SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
              Annual Report pursuant to Section 13 or 15 (d) of the
                         Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 2002
                         Commission File Number 0-26168

                               CAREADVANTAGE, INC.
                               (Name of Business)

       Delaware                                              52-1849794
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)

485-C Route 1 South, Iselin, New Jersey                         08830
(Address of principal executive office)                       (Zip Code)

<TABLE>
<CAPTION>

<S>    <C>
       Registrant's telephone number, including area code: (732) 602-7000
 Securities registered pursuant to Section 12 (b) of the Exchange Act of 1934: NONE

</TABLE>

          Securities registered pursuant to Section 12 (g) of the Act:

                          Common Stock $.001 par value
                          ----------------------------
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

The Registrant's revenues for its most recent fiscal year were $22,963,000

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of March 7, 2003 (assuming solely for purposes of this calculation
that all directors and executive  officers of the Registrant are affiliates) was
$131,343.

The  number  of  shares  of  common  stock  outstanding  as of March 7, 2003 was
99,795,000.

              Transitional Small Business Disclosure Format Yes ___ No X

     PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE
                  INTO THIS ANNUAL REPORT ON FORM 10-KSB: NONE


<PAGE>


                                     PART I

Item 1. Description of Business
------- -----------------------

Introduction and Background

     CareAdvantage,  Inc.  ("CAI" or the  "Company") and its direct and indirect
subsidiaries,  CareAdvantage  Health  Systems,  Inc.  ("CAHS") and  Contemporary
HealthCare  Management,   Inc.  ("CHCM"),  are  in  the  business  of  providing
management and consulting  services  designed to enable  integrated  health care
delivery  systems and other care management  organizations  to reduce the costs,
while improving the quality,  of medical services provided to their subscribers.
The  management  and  consulting   services  include  care  management   program
enhancement services,  executive and clinical management services,  and training
programs. The Company's management and consulting services have been provided to
integrated health care delivery systems and other care management organizations.

     CAI was  incorporated  in  August  1994 as a  wholly  owned  subsidiary  of
Primedex Health Systems,  Inc. ("PMDX"), a publicly traded New York corporation.
In October  1994,  the Company  acquired CAHS (under its prior  corporate  name,
Advantage Health Systems,  Inc., ("AHS")),  from PMDX. On June 12, 1995, a stock
dividend  of all of the issued  and  outstanding  shares of common  stock of the
Company was  declared  effective  by PMDX.  As a result,  the Company  commenced
trading as a publicly traded company on that date.

     Initially,  CAI relied on PMDX to provide the bulk of its working  capital.
In addition to  transferring  all of its AHS stock to the  Company,  PMDX made a
total of  $9,700,059 in working  capital  advances to CAI (the last such advance
being made in July 1995). Pursuant to a revised separation agreement between CAI
and PMDX dated April 20, 1995,  PMDX agreed to  capitalize  all such advances in
connection with CAI's separation from PMDX.

     On February 22, 1996, the Company  completed a series of transactions  with
CW Ventures II, L.P. ("CW Ventures") and with Horizon Blue Cross and Blue Shield
of New Jersey,  formerly  known as Blue Cross Blue  Shield of New  Jersey,  Inc.
("Horizon  BCBSNJ").  The  transactions  included  the  sale to CW  Ventures  of
3,903,201  shares of the  Company's  common  stock,  par  value  $.001 per share
("Common Stock") at a purchase price of $0.2562 per share (after  adjustment for
the "one (1) for six  (6)"  reverse  stock  split of the  Company's  outstanding
Common Stock as discussed below) for an aggregate of $1,000,000 and the issuance
of an 8%  Exchangeable  Note in the  original  principal  amount of  $2,000,000,
maturing  on June 30,  1998 (the "CW  Note").  By its  terms,  CW  Ventures  was
required  to exchange  the CW Note on June 30, 1998 for shares of the  Company's
Common  Stock  absent any events of default,  as defined in the CW Note.  The CW
Note, which was collateralized by substantially all of the assets of the Company
and its subsidiaries,  was originally exchangeable into that number of shares of
the  Company's  Common  Stock  as  would  equal  approximately  23  1/3%  of the
outstanding  shares of the Company's common stock on a fully diluted basis as of
February 22, 1996.  Accordingly,  the  3,903,201  shares  issued to CW Ventures,
together  with the  shares  issuable  upon the  exchange  of the CW Note,  would
comprise 35% of the outstanding  shares of the Company's Common Stock on a fully
diluted basis as of February 22, 1996 (such percentage was subsequently adjusted
as discussed below). In addition, in connection with a $150,000 bridge financing
by CW Ventures to the  Company,  the Company  issued to CW Ventures  for nominal
consideration  five-year warrants (the "CW Warrants") to purchase 166,667 shares
of the  Company's  Common  Stock at an  exercise  price equal to $0.96 per share
(after an  adjustment  for the "one (1) for six (6)" reverse  stock split of the
Company's outstanding Common Stock).



<PAGE>


     Concurrently  with the February 22, 1996 closing of the transaction with CW
Ventures,  CAHS  purchased all of the  outstanding  capital stock of CHCM from a
wholly  owned  Horizon  BCBSNJ  subsidiary,  Enterprise  Holding  Company,  Inc.
("EHC"). Although this acquisition was consummated on February 22, 1996, results
of operations of CHCM have been reflected in the Company's financial  statements
since  April 30,  1995  pursuant to an Interim  Services  Agreement  between the
Company  and  Horizon  BCBSNJ  (as  amended  from  time to time,  the  "Services
Agreement")  whereby the Company had effective control and responsibility of the
day-to-day  operations  of CHCM pending a sale of CHCM to the Company.  The CHCM
stock was  acquired  in exchange  for an 8%  Exchangeable  Note in the  original
principal  amount of  $3,600,000,  maturing on June 30, 1998 by CAHS in favor of
EHC,  which was  subsequently  assigned to Horizon  BCBSNJ (the "Horizon  BCBSNJ
Note").  The Horizon BCBSNJ Note was  collateralized by substantially all of the
assets  of the  Company  and its  subsidiaries.  The  Horizon  BCBSNJ  Note  was
originally exchangeable into that number of shares of the Company's Common Stock
as would equal  approximately  40% of the outstanding  shares on a fully diluted
basis as of February 22, 1996. The  transaction  was accounted for as a purchase
of CHCM for an amount  originally  approximating  $3,427,000 (the face amount of
the  Horizon  BCBSNJ  Note less an  original  issue  discount  of  approximately
$173,000), plus assumed liabilities of approximately $360,000 and purchase costs
of $64,000 and was subsequently  adjusted. The excess of the purchase price over
the fair value of CHCM's  tangible  assets  consisting of cash of  approximately
$848,000  and fixed  assets,  with a fair value of  approximately  $27,000,  was
allocated to the Services Agreement.

     Since  the  Company  did not have a  sufficient  number of  authorized  and
unissued shares of Common Stock to permit the issuance of the required number of
shares  upon  exchange  of  the  CW  Note  and  the  Horizon  BCBSNJ  Note,  the
stockholders of the Company  approved an amendment to the Company's  Certificate
of Incorporation in August 1996, which decreased the number of authorized shares
of Common  Stock to  90,000,000  shares,  creating a new class of "blank  check"
preferred stock, $.10 par value,  consisting of 10,000,000 shares and effected a
"one (1) for six (6)" reverse  stock split of the Company's  outstanding  Common
Stock.  As a result,  and pursuant to the terms of the Horizon  BCBSNJ Note, the
Horizon  BCBSNJ Note was  automatically  exchanged  on  September  30, 1996 into
13,375,083 shares of Common Stock of the Company.

     Pursuant to the terms of the CW Note and the Horizon  BCBSNJ Note,  because
the Company failed to realize at least  $15,000,000 in net revenues or specified
earnings  before taxes for its fiscal year ended  October 31, 1996,  the Company
issued an aggregate of 50,156,559  additional  shares of Common Stock to Horizon
BCBSNJ and CW Ventures on February 27, 1997.

     On August 16, 2001,  pursuant to a  Satisfaction  of Debt  Agreement  dated
November 1, 2000, among the Company,  Horizon BCBSNJ and one of Horizon BCBSNJ's
subsidiaries,  Horizon  Healthcare  of New  Jersey,  Inc.,  the  Company  issued
15,777,400  shares of its  common  stock in  exchange  for the  cancellation  of
approximately $1.6 million owed by it.

     The  Company,  Horizon  BCBSNJ and CW Ventures  are parties to an agreement
dated  February 22, 1996 (the  "Stockholders  Agreement")  pursuant to which the
parties agreed that the Board shall consist of seven members. From May 22, 1997,
to February 8, 2001,  the agreement was modified to provide for merely six Board
members; on February 8, 2001, the Board was restored to seven members.

     Prior to January 1, 2003,  the  Company  provided,  principally  to Horizon
BCBSNJ and another Blue Cross Blue Shield organization, certain health care cost
containment services,  including utilization review, case management and disease
management and independent  reviews.  During 2002, the Company ceased  providing
these  services  to the other  Blue Cross Blue  Shield  organization,  and as of
December 31, 2002, to Horizon BCBSNJ on account of Horizon BCBSNJ's  termination
of the Services  Agreement as of that date.  As a result,  beginning  January 1,
2003, the Company ceased offering these services,  since it no longer maintained
the employees and infrastructure necessary to support their delivery.

