend to:

acquire complementary companies and other strategic assets,

expand our sponsor base,

improve our information systems,

expand our consulting and disease information services, and

establish strategic relationships.

See 'Risk Factors' and 'Business.'

<PAGE>
OUR INDUSTRY

An industry source estimates that 1997 U.S. purchases of prescription drugs
totaled approximately $83 billion, of which purchases from retail outlets were
approximately $53 billion and purchases from mail order were approximately $9
billion. Such industry source indicates that prescriptions managed by
prescription benefit management companies represent an increasing proportion of
such purchases. 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. Prescription benefit management
companies evolved to address the need for efficient, cost-effective drug
delivery. 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' 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 continuing to be developed to address these demands,
through the use of traditional prescription benefit 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 the following
events, each of which happened in May 1999:

(a) a 0.1278447-for-one reverse split in our common stock;

(b) a reduction in the number of shares of common stock that we will have
authority to issue from 200,000,000 to 25,000,000; and

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 375,000 shares from us;

(b) the underwriters' representatives do not exercise the warrants to be
granted to them to purchase up to an aggregate of 250,000 shares of
common stock; and

<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by Health Card............. 2,000,000 shares
Common Stock Offered by the Selling
Stockholder................................... 500,000 shares
Common Stock Outstanding After the Offering..... 7,312,496 shares(1)
Use of Proceeds................................. Future acquisitions, enhancement of information
systems, 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 250,000 shares issuable upon the exercise of the
representatives' warrants and 375,000 shares issuable upon the exercise of
the underwriters' over-allotment option. See 'Underwriting.'

<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION

INCOME STATEMENT DATA:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................... $54,308,872 $70,405,168 $98,528,384 $69,753,602 $96,754,613
Cost of claims................ 48,843,261 63,293,699 89,770,402 63,324,692 87,518,657
----------- ----------- ----------- ----------- -----------
Gross profit.................. 5,465,611 7,111,469 8,757,982 6,428,910 9,235,956
Selling, general and
administrative expenses*.... 4,216,259 5,855,282 7,192,027 4,896,612 7,482,553
----------- ----------- ----------- ----------- -----------
Operating income.............. 1,249,352 1,256,187 1,565,955 1,532,298 1,753,403
Other income (expense)........ 21,530 42,595 (180,507) 59,267 436,834
----------- ----------- ----------- ----------- -----------
Income before income taxes.... 1,270,882 1,298,782 1,385,448 1,591,565 2,190,237
Provision for income taxes
(benefit)................... (185,275) (189,984) 569,000 663,000 731,000
----------- ----------- ----------- ----------- -----------
Net income.................... $ 1,456,157 $ 1,488,766 $ 816,448 $ 928,565 $ 1,459,237
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per common share:
Basic.................... $ 0.47 $ 0.46 $ 0.16 $ 0.19 $ 0.28
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted.................. $ 0.35 $ 0.37 $ 0.16 $ 0.19 $ 0.28
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding:
Basic.................... 3,093,085 3,258,459 4,966,885 4,965,326 5,169,411
Diluted.................. 4,182,909 4,008,481 4,969,166 4,967,407 5,169,411
- ------------
*Includes amounts charged by
affiliates aggregating:..... $ 2,868,974 $ 4,511,144 $ 4,904,514 $ 3,672,165 $ 2,361,913
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
AS OF ----------------------------
JUNE 30, 1998 ACTUAL AS ADJUSTED(1)
------------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 1,305,792 $ 2,037,150 $19,051,550
Working capital (deficit)............................ (8,658,324) (6,538,632) 10,737,742
Total assets......................................... 18,343,900 25,300,711 40,418,737
Long-term debt (including current portion)........... 9,742 4,691 4,691
Total stockholders' equity (deficit)................. (2,006,282) 1,578,380 16,958,380
</TABLE>

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

(1) The 'As Adjusted' data reflects the application of net proceeds as discussed
in Use of Proceeds. In addition, the 'As Adjusted' data reflects the net
proceeds from the sale of 500,000 shares by the selling stockholder as
partial repayment of certain indebtedness due to the Company from affiliates
of the selling stockholder.

SUPPLEMENTAL DATA(1):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Retail pharmacy claims processed........ 1,675,490 1,990,976 2,405,627 1,731,640 2,199,590
Mail pharmacy claims processed.......... 28,238 62,413 131,611 90,518 126,874
Estimated plan participants (at period
end).................................. 271,784 291,446 401,226 400,604 417,649
</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 this offering.

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:

<TABLE>
<CAPTION>
PERCENT OF REVENUES NUMBER OF PARTICIPANTS
--------------------------------- ---------------------------------
YEAR ENDED NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
SPONSOR JUNE 30, 1998 MARCH 31, 1999 JUNE 30, 1998 MARCH 31, 1999
------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Vytra Health Plans Long Island,
Inc................................ 44% 40% 166,840 157,104
Suffolk County....................... 16 14 38,893 39,617
Operating Engineers Trust Funds...... 8 12 40,070 41,451
</TABLE>

Our arrangements with these sponsors are either oral, short-term,
terminable by the sponsor or subject to continuing negotiation. Under one of our
arrangements with Vytra, the written agreement sets forth a formula which
determines our financial commitment with respect to the price of covered drugs.
We sometimes pay less than the prices determined by this formula. We cannot
assure you that Vytra will not object in the future to the prices paid in the
past, currently, or in the future by us 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, Suffolk or
Operating Engineers as a sponsor, or lose a significant portion of any such
sponsor's business or if the terms of these arrangements were to change it would
have a material adverse effect on our business, operating results and financial
condition. If we were to lose any of these sponsors, we cannot assure you that
we will be able to replace them with additional sponsors.

WE HAVE A HISTORY OF WORKING CAPITAL DEFICITS, WHICH COULD ADVERSELY AFFECT OUR
BUSINESS. The following table sets forth our working capital deficits and
stockholders' deficits for the periods indicated in the first column.

<TABLE>
<CAPTION>
PERIOD ENDED WORKING CAPITAL (DEFICIT) STOCKHOLDERS' 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)
Nine months ended March 31, 1999 (unaudited)... (6,538,632) 1,578,380
</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.

<PAGE>
OUR POSSIBLE INABILITY TO PAY PHARMACIES COULD ADVERSELY AFFECT OUR BUSINESS.
Our agreements with many pharmacies in our network do not require us to make
payments within a specified period. However, we know from experience that they
expect timely payment. We try to process pharmacy claims promptly while still
obtaining funds from sponsors before making payment to the participating
pharmacies. We cannot assure you that the sponsors will pay us in a timely
fashion. See 'Business Services Pharmacy Network -- Pharmacy Relations.' While
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. In such event, or 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.

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. All of our arrangements with pharmacies in our pharmacy
network are either oral or terminable on short notice. If a substantial portion
of the pharmacies were to discontinue their arrangements with us and/or we were
unable to maintain a multi-state 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. THIS MAY CAUSE PRICE OR MARGIN EROSION. We compete with
numerous companies which provide the same or similar services, such as:

<TABLE>
<S> <C>
Express Scripts, Inc./Value'Rx' Consultec, Inc.
PCS Health Systems, Inc. National Prescription Administrators, Inc.
Merck-Medco Managed Care, LLC Advance Paradigm, Inc.
Provantage Health Services, Inc. MedImpact Health Care Systems, Inc.
MIM Corp. Pharmaceutical Care Network
</TABLE>

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.

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 consolidation pressures. 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

<PAGE>
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. Congress is currently
considering proposals to reform the U.S. healthcare system, such as the proposal
to overhaul Medicare. These proposals may increase governmental involvement in
healthcare and pharmacy benefit management services and otherwise change the way
our customers do business. Healthcare organizations may react to these proposals
and the uncertainty surrounding such proposals by cutting back or delaying
investments in the healthcare cost control tools and related technology which we
provide. 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 rebate claims, and may
submit such claims along with rebate claims of others, to the appropriate
pharmaceutical manufacturer, pursuant to agreements Integrated has negotiated
with various pharmaceutical manufacturers. We have signed agreements joining us
to certain agreements between Integrated and certain pharmaceutical
manufacturers, which may contain provisions which determine the level of
rebates payable by the pharmaceutical manufacturers based on levels of market
share measured quarterly. 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.

<PAGE>

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 pharmaceutical 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 pharmaceutical manufacturers will continue to offer rebates. If such rebate
programs were to be discontinued or adversely altered by pharmaceutical
manufacturers, or if the terms of our rebate sharing arrangements with our
sponsors were adversely altered, we could suffer an increase in cost of claims
which could have a material adverse effect on our business, operating results
and financial condition. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'

Subject to our agreement to provide certain minimum levels of rebates to
Vytra and Suffolk County, we retain all, part or none of the rebates received by
us in connection with our administration of sponsors' plans. 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.' See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'

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 federal, state and
local laws and regulations which are not always clear or consistently applied,
and compliance may impose a burden on our operations. 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 civil or criminal fines or
penalties restricting our ability to engage in certain business practices or
subject us to loss of license and/or exclusion from the Medicare and Medicaid
programs. We cannot predict the impact of future legislation or regulatory
changes or assure you that we will have 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 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 disease information services, drug usage monitoring, preferred drug
management and consulting services may violate certain laws and
regulations applicable to the licensed professions of 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 any such agreement.

some of the services we have contracted to provide to sponsors could be
found to violate certain utilization review regulations.

<PAGE>
our prescription benefit management activities may be regulated in any
state in which our sponsors, plan participants or participating pharmacies
do business or reside.

A finding that we have violated any applicable laws or regulations 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, 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 conflict with fiduciary duties to plan members under ERISA
statutes and regulations. These restrictions would apply 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 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

<PAGE>
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,
Gerald Shapiro, Vice Chairman of the Board, Marjorie O'Malley, President and
Mary Casale, Executive Vice President of Sales and Marketing. Mr. Brodsky and
Mr. Shapiro, as well as Ms. O'Malley and Ms. Casale, are experienced in managing
the growth of small companies and/or divisions of larger companies. The loss of
the services of either Mr. Brodsky or Mr. Shapiro or 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 intend
to 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. THIS COULD HINDER A
CHANGE OF CONTROL THAT MIGHT BE IN YOUR INTEREST. 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 granted by Mr. Brodsky. Upon the
closing of the offering, Mr. Brodsky and his affiliates will beneficially own or
control an aggregate of 54% of the shares of common stock in the event the
over-allotment option is not exercised and 51.4% 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, through its wholly owned subsidiaries, 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.' A subsidiary
of 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 this
subsidiary of Sandata, and because this subsidiary has historically developed
and maintained a

<PAGE>
significant portion of our information systems, the termination of this
relationship would have a material adverse effect on our operating results and
financial condition.

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.

OUR OPERATIONS MAY BE DISRUPTED IF SYSTEMS FAILURE OR DATA CORRUPTION RESULT
FROM THE YEAR 2000 ISSUE. 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.'

IF WE FAIL TO RECRUIT AND RETAIN KEY MANAGEMENT AND TECHNICAL PERSONNEL, OUR
ABILITY TO SUPPORT GROWTH AND BE COMPETITIVE COULD BE ADVERSELY AFFECTED. 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.

<PAGE>
RISKS RELATED TO THIS OFFERING

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
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. IF A PUBLIC MARKET DOES
NOT DEVELOP IN THE FUTURE, IT COULD LIMIT YOUR ABILITY TO SELL YOUR SHARES.
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 the representatives, 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.'

REPRESENTATIVES' WARRANTS COULD DILUTE SHAREHOLDERS' INTERESTS OR IMPAIR OUR
ABILITY TO RAISE CAPITAL. The representatives will buy from us, for nominal
consideration, warrants to purchase an aggregate of 250,000 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 Representatives' Warrants.'

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE. The assumed public offering price is
substantially higher than the net tangible book value per outstanding share of
common stock. Purchasers of our shares will incur immediate and substantial
dilution of $6.68 per share in the net tangible book value of our shares from
the assumed public offering price of $9.00.

A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE AND THEIR SALE COULD
DEPRESS OUR STOCK PRICE. Sales of substantial amounts of our shares in the
public market after this offering could depress the market price of our common
stock. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of the offering, Health Card will have outstanding
7,312,496 shares of common stock. Of these shares, the 2,500,000 shares sold in
the offering (2,875,000 shares if the over-allotment option is exercised), and,
except as described in 'Shares Eligible For Future Resale,' the 4,812,496
remaining issued and outstanding shares of common stock will be freely tradeable
without restriction under the Securities Act, unless held by our 'affiliates' as
that term is defined in Rule 144 under the Securities Act.

<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.

<PAGE>
USE OF PROCEEDS

The net proceeds to be received by Health Card from the sale of 2,000,000
shares of common stock offered by Health Card are estimated to be $15,380,000
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,

approximately $1,500,000 for enhancement of Health Card's information
systems,

approximately $3,880,000 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.

Upon the consummation of this offering, Health Card will receive 73% of the
proceeds from the sale of shares by the selling stockholder, net of underwriting
discounts and commissions, a non-accountable expense allowance and a financial
advisory fee payable to the representatives, as partial repayment of certain
indebtedness owed by affiliates of the selling stockholder to Health Card. Such
proceeds, estimated to be $2,989,350 based on an assumed offering price of $9.00
per share, are intended to be used by Health Card for working capital purposes.
See 'Certain Transactions -- Indebtedness of Management.'

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 March 31, 1999, the net tangible book value of Health Card was
$1,578,380, or $0.30 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
March 31, 1999, assuming the offering had been consummated on that date, would
have been $16,958,380 or $2.32 per common share. This amount represents:

immediate dilution of approximately $6.68 (74%) per share of common stock
to new investors, and

an immediate increase of approximately $2.02 per share of common stock to
current shareholders.

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

<TABLE>
<S> <C> <C>
Assumed offering price of common stock...................... $9.00
Net tangible book value before offering................ $0.30
Increase attributable to new investors................. 2.02
-----
Net tangible book value after the offering............. 2.32
-----
Total dilution to new investors(1).......................... $6.68
-----
-----
</TABLE>

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:

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1) CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Current shareholders............. 5,312,496 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....................... 7,312,496 100.0% $20,906,100 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>

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

(1) This figure excludes 250,000 shares issuable upon the exercise of the
representatives' warrants and 375,000 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 $1,328,475 issued by
shareholders as payment for shares.