     The  Company's  executive  offices  are  located  at  485-C  Route 1 South,
Metropolitan  Corporate Plaza, Iselin, New Jersey 08830 and its telephone number
is (732) 602-7000.



                                       2

<PAGE>



Industry Overview: Consumerism, Health Care Expenditures and Managed Care

     The  American  health care market  continues  to evolve with an emphasis on
consumer choice,  patient rights,  and  confidentiality  protections,  against a
backdrop of accelerating costs and an aging population.  Employer groups balance
concern about the costs of providing  health  insurance to their  employees with
the need to maintain a  competitive  human  resource  position.  Employers,  the
traditional customers of commercial health insurance companies, continue to seek
strategies to reduce costs while  assuring  access and  satisfaction.  Among the
strategies is a fundamental  shift:  some employers are abandoning the middleman
role and enabling their employees to make their own benefit decisions.  Although
this will not occur immediately, some of the barriers, such as restricted access
to comparative information, are being eliminated.  Additionally,  some employers
may seek to distance themselves from the potential legal liabilities emerging in
the health benefits industry.

     Over the next decade, the health insurance market will become  increasingly
one of a defined  contribution,  not defined  benefit,  and employees will enjoy
selection  among multiple  health  insurance  products.  Among health  insurers,
premium  price  differences  will become less  significant;  quality of provider
networks will be assumed and relatively non-differentiating;  and benefit design
and service will separate winners from losers.

     Concurrently,  the health care providers,  especially  integrated  delivery
systems, are increasingly cautious about entering into risk arrangements,  while
expressing renewed vigor in taking charge of their destiny.  The larger entities
among  them  have  made,  and  continue  to  make,  substantial  investments  in
information  technology with increasingly  sophisticated  managerial  accounting
systems to support the management of their services, arrayed by product line. By
virtue of their market position,  most provider systems lack the capital, claims
systems, marketing strength and geographic scope to compete with national health
insurers.

     Increasingly,  the market will force the health insurance industry,  health
service  organizations,  hospitals,  employers  and unions to develop  clinical,
operational and administrative  efficiencies in their many shared functions. The
Company intends to assist these groups in achieving that end.

Services and Products

     The  Company  offers  management  and  consulting  services  to the  health
insurance  industry,  health  service  organizations,  hospitals,  employers and
unions in order to assist these  organizations  in deploying  their resources in
the most  efficacious  fashion.  The services  include care  management  program
enhancement  services,  executive and clinical  management services and training
programs.

     The Company possesses substantial experience and resources in core areas of
information management and care management.

     Care Management Program Enhancement Services

     The  Company  offers  an  experienced,   multi-disciplinary  team  of  care
management  professionals that, using two proprietary analytical tools, assesses
care management operations,  systems,  resources,  integration and outcomes. The
team   identifies   opportunities   and  provides   specific   and   prioritized
recommendations  to improve  the  efficiency,  effectiveness  and results of the
program. In addition,  the Company provides experienced,  on-site implementation
personnel to facilitate the recommended enhancements.

     The first  proprietary  analytical tool used by the Company is RPNavigator.
RPNavigator  is a predictive  modeling  tool still under  development  that will
consist  of a suite of risk  prediction  algorithms  capable of  categorizing  a
client's entire population, identifying current and potential high dollar and/or
high risk  members.  When  RPNavigator  is fully  developed,  it will be able to
analytically  consider the following:  Health Plan Management,  Care Management,
Actuarial and Underwriting,  Litigation Management, Disease Management, Pharmacy
Management,  Reimbursement,  Employer Management, Quality Management and Network
Management. As of March 14, 2003, the first two modules have been completed.


                                       3

<PAGE>


     The second  proprietary  analytical  tool used by the Company is Right Path
2.0. Right Path 2.0 is a set of  standardized,  evidenced-based  case management
guidelines.

     Executive and Clinical Management Services

     The  Company  offers  experienced  health  care  executives  for  strategic
planning,   guiding   organization   transitions,   and  designing  and  leading
re-engineering   initiatives.   In  addition,  the  Company  offers  experienced
executives for care management  program  leadership,  internal  physician review
services, and mentoring of less experienced health plan staff.

     Training Programs

     The Company offers an extensive care management training curriculum focused
on  increasing  productivity,  improving  program  outcomes,  enhancing  quality
customer service,  and promoting quality patient outcomes.  Training  frequently
includes using best practices case management solutions.

Operations

     The Company  utilizes a  multi-disciplinary  team approach in providing its
management  and  consulting  services.  The Company,  through its  employees and
independent   contractors,   assesses  care  management   operations,   systems,
resources,  integration and outcomes.  Typically,  the assessment  occurs on the
client's  site,  through  interviews,   data  analysis  (including  the  use  of
RPNavigator) and observation.  After identifying  opportunities for improvement,
the team generally prepares a written report containing specific and prioritized
recommendations  to improve  the  efficiency,  effectiveness  and results of the
client's   operations,   which  is  presented  orally  to  the  client's  senior
management.  Frequently,  the Company receives additional  assignments following
the presentation of its report to assist in the  implementation  of the report's
recommendations.  In such case,  the Company  provides an  experienced,  on-site
implementation team to facilitate the recommended enhancements.

     For its  services,  the  Company  seeks to be  compensated  either (i) on a
fee-for-service basis; (ii) on a performance-based  method whereby the Company's
compensation is based on achieving certain defined  benchmarks;  or (iii) on the
basis of a  combination  of both  fee-for-service  and  performance-based  fees.
Accordingly,  the  Company has adopted the  following  accounting  policies  for
revenue recognition under each contract category:

     (a)  Revenue under the  fee-for-service  arrangements  is recognized as the
          services are  provided and the related  costs of services are incurred
          on a pro-rata basis.

     (b)  Revenue under the  performance-based  method is  recognized  when such
          amounts can reasonably be determined.

     (c)  Revenue   under  the   combination   fee-for-service/performance-based
          arrangements is recognized as follows: the fee-for-service  revenue is
          recognized  as the  services  are  provided  and the  related  cost of
          services  is  incurred  and  the  revenue  based  on   performance  is
          recognized when such amounts can reasonably be determined.

Customers and Marketing

     The Company currently provides its services to three Blue Cross Blue Shield
("BCBS")  organizations  and to two  integrated  health  care  delivery  systems
pursuant to one or a  combination  of the  compensation  arrangements  described
above. In 2002,  Horizon BCBSNJ,  which ceased being a customer as of January 1,
2003, accounted for approximately 82% of the Company's revenue.

     The Company markets its services to the health insurance  industry,  health
service organizations, hospitals, employers and unions.

                                       4

<PAGE>

Competition

     The Company  faces intense  competition  in a highly  fragmented  market of
managed care  services  firms.  Several  managed care  service  firms  currently
provide and aggressively market services,  which are in some respects similar to
the Company's  services.  There are also a number of organizations  developing a
variety of approaches  that are in competition  with the Company's  products and
services. Some of the Company's competitors have substantially greater financial
resources and employ substantially greater numbers of personnel.

     The Company  intends to compete by offering what it believes to be the most
comprehensive  approach  in the  marketplace  to address  the  medical  cost and
quality of care issues.  Further,  it believes that its competitive  position is
enhanced by its ability to develop  tailored  programs  for large  clients,  its
willingness to accept risk in methods of  compensation  based on results and its
computer-based clinical decision making and information systems.

Government Regulation

     Health Care Regulation

     Government  regulation of health care cost  containment  services,  such as
those  provided  by the  Company,  is a changing  area of law that  varies  from
jurisdiction to  jurisdiction  and generally  gives  responsible  administrative
agencies  broad  discretion.  The Company is subject to extensive and frequently
changing  federal,  state  and local  laws and  regulations  concerning  company
licensure,  conduct of operations,  acquisitions of businesses  operating within
its industry,  the employment of physicians and other licensed  professionals by
business corporations and the reimbursement for services.  Regulatory compliance
could have an adverse effect on the Company's present business and future growth
by restricting or limiting the manner in which it can acquire businesses, market
its  services,  and contract for  services  with other health care  providers by
limiting or denying  licensure  or by limiting  its  reimbursement  for services
provided.

     It should be noted that in providing utilization review and case management
services,  the  Company  made  recommendations   regarding  what  is  considered
appropriate  medical  care based upon  professional  judgments  and  established
protocols. However, the ultimate responsibility for all health care decisions is
with the health care provider.  Furthermore,  the Company is not an insurer, and
the  ultimate  responsibility  for the  payment  of  medical  claims is with the
insurer.

     Although the Company is not a health care provider, it could have potential
liability  for  adverse  medical  consequences.  The  Company  could also become
subject to claims based upon the denial of health care  services and claims such
as malpractice  arising from the acts or omissions of health care professionals.
Its exposure in this regard is  substantially  reduced since it ceased providing
utilization  review  and case  management  services  as of  December  31,  2002.
Nonetheless,  until the applicable statutes of limitations have run, the Company
retains  exposure  for past  activities  as well as on account of its  continued
internal physician review services offered as part of its Executive and Clinical
Management Services.

     The  Company's  operations in a particular  state are typically  subject to
certification by the appropriate  state agency.  The Company has received or has
filed the  necessary  application  for such  certification  where  required.  In
addition,  various  state and federal laws  regulate the  relationships  between
providers of health care services and physicians and other clinicians, including
employment  or service  contracts,  investment  relationships  and referrals for
certain  designated  health  services.  These laws  include  the fraud and abuse
provisions   of  the  Medicare  or  Medicaid   statutes,   which   prohibit  the
solicitation,   payment,   receipt  or   offering  of  any  direct  or  indirect
remuneration  for the  referral  of  Medicare  or  Medicaid  patients or for the
ordering  or  providing  of  Medicare or  Medicaid  covered  services,  items or
equipment.  Violations  of these  provisions  may  result  in civil or  criminal
penalties for individuals or entities including  exclusion from participation in
the Medicare and Medicaid  programs.  Several  states have adopted  similar laws
that cover patients in private programs as well as government programs.  Because
the anti-fraud and abuse laws have been broadly interpreted,  they may limit the
manner in which the Company can acquire  businesses  and market its services to,
and contract for services with, other health care providers.

     The  Company's  management  believes  that its  present  operations  are in
compliance  with all  applicable  laws  and  regulations  and that it  maintains
sufficient  comprehensive general liability and professional liability insurance
coverage to  mitigate  claims to which the Company may be subject in the future.
The Company is unable to predict what, if any, government  regulations affecting
its business may be enacted in the future or how existing or future  regulations
may be interpreted.  To maintain future compliance,  it may be necessary for the
Company to modify its services,  products,  structure or marketing methods. This
could  increase  the  cost of  compliance  or  otherwise  adversely  affect  the
Company's operations, products, profitability or business prospects.


                                       5
<PAGE>

     Proposed Health Care Reform

     If proposed  federal and state health care reform  initiatives are enacted,
the payments for and the  availability  of health care services may be affected.
Aspects of certain  proposals,  such as  reductions  in  Medicare  and  Medicaid
payments,  could adversely affect the Company.  The Company is unable to predict
what impact,  if any, future enacted health care reform  legislation may have on
its current and future  business,  and no  assurance  can be given that any such
reforms will not have an adverse impact on its business  operations or potential
profitability.

Employees

     At  December  31,  2002,  the  Company  employed  a total  of 29  full-time
employees. Of this total, 24 employees are engaged in servicing its clients. The
5 remaining  employees  include  administrative  support,  finance,  information
systems and human resources personnel. None of the Company's employees are party
to any collective bargaining agreements.

Item 2. Description of Property
------- -----------------------

     The Company's  executive offices and operations,  comprising  approximately
28,000 square feet of office space,  are located in the  Metropolitan  Corporate
Plaza in Iselin,  New Jersey. The Company had executed a six-year lease for this
facility  commencing  June 15,  1995,  which was  extended  during  2000 for ten
additional  years.  The  extended  lease  provides  for an  annual  base rent of
approximately $668,000 with annual escalations based on increases in real estate
taxes and operating  expenses.  As a result of the Company's  ceasing to provide
services to Horizon  BCBSNJ,  the Company no longer needs 20,500  square feet of
this space,  and is attempting to sublease all or a portion of the 28,000 square
feet.  In the event the Company  subleases  the entire  28,000  square feet,  it
believes that suitable space will be available for its operations.

     The Company maintains rent-free operation offices in Vermont pursuant to an
informal arrangement with its customer there, Blue Cross Blue Shield of Vermont.

Item 3. Legal Proceedings
------- -----------------

     CareAdvantage,  Inc.  v.  Horizon  Blue  Cross Blue  Shield of New  Jersey,
pending in Superior Court of New Jersey,  arises under a service  agreement that
Horizon  BCBSNJ  terminated  as of  December  31,  2002.  The Company is seeking
service  fees  being  withheld  by Horizon  BCBSNJ in  connection  with  certain
disputes under the agreement,  as well as damages for Horizon BCBSNJ's hiring of
the Company's employees.

     In  CareAdvantage,  Inc. v.  Princeton  Insurance  Company,  the Company is
seeking  damages  against the Princeton  Insurance  Company  arising out of that
company's  denial of coverage under an officers and directors  insurance  policy
issued to the Company;  Princeton  Insurance Company has counterclaimed  against
the Company for its attorneys fees in defending the instant  action.  In January
2003, the trial judge granted summary  judgement to Princeton  Insurance Company
with respect to the Company's claim and denied Princeton's  counterclaim against
the Company for attorneys  fees. In February 2003, the Company filed a Notice of
Appeal.

     CareAdvantage,  Inc.  v.  Blue  Cross & Blue  Shield  of Rhode  Island  and
Coordinated Health Partners, pending in the Superior Court of the State of Rhode
Island,  arises out of the defendants'  termination of an Agreement effective as
of January 1, 2000,  among the  parties  pursuant  to which the Company had been
providing services. The Company is seeking declaratory relief including judgment
(i) that the Company's  failure to attain  Performance Goals under the Agreement
was as a result of the defendants'  conduct,  (ii) that defendants lack cause to
terminate the Agreement  based on the Company's  failure to meet the Performance
Goals,  and  (iii)  that the  Company  is  entitled  to  compensation  under the
Agreement,  including  compensation  for  having  been  deemed  to have  met the
Performance Goals. In addition, the suit seeks equitable relief and damages with
respect to defendants' hiring a physician formerly employed by the Company.

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

     None.


                                       6

<PAGE>

                                     PART II

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

(a)  Market Information: Since the Company's effective registration date of June
     12, 1995,  the  Company's  Common Stock has traded in the  over-the-counter
     market and is currently  quoted on the Electronic  Bulletin Board under the
     symbol CADV. The following  table shows the range of closing bid prices for
     each quarter of the Company's two most recent  calendar  years.  The prices
     reflect   inter-dealer   prices,   without  retail  mark-up,   markdown  or
     commission, and may not represent actual transactions.

                                       2002                    2001
                                       ----                    ----
           Quarter Ended          High      Low           High       Low
           -------------          ----      ---           ----       ---
           March 31,              $.20      $.09          $.17       $.10
           June 30,               $.21      $.08          $.11       $.10
           September 30,          $.08      $.02          $.15       $.05
           December 31,           $.07      $.01          $.12       $.08


(b)  Holders:  As of March 7, 2003 there  were  approximately  4,046  holders of
     record of the Company's Common Stock. No shares of the Company's  preferred
     stock have been issued.

(c)  Dividends:  During the two most recent  fiscal  years,  the Company paid no
     cash dividends on its Common Stock.  The payment of future dividends on its
     Common Stock is subject to the  discretion of the Board of Directors and is
     dependent on several factors,  including the Company's earnings and capital
     needs.

(d)  Equity Compensation  Plans: For information  regarding the Company's equity
     compensation   plans,   please  refer  to  the  table   captioned   "Equity
     Compensation Plans" in Item 11 of this Form 10-KSB.


 Item 6. Management's Discussion and Analysis of Financial Condition and Results
         of Operations
-------------------------------------------------------------------------------

Cautionary Statements

     Statements in this Form 10-KSB may constitute "forward-looking  statements"
within  the  meaning of the  Private  Securities  Litigation  Reform Act of 1995
("PSLRA"),  including statements concerning  management's plans,  intentions and
expectations  with respect to future  financial  performance  and future events,
particularly   relating  to  revenues   from   performance-based   services  and
re-negotiations  of existing and new  contracts  with  customers.  Many of these
statements  involve known and unknown risks,  uncertainties  and  contingencies,
many of which are beyond our  control,  which  could  cause  actual  results and
outcomes to differ  materially from those expressed in this 10-KSB.  Although we
believe  that  our  plans,   intentions  and  expectations  reflected  in  these
forward-looking  statements  are  reasonable,  we can give no assurance that our
plans, intentions or expectations will be achieved.

     The  following  discussion  contains  cautionary  statements  regarding our
business that investors and others should consider.  This discussion is intended
to take advantage of the "safe harbor"  provisions of the PSLRA. In making these
cautionary  statements,  we are not  committed to  addressing  or updating  each
factor in  future  filings  or  communications  regarding  the our  business  or
results,  or  addressing  how any of these  factors may have  caused  results to
differ  from  discussions  or  information  contained  in  previous  filings  or
communications.  In  addition,  any of the  matters  discussed  below  may  have
affected or may affect our past, as well as current,  forward-looking statements
about future results.


                                       7

<PAGE>

Company Risk

     We have had a history of losses.  Although our Company was  profitable  for
2001 and 2002, we have experienced a history of significant  operating losses on
a  consolidated  basis.  At  December  31,  2002,  we  had  working  capital  of
approximately $7,786,000,  stockholders' equity of approximately $9,203,000, and
an accumulated deficit of approximately $14,698,000.

     We face aggressive  competition because new competitors can enter our field
easily and because customers could decide to perform internally the functions or
services that we provide.  New competitors  can enter our field easily.  Many of
our  customers  may decide to perform  internally  functions or services that we
previously  provided.  Also, some of our providers may decide to compete against
us by marketing products and services to our customers.

     Due to increased  merger and  acquisition  activity,  we may face  stronger
competition in the future.  Our industry,  as well as our customers'  industries
(i.e.,  health  insurers  and HMOs)  have  experienced  significant  merger  and
acquisition  activity.  Merger and  acquisition  activity  may  create  stronger
competitors  or  result  in  decreased  opportunities.   Strong  competition  or
competition  that intensifies in any market will adversely affect our ability to
retain or increase  customers,  or maintain or increase revenue growth,  pricing
flexibility, or control over medical cost trends and marketing expenses.