<PAGE>
CAPITALIZATION

The following table sets forth as of March 31, 1999, (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.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
Current portion of long term debt......................... $ 4,691 $ 4,691
----------- -----------
----------- -----------
Long-term debt, net of current portion.................... -- --
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par value, 10,000,000 shares
authorized; none issued and outstanding............ -- --
Common stock, $.001 par value, 25,000,000 shares
authorized; 5,312,496 shares issued and outstanding
(actual), 7,312,496 shares issued and outstanding
(as adjusted)...................................... 5,313 7,313
Additional paid-in capital........................... 2,900,787 18,278,787
Retained earnings.................................... 755 755
Notes receivable -- stockholders..................... (1,328,475) (1,328,475)
----------- -----------
Total stockholders' equity........................... 1,578,380 16,958,380
----------- -----------
Total capitalization............................ $ 1,583,071 $16,963,071
----------- -----------
----------- -----------
</TABLE>

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

(1) This figure excludes 250,000 shares issuable upon the exercise of the
representatives' warrants and 375,000 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 nine
months ended March 31, 1998 and 1999 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 nine months
ended March 31, 1998 and 1999 and the selected consolidated balance sheet data
as of March 31, 1998 and 1999 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 nine month period ended March 31, 1999 is not necessarily
indicative of the results of operations that may be expected for a full year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................... $38,751,636 $45,230,912 $54,308,872 $70,405,168 $98,528,384 $69,753,602 $96,754,613
Cost of claims................ 37,174,861 42,316,738 48,843,261 63,293,699 89,770,402 63,324,692 87,518,657
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 1,576,775 2,914,174 5,465,611 7,111,469 8,757,982 6,428,910 9,235,956
Selling and general
administrative expenses*.... 1,792,037 3,394,577 4,216,259 5,855,282 7,192,027 4,896,612 7,482,553
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)....... (215,262) (480,403) 1,249,352 1,256,187 1,565,955 1,532,298 1,753,403
Other income (expense)........ 1,585 17,723 21,530 42,595 (180,507) 59,267 436,834
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes
(loss)...................... (213,677) (462,680) 1,270,882 1,298,782 1,385,448 1,591,565 2,190,237
Provision for income taxes
(benefit)................... 429 850 (185,275) (189,984) 569,000 663,000 731,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ (214,106) $ (463,530) $ 1,456,157 $ 1,488,766 $ 816,448 $ 928,565 $ 1,459,237
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) per common
share:
Basic..................... $ (0.09) $ (0.19) $ 0.47 $ 0.46 $ 0.16 $ 0.19 $ 0.28
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Diluted................... $ (0.09) $ (0.19) $ 0.35 $ 0.37 $ 0.16 $ 0.19 $ 0.28
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding:
Basic..................... 2,459,748 2,447,057 3,093,085 3,258,459 4,966,885 4,965,326 5,169,411
Diluted................... 2,459,748 2,447,057 4,182,909 4,008,481 4,969,166 4,967,407 5,169,411
- ------------------------------

*Includes amounts charged by
affiliates aggregating...... $ 934,561 $ 2,342,352 $ 2,868,974 $ 4,511,144 $ 4,904,514 $ 3,672,165 $ 2,361,913

<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
------------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents..... $ 7,629 $ 30,629 $ 11,137 $ 1,782,597 $ 1,305,792 $ 2,318,064 $ 2,037,150
Working capital (deficit)..... (3,226,240) (5,760,534) (7,530,351) (7,436,095) (8,658,324) (8,272,004) (6,538,632)
Total assets.................. 2,553,723 3,975,483 8,531,507 11,871,820 18,343,900 18,496,312 25,300,711
Long-term debt (including
current portion)............ -- 25,346 869,437 263,648 9,742 12,733 4,691
Total stockholders' equity
(deficit)................... (2,844,382) (4,527,246) (3,663,125) (2,343,671) (2,006,282) (1,736,264) 1,578,380
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- -------------------------
1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA(1):
Retail pharmacy claims
processed................... 1,463,247 1,675,490 1,990,976 2,405,627 1,731,640 2,199,590
Mail pharmacy processed
claims...................... 17,889 28,238 62,413 131,611 90,518 126,874
Estimated plan participants
(at period end)............. 230,000 271,784 291,446 401,226 400,604 417,649
</TABLE>

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

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

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Health Card derives its revenue from the provision of comprehensive
prescription benefit management services to sponsors of prescription benefit
plans. Sponsors of such plans managed by Health Card include managed care
organizations, local governments, unions, corporations and third party health
care plan administrators. Health Card's prescription benefit management services
include electronic point-of-sale pharmacy claims management, retail pharmacy
network management, mail pharmacy claims management, benefit design
consultation, preferred drug management programs, drug review and analysis,
consulting services, disease information programs, data access, reporting and
analysis and physician profiling. As of May 1, 1999, Health Card had
approximately 515,000 plan participants and a pharmacy network of approximately
44,000 participating pharmacies.

Significant revenues currently include:

administrative fees (which may be per claim or per plan participant per
month), and

charges relating to pharmaceuticals dispensed by pharmacies participating
in Health Card's pharmacy network, including mail service pharmacies.

Revenue from each sponsor is comprised of one or a combination of both of
the components identified above. Health Card prices services in some combination
of these revenue sources, taking into consideration the cost of claims which can
vary according to Health Card's arrangements, including those relating to
rebates, with each sponsor. The balancing of these components of revenue and
cost of claims is part of the contract negotiation and/or quote process -- for
some sponsors the process is through a negotiation as the contract is finalized
and for others the process is a bid in response to a request for proposal.

Revenue is earned when Health Card provides services. Substantially all of
the services that Health Card provides to its sponsors are related to the
adjudication of the drug claims at the point of service. At this time, the plan
participant is checked for eligibility of coverage, the prescription is compared
to the plan parameters established with the sponsor, the particular drug is
reviewed for contraindications based upon the plan participant's drug history,
age or sex, and the information is placed into a database available for
reporting and query. Accordingly, Health Card recognizes administrative fees at
the time of claims adjudication.

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

Subsequent to the issuance of Health Card's June 30, 1998 financial
statements, Health Card's management determined that Health Card's financial
statements should be restated to adjust the classification of rebates from a
component of revenue to a reduction of cost of claims. As a result revenue and
cost of claims decreased by $1,956,161, $883,243 and $1,460,537 for the years
ended June 30, 1996, 1997 and 1998, respectively, and $1,224,492 and $1,620,758
for the nine months ended March 31, 1998 and 1999, respectively.

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

<PAGE>

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Charges relating to
pharmaceuticals............. $53,379,768 $69,551,998 $97,558,390 $69,059,706 $95,937,621
Administrative fees........... 929,104 853,170 969,994 693,896 816,992
----------- ----------- ----------- ----------- -----------
Total Revenues........... $54,308,872 $70,405,168 $98,528,384 $69,753,602 $96,754,613
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

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

Health Card utilizes a comprehensive prescription benefit database to
perform outcome studies and to develop disease information programs which are
used to reduce overall healthcare costs. These programs do not currently produce
significant revenue. 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.

Three sponsors, Vytra, Suffolk and Operating Engineers, accounted for
approximately 66% of revenues during the nine months ended March 31, 1999.
During the nine months ended March 31, 1998, two of these sponsors accounted for
61% of total revenue. As of March 31, 1999, Vytra, Suffolk and Operating
Engineers accounted for an aggregate of 57% of Health Card's plan participants.
However, effective May 1, 1999, Health Card added two new sponsors representing
approximately 90,000 additional plan participants, an increase in the aggregate
number of plan participants of more than 20%. The addition of these sponsors
reduced Health Card's level of plan participant concentration in its three
largest accounts to approximately 46% of total plan participants. The successful
implementation of Health Card's acquisition and growth strategy would likely
further reduce Health Card's level of plan participant concentration. However,
no assurances can be made that such strategy will be successful or such results
achieved.

Our arrangements with Vytra, Suffolk and Operating Engineers are either
oral, short-term, terminable by the sponsor or subject to continuing
negotiation. For example, we are currently negotiating a more formal agreement
with Vytra, which will be subject to review by the New York Department of
Health. Failure to gain DOH approval could lead to the significant revision of
our arrangements with Vytra or the loss of all or a portion of Vytra's business.
If we were to lose Vytra, Suffolk or Operating Engineers as a sponsor, or lose a
significant portion of any such sponsor's business or if the terms of these
arrangements were to adversely change it would have a material adverse effect on
our business, operating results and financial condition. As discussed above,
Health Card believes that its sponsor base is growing and diversifying and
expects the percentage of total revenue contributed by its two or three largest
current customers to continue to decline in the future.

Under one of our arrangements with Vytra, the written agreement sets forth
a formula which determines our financial commitment with respect to the price of
covered drugs. We have verbally advised Vytra that we have been paying less than
the amounts called for by such formula. In management's opinion, the formula
reflected in the agreement determines the maximum prices payable to pharmacies,
although this is not expressly stated. Management believes that it would not be
reasonable to conclude that such formula determines minimum prices payable to
pharmacies, because neither Vytra nor Health Card would reasonably mandate
minimum prices in a business relationship intended to reduce sponsor cost. 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 the risk of
refunding any amounts to Vytra is remote. 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
relationship with Vytra under this arrangement, or all of its business.

<PAGE>

Cost of claims includes:

the amounts paid to network pharmacies, including mail service pharmacies,
for pharmaceutical claims; and

reductions resulting from rebates from drug manufacturers.

Rebates accounted for reductions of cost of claims of 4%, 1.4% and 1.6% for
the years ended June 30, 1996, 1997 and 1998, respectively, and 1.9% for the
nine months ended March 31, 1999 and 1998, but contributed approximately 36%,
12% and 17% of total gross profit for the years ended June 30, 1996, 1997 and
1998, respectively, and 19% and 18% of total gross profit for the nine months
ended March 31, 1998 and 1999, respectively. Rebates accounted for approximately
154%, 68% and 105% of income before taxes for the years ended June 30, 1996,
1997 and 1998, respectively, and 77% and 74% for the nine months ended
March 31, 1998 and 1999, respectively. Due to the expected growth and
diversification of the business mentioned above, Health Card also expects
rebates, as a percentage of cost of claims, to increase and continue to account
for a significant percentage of total gross profit and income before taxes.
Certain of our sponsors are entitled to all or a portion of rebates received by
us, which portion varies by sponsor. For example, until recently, Vytra received
all of the rebates received by Health Card in connection with the Prescription
Arrangement. Health Card currently retains a portion of such rebates. If such
rebate programs were to be discontinued or adversely altered by drug
manufacturers, or if the terms of our rebate sharing arrangements with our
sponsors were adversely altered, it would have a material adverse effect on our
business, operating results and financial condition. Our rebate administrator
was recently acquired by one of our competitors and we are not sure what effect,
if any, such acquisition will have on our business.

Cost of claims are recognized as follows: The contractual obligation of
Health Card to pay for these drugs is recorded as cost of claims at the time of
dispensing of the drug by the pharmacy network. Cost of claims is reduced by the
rebates that Health Card retains net of amounts due to the sponsors and a 10%
fee retained by Integrated as an administrative fee. Rebates are earned from
drug manufacturers based on drugs utilized by plan participants at the time of
dispensing. Health Card's estimated portion of these rebates, which varies by
sponsor, is recorded monthly based upon the claims adjudicated in that month and
Health Card's historical experience as to its rebate per claim for the previous
quarter.

Health Card estimates rebates because it has contracted with a third party,
Integrated, as a rebate administrator, which enters into contracts directly with
the pharmaceutical manufacturers in connection with its arrangements with a
number of pharmacy benefit managers, HMOs and other plan sponsors. Pursuant to
Health Card's agreement with Integrated, Health Card has entered into agreements
which obligate it to the terms of Integrated's agreements with pharmaceutical
manufacturers. Health Card does not participate in the negotiation of such
agreements; therefore, Health Card cannot control the level of market share
minimums required and the amounts of rebates provided for in future contracts
between Integrated and drug manufacturers.

Because Integrated may combine rebate claims for drugs used by Health
Card's sponsor's plan participants with the claims of others, and the level of
rebates in some of the agreements with the drug manufacturers is computed based
on achieving market share minimums calculated on a quarterly basis, Health Card
does not have the information to calculate precisely the amount of rebates due
at the time quarterly or annual financial statements are prepared. Market share
is generally defined as the percentage of utilization of a certain drug or drugs
within its therapeutic class. Historically, this market share has been very
predictable and consistent with the prior quarter.

Health Card has been advised by its rebate administrator that none of the
rebate administrator's contracts with pharmaceutical companies contain any
contingencies based on annual performance. Based upon the foregoing, management
of Health Card believes that there are no known contingencies arising under the
agreement with Integrated that could result in a material forfeiture of revenue
previously recognized.

There may be a difference between the estimated rebate amount and the
ultimate amount paid because Health Card is not basing its accrual on the
individual contracts with pharmaceutical

<PAGE>

manufacturers, but rather on the number of claims processed each period and
Health Card's historical experience as to Health Card's rebate per claim for the
previous quarter. Historically, there have been slight differences between the
amount accrued and the amount ultimately paid. The amount that Integrated
estimates is based on its calculations and submissions to the pharmaceutical
manufacturers, but the ultimate collections by it may also vary slightly, when
it receives final payment from the pharmaceutical manufacturers, based on
further analysis or differing national market share data, which is not
calculated by Health Card.

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

Under the contract, Integrated remits to Health Card 80% of their estimate
of the total amount to be collected 120 days after the end of the quarter.
Management believes it is common industry practice for rebate administrators not
to advance funds until collected from the pharmaceutical manufacturers, which
can take significantly longer than 120 days. Integrated's estimate is compared
and reconciled to the Company's estimate. Historically this has resulted in
immaterial increases to the amount of rebates recognized. The remaining 20% is
collected over the next few quarters, and remitted to Health Card by Integrated
as it collects funds from the manufacturers.

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

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

Since 1995, Health Card has made key additions to its senior management
team and has invested heavily in building its information systems
infrastructure, product development, and hiring professional staff and marketing
and service personnel. This investment resulted in losses from operations in
1995. While continuing to make such investments, Health Card expects its
operating expenses relating to such investments to decrease as a percentage of
revenue.

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. Health
Card expects such acquisitions, if any, to result in increased revenue and
rebates in future periods.

RESULTS OF OPERATIONS

NINE MONTH PERIOD ENDED MARCH 31, 1999 COMPARED TO THE NINE MONTH PERIOD ENDED
MARCH 31, 1998

Revenues increased $27 million or approximately 39% from $69.8 million for
the nine months ended March 31, 1998 to $96.8 million for the nine months ended
March 31, 1999. The increase resulted primarily from a $6.7 million increase in
fees related to the increase in the number of plan participants under an
arrangement with one of our major sponsors and includes approximately $500,000
in additional revenue recorded in September 1998 when the amount of the
adjustment became determinable, upon Health Card receiving verbal acceptance of
the calculation under the provisions of the arrangement to adjust for the
increased cost of drugs primarily related to the

<PAGE>

prior year. Claims under the plan of another major sponsor increased by 176,173
claims which resulted in an increase in revenues of approximately $7.4
million. The remaining increase of approximately $13 million was due primarily
to other existing sponsors as a result of higher charges relating to
pharmaceuticals, new drugs, plan participant growth and an increase in the
average number of claims per plan participant. Health Card anticipates that
revenue increases which may occur in the future will more likely be due to the
addition of new sponsors as opposed to increased utilization by existing
sponsors.

Cost of claims increased $24 million or approximately 38%, from $63.3
million for the nine months ended March 31, 1998 to $87.5 million for the nine
months ended March 31, 1999. As a percentage of revenues, cost of claims
decreased from 91% for the nine months ended March 31, 1998 to 90% for the nine
months ended March 31, 1999.