     Significant contracts with the Company have been terminated. In April 2002,
the Company  received  notification  from Blue Cross Blue Shield of Rhode Island
("BCBSRI") that the existing services arrangement between BCBSRI and the Company
was terminated,  effective May 31, 2002. This contract with BCBSRI accounted for
approximately  4% of net revenues for the year ended  December 31, 2002. In June
2002, the Company received  notification  from Horizon Blue Cross Blue Shield of
New Jersey ("Horizon  BCBSNJ") that the existing  services  arrangement  between
Horizon BCBSNJ and the Company was terminated,  effective  January 1, 2003. This
contract with Horizon BCBSNJ accounted for approximately 82% of net revenues for
the year ended  December 31, 2002. The Company has had to  significantly  reduce
its operations to match its remaining revenues and focus on alternate sources of
revenues  to  continue to build its  business.  As a response to these  contract
terminations,  the  Company has  significantly  reduced its  employee  base,  is
currently  attempting to sublease a majority of its office space in Iselin,  New
Jersey, and has terminated,  renegotiated or is in the process of terminating or
renegotiating a variety of information  systems and  communications  agreements.
The Company has ceased offering  certain health care cost  containment  services
due to the lack of the  infrastructure  necessary  to support the  provision  of
these  services,  and the Company is now focusing on selling its  management and
consulting  services.  There is no  guarantee  that the Company,  through  these
measures,  will be  successful  in  mitigating  the effects of the loss of these
contracts and to continue to maintain its business operations.

     We could incur significant additional costs as a result of litigation based
on the adverse medical consequences of our  recommendations.  Until December 31,
2002, we provided cost containment services for health care organizations. These
services included:

     o    utilization  review,  which is the review of the  appropriateness of a
          particular medical event, such as a hospital  admission,  a particular
          medical procedure or an additional day of inpatient care;

     o    case management services,  which provide alternative plans for patient
          treatment and examine how the attending physician is managing the care
          of patients with chronic diseases on an ongoing basis;

     o    outpatient care coordination, which allows patients to access services
          such  as  home  health  care,   rehabilitation  and  infusion  therapy
          services; and

     o    disease  management  services,  which  provide  patients  with  expert
          consensus on the most appropriate treatment  alternatives for patients
          at different disease stages.

     We based our recommendations for patient benefit plan coverage on judgments
and  established  protocols as to the  appropriateness  of the proposed  medical
treatment.  Our judgments and established  protocols were based on data gathered
through  case  studies on the  treatment  and care of patients  over a number of
years.  As a result,  we may be liable for adverse  medical  consequences of our
recommendations.  We could  become  subject to claims for the costs of  services
denied and malpractice  claims arising from the acts or omissions of health care
professionals.  Although  we do not believe  that we engaged in the  practice of
medicine or that we delivered medical services  directly,  we may become subject
to litigation or liability. Although we maintain comprehensive general liability
and professional liability insurance coverage,  including coverage for liability

                                       8

<PAGE>

in connection with the performance of medical  utilization  review services,  we
cannot be certain that coverage will be adequate in the event we become  subject
to a claim. The Company's exposure for these activities is substantially reduced
as  of  December  31,  2002.  Nonetheless,  until  the  applicable  statutes  of
limitations  have run, the Company retains  exposure for past activities as well
as on account of its continued  internal  physician  review services  offered as
part of its Executive and Clinical Management Services.

     We depend on effective information systems to deliver products and services
to  customers.  We depend on effective  information  systems and have linked our
computer  systems with our customers'  computer  systems in order to conduct and
deliver our products and services.  Our  information  systems require an ongoing
commitment of resources to maintain and enhance existing systems and develop new
systems in order to keep pace with continuing changes in information  processing
technology,  evolving industry standards, and changing customer preferences. Our
failure to maintain effective and efficient information systems could cause loss
of  existing  customers,   difficulty  in  attracting  new  customers,  customer
disputes, regulatory problems and increases in administrative expenses.

     Because  our  products  depend  on  the  integrity  of  our  data,  if  the
information contained in our databases were found or perceived to be inaccurate,
or if the  information is generally  perceived to be  unreliable,  we may not be
able to maintain commercial  acceptance.  We rely on data collected through case
studies and other confidential criteria to make cost containment decisions. Many
of the products that are part of our knowledge and information-related  business
rely on the  integrity of the data on which they are based.  If the  information
contained in our databases were found or perceived to be  inaccurate,  or if the
information  is  generally  perceived  to be  unreliable  we may  not be able to
maintain commercial acceptance of our database-related products.

     To succeed,  we must maintain the  confidential  nature of criteria that we
have  acquired or developed  for the delivery of health care services in medical
specialty areas. The success of our knowledge and  information-related  business
depends on our ability to maintain the ownership rights to our products. We rely
on agreements with customers,  confidentiality  agreements with employees, trade
secrets,  trademarks  and patents to protect our ownership  rights.  These legal
protections and precautions may not prevent misappropriation of our intellectual
property. In addition,  substantial  litigation regarding  intellectual property
rights exists in the software  industry,  and we expect software  products to be
increasingly  subject  to  third-party  infringement  claims  as the  number  of
products and competitors in our industry segment grows.

     Our  RPNavigator  tool is dependent upon  third-party  risk  stratification
software.  The  Company  currently  has a  license  from  Minnesota  Mining  and
Manufacturing  Company  ("3M") to use 3M's Clinical Risk Grouping  Software(TM),
which license  expires in February 2004.  The Company,  which believes it has an
excellent  working  relationship with 3M, is currently in discussions with 3M to
extend that license for five years, to add to the license additional 3M products
and to otherwise clarify a relationship between the Company and 3M. In the event
that the Company was  unsuccessful in extending its license with 3M, it would be
required to license other third-party risk stratification  software and would be
required  to  reconfigure   RPNavigator  to  accommodate  such  other  software.
Moreover,  although risk  stratification  software is available from other third
parties,  including Johns Hopkins University and/or its affiliates,  the Company
believes  that the 3M software is more  robust than its  competitors  because it
considers the severity of illnesses and diseases.

Industry Risk

     Because  the  managed  care  industry  has  received  significant  negative
publicity there has been increased  activity,  regulation and review of industry
practices.  The managed care industry frequently receives  significant  negative
publicity.  The negative  publicity  has  contributed  to increased  legislative
activity,  regulation and review of industry  practices.  Legislative  activity,
regulation  and review may  adversely  affect our ability to market  products or
services,  may require us to change products and services,  and may increase the
regulatory burdens under which we operate.

     Our failure to comply  with,  or the costs of  complying  with,  government
regulation could affect our ability to grow by denying  licensing or restricting
payment for services.  Our  operations  are subject to extensive and  frequently
changing  federal,  state and local laws and  regulation  concerning  licensing,
conduct of operations,  acquisitions of business operating in our industry,  the
employment  of  physicians  and other  licensed  professionals  and  payment for
services.  These various types of regulatory  activity could restrict our growth
through  acquisition  or  otherwise,  by  limiting  or denying  licensing  or by
limiting the payment for services provided.

                                       9

<PAGE>


     Existing laws and  regulations  may be revised and new laws and regulations
could be adopted or become applicable to us. We may not be able to recover these
increased  costs  of  compliance  from  our  customers  and  future  changes  in
applicable  laws  and  regulations  could  affect  adversely  our  business  and
financial conditions.

Investment Risk

     The  market  price of our shares has been  extremely  volatile.  The market
prices of our  securities has shown  volatility  and  sensitivity in response to
many factors,  including general market trends, public communications  regarding
managed  care,  legislative  or  regulatory  actions,  health care cost  trends,
pricing  trends,  competition,  earnings  or  membership  reports of  particular
industry participants, and acquisition activity.

     Two  stockholders  own over 90% of the  outstanding  shares  of our  common
stock.   Our  two  largest   stockholders,   Horizon  BCBSNJ  and  CW  Ventures,
beneficially own more than 90% of the outstanding shares of our common stock. An
agreement  between our largest  stockholders and the Company states that Horizon
BCBSNJ and CW  Ventures  have agreed to vote their  shares in the  Company  with
respect to the election of our Board of Directors for:

     o    two designees of CW Ventures;

     o    two designees of Horizon BCBSNJ;

     o    two designees of our management  acceptable to CW Ventures and Horizon
          BCBSNJ; and

     o    one  non-employee  outside  director  acceptable  to CW  Ventures  and
          Horizon BCBSNJ.

     The Stockholders Agreement prevents us from taking certain material actions
without the consent of Horizon BCBSNJ and/or CW Ventures.  If Horizon BCBSNJ and
CW Ventures  were to vote in the same  manner on the  election of members of the
board of directors or on any other  matter  requiring  approval of a majority of
the  outstanding  shares  of common  stock,  the  matter  would be  approved  or
defeated,  as the  case may be,  depending  on the  vote of  these  two  largest
stockholders.

     Because our common stock is traded in the over-the-counter  market in "pink
sheets" or the "OTC Bulletin Board," our stock is illiquid.  Our common stock is
traded  in the  over-the-counter  market  in  so-called  "pink  sheets"  or,  if
available,  the "OTC  Bulletin  Board."  The OTC  Bulletin  Board is a regulated
quotation service that displays  real-time  quotes,  last-sale prices and volume
information in over-the-counter equity securities.  As a result, an investor may
find it more difficult to dispose, of or to obtain accurate quotations as to the
value,  of our common  stock.  Because  our  common  stock is subject to federal
securities  rules affecting  "penny stock",  the market liquidity for our common
stock is adversely affected. There is a limited public float in our common stock
as the  result  of the  ownership  of more than 90% of the  common  stock by two
stockholders.

     Our  common  stock  could  become  subject  to  additional  sales  practice
requirements for low priced securities. Our common stock could become subject to
Rule 15g-9 under the Securities  Exchange Act of 1934, which imposes  additional
sales practice  requirements  on  broker-dealers  that sell our shares of common
stock to persons other than established customers and "accredited  investors" or
individuals  with net worth in excess of $1,000,000 or annual incomes  exceeding
$200,000 or $300,000 together with their spouses.

     The rule:

     o    requires a broker-dealer to make a special  suitability  determination
          for the purchaser and have received the purchaser's written consent to
          the transaction prior to sale.  Consequently,  the rule may affect the
          ability of  broker-dealers  to sell our  securities and may affect the
          ability  of our  shareholders  to sell  any of our  securities  in the
          secondary market;

     o    generally define a "penny stock" to be any non-NASDAQ  equity security
          that has a market price less than $5.00 per share or an exercise price
          of less than $5.00 per share, subject to certain exceptions;

                                       10

<PAGE>

     o    requires broker dealers to deliver, prior to a transaction in a "penny
          stock",  a risk  disclosure  document  relating  to the "penny  stock"
          market.

     Disclosure is also required to be made about  compensation  payable to both
the broker-dealer and the registered  representative  and current quotations for
the  securities.  In addition,  the rule requires that broker dealers deliver to
customers  monthly  statements  that disclose  recent price  information for the
"penny stock" held in the account and information on the limited market in penny
stocks.

Overview

     Management believes it must continue to refine its current service lines in
order to continue to add value to existing and potential customers. In addition,
the  Company   intends  to  broaden  the   services   offered  with  unique  and
complementary  cost-containment strategies.  Management intends to evaluate each
service in light of anticipated changes in the health care industry, the cost to
enter each such  service  line as well as the  availability  and  timeliness  of
competent  resources.  To  further  expand  its line of  services,  the  Company
contemplates   pursuing   alternatives  to  its  internal  product  and  service
development  efforts by entering into strategic  alliances and joint ventures as
well as through acquisitions.

     In April  2002,  the  Company  received  notification  from Blue Cross Blue
Shield of Rhode Island ("BCBSRI") that the existing services arrangement between
BCBSRI and the Company was  terminated,  effective May 31, 2002. The Company had
previously  given  notice in January 2002 that it was  terminating  the contract
effective July 31, 2002. This contract with BCBSRI  accounted for  approximately
4% of net revenues for the year ended December 31, 2002.

     In June 2002,  the Company  received  notification  from Horizon Blue Cross
Blue  Shield  of New  Jersey  ("Horizon  BCBSNJ")  that  the  existing  services
arrangement  between  Horizon BCBSNJ and the Company was  terminated,  effective
January 1, 2003. This contract with Horizon BCBSNJ  accounted for  approximately
82% of net revenues for the year ended December 31, 2002.

Results of  Operations--12  Months Ended December 31, 2002 Compared to 12 Months
Ended December 31, 2001

Revenues

     The following  discussion  compares the Company's results of operations for
the 12 months  ended  December  31,  2002,  with  those for the 12 months  ended
December 31, 2001.  The Company's  consolidated  financial  statements and notes
thereto  included  elsewhere in this report contain  detailed  information  that
should be referred to in conjunction with the following discussion.

     Total  revenues  for the  years  ended  December  31,  2002 and  2001  were
approximately  $22,963,000  and  $20,309,000,   respectively.  The  increase  in
revenues of  approximately  $2,654,000 was primarily  attributable  to increased
revenue  of  approximately  $3,334,000  due to  increased  membership  on  major
accounts  offset by decreased  revenue of  approximately  $680,000 in consulting
business.

     Contracts that provide for  performance-based  revenues require claims data
that is supplied by the  Company's  customers to calculate  the  achievement  of
goals for each period.  Because  compilation  of claims data  typically lags the
Company's  actual  performance  by several  months,  it is  difficult  to ensure
complete  accuracy when  recording  performance-based  revenues.  Management has
worked  closely with its  customers  to secure more timely and accurate  data in
order to improve the  accuracy of reporting  its  revenues,  including,  in some
cases, the re-negotiation of a fixed fee based contract. Management believes its
estimated  performance-based  revenues  contained  in reported  revenues for the
twelve months ended December 31, 2002 are accurate based upon the data available
to management.  However,  information  received by the Company subsequent to the
filing of this Form 10-KSB could  result in an  adjustment  of its  estimates of
performance-based  revenues (which would be reflected in subsequent quarters, if
necessary).

Cost of services:

     Cost of  services  for the  years  ended  December  31,  2002 and 2001 were
approximately $9,990,000 and $10,953,000, respectively. The decrease in the cost
of  services  of   approximately   $963,000  is  largely  due  to  decreases  of

                                       11

<PAGE>

approximately  $120,000 in  personnel  costs,  approximately  $272,000 in travel
costs and  professional  and  consulting  costs of  approximately  $440,000  and
depreciation and amortization costs of approximately $131,000.

Operating Expenses

Selling, general and administrative:

     Selling,  general and administrative costs for the years ended December 31,
2002 and 2001 were $7,431,000 compared to $7,184,000, respectively. The increase
in  selling,  general  and  administrative  costs of  approximately  $247,000 is
largely  due  to  increases  in  other  general  and  administrative   costs  of
approximately  $515,000,  which  includes a provision  for bad debt of $779,000,
facility costs of approximately  $11,000,  offset by decreases of approximately,
$155,000 in professional  and consulting  costs,  information and  communication
costs of  approximately  $55,000,  travel  costs of  approximately  $62,000  and
personnel costs of approximately $7,000.

Depreciation and amortization:

     Depreciation  and  amortization  for the  years  ended  December  31,  2002
aggregated  $936,000  compared to $640,000 for the year ended December 31, 2001,
of which $131,000 is included in cost of services.  The increase in depreciation
and  amortization  costs  of  approximately  $296,000  is  largely  due  to  the
amortization of the Horizon BCBSNJ Services Agreement of approximately  $468,000
in the year 2002.  Depreciation and amortization for the year ended December 31,
2002  includes  amortization  of  intangible  assets  attributed to the Services
Agreement  with Horizon  BCBSNJ in connection  with the  acquisition  of CHCM of
approximately  $468,000 (See "Note A to Financial  Statements - Introduction and
Background"),   amortization  of  approximately   $119,000   relating  to  other
intangible  assets and  depreciation of property and equipment of  approximately
$349,000.

Employee termination costs:

     The Company incurred  employee  termination costs of $1,128,000 as a result
of terminating approximately 162 employees as a result of the termination of the
Horizon BCBSNJ Services Agreement.

Interest income/expense:

     Interest  income for the years ended December 31, 2002 and 2001 was $65,000
and  $92,000,  respectively.  The decrease in interest  income of  approximately
$27,000 is due to the decline of interest rates in 2002.

Liquidity, Financial Condition and Capital Resources

General Overview:

     At  December  31,  2002,  the Company  had cash of  $7,793,000  and working
capital of  approximately  $7,786,000.  At December 31, 2001, the Company's cash
balance was $4,297,000 and working  capital was  approximately  $4,525,000.  The
increase  in  working  capital of  approximately  $3,261,000  is largely  due to
increased  operating  activities  for the twelve months ended December 31, 2002.
However, the Company's operations have been significantly impacted by the events
described below.

Significant Development:

     As stated above, in June 2002,  Horizon BCBSNJ notified the Company that it
was  terminating  the existing  services  agreement with the Company,  effective
January 1, 2003. The Company recognized approximately $19 million in revenues in
2002 and $14 million in  revenues in each of each of 2002 and 2001 from  Horizon
BCBSNJ  due to the  services  arrangement.  The  termination  of  this  services
arrangement may have a significant impact on the Company's business.

     As a result of the  termination  of the  Services  Agreement  with  Horizon
BCBSNJ as of December 31, 2002, the Company has significantly  reduced the scope
of its operations.

     As of  January  1,  2003,  the  Company  had 29  employees,  down  from 191
employees six months  earlier.  In addition,  the Company no longer needs 20,500
square feet of the 28,000  square feet of office  space it  currently  has under
lease in Iselin,  New Jersey and is  currently  attempting  to sublease all or a
portion of such space. Moreover, the Company has terminated,  renegotiated or is
in the process of terminating or renegotiating a variety of information  systems
and communications agreements.

     The Company is focusing on selling its management and consulting  services.

                                       12

<PAGE>

Because it no longer  maintains  the  infrastructure  necessary  to support  the
provision of certain health care  containment  services  (including  utilization
review, case management and disease management, and independent reviews), it has
ceased offering these services for sale.