Gross profit increased $2.8 million, from $6.4 million for the nine months
ended March 31, 1998 to $9.2 million for the nine months ended March 31, 1999,
primarily as a result of the increase in revenues, offset by the increase in the
cost of claims.

Selling, general and administrative expenses, which include amounts charged
by affiliates, increased $2.6 million or approximately 53%, from $4.9 million
for the nine months ended March 31, 1998 to $7.5 million for the nine months
ended March 31, 1999. The increase resulted primarily from an increase of
$550,000 representing additional reserves against certain receivables. Health
Card evaluated its accounts receivable as of March 31, 1999 taking into
consideration the expiration of certain contracts during the period and the
status of negotiations to renew those contracts. As consideration for the
renewal of these contracts, Health Card determined that it would be necessary to
negotiate the receivable balance due from these contracts and that Health Card
most likely would not be able to collect the full amount. As a result Health
Card estimated and recorded a reserve for the amount that may not be
collectible. In prior periods, due to the status of these contracts, these
additional reserves were not required based upon Health Card's analysis. The
remaining increase in selling, general and administrative expenses resulted from
an increase of $25,000 in the bad debt reserve, a $170,000 bonus to certain
officers/stockholders, a $270,000 compensation accrual to an officer/stockholder
and a $1.6 million 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 $1.3
million or approximately 38%, from $3.7 million for the nine months ended
March 31, 1998 to $2.4 million for the nine months ended March 31, 1999. The
decrease resulted primarily from a decrease of $1.3 million due to compensation
of employees hired by Health Card who were previously engaged through an
affiliated service vendor, $580,000 for software maintenance, offset by
increases of $242,000 for equipment rental, $131,000 for data processing related
charges, $68,000 for consulting and $91,000 for increases in other operating
expenses.

Other income increased $378,000, from $59,000 for the nine months ended
March 31, 1998 to $437,000 for the nine months ended March 31, 1999, due to a
$274,000 increase in interest accrued on a loan due from an affiliate, an
$87,000 increase in interest earned on short term investments of excess cash
balances and a $17,000 decrease in public offering costs.

The provision for income taxes increased $68,000, from $663,000 for the
nine months ended March 31, 1998 to $731,000 for the nine months ended
March 31, 1999, as a result of increased taxable income.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997

Revenues increased $28.1 million or approximately 40%, from $70.4 in fiscal
1997 to $98.5 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 arrangement with one of our major sponsors. Claims under
the plan of another sponsor increased by 217,040 claims which resulted in an
increased in revenues of approximately $8.1 million. The remaining
increase of approximately $10.4 million was due primarily to other existing
sponsors as a result of higher charges relating to pharmaceuticals, new drugs,
plan participant growth and an increase in the average number of claims per
plan participant.

Cost of claims increased $26.5 million or approximately 42% from $63.3
million in fiscal 1997 to $89.8 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

<PAGE>

of claims processed, at a reduced billing rate, under an arrangement 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 8.3% in fiscal 1997 to 7.3% 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 $484,000 for
salaries, $78,000 for consulting and $97,000 for miscellaneous expenses offset
by decreases of $259,000 for software maintenance.

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 $16.1 million or approximately 30% from $54.3 million in
fiscal 1996 to $70.4 million in fiscal 1997. The increase resulted primarily
from a $16.1 million increase in fees related to the increase in the number of
plan participants under an arrangement with one of our major sponsors.

Cost of claims increased $14.5 million or approximately 30%, from $48.8
million in fiscal 1996 to $63.3 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 software maintenance, $636,000 in fees related to an
increase in personnel performing sales and bookkeeping functions, $132,000 in
increased sales and marketing efforts and $108,000 for miscellaneous expenses.
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 7.8% in fiscal 1996 to 8.3% 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
software maintenance, $631,000 for salaries, $114,000 for rent and $31,000 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.

<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1997 and 1998 and March 31, 1999, Health Card had a working
capital deficiency of $7.4 million, $8.7 million and $6.5 million, respectively.

Net cash provided by operating activities was approximately $1.2 million,
$3.5 million, $922,000 and $209,000 for the fiscal years ended June 30, 1996,
1997 and 1998 and the nine month period ended March 31, 1999, 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 nine month period ended March 31, 1999, net cash provided by
operating activities resulted primarily from net income and an increase in
accounts payable and accrued expenses, offset by an increase in accounts
receivable. Health Card evaluated its accounts receivable as of March 31, 1999,
taking into consideration the expiration of certain contracts during the period
and the status of negotiations to renew those contracts. As consideration for
the renewal of these contracts Health Card determined that it would be necessary
to negotiate the receivable balance due from these contracts and that Health
Card most likely would not be able to collect the full amount. As a result,
Health Card estimated and recorded a reserve of $550,000 for the amount that may
not be collectible. In prior periods, due to the status of these contracts,
these additional reserves were not required based upon Health Card's analysis.

Historically, the timing of Health Card's accounts receivable and accounts
payable has generally been a net source of cash from operating activities. This
is the result of the terms of trade in place with plan sponsors on the one hand,
and our pharmacy network on the other hand. These terms generally lead to our
payments to participating pharmacies being slower than our corresponding
collections from plan sponsors. Health Card believes that this situation is not
unusual in the prescription benefit management industry and expects to operate
on similar terms for the foreseeable future. However, there can be no assurance
that such terms of trade will continue in the future and, if they were to change
materially, Health Card could require additional financing. There can be no
assurance that such financing could be obtained at rates or on terms acceptable
to Health Card, if at all.

Net cash used in investing activities amounted to approximately $387,000,
$477,000, $416,000 and $1.3 million for the fiscal years ended June 30, 1996,
1997 and 1998 and the nine month period ended March 31, 1999, 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 $1.8 million for the
fiscal years ended June 30, 1996, 1997 and 1998 and the nine month period ended
March 31, 1999, respectively. These uses of cash resulted primarily from capital
distributions and repayment of debt. The cash provided for financing activities
for the nine month period ended March 31, 1999 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 upon execution of the agreement and $25,000
paid monthly through March 1999. In addition, if certain milestones are met,
based on the number of processed claims, as defined, the initial license fee
increases incrementally by up to an additional $500,000 over the term of the
license. As of March 31, 1999, a milestone has been met which has increased the
initial license fee by $150,000 due to increased annualized volume of claims
processed. The agreement also provides for the monthly payment of a fee for
maintenance and updating services aggregating annually to 18% of the initial
license fee, as defined.

Health Card anticipates that the net proceeds of the offering and the
repayment of certain affiliate and shareholder debt, 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,

<PAGE>
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
programmers is an 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.

OTHER MATTERS

INFLATION

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

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 May 1, 1999, plans managed by Health Card covered over
515,000 eligible employees, retirees, members and their dependents, increased
from 240,000 participants 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 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 and the sponsor's
plan. The card entitles the plan participant to purchase prescription drugs and
certain other physician-prescribed items by paying a deductible and/or
'co-payment' amount as determined by the plan sponsor. As of May 1, 1999, the
pharmacy network included an aggregate of over 44,000 retail chain and
independent pharmacies as well as three 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, 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

<PAGE>
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.

Drug manufacturers may issue rebates for the use of certain prescription
drugs. 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 these rebate claims,
and may submit such claims along with rebate claims of others, to the
appropriate drug manufacturer, pursuant to agreements Integrated has negotiated
with various drug manufacturers. All, part or none of the rebates received by
Health Card may be remitted to certain of Health Card's sponsors, depending upon
the terms of Health Card's agreement with each sponsor. Through rebates from
drug manufacturers, Health Card has reduced its cost of claims. See 'Risk
Factors -- Our business could be adversely affected if our rebate administrator
terminates our agreement, or if drug manufacturers alter or discontinue rebate
programs.' 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,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Business --
Services -- General -- 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 &
Therapeutics 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
drugs 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

<PAGE>
encourage plan participant compliance with physician-recommended therapy and
physician adherence to recommended drug and treatment guidelines. In turn, this
conformity should improve plan participant health care while reducing 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.'

We began our business as a provider of computerized prescription claims
processing services to sponsors and subsequently, we increased our capabilities
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 multi-state marketing effort and (c) enhancing our
information systems. Over the past several years, Health Card has focused on
significantly expanding its management, marketing and administrative
infrastructure and data management capabilities. See 'Management' and 'Certain
Transactions.'

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 by focusing on information systems and consulting services without many
of the restrictions that management believes are inherent in the relationships
of its affiliated competitors. 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, based on such beliefs, Health Card is well positioned to take
advantage of the increasing information and cost management needs of the
prescription benefit management services market.

BUSINESS STRATEGY

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 to expand its operations and sales with the goal of becoming a
leading national independent company providing comprehensive prescription
benefit management services.

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 May 1, 1999, the number of plan participants
for which Health Card provided prescription benefit management services
grew approximately 115% from approximately 240,000 to over 515,000. 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.'

<PAGE>
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 which management believes are 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 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 intends to 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 relationship with Eckerd Health Services d/b/a Express
Pharmacy Services. 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,

<PAGE>
claims management, and

drug review and analysis

while often improving patient compliance with recommended drug and treatment
guidelines. An industry source estimates that 1997 U.S. purchases for
prescription drugs totaled approximately $83 billion, of which purchases from
retail outlets were approximately $53 billion and purchases from mail order were
approximately $9 billion. Such industry source indicates 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:

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. Health Card
believes that 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 computerized 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/or co-payment amounts, and

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

<PAGE>
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 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 the pharmacies participating in Health Card's
multi-state pharmacy network and the sponsor's plan. The health card allows the
plan participant to purchase approved prescription drugs and other
physician-prescribed items, with the plan participant paying a deductible and/or
co-payment amount, if any, to the pharmacy. 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
and deductible, if any, to be collected from the plan participant and of the
payment the pharmacy will receive from Health Card. Health Card's on-line claims
management system sends appropriate messages regarding preferred drugs and
contraindications, based upon plan participants' existing claims history with
Health Card. The prescription is then dispensed by the pharmacist to the plan
participant, who pays the appropriate co-payment and/or deductible amount and
signs a signature log maintained by the participating pharmacy.

Plan participants are provided with a list of pharmacies participating in
Health Card's pharmacy network. Plan participants may alternatively choose to
fill prescriptions at a non-participating pharmacy. 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 such 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
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

<PAGE>
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
manufacturers relating to certain prescriptions filled under plans that Health
Card administers. Integrated submits Health Card's rebate claims, and may submit
such 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. 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. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'

Rebates accounted for reductions of cost of claims of 4%, 1.4% and 1.6% for
the years ended June 30, 1996, 1997 and 1998, respectively, and 1.9% for the
nine months ended March 31, 1999 and 1998, but contributed approximately 36%,
12% and 17% of total gross profit for the years ended June 30, 1996, 1997 and
1998, respectively, and 19% and 18% of total gross profit for the nine months
ended March 31, 1998 and 1999, respectively. Rebates accounted for approximately
154%, 68% and 105% of income before taxes for the years ended June 30, 1996,
1997 and 1998, respectively, and 77% and 74% for the nine months ended
March 31, 1998 and 1999, respectively. All, part or none 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 arrangement 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 could be
adversely affected if our rebate administrator terminates our agreement, or if
drug manufacturers alter or discontinue rebate programs.' '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' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'

PHARMACY NETWORK

Retail Pharmacy Network Management. A comprehensive multi-state network of
participating pharmacies is an essential element of Health Card's business
operations. Furthermore, certain of Health Card's sponsors, including Vytra and
Suffolk, require Health Card to maintain a pharmacy network with specified
numbers of pharmacies in various locations to serve plan participants. As of
May 1, 1999 Health Card had a multi-state network of over 44,000 pharmacies, of
which approximately 76% are retail chain pharmacies and 24% are independent
pharmacies. In addition, as of May 1, 1999, three 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 and plan participants by mail to audit the
validity of claims. The information requested includes:

copies of original prescriptions from participating pharmacies, and

written confirmation from plan participants of their receipt of prescribed
drugs.

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.

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

<TABLE>
<CAPTION>
PHARMACY YEAR OF INITIATION
-------- ------------------
<S> <C>
Rite Aid Corporation......................... 1982
Eckerd Health Services....................... 1983
CVS/Pharmacy, Inc............................ 1983
Genovese Drugstores, Inc..................... 1982
</TABLE>

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 generally saves money
through a reduction in the number of co-payments he would have paid had the
prescriptions been filled repeatedly at a retail pharmacy. Further, with mail
pharmacy service the sponsor is charged a lower dispensing fee for prescription
ingredients compared to those charged by a retail pharmacy. Health Card
presently has a non-exclusive relationship with Eckerd Health Services d/b/a
Express Pharmacy Services.

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. No
such notice has been sent or received by Health Card. 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 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 May 1, 1999, three 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. Our agreements with many pharmacies do not require us
to make payments within a specified period. However, 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

<PAGE>
material negative effect 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,

maximum benefit cost,

maximum plan participant out-of-pocket cost, and

coverage for prescription drugs dispensed by non-participating pharmacies.

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

PREFERRED DRUG MANAGEMENT

Through its preferred drug programs, Health Card encourages physicians and
plan participants to use drugs that are preferred by plan sponsors, usually for
lower cost but sometimes for efficacy. Health Card does this, typically, through
contacts with physicians. Almost all of Health Card's sponsors use its preferred
drug management and generic substitution 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. With such a therapeutic
interchange program, typically the savings are distributed, for the first year
of the program, among the sponsor, the pharmacy, and Health Card; starting with
the second year, all of the savings are received by the sponsor. This type of
program is most frequently used in connection with long-term therapies. Through
a generic substitution program, a plan participant pays a lower co-payment than
he would otherwise, and thereby benefits directly from the savings. Health Card
believes there are substantial savings to be realized by encouraging plan
participants to use generic instead of brand name drugs, since the cost of a
generic prescription drug can be as much as 91% (typically 30% to 55%) lower
than the cost of the therapeutically equivalent brand name prescription drug.

Plan participants are encouraged by Health Card to use generic drugs by a
variety of methods. 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),

<PAGE>
requiring the plan participant to pay the difference between the brand and
generic price, 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 physician's consent. In such event, the
pharmacist must contact the physician directly for permission to substitute a
generic equivalent or a less expensive brand name drug. Depending on state law,
if no DAW notation is made, the pharmacist must obtain the consent of only the
plan participant to dispense a generic substitute. In New York, if no DAW
notation is made and the physician does not prohibit substitution, the
pharmacist is required to dispense the generic equivalent if it is available.
Other states may have different laws, rules and regulations. Health Card's
detailed quarterly reports to sponsors assist in determining if this program is
being utilized effectively. See 'Business -- Services -- Data Access, Reporting
Information and Analysis.'

Health Card also provides 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 & 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.'

<PAGE>
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 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 & Therapeutics Committee currently
comprised of physicians and pharmacists. 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,

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 Vice President
of Clinical Services and our 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 is requested to disclose his or her
affiliation with any drug company. Mr. Laudano and Mr. Rosenberg have disclosed
a current affiliation with drug companies.

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

reviews and analyzes drugs prescribed and prescriptions dispensed,

recommends plan guidelines, and

conducts plan participant and physician profiling.