Financial Condition:

     Net cash  provided  from  operating  activities  amounted to  approximately
$4,464,000  and  $3,298,000  for the years  ended  December  31,  2002 and 2001,
respectively.  This increase in cash provided by operating activities is largely
due to an increase in accrued  expenses and other  liabilities of  approximately
$909,000, a decrease in accounts payable of approximately  $298,000, an increase
in  other  customer   receivable  of  approximately   $66,000,  an  increase  in
stockholder  receivable of approximately  $228,000,  a decrease of approximately
$88,000 in other  assets,  an  increase  in  non-cash  charges of  approximately
$936,000 and an increase of $3,299,000 in net profit.

     Net cash used by investing  activities  amounted to approximately  $969,000
and $651,000 for the years ended December 31, 2002 and 2001, respectively.  This
increase  in cash used of  approximately  $318,000 is due to  increased  capital
expenditures during the current calendar year.

     Net cash  provided  from  financing  activities  amounted to  approximately
$1,000 and $171,000 for the years ended December 31, 2002 and December 31, 2001,
respectively. This decrease is primarily due to proceeds from issuance of common
stock of approximately $14,000 and transfers of restricted cash of approximately
$156,000 in 2001.

     In light of the termination of the services  agreement with Horizon BCBSNJ,
the Company  has  reduced  its  operations  significantly  and  concentrated  on
building up its  remaining  sources of  revenues  to continue to operate.  While
there  can be no  assurances,  management  believes  that  its  cash on hand and
projected   future  cash  flows  from  operations  will  support  the  Company's
anticipated cash needs for calendar year ending December 31, 2003.

     On November 1, 2000, the Company and Horizon BCBSNJ signed a  "Satisfaction
of Debt Agreement" which was subsequently  amended to extend the closing date to
September 30, 2001.  Under the terms of the agreement,  the Company has paid and
satisfied amounts outstanding to Horizon BCBSNJ of $1,577,740 by issuance of its
common stock.  The amount of $1,577,740  consists of the  promissory  note dated
April 1, 1997, with a balance at June 30, 2001 of $692,571,  the amount due to a
Horizon  BCBSNJ  subsidiary of $839,000,  and accrued  interest of $46,169.  The
transaction closed on August 16, 2001.

     The  Company  had a  credit  facility  with  a  bank  that  provided  for a
$1,500,000  working  capital  revolver  to be used for general  working  capital
needs, which was effective through June 30, 2000. The Company did not renew such
credit facility.

Item 7. Financial Statements and Supplementary Data
------- -------------------------------------------

     The  Financial  Statements  and  supplementary  data  required by this item
appear under the caption "Index to  Consolidated  Financial  Statements" and are
included elsewhere herein.

 Item 8.  Changes in and Disagreements with Accountants On Accounting and
          Financial Disclosure
------- ------------------------------------------------------------------------

     On July 31, 2001,  the Company  informed  Richard A. Eisner & Company,  LLP
("Eisner")  that it would no longer be  retained  as the  Company's  independent
auditor.  Eisner audited the Company's consolidated financial statements for the
years  ended  December  31,  2000 and 1999.  Eisner's  reports on the  Company's
consolidated financial statements for the years ended December 31, 2000 and 1999
did not contain an adverse  opinion nor a disclaimer  of opinion,  nor were such
reports  qualified or modified as to  uncertainty,  audit scope,  or  accounting
principles.

     During the years ended December 31, 2000 and 1999 and during the portion of
2001 prior to the decision to make a change, there were no disagreements between
the Company and Eisner on any matters of  accounting  principles  or  practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements,  if not resolved to the satisfaction of Eisner, would have caused
it to make  reference to the subject  matter of the  disagreement  in connection
with its reports.

     Effective July 31, 2001, the Company retained Arthur Andersen LLP ("AA") to

                                       13

<PAGE>

serve as its independent  auditor for fiscal year 2001. During the Company's two
most  recent  fiscal  years and during the portion of 2001 prior to the board of
director's  decision,  the  Company  did  not  consult  with  AA  regarding  the
application of accounting  principles to a specified transaction nor the type of
audit  opinion that might be rendered on the  Company's  consolidated  financial
statements.

     On  June  4,  2002,  AA  notified  the  Company  that  its   client-auditor
relationship   was  terminated  as  of  that  date.  AA  audited  the  Company's
consolidated  financial  statements for the year ended  December 31, 2001.  AA's
reports on the Company's  consolidated  financial  statements for the year ended
December  31,  2001 did not  contain  an adverse  opinion  nor a  disclaimer  of
opinion,  nor were such reports  qualified or modified as to uncertainty,  audit
scope, or accounting principles.

     During the year ended  December  31,  2001,  and during the portion of 2002
prior to AA's  termination  of its  auditor-client  relationship,  there were no
disagreements between the Company and AA on any matters of accounting principles
or practices,  financial statement  disclosure,  or auditing scope or procedure,
which  disagreements,  if not  resolved to the  satisfaction  of AA,  would have
caused  it to make  reference  to the  subject  matter  of the  disagreement  in
connection with its reports.

     Effective  July 30,  2002,  the  Company  retained  Eisner  to serve as its
independent auditor for fiscal year 2002. The decision to retain Eisner has been
approved by the Company's  board of  directors.  During fiscal year 2001 and the
portion of 2002 prior to the board of director's  decision,  the Company did not
consult with Eisner  regarding the  application  of  accounting  principles to a
specified  transaction  nor the type of audit  opinion that might be rendered on
the Company's consolidated financial statements.  Eisner served as the Company's
independent auditor for fiscal years 2000 and 1999.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons
------- ------------------------------------------------------------

The Company's  directors,  executive officers and control persons as of December
31, 2002 are as follows:

   Name                            Age      Positions with the Company
   ----                            ---      --------------------------
   David G. Noone (1)(3)           49       Chairman of the Board of Directors

   Dennis J. Mouras (1)            46       Chief Executive Officer, President
                                            and Director

   Walter Channing, Jr. (3)        62       Director

   David J. McDonnell (2) (3)      60       Director

   Barry Weinberg (2)              64       Director

   Daniel J. Potterton (4)         49       Executive Vice President, Operations

   R. Christopher Minor (5)        48       Senior Vice President & Chief
                                            Financial Officer


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

(1) As of February 15, 2001, Mr. Noone resigned as Chief  Executive  Officer and
Mr.  Mouras was appointed to that office.  Also,  as of that date,  the Board of
Directors was expanded to seven members and Mr. Mouras was appointed a director.
(2) Member of Compensation Committee.
(3) Member of Audit  Committee.  Mr. Channing  resigned as a member of the Audit
Committee as of February 13,  2003,  on which date Mr. Noone was  appointed as a
member of the Audit Committee.
(4) Mr.  Potterton's  employment  with the Company was terminated as of December
31, 2002.
(5) Mr.  Minor's  employment  with the Company was terminated as of December 31,
2002.

                                       14



<PAGE>

     There is no family  relationship  between any director or executive officer
of the Company. At a meeting of the Company's Board of Directors held on January
14, 1997, a Compensation Committee and Audit Committee were formed.

     All directors of the Company are elected by the stockholders of the Company
or, in the case of a vacancy,  are  elected by the  directors  then in office to
hold office  until the next annual  meeting of  stockholders  of the Company and
until  their   successors  are  elected  and  qualify  or  until  their  earlier
resignation or removal.

     The Company, Horizon BCBSNJ and CW Ventures are parties to the Stockholders
Agreement,  pursuant to which  Horizon  BCBSNJ and CW Ventures  have agreed that
each of them shall be  entitled  to  designate  two  members  of the Board;  two
members  acceptable  to CW Ventures  and Horizon  BCBSNJ will be  designated  by
management of the Company,  and one member not associated with the operations of
the  Company  who  is  acceptable  to  CW  Ventures  and  Horizon   BCBSNJ  (See
"Description of Business - Introduction and Background"  above). CW Ventures has
designated  Barry  Weinberg  and Walter  Channing,  Jr. as members of the Board.
Horizon BCBSNJ had  designated  William J. Marino and Robert J. Pures as members
of the Board; both resigned as of June 19, 2002. Horizon BCBSNJ has subsequently
designated Patrick J. Geraghty,  and Christine L. Nelson as members of the Board
both of whom were elected as such as of February 10, 2003.

     The following sets forth certain  information with respect to each director
and executive officer of the Company as of December 31, 2002:

     David G. Noone has been a director of the Company  since  January  1999 and
Chairman of the Board since July 30, 2002,  CEO from January 1999 until February
15, 2001, and an employee engaged in identifying and pursuing strategic business
combinations from February 15, 2001 to September 2001. Prior to his service with
the  Company,  Mr.  Noone  served from  September  1995 to February  1997 as the
President  and  Chief  Executive  Officer  of  Value  Health  International,   a
subsidiary of Value Health,  Inc., where he was responsible for the migration of
Managed Health Care strategies to emerging  opportunity markets in Europe, Latin
America and Asia.

     Dennis J. Mouras has served as the Chief  Executive  Officer and a director
of the Company  since  February 15, 2001.  He has served as President  and Chief
Operating  Officer of the Company since  October 30, 2000,  and as the Executive
Vice  President of Marketing and Sales of the Company from April 1999 to October
30, 2000. Prior to that, Mr. Mouras served as President of Intracorp,  Inc. from
January  1997 to January  1999,  and as President  and General  Manager of CIGNA
Healthcare of Colorado from October 1994 to January 1997.

     Walter Channing,  Jr. has been a director of the Company since May 1997. He
has been Vice President of the CW Group, Inc., a company engaged in investing in
the health care field since 1981. Mr. Channing currently serves on the boards of
directors of several privately owned companies (including Alignis,  Inc.) and is
a general partner of CW Partners.

     David J.  McDonnell  has been a director of the Company since January 1997.
He served from  December  1993 to February  1997 as a director of Value  Health,
Inc., a company engaged in the health care service  business.  Prior to that, he
was employed by Preferred  Health Care Ltd., a behavioral  managed care company,
where he served as that company's Chief Executive Officer from 1988 to 1993, and
its  President  from 1988 to 1992.  Mr.  McDonnell  also  served as  Chairman of
Preferred Health Care Ltd.'s Board of Directors from 1991 to 1993. Mr. McDonnell
currently serves as a member of the compensation committee of the Brown Schools.

     Barry  Weinberg has been a director of the Company  since May 1997.  He has
been  President  of the CW Group,  Inc.,  a company  engaged in investing in the
health care field since 1981.  Mr.  Weinberg  currently  serves on the boards of
directors of several privately owned companies (including Tanical,  Inc.) and is
a general partner of CW Partners.

     Daniel J. Potterton has served as Executive Vice President,  Operations, of
the Company since February 20, 2001. Prior to that, in 1999 Mr. Potterton was an
independent   consultant  to  health  plans  and  venture   capital   investment
institutions,  and  from  1995  to  1999,  he  served  as the  President  of MCC
Behavioral  Care,  Inc.  a  subsidiary  of  CIGNA  Healthcare.  Mr.  Potterton's
employment with the Company terminated as of December 31, 2002.

     R.  Christopher  Minor  has  served  as  Senior  Vice  President  and Chief
Financial  Officer of the Company  since April 2000.  Prior to that,  Mr.  Minor
served as Senior Vice President & Treasurer of Hermitage  Insurance Company from
December 1997 to March 2000, and as Vice President and Chief  Financial  Officer
of One Call Medical,  Inc. from August 1996 to December 1997. Prior to that, Mr.

                                       15



<PAGE>

Minor served as Vice President and Chief Financial  Officer of Value  Behavioral
Health from January 1994 to March 1996. Mr. Minor's  employment with the Company
terminated as of December 31, 2002.

Compliance with Section 16(a) of the Securities Exchange Act of 1934:

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the  Company's  officers and  directors,  and persons who own more than 10% of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership and changes in ownership with the  Securities and Exchange  Commission
and NASDAQ,  copies of which are required by  regulation  to be furnished to the
Company.  Based solely on review of the copies of such reports  furnished to the
Company,  the Company  believes that during fiscal 2002 its officers,  directors
and ten percent  (10%)  beneficial  owners  complied  with all the Section 16(a)
filing requirements,  with the exception that Mr. Mouras inadvertently failed to
report in a timely manner his grant of options;  this  transaction  was reported
late on Form 4.


                                       16

<PAGE>


Item 10.  Executive Compensation
--------  ----------------------

                             EXECUTIVE COMPENSATION

     The following table sets forth information concerning the compensation paid
by the Company for each of the three  calendar years ended December 31, 2002, to
the individual  performing the function of Chief  Executive  Officer and each of
the next four most highly  compensated  executive  officers with compensation in
excess of $100,000, during such periods.

<TABLE>
<CAPTION>

                                                        Summary Compensation Table

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

                                                          Annual Compensation                     Long Term
                                                                                                 Compensation
-----------------------------------------------------------------------------------------------------------------------------------


                                 Year Ended                                                        Securities
     Name and Principal          Year Ended                                 Other Annual           Underlying        All Other
          Position               December 31,    Salary         Bonus       Compensation(2)     Options/SARSs(#)     Compensation

-----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>             <C>            <C>                <C>                 <C>    <C>
Dennis J. Mouras (3)                2002        $285,000        $50,000        $31,496            1,500,000           $5,250 (1)
Chief Executive Officer &           2001        $285,000         $-0-          $31,774            2,500,000           $5,100 (1)
President                           2000        $229,615         $-0-          $64,728              500,000           $5,100 (1)
-----------------------------------------------------------------------------------------------------------------------------------
Daniel J. Potterton(4)              2002        $195,000        $25,000         $-0-               250,000            $5,250 (1)
Senior Vice President               2001        $165,000         $-0-          $65,675             500,000            $4,500 (1)
& Chief Operating Officer           2000          $-0-           $-0-           $-0-                 -0-                 $-0-
-----------------------------------------------------------------------------------------------------------------------------------
R. Christopher Minor(5)             2002        $210,000        $25,000         $-0-               250,000            $5,250 (1)
Senior Vice President               2001        $210,000         $-0-           $-0-                 -0-              $5,100 (1)
& Chief Financial Offer             2000        $145,385         $-0-           $-0-               700,000               $-0-
-----------------------------------------------------------------------------------------------------------------------------------

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

(1)  Represents   Company   matching    contributions   to   a   401(k)   profit sharing/savings plan.

(2)  Other Annual Compensation includes taxable fringe benefits, unused accrued vacation days, relocation allowances, and, in the
     case of Mr. Mouras, for 2000, commissions.

(3)  As of February 15, 2001, and Mr. Mouras was appointed to the office of Chief Executive Officer.

(4)  Mr. Potterton joined the Company on February 20, 2001, and terminated his employment as of December 31, 2002.

(5)  Mr. Minor joined the Company on April 17, 2000, and terminated his employment as of December 31, 2002.

</TABLE>

Compensation Plans

Stock Option Plan:

     The Board of Directors  initially adopted the Stock Option Plan ("Plan") on
June 6,  1996,  and the  stockholders  approved  the plan on  August  23,  1996.
Effective January 8, 1999 and January 26, 1999, the Board of Directors  approved
amendments  to the Plan to update the Plan and to increase  the number of shares
and certain other benefits  available under the Plan. The stockholders  approved
the amendments to the Plan on July 7, 1999. Additionally, effective November 30,
2000,  the Board of  Directors  and a  majority  of the  stockholders  acting by
written  consent,  approved  amendments  to the Plan to  increase  the number of
shares available under the Plan.

     The  Plan  is  administered  by a  Committee  of  the  Board  of  Directors
consisting  of at least two members who are  "outside  directors"  as defined in
Section 162(m) of the Internal Revenue Code who are also "disinterested persons"
as  defined  in  regulations  under the  Securities  and  Exchange  Act of 1934.
Employees, officers, and other persons selected by the Committee are eligible to
receive options under the Plan.

     Under the Plan,  as  amended,  the Company has  reserved  an  aggregate  of
22,648,000 shares of Common Stock for issuance pursuant to options granted under
the Plan.  Beginning on January 1, 2002, and on each  subsequent  January 1, the
number of shares  reserved  for  issuance  under the Plan shall be  increased by
three percent (3%),  provided,  however,  that no shares authorized  pursuant to
such annual  increase  shall be issued with respect to incentive  stock options.
Pursuant to the terms of the Plan,  the Committee  will select the persons to be

                                       17

<PAGE>

granted options and will determine:  (i) whether to grant a non-qualified  stock
option  and/or  an  incentive  stock  option;  (ii) the  number of shares of the
Company's  Common Stock that may be purchased  upon the exercise of such option;
(iii) the time or times when the option becomes  exercisable;  (iv) the exercise
price,  which  cannot be less than 100% of the fair  market  value of the Common
Stock on the date of grant for incentive stock options (110% of such fair market
value for incentive options granted to a person who owns or who is considered to
own stock  possessing  more than 10% of the total  combined  voting power of all
classes of stock of the Company);  (v) the duration of the option,  which cannot
exceed ten (10) years;  and (vi) the terms and provisions of option  agreements,
which may differ among  recipients,  and which,  unless the Committee  otherwise
determines,  shall be  substantially  in the forms  attached  as exhibits to the
Plan.  Incentive  stock  options  may only be  granted to  employees  (including
officers) of the Company  and/or any of its  subsidiaries.  Non-qualified  stock
options  may be  granted to any  employees  (including  employees  who have been
granted incentive stock options) and other persons who the Committee may select.
The Committee may issue  non-qualified stock options with an exercise price less
than 100% of fair market value of the Common Stock.

     All  options  granted  under the Plan are  exercisable  during  the  option
grantee's   lifetime   only  by  the   option   holder  (or  his  or  her  legal
representative) and generally only while such option grantee is in the Company's
employ.  Unless  the  Committee  otherwise  provides,  in the  event  an  option
grantee's  employment  is  terminated  other than by death or  disability,  such
person shall have three  months from the date of  termination  to exercise  such
option to the extent the option was  exercisable  at such date,  but in no event
subsequent  to the option's  expiration  date.  Unless the  Committee  otherwise
provides,  in the event of  termination of employment due to death or disability
of the option grantee, such person (or such person's legal representative) shall
have 12 months from such date to  exercise  such option to the extent the option
was  exercisable at the date of termination,  but in no event  subsequent to the
option's  expiration  date.  A grantee may  exercise an option by payment of the
exercise price via any lawful method authorized by the Committee.