By analyzing plan participants' pharmacy claims patterns, Health Card can
provide information to sponsors and health care providers, assisting in the
early identification of patients whose care might be improved through additional
or alternative treatment or medication. Health Card has developed

<PAGE>
disease information systems covering cardiovascular and gastrointestinal
conditions, migraines, diabetes, and asthma, among others.

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

Health Card is currently marketing its disease information programs on a
very limited basis, and is actually providing this service to only one sponsor
presently but anticipates that it will be providing these services to another
sponsor in the near future. 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:

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 compared to a selected peer
group,

analysis and review of a plan participant's drug history,

analysis of the top drugs dispensed by number or dollar value,

<PAGE>
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. It is also designed to promote
conformity with plan benefits and the recommended drug and treatment guidelines.
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 May 1, 1999, Health Card was servicing 71 sponsors of benefits
plans covering over 515,000 participants (such number includes each third party
administrator client as one sponsor), with concentrations in the Northeast,
Southeast and West Coast. Between May 1, 1998 and May 1, 1999, 27 new sponsors
began utilizing Health Card's services.

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

Pursuant to the standard agreement, the sponsor is obligated to reimburse
Health Card the cost of claims to Health Card (less any cash advances paid) as
the bi-weekly statements are received by the sponsor. 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 five 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
sponsor. The sponsor can review these records. While most of Health Card's
larger sponsors negotiate other agreements with Health Card, many sponsors sign
the standard form or a modified version of the standard form. The specific terms
of each managerial agreement, including any incentive arrangements, are
negotiated by Health Card on a case by case basis. While Health Card may take
into account factors such as the number of plan participants, margins and
economies of scale, among others, in determining the terms of its arrangements
with sponsors, Health Card generally does not use set

<PAGE>

guidelines when determining these terms. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'

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 nine months ended March 31, 1999, 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:

<TABLE>
<CAPTION>
PERCENT OF
HEALTH CARD NUMBER OF
PERIOD REVENUES PARTICIPANTS
------ -------- ------------
<S> <C> <C>
Year ended June 30, 1997.............................. 45% 128,404
Year ended June 30, 1998.............................. 44% 166,840
Nine months ended March 31, 1999...................... 40% 157,104
</TABLE>

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, as amended (the 'Prescription Arrangement'), National
Medical Health Card IPA, Inc., our wholly-owned subsidiary, has agreed to
provide services to Vytra through Health Card. 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 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 an adjustment 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:

<TABLE>
<CAPTION>
PERCENT OF
HEALTH CARD'S
PERIOD REVENUES
------ --------
<S> <C>
Year ended June 30, 1997.................................... 34%
Year ended June 30, 1998.................................... 34%
Nine months ended March 31, 1999............................ 32%
</TABLE>

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, individual physicians or groups of

<PAGE>
physicians associated with Vytra. If Vytra processes more than such percentage
of its claims with other parties, Health Card can terminate the Prescription
Arrangement or renegotiate the present amount charged to Vytra based on the
number of plan participants. 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, retroactive to the date the more
favorable rates were offered to the competing sponsor, 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 and
maintain an adequate and accessible pharmacy network for Vytra plan participants
(i.e., a specified number of pharmacies). Health Card meets this standard if one
or more participating pharmacies are located in each zip code in the Vytra
service area, which as of this date includes Queens, Nassau and Suffolk County,
in the State of New York, unless either (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 specified average time,

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

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

reaching certain generic substitution rates, and

maintaining a certain level of rebates per claim.

Health Card is required to pay a penalty for failing to meet certain guarantees.

Health Card must maintain a Pharmacy & Therapeutics Committee. Vytra has
the right to designate one representative to serve on the Pharmacy &
Therapeutics Committee, but has not exercised that right. See
'Business -- Services -- Clinical Consulting and Disease information.' Until
recently, Vytra received all of the rebates received by Health Card in
connection with the Prescription Arrangement. Health Card currently retains a
portion of such rebates. See 'Business -- Services -- General -- Rebate
Administration.'

<PAGE>
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 and Health Card IPA.
As of the date of this prospectus Health Card is performing the services under
this arrangement with Vytra. While the letter agreement does not comply with the
DOH drafting guidelines, the parties have discussed a more formal amendment, and
Health Card anticipates that, if such an amendment is executed, it will comply
fully with the DOH drafting guidelines. 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. If we were to lose Vytra as a sponsor, or lose a
significant portion of Vytra's business, it would have a material adverse effect
on Health Card's business, operating results and financial condition. 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.'

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 of claims processed and paid. 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:

<TABLE>
<CAPTION>
PERCENT OF
HEALTH CARD'S
PERIOD REVENUES
------ --------
<S> <C>
Year ended June 30, 1997.................................... 11%
Year ended June 30, 1998.................................... 10%
Nine months ended March 31, 1999............................ 8%
</TABLE>

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

<PAGE>
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 March 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:

<TABLE>
<CAPTION>
PERCENT OF NUMBER OF
PERIOD REVENUES PARTICIPANTS
------ -------- ------------
<S> <C> <C>
Year ended June 30, 1997............................... 18% 37,833
Year ended June 30, 1998............................... 16% 38,893
Nine months ended March 31, 1999....................... 14% 39,617
</TABLE>

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 and maintain a pharmacy network at
a specified level. 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 amount.

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 May 1, 1999,
Operating Engineers covered 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
nine months ended March 31, 1999, 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, or if the terms of our arrangements with these sponsors
unfavorably change, Health Card's business, operating results and financial
condition will be materially adversely affected. In the event of the loss of 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, six sales executives, and one sales
coordinator. Health Card's sales executives target the following geographic
sales regions -- Eastern, Mid-Atlantic, Southeast, Southwest, Midwest, West and
the New York Metro area. In addition, Health Card contracts with 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 and/or the number of claims processed

<PAGE>
under such 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 2,400,000 plan participants. Health Card
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 with, plans covering less or significantly more plan participants.
Health Card also markets to 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'
PCS Health Systems, Inc.
Merck-Medco Managed Care, LLC
Provantage Health Services, Inc.
MIM Corp.

Consultec, Inc.
National Prescription Administrators, Inc.
Advance Paradigm, Inc.
MedImpact Health Care Systems, Inc.
Pharmaceutical Care Network

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

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

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.'

<PAGE>
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 May 1, 1999, Health Card had 86 employees, including:

8 officers,

a sales and marketing department of 12 employees,

an information services department of 16 employees,

an operations and network management department of 32 employees (3 of
which are part-time),

a clinical services department of 10 employees,

a financial department of 1 employee, and

a client services and implementation department of 7 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 non-exclusive and
nontransferable perpetual license to use PHI's claims adjudication software
system. This system is an integral part of Health Card's on-line claims
management system. The agreement required Health Card to pay an initial license
fee of $400,000 of which $100,000 was paid upon execution of the agreement and
$25,000 paid monthly through March 1999. In addition, if certain milestones are
met, based on the number of processed claims, as defined, the initial license
fee increases incrementally by up to an additional $500,000 over the term of the
license. As of March 31, 1999, a milestone has been met which has increased the
initial license fee by $150,000 due to increased annualized volume of claims
processed. The agreement also provides for the monthly payment of a fee for
maintenance and updating services, aggregating annually to 18% of the initial
license fee, as defined.

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, certain drug
utilization review databases, price-checking software and state claims-review
programs for New York and Virginia. Health Card pays license fees annually,

<PAGE>
which increase as the number of claims processed and number of dedicated users
of Medi-Span's software increases. Health Card pays an annual license fee of a
minimum of $302,200. 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.
Sandata is expected to continue to provide, through it subsidiaries, 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.

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. 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 review designed to
ensure that its computer systems, applications and embedded operating systems
will function properly beyond 1999. This compliance review 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 prior
to, on and after January 1, 2000. Health Card believes that all of its 'mission
critical' systems have been identified, and compliance testing will be completed
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. Historical and anticipated expenditures related to
remediation, testing, conversion, replacement and upgrading system applications
in connection with the Year 2000 problem 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.

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 installed
and certified to be Year 2000 compliant by the vendor.

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

<PAGE>
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. Health Card
is currently testing its switching network. One major vendor of claims
management services with which Health Card does business, PHI, has certified
that software licensed from it is Year 2000 compliant. 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 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 14,600 square feet of space at 26 Harbor
Park Drive, Port Washington, New York 11050, under an amended lease at a monthly
cost of $31,000 (including utilities). The lessor is BFS Realty, LLC, which is
affiliated with Mr. Brodsky. The lease expires as of March 30, 2004. Rent under
the lease increases by five percent annually. The BFS lease 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. Health Card believes
that the terms of this lease are as fair to it as those which could be obtained
from an unaffiliated third party. Pursuant to an oral agreement entered into in
1994 with BFS, Health Card paid $700,000 in June 1995 in connection with certain
allocated leasehold improvements. Health Card began occupying space at 26 Harbor
Park Drive in October 1994 and began making rental payments for such space in
December 1994. See 'Certain Transactions.'

Health Card is in the process of completing a new customer service center
at its headquarters. It has initially been equipped with approximately 30
service representatives' desks, and there is space for an additional 30 service
representative work areas. The customer service center opened on May 14, 1999,
and the additional 30 service representative work areas will be equipped and
become operational as needed. Management believes that Health Card's current
offices will be adequate for Health Card's purposes for the foreseeable future,
without giving effect to any significant increase in need due to possible
acquisitions. In addition, Health Card is considering the possibility of leasing
approximately 10,000 to 15,000 square feet of additional offsite space to house
a disaster recovery center.

<PAGE>
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. Bert Brodsky is the sole member.
The rent for the 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 certain
expenses, is also payable.

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, 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 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.

<PAGE>
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 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 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

<PAGE>
Vytra entered into a letter agreement in March 1999, which contemplates that
services to Vytra will be performed by Health Card IPA through Health Card. As
of the date of this prospectus Health Card is performing the services under this
arrangement with Vytra. 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.

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

<PAGE>
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 in 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.

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

<PAGE>
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.

REGULATIONS APPLICABLE TO HEALTH CARE PROFESSIONALS

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

In the course of its business, Health Card provides disease information
services, drug usage monitoring programs, preferred drug management, and
consulting services. Health Card does not believe that these or any of its other
activities as a prescription benefit management company, constitute the practice
of medicine, nursing or any other licensed health profession. Health Card cannot
assure 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,

<PAGE>
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.'

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

LEGAL PROCEEDINGS

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

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

<PAGE>
of Contra Costa, in the State of California, against Health Card. The complaint
was filed with the Superior Court on December 8, 1998, and enumerates six
grounds for its claim to damages. The case has been removed to Federal Court.
The complaint alleges, among other things, that the parties entered into a
contract effective in November 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 additional
costs due to its having to enter then into a fee for service arrangement with
Health Card in order to continue providing prescription benefits to its plan
members; and that, due to the wrongful termination of the contract, the school
district was forced to secure a replacement for the benefits and 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

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

<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------
<S> <C> <C>
Bert E. Brodsky.................................... 56 Chairman of the Board and Chief Executive
Officer
Gerald Shapiro..................................... 68 Vice Chairman of the Board and Secretary
Marjorie G. O'Malley............................... 49 President and Chief Operating Officer
Linda Portney...................................... 54 Executive Vice President of Operations
Mary Casale........................................ 59 Executive Vice President of Sales and
Marketing
John Ciufo......................................... 45 Vice President of Clinical Services
Barry Denaro....................................... 43 Treasurer and Chief Financial Officer
Kenneth J. Daley................................... 61 Director
Richard J. Strauss, M.D., F.A.C.S.................. 53 Director
Gerald Angowitz.................................... 49 Director
</TABLE>

Bert E. Brodsky has served as Chairman of the Board of Health Card since
December 7, 1998, and as Chief Executive Officer since June, 1998. Mr. Brodsky
has at various times since 1983 served as Chairman of the Board, President and a
Director of Health Card. Mr. Brodsky has served as Chairman of the Board and
Treasurer of Sandata, Inc. 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 and wholly-owned subsidiary of Sandata, President of Brodsky Sibling
Realty, Inc., a real estate company and President of Document Storage and
Management, Inc., a document storage company. Mr. Brodsky has also been
Operating Manager of BFS Realty, LLC, a real estate company, since October 1996,
BFS Realty II, LLC, a real estate company, since November 1996 and 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.

Gerald Shapiro has served as Vice Chairman of the Board of Health Card
since December 7, 1998. Mr. Shapiro has also served as Secretary since
October 28, 1998. From June 1, 1998 until December 7, 1998, Mr. Shapiro served
as Chairman of the Board. From February 4, 1998 until 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 physician billing and consulting firm, Chairman
and Treasurer of Mediclaim, Inc., a physician billing and consulting firm,
President of Brookhaven M.R.I., Inc., a company that operates magnetic resonance
imaging machines, Vice President of Mobile Health Management Services, Inc., a
provider of medical screening services 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 served as a consultant to
Health Card from July 1995 until July 1998. From 1980 until July 1995, Ms.
O'Malley was employed by CIGNA Corporation in a variety of positions. Ms.
O'Malley formed

<PAGE>
and served as President of 'Rx'Prime, 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. Ms. Portney served as a Director of Health Card
from 1982 until May 1999, and as Secretary of Health Card from June 26, 1998
until October 28, 1998. From 1995 until 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 Value'Rx', 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 Value'Rx', from August 1994 to
March 1995, National Vice President of Customer Development for Sales and
Marketing at Diagnostek from January 1994 to August 1994 and a consultant for
special accounts for Sales and Marketing at Diagnostek from 1989 to 1993.

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

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 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.

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

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

Gerald Angowitz has served as a Director of Health Card since June 26,
1998. Mr. Angowitz 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

<PAGE>
the brother-in-law of Hugh Freund, a Vice President, Secretary, principal
stockholder and Director of Sandata, Inc.

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.

Within 90 days following the consummation of this offering, it is
anticipated that Mr. Daley will replace Dr. Strauss on such committees.

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.

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>
ANNUAL SECURITIES
COMPENSATION OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
--------------------------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Bert E. Brodsky, Chairman of the Board
and Chief Executive Officer ......... 1998 $751,096(1) $30,000(2) $47,377(3) --
1997 $474,000(1) -- $13,714(3) --
1996 $510,000(1) -- $12,000(3) --
Linda Portney, Executive Vice President
of Operations ....................... 1998 $125,000 -- $19,514(4) --
1997 $125,000 $50,000 $13,828(4) --
1996 $ 80,350 -- $11,671(4) --
Mary Casale, Executive Vice President
of Sales and Marketing .............. 1998 $100,000 $50,031(5) $ 4,800(6)(7) --
1997 $100,000 $15,000(5) $ 4,800(6) 255,689(8)
1996 $ 82,543 -- $ 1,200(6) --
Kenneth Hammond, Vice President of
Operations .......................... 1998 $100,327 -- -- --
1997 $ 13,462(9) -- -- --
1996 -- -- -- --
</TABLE>

(footnotes on next page)

<PAGE>
(footnotes from previous page)

(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 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) Includes automobile lease payments and life insurance premiums 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 $15,000 and $15,000 in bonus and $35,031 and $0 in commissions
for the fiscal years ended June 30, 1998 and 1997, respectively. Pursuant to
Ms. Casale's current arrangement with Health Card, she is entitled to
commissions as follows: .5% of gross revenues received from direct accounts
sold and .25% of gross revenues received from accounts sold by sales people
under her management.

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

(7) 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.

(8) Includes a currently unexercisable option granted by Bert E. Brodsky on July
1, 1997 to purchase an aggregate of 255,689 shares of Health Card common
stock from Mr. Brodsky at a price of $5.87 per share. Such option vests in
increments of 20% on the second, third, fourth, fifth and sixth
anniversaries of such option, respectively, and must be exercised, if at
all, within one year after the termination of the optionee's employment with
Health Card, or by July 1, 2005, whichever is earlier.

(9) Represents amounts paid to Mr. Hammond from the commencement of his
employment with Health Card on April 28, 1997 until June 30, 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. Ms. O'Malley is entitled to participate in a
bonus pool allocated for senior executives equal to 15% of any increase in
pre-tax profits over the prior year. 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 from Mr. Brodsky at a price of $5.87
per share. Such option vests commencing on December 7, 1999 in one third
increments on the first, second and third anniversaries of such options,
respectively, and must be exercised, if at all, within one year from the date of
the termination of the optionee's employment with Health Card, or by
December 7, 2002, whichever is earlier. John T. Ciufo, Health Card's Vice
President of Clinical Services, was not an executive officer at the end of the
last fiscal year. He has served as Vice President of Clinical Services since
December 1998. Mr. Ciufo's current annual salary is $130,000. Mr. Ciufo is also
entitled to participate in the bonus pool. 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 from Mr. Brodsky at a price of $5.87 per
share. Such option vests in one third increments on the first, second and third
anniversaries of such option, respectively, and must be exercised, if at all,
within one year from the date of the termination of the optionee's employment,
or by December 7, 2003, whichever is earlier.

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.

<PAGE>
STOCK PLANS

1999 STOCK OPTION PLAN

On May 10, 1999, Health Card's Board of Directors adopted 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'), options that are not
intended to so qualify ('Nonstatutory Stock Options') as well as stock
appreciation rights. The 1999 Plan was approved by shareholders on May 10, 1999.
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 Board of Directors of Health
Card, 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.

Options may be granted under the 1999 Plan to all 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 Board of Directors. 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, common
stock, or 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 exercised by 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.

It is anticipated that on or prior to the consummation of this offering,
certain officers, directors and employees of Health Card other than Mr. Brodsky
will receive options to purchase, at the offering price, up to an aggregate of
100,000 shares of common stock, as may be determined by Health Card's Board of
Directors.

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 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.
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 $58,000 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 fulfill its obligations
under the

<PAGE>

agreement, following notice and an opportunity to cure, the other party has the
right to terminate this agreement. P.W. Capital and Health Card have agreed
that, upon the effectiveness of the employment agreement discussed below, this
agreement will terminate. Pursuant to an Employment Agreement effective July 1,
1999, Mr. Brodsky has agreed to serve as Health Card's Chairman of the Board and
Chief Executive Officer at an annual salary of $200,000, subject to adjustment
by the Board of Directors. This agreement term of two years, unless terminated
by Health Card for cause, or in the event Mr. Brodsky becomes permanently
disabled. The agreement provides for certain fringe benefits payable to or on
behalf of Mr. Brodsky, such as the use of a car. In addition, the agreement
provides for certain termination benefits payable to Mr. Brodsky, which
depending upon the reason for termination, can be equal to up to two years
salary. It is anticipated that Mr. Brodsky may devote a portion of his business
time to business affairs unrelated to Health Card, provided that such activities
do not prevent him from fulfilling his obligations under the agreement. The
agreement does not quantify the amount of time that Mr. Brodsky must devote to
Health Card. However, it is contemplated that Mr. Brodsky will devote a
substantial portion of his business time to the affairs of Health Card. Ms.
O'Malley, Ms. Portney, Ms. Casale, Mr. Ciufo and Mr. Hammond are employed by
Health Card pursuant to letters, employee covenant agreements and/or
confidentiality and non-disclosure agreements reflecting the compensation terms
described under 'Management -- Executive Compensation' and/or restricting the
employee from engaging in certain competitive activity and/or disclosing certain
information.

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, are each 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.'

<PAGE>
CERTAIN TRANSACTIONS

From time to time, Mr. Brodsky and his affiliates have engaged in numerous
transactions with Health Card. Although it is contemplated that Health Card may
continue in the future to engage in transactions with Mr. Brodsky and his
affiliates, it is anticipated that prior to the consummation of this offering,
Health Card's Board of Directors will adopt a policy that Health Card will not
enter into or modify any contract or other transaction between Health Card and
one or more of its directors and any other corporation, firm, association or
other entity in which one or more of its directors are directors or officers, or
has a substantial financial interest, unless such contract or transaction has
been approved by a majority of the disinterested members of Health Card's Board.

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 a liability of $86,000 relating to these employees. Sandata,
through its subsidiaries, is expected to continue to provide 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
approximately $33,000 (as of the date of this prospectus) from Sandsport
pursuant to an oral agreement, terminable at will by either party. Management of
Health Card believes that the terms of such lease are as fair to Health Card as
those that could be obtained from an unaffiliated third party, although no
independent fee quotes have been obtained. Prior to November 1998 a significant
portion of the Company's data processing needs were provided by an unaffiliated
company. Starting in July 1998 the Company obtained equipment under an oral
month to month operating lease with Sandsport to enable it to perform its own
data processing requirements. Lease payments under this lease for the nine
months ended March 31, 1999 totaled $229,714 and were paid at a monthly rate of
approximately $22,000 for two months, $24,000 for five months and are currently
$32,857 per month.

The Company purchased new furniture and fixtures from Sandata during the
nine months ended March 31, 1999 for approximately $127,000 in connection with
Health Card's new customer service center. The price included a 20% purchasing
and handling fee relating to unpacking, assembling and configuring of such
furniture and fixtures.

During the fiscal years ended June 30, 1997 and 1998 and the nine month
period ended March 31, 1999, Health Card incurred fees to Sandsport in the
aggregate amounts of approximately $2,360,000, $2,492,299 and $1,200,045. As of
May 1, 1999, Health Card owed $144,170 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 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.

<PAGE>
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. On May 31, 1998 Health Card directly
hired these individuals that had previously been paid through Medical Arts. In
addition, Medical Arts continues to provide Health Card with accounting,
paralegal and bookkeeping services.

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 June 1,
1998, 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 $160,000, which amount 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 $90 per hour and bookkeeping
services at $6,250 per month. Management believes that hourly rates charged by
Medical Arts are as fair to Health Card as those that could be obtained from an
unaffiliated third party, although no independent fee quotes have been obtained.

CONSULTING FEES

For the fiscal year ended June 30, 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:

<TABLE>
<S> <C>
Medical Arts...................... $180,000
P.W. Capital...................... $552,000
</TABLE>

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 capacities as Chairman
of the Board of Directors and Chief Executive Officer. Pursuant to an agreement
with Mr. Brodsky, payment of such consulting fees will cease upon consummation
of this offering. See 'Management -- Executive Compensation.'

In addition, Health Card paid P.W. Capital $17,377, representing lease
payments for cars leased for Mr. Brodsky's benefit.

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 by Health Card, 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 by

<PAGE>
Health Card, 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.

Health Card occupies approximately 14,600 square feet of space at 26 Harbor
Park Drive, Port Washington, New York 11050, under an amended lease at a monthly
cost of $31,000 (including utilities). The lessor is BFS Realty, LLC, which is
affiliated with Mr. Brodsky. The lease expires as of March 30, 2004. Rent under
the lease increases by five percent annually. The BFS lease 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. Health Card believes
that the terms of this lease are as fair to it as those which could be obtained
from an unaffiliated third party, although no independent fee quotes have been
obtained. Pursuant to an agreement entered into in 1994, Health Card paid
$700,000 in June 1995 in connection with certain allocated leasehold
improvements. Health Card began occupying space at 26 Harbor Park Drive in
October 1994 and began making rental payments for such space in December 1994.
In addition, during the nine months ended March 31, 1999, Health Card paid
another affiliated party approximately $58,000 in connection with improvements
to the building in which Health Card's offices are located. Sandata also
occupies space at 26 Harbor Park Drive. Except for certain common areas, Sandata
and Health Card do not share space in such facility.

Pursuant to a lease dated August 10, 1998 and expiring on August 31, 2005,
Health Card occupies approximately 1,500 square feet 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 Bert Brodsky is the
sole member. The rent for the 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 certain expenses, is also payable.

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

The following transactions also occurred in connection with such
surrenders: Bert E. Brodsky purchased 1,278,447 shares of common stock of Health
Card by delivery of a promissory note dated July 1, 1997 and made payable to the
order of Health Card in the original principal amount of $1,000,000. This note
is secured by 1,278,447 shares of common stock of Health Card owned by Mr.
Brodsky and principal is without, and interest is with, recourse to Mr. Brodsky.
As of March 31, 1999, $1,000,000 of principal and $21,250 of interest was
outstanding under such note. Gerald Shapiro purchased 383,534 shares of common
stock of Health Card by delivery of a promissory note dated July 1, 1997 and
made payable to the order of Health Card in the original principal amount of
$300,000. This note is secured by 383,534 shares of common stock of Health Card
owned by Mr. Shapiro and principal is without, and interest is with, recourse to
Mr. Shapiro. As of March 31, 1999, $300,000 of principal and $6,375 of interest
was outstanding under such note.

In July 1997, 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 51,137 shares of common
stock of Health Card owned by Ms. Rothstein and principal is without, and
interest is with, recourse to Ms. Rothstein. As of May 1, 1999, no principal was
outstanding with respect to Ms. Rothstein's note, and $850 of interest was
outstanding under such note. 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

<PAGE>
proceeds of the loan to purchase 340,919 shares of common stock of Health Card.
In addition, Mr. Brodsky pledged a like number of 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 was repaid in full in January 1999. On April 8, 1999, HSBC
(formerly Marine Midland Bank), advised Health Card that its unlimited guaranty
of Mr. Brodsky's $2,000,000 loan was released.

<PAGE>
INDEBTEDNESS OF MANAGEMENT

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

<TABLE>
<S> <C> <C>
P.W. Capital LLC(1)(2). 4,284,902 4,493,404
Port Charitable Foundation(1)(3)...................... 258,500 14,000
Sandata, Inc.(4)...................................... 550,599 0
Bert E. Brodsky(5).................................... 1,684,700 1,036,733
P.W. Medical Management, Inc.(1)...................... 785,000 0
Medical Arts Office Services, Inc.(1)................. 93,485 0
Wilder Woods Estates, LLC(1).......................... 214,000 0
Document Storage & Management(1)...................... 95,000 0
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 0
Gerald Shapiro(7)..................................... 325,500 308,500
Sandra Rothstein(8)................................... 43,400 850
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.(10)........................ 7,000 0
</TABLE>

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

(1) On June 1, 1998, Health Card assigned certain indebtedness aggregating
$1,636,785 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, such
amount reflecting the assigned debt and amounts then owed by P.W. Capital
to Health Card. 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.

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

(6) As of May 1, 1998, Mr. Brodsky was no longer an affiliate of J&A
Construction, LLC.

(7) Mr. Shapiro, Vice Chairman of the Board of Health Card, is the Chairman of
the Board and Treasurer of Mediclaim, Inc. Includes principal and interest
due under a non-recourse (except for interest) promissory note dated July
1, 1997 made payable by Mr. Shapiro to the order of Health Card in the
original principal amount of $300,000, secured by a pledge of 383,534
shares of common stock of Health Card. Interest on such note is payable
quarterly and together with principal 5 years from the date of the note.

(8) Sandra Rothstein is Mr. Brodsky's administrative assistant. As of May 1,
1999, no principal was outstanding with respect to Ms. Rothstein's note.

(9) Linda Portney is Executive Vice President of Operations 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.

<PAGE>

The Bert E. Brodsky Revocable Trust has agreed with Health Card that,
effective upon the consummation of this offering, it will repay the indebtedness
discussed below to the extent of 73% of the proceeds from the sale of the shares
being offered by the Brodsky Trust, net of underwriting discounts and
commissions, a non-accountable expense allowance and a financial advisory fee
payable to the representatives. It is anticipated that the net proceeds from the
sale of shares by the Brodsky Trust will be applied first 100% to amounts owed
by Mr. Brodsky to Health Card and the balance to amounts owed by P.W. Capital,
LLC to Health Card. In addition, Mr. Brodsky has agreed to pay in full, within
one year of the consummation of this offering, the remaining indebtedness owed
by P.W. Capital, LLC, reflected in the above table, after application of the net
proceeds from the sale of shares by the selling stockholder in this offering. In
the event that P.W. Capital does not pay amounts due as and when required under
the non-recourse June 1998 promissory note, Health Card's recourse will be to
exercise its legal remedies with respect to the Health Card shares held by
Health Card as collateral and pursue legal action against Mr. Brodsky under a
related guaranty. Such note does not provide for default interest or penalties.
Mr. Shapiro has orally agreed to pay in full the indebtedness reflected opposite
his name in the above table within one year of the consummation of this
offering. In the event that Mr. Shapiro does not pay amounts due as and when
required under the July 1997 promissory note, Health Card's recourse will be to
exercise its legal remedies with respect to the Health Card shares held by
Health Card as collateral and pursue legal action against Mr. Shapiro for unpaid
interest. Such note does not provide for default interest or penalties. It is
not anticipated that additional advances to or on behalf of Mr. Brodsky or his
affiliates will be permitted in the future, unless approved by a majority of
Health Card's disinterested directors.

SUNSTAR HEALTHCARE, INC.

SunStar Healthcare, Inc., 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. Effective
May 1, 1999, Health Card began 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.

<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information, as of May 26, 1999,
concerning the beneficial ownership of Health Card's common stock, before and as
adjusted to reflect 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.

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 NUMBER OF
SHARES OF SHARES OF APPROXIMATE
COMMON COMMON PERCENTAGE OF
STOCK NUMBER OF STOCK OUTSTANDING SHARES OF
BENEFICIALLY SHARES OF BENEFICIALLY COMMON STOCK
OWNED COMMON OWNED --------------------------
BEFORE THE STOCK AFTER THE BEFORE THE AFTER THE
NAME AND ADDRESS(1) OFFERING OFFERED OFFERING OFFERING OFFERING
- ------------------- ------------ --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Bert E. Brodsky............. 4,451,164(2) -- 3,951,164(2) 83.8%(2) 54.0%(2)
Bert E. Brodsky Revocable
Trust..................... 500,000 500,000 -- 9.4% --
Irrevocable Trust of David
C. Brodsky................ 383,559 -- 383,559 7.2% 5.3%
Gerald Shapiro.............. 383,534 -- 383,534 7.2% 5.3%
Linda Portney............... 219,162 -- 219,162 4.1% 3.0%
Mary Casale................. 51,138(3) -- 51,138(3) -- --
Richard J. Strauss, M.D.,
F.A.C.S................... -- -- -- -- --
Gerald Angowitz............. -- -- -- -- --
All executive officers and
Directors as a group (7
persons).................. 5,053,860(2)(3) 500,000 4,604,999 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,
(ii) 500,000 shares of common stock beneficially owned by the Bert E.
Brodsky Revocable Trust, of which Mr. Brodsky's wife is the trustee, and
(iii) 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.'

(3) Includes 51,138 shares of common stock subject to options exercisable within
sixty days of the date of this prospectus. Does not include an aggretage of
204,551 shares of common stock subject to currently unexercisable options.

<PAGE>
DESCRIPTION OF CAPITAL STOCK

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 May 28, 1999, there were 5,312,496 shares of common stock and no shares of
preferred stock outstanding. Upon the completion of the offering there will be
7,312,496 shares of common stock and no preferred stock outstanding, excluding
250,000 shares of common stock issuable upon exercise of the representatives'
warrants and 375,000 shares of common stock issuable upon exercise of the
over-allotment option. There were 34 shareholders of record as of May 28, 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.

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 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.

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

REGISTRATION RIGHTS

The representatives, and other holders of the representatives' warrants,
have 'piggyback' rights to include the shares underlying the representatives'
warrants in any registration statement filed by Health Card. These rights exist
during the period commencing on the date of this prospectus and ending six (6)
years from the date of this prospectus. The representatives and other holders of
the representatives' warrants also have 'demand' rights during the period
commencing on 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 representatives' warrants, to require registration by Health
Card of the shares underlying the representatives' warrants. Furthermore, any
holder of the representatives' 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

Health Card's Certificate of Incorporation 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 above
provision may not eliminate or limit the liability of a director for:

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), 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 Certificate of Incorporation or By-Laws, and
if permitted under Health Card's Certificate of Incorporation or By-laws under
any agreement, by vote of shareholders or by vote of directors.

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 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.

<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, Health Card will have outstanding
7,312,496 shares of common stock. Of these shares, the 2,500,000 shares sold in
the offering (2,875,000 shares if the over-allotment option is exercised), and,
except as described below, the 4,812,496 remaining 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.

Except with regard to the 500,000 shares to be sold by the Bert E. Brodsky
Revocable Trust in this offering, Health Card's executive officers, directors
and certain shareholders who collectively own 5,053,860 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 180 days after the effective date of this prospectus, without the prior
written consent of Ryan, Beck. However, any gift or similar transfer to a family
member or trust for the benefit thereof of shares registered in such
shareholder's name or beneficially owned by him will be exempt from the
restrictions set forth in the foregoing sentence provided that (i) no
consideration will be directly or indirectly received in connection with such
transfer, and (ii) any transferee of any such shares will deliver to the
representatives, prior to the consummation of such transfer, an agreement by
such transferee to be bound by all of the terms and conditions of such lock-up
agreement. 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 180 day 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. 1,713,118 shares of common stock will not be
tradeable under Rule 144 until the applicable time period elapses from the time
full consideration is paid. See 'Certain Transactions.'

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 200,000 units with each unit consisting of 6.39 shares of common
stock and two-year redeemable common stock purchase warrants to purchase 3.20
shares of common stock at $1.17 per share, raising net proceeds of $830,270.

<PAGE>
UNDERWRITING

The underwriters named below, for whom Ryan, Beck & Co., Inc. and
Pennsylvania Merchant Group are acting as the representatives, have separately
agreed, subject to the terms and conditions of the underwriting agreement, to
purchase from Health Card and the selling stockholder, and Health Card and the
selling stockholder have agreed to sell to them, on a firm commitment basis, the
respective number of shares of common stock set forth opposite their names
below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- -----------------------------
<S> <C> <C>
Ryan, Beck & Co., Inc......................................
Pennsylvania Merchant Group................................
Total.................................................
</TABLE>

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 and the selling stockholder have been advised by the
representatives 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 or the date of the underwriting
agreement, as applicable, to purchase up to an additional 375,000 shares of
common stock from Health Card at the offering price, less underwriting discounts
and commissions, 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.

The representatives have advised Health Card that they do 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 and the selling stockholder have 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. Each of Health Card and the
selling stockholder has also agreed to pay the underwriters an expense allowance
on a non-accountable basis equal to one percent (1%), as well as a financial
advisory fee equal to one percent (1%), of the gross proceeds from the sale of
shares by Health Card and the selling stockholder, as applicable, none of which
has been paid to date.

Certain of Health Card's officers, directors and shareholders have agreed
not to, directly or indirectly, offer to sell, sell, grant any option for the
sale of, transfer, assign, hypothecate, pledge or otherwise encumber or dispose
of any beneficial interest in any securities of Health Card owned by them for a
period of 180 days after the effective date of this prospectus, without the
prior written consent of Ryan, Beck & Co., Inc. An appropriate legend shall be
marked on the face of the certificates representing all of such securities.
However, any gift or similar transfer to a family member or trust for the
benefit thereof of shares registered in such shareholder's name or beneficially
owned by him will be exempt from the restrictions set forth in the foregoing
sentence provided that (i) no consideration will be directly or indirectly
received in connection with such transfer, and (ii) any transferee of any such
shares will deliver to the representatives, prior to the consummation of such
transfer, an agreement by such transferee to be bound by all of the terms and
conditions of such lock-up agreement. See 'Shares Eligible for Future Sale.'

<PAGE>
THE REPRESENTATIVES' WARRANTS

In connection with the offering, Health Card has agreed to sell to the
representatives, for nominal consideration, the representatives' warrants. These
warrants entitle the representatives to purchase 250,000 shares of common stock
from Health Card. The representatives' warrants are initially exercisable at a
price per share equal to 120% of the offering price. The representatives'
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 of the
representatives' warrant agreement, except to officers of the representatives.
The representatives' warrants also provide for adjustment in the exercise price
and 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 representatives' warrants grant to the holders thereof certain rights
of registration for the securities issuable upon exercise of the
representatives' warrants. See 'Description of Capital Stock -- Registration
Rights.' The representatives will be required to deliver a prospectus in
connection with the sale of any shares underlying the representatives' 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 representatives 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 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 375,000 shares of common stock, by
exercising the over-allotment option. In addition, the representatives may
impose 'penalty bids' under contractual arrangements with the underwriters,
whereby they 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 underwriting
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.'

<PAGE>
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,
licensure and certain other regulatory matters governed by New York State laws
and federal laws. 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 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>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Financial Statements:
Balance Sheets as of June 30, 1997 and 1998, and
unaudited as of March 31, 1999........................ F-3
Statements of Income for each of the years ended June
30, 1996, 1997 and 1998, and unaudited for the nine
months ended March 31, 1998 and 1999.................. F-4
Statements of Stockholders' Equity (Deficit) for each
of the years ended June 30, 1996, 1997 and 1998, and
unaudited for the nine months ended March 31, 1999.... F-5
Statements of Cash Flows for each of the years ended
June 30, 1996, 1997 and 1998, and unaudited for the
nine months ended March 31, 1998 and 1999............. F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1

<PAGE>
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
Melville, New York

September 2, 1998, except for
Note 12 which is as of May 25, 1999

F-2

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents........................ $ 1,782,597 $ 1,305,792 $ 2,037,150
Accounts receivable, less allowance for possible
losses of $200,000, $244,189, and $818,796..... 3,312,329 6,079,079 10,142,378
Rebates receivable............................... 1,487,667 4,064,868 4,419,496
Deferred income tax.............................. 120,000 141,000 382,000
Other current assets............................. 69,376 98,514 202,675
----------- ----------- -----------
Total current assets........................ 6,771,969 11,689,253 17,183,699
Property, equipment and software development costs,
net................................................. 900,979 1,596,443 2,750,994
Due from affiliates................................... 2,846,851 4,300,902 4,502,266
Due from stockholders................................. 386,493 10,774 --
Other assets.......................................... 14,528 12,528 15,728
Deferred income tax................................... 951,000 734,000 441,000
Deferred offering costs............................... -- -- 407,024
----------- ----------- -----------
$11,871,820 $18,343,900 $25,300,711
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable and accrued expenses............ $13,353,884 $19,730,110 $22,352,016
Current portion of long-term debt................ 256,221 7,137 4,691
Due to officer/stockholder....................... -- 30,000 300,000
Due to affiliates................................ 560,599 451,669 245,630
Income taxes payable............................. -- 59,881 607,083
Other current liabilities........................ 37,360 68,780 212,911
----------- ----------- -----------
Total current liabilities................... 14,208,064 20,347,577 23,722,331
Long-term debt, less current portion.................. 7,427 2,605 --
----------- ----------- -----------
Total liabilities........................... 14,215,491 20,350,182 23,722,331
----------- ----------- -----------
Commitments and Contingencies (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, 4,971,577 and 5,312,496
shares issued and outstanding.................. 3,259 4,972 5,313
Additional paid-in capital....................... -- 901,128 2,900,787
Retained earnings (deficit)...................... (2,274,930) (1,458,482) 755
Notes receivable -- stockholders................. (72,000) (1,453,900) (1,328,475)
----------- ----------- -----------
Total stockholders' equity (deficit)........ (2,343,671) (2,006,282) 1,578,380
----------- ----------- -----------
$11,871,820 $18,343,900 $25,300,711
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.......................... $54,308,872 $70,405,168 $98,528,384 $69,753,602 $96,754,613
Cost of claims.................... 48,843,261 63,293,699 89,770,402 63,324,692 87,518,657
----------- ----------- ----------- ----------- -----------
Gross profit................. 5,465,611 7,111,469 8,757,982 6,428,910 9,235,956
Selling, general and
administrative expenses*........ 4,216,259 5,855,282 7,192,027 4,896,612 7,482,553
----------- ----------- ----------- ----------- -----------
Operating income.................. 1,249,352 1,256,187 1,565,955 1,532,298 1,753,403
----------- ----------- ----------- ----------- -----------
Other income (expense):
Other income, net............ 21,530 42,595 264,666 159,267 519,738
Public offering costs........ -- -- (445,173) (100,000) (82,904)
----------- ----------- ----------- ----------- -----------
21,530 42,595 (180,507) 59,267 436,834
----------- ----------- ----------- ----------- -----------
Income before income taxes........ 1,270,882 1,298,782 1,385,448 1,591,565 2,190,237
Provision for income taxes
(benefit)....................... (185,275) (189,984) 569,000 663,000 731,000
----------- ----------- ----------- ----------- -----------
Net income........................ $ 1,456,157 $ 1,488,766 $ 816,448 $ 928,565 $ 1,459,237
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per common share:
Basic........................ $ 0.47 $ 0.46 $ 0.16 $ 0.19 $ 0.28
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted...................... $ 0.35 $ 0.37 $ 0.16 $ 0.19 $ 0.28
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding:
Basic........................ 3,093,085 3,258,459 4,966,885 4,965,326 5,169,411
Diluted...................... 4,182,909 4,008,481 4,969,166 4,967,407 5,169,411

- ------------
*Includes amounts charged by
affiliates aggregating: $ 2,868,974 $ 4,511,144 $ 4,904,514 $ 3,672,165 $ 2,361,913
</TABLE>

See accompanying notes to consolidated financial statements.

F-4

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
RECEIVABLE --------------- -------------------- PAID-IN EARNINGS
STOCKHOLDERS SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------------ ------ ------ ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995.......... $ -- -- $-- 3,804,984 $3,805 $ 25,958 $(3,580,281)
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..................... -- -- -- -- -- -- --
Treasury stock retired...... -- -- -- (1,569,283) (1,569) -- (1,124,209)
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) -- -- 1,713,118 1,713 1,338,287 --
Interest on notes
receivable................ (113,900) -- -- -- -- -- --
Capital distributions, net
of income taxes........... -- -- -- -- -- (437,159) --
Repayment of loan by
stockholder............... 72,000 -- -- -- -- -- --
Net income.................. -- -- -- -- -- -- 816,448
----------- ----- ------ ---------- ------- ---------- -----------

Balance, June 30, 1998.......... (1,453,900) -- -- 4,971,577 4,972 901,128 (1,458,482)
Interest on notes receivable
(unaudited)............... (85,425) -- -- -- -- -- --
Interest paid on notes
receivable (unaudited).... 170,850 -- -- -- -- -- --
Principal paid on notes
receivable (unaudited).... 40,000 -- -- -- -- -- --
Sale of stock (unaudited)... -- -- -- 340,919 341 1,999,659 --
Net income (unaudited)...... -- -- -- -- -- -- 1,459,237
----------- ----- ------ ---------- ------- ---------- -----------

Balance, March 31, 1999
(unaudited)................... $(1,328,475) -- $-- 5,312,496 $5,313 $2,900,787 $ 755
----------- ----- ------ ---------- ------- ---------- -----------
----------- ----- ------ ---------- ------- ---------- -----------

<CAPTION>
TREASURY STOCK
-----------------------
SHARES AMOUNT
---------- ----------
<S> <C> <C>
Balance, June 30, 1995.......... 1,357,927 $ (976,728)
Exercise stock options...... -- --
Capital distribution, net of
income taxes.............. -- --
Purchase of treasury
stock..................... 211,356 (149,050)
Treasury stock retired...... (1,569,283) 1,125,778
Net income.................. -- --
---------- ----------
Balance, June 30, 1996.......... -- --
Capital distribution, net of
income taxes.............. -- --
Net income.................. -- --
---------- ----------
Balance, June 30, 1997.......... -- --
Sale of stock............... -- --
Interest on notes
receivable................ -- --
Capital distributions, net
of income taxes........... -- --
Repayment of loan by
stockholder............... -- --
Net income.................. -- --
---------- ----------
Balance, June 30, 1998.......... -- --
Interest on notes receivable
(unaudited)............... -- --
Interest paid on notes
receivable (unaudited).... -- --
Principal paid on notes
receivable (unaudited).... -- --
Sale of stock (unaudited)... -- --
Net income (unaudited)...... -- --
---------- ----------
Balance, March 31, 1999
(unaudited)................... -- $ --
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Operating activities:
Net income....................... $ 1,456,157 $ 1,488,766 $ 816,448 $ 928,565 $ 1,459,237
Depreciation and amortization.... 184,708 240,744 368,644 278,113 545,087
Bad debt expense................. 214,046 115,000 70,000 63,201 24,607
Allowance for possible losses.... -- -- -- -- 550,000
Compensation expense accrued to
officer/stockholder............ -- -- 30,000 -- 270,000
Deferred income taxes............ (225,000) (200,000) 488,000 557,000 52,000
Gain on sale of investment....... (15,885) -- -- -- --
Interest accrued on stockholders'
loans.......................... -- -- (113,900) (85,425) (85,425)
Changes in assets and liabilities:
Accounts receivable.............. (651,957) (974,319) (2,836,750) (3,019,334) (4,637,906)
Other current assets............. (22,732) (7,195) (27,138) (56,106) (107,361)
Rebates receivable............... (1,132,195) 253,743 (2,577,201) (1,746,164) (354,628)
Due to/from affiliates........... (2,983,896) 511,512 (1,562,981) (1,401,326) (407,403)
Accounts payable and accrued
expenses....................... 4,328,056 2,104,949 6,175,665 6,022,152 2,209,932
Income taxes payable............. -- -- 59,881 91,000 547,202
Other liabilities................ 38,900 (38,900) 31,420 (1,326) 144,131
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.......................... 1,190,202 3,494,300 922,088 1,630,350 209,473
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures............. (448,163) (444,646) (864,108) (650,754) (1,549,638)
Sale of investment............... 25,114 -- -- -- --
Loans (to)/from stockholders..... -- (32,093) (792,200) (743,981) 10,774
Repayment of loans by
officer/stockholder............ 36,300 -- 1,167,919 1,000,000 --
Repayment of note by
stockholder.................... -- -- 72,000 72,000 40,000
Interest received on notes from
stockholders................... -- -- -- -- 170,850
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.......................... (386,749) (476,739) (416,389) (322,735) (1,328,014)
----------- ----------- ----------- ----------- -----------
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) (521,233) --
Repayment of debt................ (55,909) (605,789) (253,906) (250,915) (5,051)
Deferred offering costs.......... -- -- -- -- (145,050)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities................ (822,945) (1,246,101) (982,504) (772,148) 1,849,899
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................... (19,492) 1,771,460 (476,805) 535,467 731,358
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 $ 2,318,064 $ 2,037,150
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE NINE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

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

The Company enters into two types of arrangements for the payment of
administrative fees, fee for service (per claim charges) and capitation (per
plan participant per month). 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 stockholder for no consideration. The Company
intends that the IPA will be the contracting party with respect to any contracts
with Health Maintenance Organizations or providers containing financial risk
sharing provisions. The IPA is subject to the regulatory authority of the
Department of Health and the laws, rules and regulations applicable to
independent practice associations in New York. Activities conducted through
March 31, 1999 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.

REVENUE RECOGNITION AND COST OF CLAIMS

Revenue under the fee for service arrangement related to the sales of
prescription drugs by the Company's nationwide network of pharmacies are
recognized when the claims are adjudicated. At the point-of-sale, the pharmacy
claims are adjudicated using the Company's on-line processing system.
Adjudication is the process by which the plan participant is checked for
eligibility of coverage, the prescription is compared to the plan parameters
established by the sponsor, the particular drug is reviewed for
contraindications based upon the plan participant's drug history, age or sex and
the information is placed into a database available for reporting and query. The
Company invoices plan sponsors and includes as revenues the Company's
administrative fees and charges relating to pharmaceuticals dispensed by the
Company's network of pharmacies. Cost of claims includes the amounts paid to the
Company's network of pharmacies for pharmaceutical

F-7

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE NINE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

claims reduced by rebates from drug manufacturers. The Company does not take
possession or legal ownership of the pharmaceutical drugs dispensed by the
pharmacy network, although the Company assumes the legal responsibility and
financial risk of paying for dispensed pharmaceuticals whether or not the
Company is paid by its sponsors.

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

The Company records the portion of the net rebates from drug manufacturers
which it retains as a reduction of cost of claims. These rebates are recognized
when the Company is entitled to them in accordance with the terms of the
Company's arrangements with the rebate administrator and the Company's sponsors
and when the amount of the rebates is determinable. The Company records the
gross rebate receivable and the appropriate payable to the sponsors based on
estimates which are subject to final settlement. The estimates are based upon
the claims submitted and the Company's rebate experience, and are adjusted as
additional information becomes available. The rebates are processed by an
independent rebate administrator. For the years ended June 30, 1996, 1997, and
1998, net rebates recorded by the Company as a reduction of cost of claims were
$1,956,161, $883,243 and $1,460,537, respectively. For the nine months ended
March 31, 1998 and 1999, net rebates were $1,224,492 and $1,620,758,
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.

Expenditures relating to the development of software to be used in the
claims adjudication process are charged to expense until technological
feasibility is established upon completion of a working model of the software.
Thereafter, the remaining software development costs up to the date such
software is completed are capitalized and included on the balance sheet as
software development costs. During the years ended June 30, 1996, 1997 and 1998
$386,161, $373,884, and $422,316 in software development costs were capitalized,
respectively and $320,610 and $1,099,600 during the nine months ended March 31,
1998 and 1999, respectively.

Amortization of capitalized amounts commences on the date the software is
placed into use and is computed using the straight-line method over the
estimated economic life of the software, primarily five years. Amortization
expense was $128,808, $182,949, and $213,340 for the years ended June 30, 1996,
1997, and 1998, respectively and $192,274 and $315,366 for the nine months ended
March 31, 1998 and 1999, 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

The Company accounts for deferred offering costs in accordance with SAB
Topic 5:A. Accordingly, only specific incremental costs directly attributable to
a proposed or actual offering are classified as deferred offering costs. The
deferred offering costs in connection with the Company's proposed public
offering are being capitalized and will be charged to equity upon

F-8

consummation of the public offering or charged to operations should the public
offering prove to be unsuccessful.

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 March 31, 1999.

TAXES ON INCOME

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

COMPUTATION OF EARNINGS PER COMMON SHARE

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.

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 March 31, 1999 were $2,156,566, $2,954,241 and $2,631,516,
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.

F-9

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, approximate fair value
because of the current nature of these instruments. The fair value of the loans
due from stockholders and affiliates is difficult to estimate due to their
related party nature. Certain amounts due to stockholders do not bear interest
and have no set repayment terms. Loans due 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.

INTERIM FINANCIAL INFORMATION

The consolidated financial statements and related notes thereto as of
March 31, 1999 and the nine months ended March 31, 1998 and 1999 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 nine months ended March 31, 1999 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. 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.

F-10

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. 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, EQUIPMENT AND SOFTWARE DEVELOPMENT COSTS

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

<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures........................... $ 284,846 $ 386,480 $ 616,433
Software......................................... 1,183,130 2,145,606 3,402,821
Leasehold improvements........................... -- -- 212,470
---------- ---------- ----------
1,467,976 2,532,086 4,231,724
Accumulated depreciation/amortization............ 566,997 935,643 1,480,730
---------- ---------- ----------
$ 900,979 $1,596,443 $2,750,994
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Depreciation and amortization expense for the years ended June 30, 1996,
1997 and 1998 was $184,708, $240,744 and $368,644, respectively, and $278,113
and $545,087 for the nine months ended March 31, 1998 and 1999, respectively.

3. RELATED PARTY TRANSACTIONS

(a) DISTRIBUTIONS -- CAPITAL

The Company leases office space in Port Washington, New York from a company
affiliated by common ownership under an agreement expiring March 30, 2004 (Note
7(a)). Leasehold improvements made to this space by a company affiliated by
common ownership during the nine months ended March 31, 1999, were approximately
$58,000. 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 $244,095 and $206,342 for the nine months ended March 31, 1998
and 1999, 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 the affiliated company. The Company
assumed a liability of $86,000 relating to these employees.

F-11

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:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>

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

* 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 in the amount of $4,254,785 due from one affiliated company
controlled by the majority stockholder. Such amount bears interest at 8.5% per
annum, payable quarterly, and has no set repayment date. Mr. Brodsky has agreed
to repay the promissory note and other amounts due from affiliates within one
year of the consummation of the public offering currently in process. 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 subject to 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 nine months ended March 31, 1999,
interest income accrued was $273,436. Interest paid by the affiliate in December
1998 aggregated $183,000. Prior to June 1, 1998, the outstanding balances did
not bear any interest. On January 2, 1999, one of the affiliates executed a
non-interest bearing note payable to the Company in the amount of $90,100 to
evidence advances to the affiliate in the same amount.

Prior to June 1, 1998, the Company leased all of its employees from an
affiliated company at an agreed upon price equal to the affiliate's cost plus a
7% administrative fee. Effective June 1, 1998, the Company hired these employees
(which included programmers as discussed above) and paid its own payroll and
related costs. For the years ended June 30, 1996, 1997 and 1998 the
administrative fee charged by the affiliate was approximately $97,000, $131,000
and $157,000, respectively and $123,000 and $-0- for the nine months ended
March 31, 1998 and 1999, respectively.

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 nine months ended March 31, 1998 and 1999, the amounts
charged by affiliates and capitalized were $320,610 and $487,000, respectively.

The Company purchased furniture and fixtures from an affiliate during the
nine months ended March 31, 1999 for approximately $127,000. The price included
a 20% purchasing and handling fee.

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

F-12

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:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Software maintenance and
related services(i)...... $ 551,083 $1,443,470 $1,124,626 $ 747,958 $ 536,871
Management and consulting
fees(ii)................. 538,058 600,654 857,540 652,876 1,449,141
Administrative and
bookkeeping
services(iii)............ 1,626,503 2,202,293 2,618,155 2,027,236 184,073
Rent and utilities......... 153,330 264,727 304,193 244,095 191,828
---------- ---------- ---------- ---------- ----------
$2,868,974 $4,511,144 $4,904,514 $3,672,165 $2,361,913
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

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

(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. Pursuant to an agreement with
one of these affiliated companies, dated April 14, 1994, minimum fees are
$25,000 per year payable in monthly installments. Actual monthly fees
through March 31, 1999 were approximately $58,000.

(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 $30,000 for the year ended June 30, 1998 and $270,000 for the
nine months ended March 31, 1999 as a result of this agreement. At March 31,
1999 net amounts due to this officer/stockholder aggregated $300,000.

During the nine months ended March 31, 1999, the Company paid the annual
premium of $60,000 on a life insurance policy where the majority stockholder is
the owner and beneficiary.

On October 23, 1998 the Company sold 340,919 shares of common stock to the
majority stockholder at $5.87 per share. In connection with this transaction the
majority stockholder obtained a loan from a bank for $2,000,000 to pay for the
shares. The Company unconditionally guaranteed this loan which was due on
January 28, 1999, bore interest at an annual rate of 7.72% payable monthly, and
was secured by all assets of the Company. As the guarantor, the Company had to
comply with certain operational covenants as defined in the guarantee agreement
for the duration of the loan. On January 28, 1999, the loan to the bank was paid
in full by the majority stockholder and the unconditional guarantee along with
the security on the assets was terminated.

F-13

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Claims payable................................ $10,676,936 $13,571,796 $14,887,476
Rebates payable to sponsors................... 1,891,174 4,470,404 5,377,968
Other payables................................ 785,774 1,687,910 2,086,572
----------- ----------- -----------
$13,353,884 $19,730,110 $22,352,016
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

5. MAJOR CUSTOMERS AND PHARMACIES

For the years ended June 30, 1996, 1997 and 1998, approximately 66%, 63%
and 60% 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 nine months ended March 31, 1998 and 1999, approximately 61% and
66%, respectively, of the revenues were from two and three plan sponsors,
respectively. Amounts due from the three customers at March 31, 1999
approximated $4,541,000. During the nine months ended March 31, 1999 the Company
recorded approximately $500,000 of additional revenue when the amount of the
adjustment became determinable, upon the Company receiving verbal acceptance of
the calculations under the provisions of one of its arrangements to adjust for
the increased cost of drugs primarily related to the prior year.

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 nine months ended March 31, 1998 and 1999, approximately 25% and
28% of the cost of claims were from two pharmacy chains. Amounts payable to
these two chains at March 31, 1999 were approximately $3,727,000.

The Company evaluated its accounts receivable as of March 31, 1999 taking
into consideration the expiration of certain contracts during the period and the
status of the negotiations to renew those contracts. As consideration for the
renewal of these contracts, the Company determined that it would be necessary to
negotiate the receivable balance due from these contracts and the Company most
likely would not be able to collect the full amount. As a result the Company
estimated and recorded a reserve in the amount of $550,000 during the nine
months ended March 31, 1999.

F-14

6. TAXES ON INCOME

Provisions (benefit) for federal, and state income taxes consist of the
following:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current:
Federal..................... $ 26,700 $ 6,038 $ 60,000 $ 91,000 $524,000
State....................... 13,025 3,978 21,000 15,000 155,000
--------- --------- -------- -------- --------
39,725 10,016 81,000 106,000 679,000
--------- --------- -------- -------- --------
Deferred:
Federal..................... (174,400) (154,900) 363,000 462,000 39,000
State....................... (50,600) (45,100) 125,000 95,000 13,000
--------- --------- -------- -------- --------
(225,000) (200,000) 488,000 557,000 52,000
--------- --------- -------- -------- --------
Total.................. $(185,275) $(189,984) $569,000 $663,000 $731,000
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
</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:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------- ---------------
1996 1997 1998 1998 1999
----- ----- ----- ---- ----
<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 7.7 5.2
Decrease in deferred income tax valuation
reserve (see Note 3(a))................. (49.3) (48.6) -- -- --
Utilization of net operating loss
carryforward............................ -- -- -- -- (8.1)
Permanent differences..................... -- -- -- -- 2.3
----- ----- ----- ---- ----
(14.6%) (14.6%) 41.1% 41.7% 33.4%
----- ----- ----- ---- ----
----- ----- ----- ---- ----
</TABLE>

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

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1998
---------- --------
<S> <C> <C>
Accounts receivable allowances........................ $ 120,000 $100,000
Vacation expense accrual.............................. -- 41,000
Property and equipment................................ 951,000 734,000
---------- --------
$1,071,000 $875,000
---------- --------
---------- --------
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

(a) On December 15, 1998 the Company leased an apartment in Port
Washington, New York for use by two members of its management under an operating
lease which expires on December 14, 1999. The annual rent is $20,400. Utilities
and maintainance are payable by the Company as additional rent. Future minimum
rent payments under the noncancellable operating leases with related (Note 3)
and other parties are as follows:

F-15

<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
- ------------------------------------------------------------
<S> <C>
1999..................................................... $ 286,000
2000..................................................... 405,000
2001..................................................... 415,000
2002..................................................... 436,000
2003..................................................... 458,000
Thereafter............................................... 390,000
----------
$2,390,000
----------
----------
</TABLE>

(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 was payable monthly through
February 1999. The initial license fee of $400,000 has been capitalized and is
being amortized over three years. In addition, if certain milestones were
reached based on the number of processed claims, as defined, the license fee
increases incrementally, up to an additional $500,000 over the term of the
agreement. In February 1999 the Company met certain milestones, resulting in an
additional license fee of $150,000, which was capitalized and is being amortized
over three years. The agreement also provides for the annual payment of 18% of
the license fee, as defined, as a service maintenance fee which is expensed as
incurred.

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

(d) The Company has an employment arrangement with its senior executives
which entitles them to participate in a bonus pool equal to 15% of any increase
in pretax profits over the prior year. Pursuant to her employment arrangement,
the Company's Executive Vice President of Sales and Marketing is entitled to
commissions of .5% of gross revenues received from direct accounts sold and .25%
of gross revenues received from accounts sold by sales people under her
management.

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.

F-16

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 1997. 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.

(b) On July 1, 1997 the Company sold 1,713,118 shares of common stock at
$.78 per share to the principal stockholder, a director, and an individual in
exchange for notes receivable; plus the principal stockholder and the director
agreed to cancel options to purchase 1,406,292 shares of common stock at $.08
per share.

(c) 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

(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 SFAS No. 123,
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 SFAS No. 123,
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.

(d) 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

F-17

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>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net income:
As reported...................... $1,456,157 $1,488,766 $816,448 $928,565 $1,459,237
Proforma......................... 1,456,157 1,488,766 764,466 889,579 1,411,586

Basic earnings per share:
As reported...................... $.47 $.46 $.16 $.19 $.28
Proforma......................... .47 .46 .15 .18 .27

Diluted earnings per share:
As reported...................... $.35 $.37 $.16 $.19 $.28
Proforma......................... .35 .37 .15 .18 .27
</TABLE>

(e) The following table summarizes information about stock options as of
March 31, 1999:

<TABLE>
<CAPTION>
SHARES OF WEIGHTED AVERAGE
COMMON STOCK EXERCISE PRICE
------------ --------------
<S> <C> <C>
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 March 31, 1999....................... 345,180 $5.87
---------- -----
---------- -----
</TABLE>

None of the above outstanding options were exercisable at March 31, 1999
(Note 11).

F-18

9. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Cash paid:
Interest............................ $ 2,589 $ 2,254 $ 4,136 $ 1,645 $ --
Income taxes........................ 825 48,916 20,901 15,416 147,798
Non cash investing and financing
activities:
Conversion of claims payable into a
non-interest bearing note......... 900,000 -- -- -- --
Accrual for the purchase of computer
software.......................... -- -- -- 300,000 150,000
Issuance of common stock for notes
from stockholders................. 72,000 -- 1,340,000(i) 1,340,000(i) --
</TABLE>

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

(i) These non-recourse (except with regard to interest) promissory notes dated
July 1, 1997 are due and payable in five years and bear interest at 8 1/4%
per annum payable quarterly. The 1,713,118 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.

10. EMPLOYEE BENEFIT PLAN

Effective June 1, 1998, the Company adopted a 401(k) plan covering
substantially all employees. Participants may elect to contribute to the plan a
minimum of 1% to a maximum of 18% of their annual compensation, not to exceed a
dollar limit set by law. Annually, the Company will determine a discretionary
matching contribution equal to a percentage of each participant's contribution.
Contributions made by the Company for the year ended June 30, 1998 and the nine
months ended March 31, 1999 were approximately $4,000 and $6,000, respectively.

11. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Basic......................... 3,093,085 3,258,459 4,966,885 4,965,326 5,169,411
Effect of assumed conversion
of employee stock options... 1,089,824 750,022 2,281 2,081 --
--------- --------- --------- --------- ---------
Diluted....................... 4,182,909 4,008,481 4,969,166 4,967,407 5,169,411
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

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>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Number of options...................... -- -- 255,689 255,689 345,180
Weighted-average exercise price........ -- -- $5.87 $5.87 $5.87
</TABLE>

F-19

The shares held by the majority stockholder subject to employee options
have been included in the computation of basic and diluted earnings per share.

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 $15.4 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 May 25, 1999, filed an
amendment to its Certificate of Incorporation to adjust its authorized preferred
stock to 10,000,000 shares, to adjust its authorized common stock to 25,000,000
shares and effect 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.

(c) On May 10, 1999 the Company's Board of Directors adopted the 1999 stock
option plan which provides for the grant of options intended to qualify as
'incentive stock options' under Section 422 of the Internal Revenue Code and
options that are not intended to so qualify -- 'nonstatutory stock options', as
well as stock appreciation rights. 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
1999 Stock Option Plan was approved by stockholders on May 10, 1999.

The plan is administered by the Company's Board of Directors 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.

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

F-20

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
2,500,000 SHARES
[LOGO]

COMMON STOCK
------------------------------------------------
PROSPECTUS
------------------------------------------------

[LOGO]

, 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 commissions and the non-accountable expense allowance
and financial advisory fee) expected to be incurred in connection with the
offering described in this Registration Statement:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 8,827
NASD filing fee............................................. 3,675
The Nasdaq National Market listing fee...................... 69,375
Blue Sky fees and expenses.................................. 20,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 450,000
Printing and engraving expenses............................. 125,000
Transfer Agent and Registrar's fees and expenses............ 25,000
Miscellaneous expenses...................................... 48,123
----------
Total.................................................. $1,000,000
----------
----------
</TABLE>

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 721-726 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 in which any such officer or director is made or threatened to be
made, a party, 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 for a purpose 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 subject
to certain limitations, 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 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 amended,
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.

II-1

<PAGE>
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
recent .1278447-for-one reverse stock split of the Company's shares of common
stock.

On February 14, 1995, the Company granted an option to purchase 1,022,758
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 1,022,758
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 October, 1997, 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.

On July 1, 1997, Mr. Bert E. Brodsky purchased 1,278,447 shares of common
stock by surrendering currently exercisable options to purchase 1,022,758 shares
of common stock of Health Card and by executing and delivering a non-recourse
(except for interest) promissory note made payable to the order of the Company
in the original principal amount of $1,000,000. This note is secured by
1,278,447 shares of common stock owned by Mr. Brodsky on July 1, 1997.

On July 1, 1997, Mr. Gerald Shapiro purchased 383,534 shares of common
stock by surrendering currently exercisable options to purchase 383,534 shares
of common stock of Health Card and by executing and delivering a non-recourse
(except for interest) promissory note made payable to the order of the Company
in the original principal amount of $300,000. This note is secured by 383,534
shares of common stock owned by Mr. Shapiro on July 1, 1997.

On July 1, 1997, Ms. Sandy Rothstein purchased 51,137 shares of common
stock by executing and delivering a non-recourse (except for interest)
promissory note made payable to the order of the Company in the original
principal amount of $40,000. This note is secured by 51,137 shares of common
stock owned by Ms. Rothstein on July 1, 1997.

On October 30, 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 340,919 shares of common stock owned by Mr. Brodsky on October 30,
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. On April 8, 1999, HSBC (formerly
Marine Midland Bank), advised Health Card that its unlimited guaranty of Mr.
Brodsky's $2,000,000 loan was released.

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

II-2

<PAGE>
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 Exhibits

1.1 -- Form of Underwriting Agreement by and between the Company and the Representatives(1)
3.1 -- Certificate of Incorporation of the Company(1)
3.2 -- Amendment, dated January 9, 1987, to Certificate of Incorporation of the Company(1)
3.3 -- Amendment, dated April 21, 1987, to Certificate of Incorporation of the Company(1)
3.4 -- Restated Certificate of Incorporation of the Company filed May 25, 1999(1)
3.5 -- Amendment, filed May 25, 1999, to Certificate of Incorporation of the Company(1)
3.6 -- By-Laws of the Company(1)
3.7 -- Amended and Restated By-Laws of the Company(1)
4.1 -- Form of Specimen Common Stock Certificate(1)
4.2 -- Form of Warrant Agreement, including form of Representatives' Warrants(1)
5.1 -- Opinion of Certilman Balin Adler & Hyman, LLP, counsel for the Company(1)
10.1 -- Agreement, dated April 1, 1990, between the Company and ChoiceCare Long Island, Inc.
d/b/a Vytra Healthcare(1)
10.2 -- Prescription Drug Service Agreement, dated December 1, 1995, between the Company and
ChoiceCare Long Island, Inc. d/b/a Vytra Healthcare(1)(2)
10.3 -- Amendment to Prescription Drug Service Agreement, dated September 25, 1998 between
the Company and Vytra Healthcare(1)
10.4 -- Letter Agreement dated March 30, 1999 among National Medical Health Card Systems
IPA, Inc., the Company and Vytra Healthcare(1)
10.5 -- Agreement, dated January 1, 1995, between the Company and Suffolk County(1)
10.6 -- Agreement, dated March 15, 1998, between the Company and Medi-Span, Inc.(1)
10.7 -- Formulary Agreement, dated January 1, 1996, between the Company and Foundation
Health Pharmaceutical Services d/b/a Integrated Pharmaceutical Services(2)
10.8 -- Mail Service Provider Agreement, dated July 1, 1996, between the Company and Thrift
Drug, Inc. d/b/a Express Pharmacy Services(1)
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(1)
10.10 -- Agreement, dated June 1, 1998, between Sandata, Inc. and the Company(1)
10.11 -- Amendment to Agreement, dated June 1, 1998 between Sandata, Inc. and the Company(1)
10.12 -- Agreement, dated June 16, 1998 between Sandata, Inc. and the Company(1)
10.13 -- Bill of Sale, dated June 1, 1998, between Sandata, Inc. and the Company(1)
10.14 -- Letter Agreement dated June 1, 1998 between Sandata, Inc. and the Company(1)
10.15 -- Software License Agreement and Professional Service Agreement, dated February 18,
1998, between the Company and Prospective Health, Inc.(1)
10.16 -- 1999 Stock Option Plan(1)
10.17 -- Letter, dated January 31, 1996, from the Company to Mary Casale(1)
10.18 -- Employee Covenant Agreement, dated June 15, 1998, between the Company and Mary
Casale(1)
10.19 -- Stock Option Agreement, dated July 1, 1997, between Bert Brodsky and Mary Casale(1)
10.20 -- Letter, dated November 30, 1998, from the Company to Marjorie O'Malley(1)
10.21 -- Employee Covenant Agreement, dated December 7, 1998, between the Company and
Marjorie O'Malley(1)
10.22 -- Stock Option Agreement, dated December 7, 1998, between Bert Brodsky and Marjorie
O'Malley(1)
10.23 -- Letter, dated November 3, 1998, from the Company to John Ciufo(1)
10.24 -- Confidentiality and Non-Disclosure Agreement, dated November 19, 1998, between the
Company and John Ciufo(1)
10.25 -- Stock Option Agreement, dated December 7, 1998, between Bert Brodsky and John
Ciufo(1)
10.26 -- Employee Covenant Agreement, dated June 16, 1998 between the Company and Ken
Hammond(1)
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<C> <S>
10.27 -- Employee Covenant Agreement, dated June 1, 1998 between
the Company and Linda Portney(1)
10.28 -- Lease, dated January 1, 1996, between Sandata, Inc. and
the Company(1)
10.29 -- Assignment, dated November 1, 1996, from Sandata, Inc.,
to BFS Realty, LLC(1)
10.30 -- First Amendment to BFS Realty, LLC Lease, dated June 1,
1998, between BFS Realty, LLC and the Company(1)
10.31 -- Second Amendment to BFS Realty, LLC Lease, dated April 1,
1999, between BFS Realty, LLC and the Company
10.32 -- Lease, dated August 10, 1998, between 61 Manor Haven
Boulevard, LLC and the Company(1)
10.33 -- 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(1)
10.34 -- Letter, dated June 3, 1999, from Bert Brodsky to the
Company(1)
10.35 -- 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(1)
10.36 -- Letter, dated June 3, 1999, from Gerald Shapiro to the
Company(1)
10.37 -- 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(1)
10.38 -- Agreement of Guaranty, dated June 1, 1998, by Bert E.
Brodsky in favor of the Company(1)
10.39 -- Promissory Note, dated October 30, 1998, made payable by
Bert Brodsky to Marine Midland Bank in the principal
amount of $2,000,000(1)
10.40 -- Agreement of Guaranty, dated October 30, 1998, by the
Company in favor of Marine Midland Bank(1)
10.41 -- Promissory Note, dated November 3, 1998, made payable by
Bert Brodsky to Marine Midland Bank in the principal
amount of $2,000,000(1)
10.42 -- Letter, dated January 29, 1999, from Marine Midland Bank
to BDO Seidman(1)
10.43 -- Letter, dated June 4, 1999, from HSBC to Bert E.
Brodsky(1)
10.44 -- 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(1)
10.45 -- Consulting Agreement, dated April 14, 1994, between P.W.
Medical Management, Inc. and the Company(1)
10.46 -- Assignment, dated July 1, 1996, between P.W. Medical
Management, Inc. and P.W. Capital Corp.(1)
10.47 -- Letter, dated June 8, 1999, from P.W. Capital Corp. to
the Company(1)
10.48 -- Letter, dated June 9, 1999, from Bert E. Brodsky to the
Company(1)
10.49 -- Letter, dated June 8, 1999, from the Bert E. Brodsky
Revocable Trust to the Company(1)
10.50 -- Letter agreement, dated June 30, 1999, between the Bert
E. Brodsky Revocable Trust and the Company(1)
10.51 -- Employment Agreement, dated July 1, 1999, between the
Company and Bert E. Brodsky(1)
10.52 -- Letter, dated June 8, 1999, from Bert E. Brodsky to the
Company(1)
10.53 -- Form of Lock-up Agreement(1)
21 -- Subsidiaries of the Company(1)
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 Moscov Evans & Faltischek, P.C.(1)
24.1 -- Powers of Attorney (included in signature page forming a
part hereof)
27.1 -- Financial Data Schedule
</TABLE>

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

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

II-4

<PAGE>
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, individually 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

(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 underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters 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.

II-5

<PAGE>
(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 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-6

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to 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 16th day of July, 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.

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.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ BERT E. BRODSKY Chairman of the Board and Chief July 16, 1999
......................................... Executive Officer
(BERT E. BRODSKY) (Principal Executive Officer)

/s/ GERALD SHAPIRO Vice Chairman of the Board, July 16, 1999
......................................... Secretary
(GERALD SHAPIRO)

/s/ MAJORIE G. O'MALLEY President and Chief Operating July 16, 1999
......................................... Officer
(MARJORIE G. O'MALLEY)

/s/ LINDA PORTNEY Executive Vice President of July 16, 1999
......................................... Operations
(LINDA PORTNEY)

/s/ RICHARD J. STRAUSS Director July 16, 1999
.........................................
(RICHARD J. STRAUSS, F.A.C.S. M.D)

/s/ GERALD ANGOWITZ Director July 16, 1999
.........................................
(GERALD ANGOWITZ)

/s/ KENNETH J. DALEY Director July 16, 1999
.........................................
(KENNETH J. DALEY)

/s/ BARRY DENARO Chief Financial Officer July 16, 1999
......................................... (Principal Accounting Officer)
(BARRY DENARO)

/s/ MARY CASALE Executive Vice President of Sales
......................................... and Marketing
(MARY CASALE)
</TABLE>

II-7

<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END
DESCRIPTION PERIOD EXPENSE(a) WRITE-OFFS CHANGES OF PERIOD
- -------------------------------------- ------------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted from
asset accounts:
Allowance for possible losses
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>

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

(a) Charged to bad debts.

S-1

<PAGE>
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 May 25, 1999, 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.

BDO SEIDMAN, LLP
September 2, 1998

S-2

STATEMENT OF DIFFERENCES

The prescription symbol shall be expressed as...............................'Rx'

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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.

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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.

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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

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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:

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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 eighty percent (80%) of the
projected quarterly rebate no later than one hundred twenty (120)
days after the end of the applicable quarter.

** Confidential portion filed separately with the Commission.

<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.

<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

<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

National Medical Health Card Systems, Inc.
and Subsidiary
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 May 25, 1999, relating to the consolidated financial
statements of National Medical Health Card Systems, Inc. and Subsidiary, which
is contained in that Prospectus, and of our report dated September 2, 1998,
relating to the schedules, 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
July 16, 1999

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