     The Plan contains anti-dilution provisions which provide that, in the event
of any change in the  Company's  outstanding  capital stock by reason of a stock
dividend,  recapitalization,  stock  split,  combination,  exchange of shares or
merger or consolidation, the Committee or the Board shall proportionately adjust
the number of shares  covered by each option  granted and the exercise price per
share.  The  Committee's  or Board's  determinations  in these  matters shall be
conclusive.

     The Board of Directors  has the  authority to terminate the Plan as well as
to make changes in and additions to such Plan.  The Plan will  terminate on June
6, 2006, unless previously terminated by the Board of Directors. However, unless
approved by the  stockholders  of the Company,  the Board of  Directors  may not
change the aggregate number of shares subject to the Plan, materially modify the
requirements  of  eligibility  to such Plan or materially  increase the benefits
accruing to participants under such Plan.


                        Option Grants in Last Fiscal Year

--------------------------------------------------------------------------------
                      Number of      % of Total
                      Securities      Options
                      Underlying     Granted to
           Name        Options      Employees in    Exercise
                     Granted (#)    Fiscal Year    Price per     Expiration Date
                                                     Share
--------------------------------------------------------------------------------
Dennis J. Mouras        500,000         18.5%          $.14       03/19/2012
                      1,000,000         37.0%          $.06       10/29/2012
--------------------------------------------------------------------------------
Daniel J. Potterton     250,000         9.30%          $.14       03/19/2012
--------------------------------------------------------------------------------
R. Christopher Minor    250,000         9.30%          $.14       03/19/2012
--------------------------------------------------------------------------------


                                       18
<PAGE>

<TABLE>
<CAPTION>

                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year-End Option Values


                                                     Number of                            Value of
                                                   Shares Underlying                Unexercised In-the-Money
        Name                                     Unexercised Options at                  Options at
        ----                                      December 31, 2002                 December 31, 2002
                                               Exercisable/Unexercisable          Exercisable/Unexercisable(1)
                                               -------------------------          ----------------------------
<S>                                              <C>                                        <C>
Dennis J. Mouras                                 2,571,859/1,928,141                        $0/$0
Daniel J. Potterton                                281,481/468,519                          $0/$0
R. Christopher Minor                               585,556/364,444                          $0/$0

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

(1)  Calculated on the basis of the closing bid price on the OTC Bulletin  Board
of the Company's Common Stock of $.05 on December 31, 2002.


Employment Agreements and Board Appointments

Mouras Employment Agreement

     As of October 25, 2000,  the Company  entered into an Employment  Agreement
with Dennis  Mouras  (the  "Mouras  Employment  Agreement"),  the current  Chief
Executive  Officer and President.  The Mouras Employment  Agreement  replaces an
earlier  agreement  between Mr. Mouras and the Company  during the time that Mr.
Mouras served as the Company's  Executive Vice President of Marketing and Sales.
The Mouras  Employment  Agreement  continues for a one-year term, after which it
renews  automatically for successive  one-year terms unless terminated by either
party on at least  sixty days notice  prior to an  anniversary  date.  Under the
Mouras Employment  Agreement,  Mr. Mouras is entitled to (a) an annual salary of
$285,000, (b) a grant of incentive stock options pursuant to the Company's Stock
Option Plan for  2,500,000  shares,  and (c) other  benefits set forth  therein.
Under  the  Mouras  Employment   Agreement,   Mr.  Mouras  waived  unpaid  sales
commissions to which he was otherwise  entitled under his prior  agreement.  The
Mouras Employment Agreement also contains a non-solicitation restriction for one
year after Mr. Mouras' employment.  On October 30, 2002, the Company amended the
Mouras  Employment  Agreement  by  agreeing  to  increase  to one year (from six
months) the  severance  that Mr.  Mouras  would be entitled to receive  upon his
termination from the Company without cause.

Potterton Employment Agreement

     By letter  dated  January 31, 2001,  the Company  entered into an agreement
with Daniel J.  Potterton to serve as its Executive Vice  President,  Operations
(the  "Potterton  Agreement").  The term of the  Potterton  Agreement  commenced
February 20, 2001,  pursuant to which Mr. Potterton is entitled to (a) an annual
salary of $195,000, (b) a cash bonus opportunity of up to $30,000, (c) the grant
of stock options,  subject to Board approval,  to purchase 500,000 shares of the
Company's Common Stock, and (d) other benefits set forth therein. As of February
20, 2002, the parties entered into an Employment  Agreement on substantially the
same terms as the  Potterton  Agreement,  except Mr.  Potterton  is subject to a
non-compete  agreement  during  his  employment  and for a period  of two  years
thereafter.  Mr.  Potterton's  employment  with  the  Company  terminated  as of
December 31, 2002.

Minor Employment Agreement

     Effective as of April 17,  2000,  the Company  entered  into an  Employment
Agreement  with R.  Christopher  Minor to serve as its Senior Vice President and
Chief Financial Officer (the "Minor Agreement"). The term of the Minor Agreement
commenced  April 17, 2000,  and  continues for a one-year  term,  after which it
renews  automatically for successive one-year terms unless otherwise  terminated
in accordance with its terms.  Under the Minor Agreement,  Mr. Minor is entitled
to (a) an annual  salary of  $210,000,  (b) a stock  option to purchase  500,000
shares of the Company's  Common Stock, and (c) other benefits set forth therein.
Mr.  Minor  is  subject  to a  non-compete  restriction  during  the term of his
employment and for a period of one year thereafter.  Mr. Minor's employment with
the Company terminated as of December 31, 2002.


                                       19
<PAGE>

Compensation of Directors

Generally

     No member of the  Board of  Directors  of the  Company  presently  receives
annual remuneration for acting in that capacity,  except disinterested directors
who  are  neither  officers  nor  associated  with  stockholders.  Disinterested
directors  are paid  $1,200  for each  meeting  of the Board of  Directors  they
attend.  Disinterested  directors  are also  eligible  for the grants of options
under the  Directors  Stock Option Plan.  Directors  are also  reimbursed  their
reasonable  out-of-pocket expenses for each attended meeting of the Board or any
committee  thereof.  As of December 31, 2002, Mr. McDonnell is the only director
that has been granted any options  pursuant to the Directors  Stock Option Plan.
Mr.  McDonnell was awarded as of January 26, 1999, an option to purchase 300,000
shares of the Company's  Common  Stock.  The option may be exercised at $.08 per
share,  and  becomes  exercisable  as  follows:  (a) 100,000 of such shares were
immediately exercisable; (b) 66,666 of such shares became exercisable on January
26, 2000; and (c) the remaining 133,334 of such shares become  exercisable in 24
equal monthly amounts commencing on February 26, 2000 and on the 26th day of the
following  23 months.  The market price of the Common Stock on January 26, 1999,
the date the option was granted, was $.08 per share.

Directors Stock Option Plan

     The Company adopted the Director Stock Option Plan (the "Director Plan") on
June 6, 1996, and amended it on July 24, 1996 and the stockholders  approved the
amended  plan on August 23,  1996.  Effective  January  26,  1999,  the Board of
Directors  approved  amendments  to the Director  Plan to update the plan and to
increase the number of shares and certain  other  benefits  available  under the
Director Plan. The stockholders  approved the amendments to the Director Plan on
July 7, 1999.

     Pursuant to the terms of the  Director  Plan,  the Board of  Directors  may
grant  non-qualified  stock  options  to  non-employee   directors  (other  than
directors  appointed by CW Ventures or Horizon BCBSNJ) and will  determine:  (i)
the number of shares of the  Company's  Common Stock that may be purchased  upon
the  exercise  of such  option;  (ii) the time or times when the option  becomes
exercisable;  (iii) the  exercise  price;  and (iv) the  duration of the option,
which cannot exceed ten (10) years.  Under the Director Plan, an aggregate of 2%
of the Company's authorized number of shares of Common Stock (equal to 2,072,000
shares of Common Stock) is reserved for issuance.

     All options  granted  under the Director  Plan are  exercisable  during the
option  grantee's  lifetime  only by the  option  grantee  (or his or her  legal
representative).   In  the  event  of   termination   of  an  option   grantee's
directorship,  such  person  shall have three  months from such date to exercise
such  option  to the  extent  the  option  was  exercisable  as at the  date  of
termination,  but in no event subsequent to the option's expiration date. In the
event of  termination of an option  grantee's  directorship  due to death,  such
person's  legal  representative  shall have 12 months from such date to exercise
such option to the extent the option was  exercisable at the date of death,  but
in no event subsequent to the option's expiration date.

     The Directors  Stock Option Plan contains  anti-dilution  provisions  which
provide  that in the event of any change in the  Company's  outstanding  capital
stock by reason of stock dividend,  recapitalization,  stock split, combination,
exchange of shares or merger or consolidation,  the Board shall equitably adjust
the  aggregate  number  and  kind  of  shares  reserved  for  issuance,  and for
outstanding  options,  the  number  of shares  covered  by each  option  and the
exercise prices per share.

     The Board of Directors  has the  authority to terminate  the Director  Plan
with  respect to any shares of Common Stock not at the time subject to an option
as well as to make  changes  in and  additions  to such  plans.  The  plan  will
terminate on June 6, 2006, unless previously  terminated by the Board.  However,
the Board may not,  unless approved by the  stockholders of the Company,  change
the aggregate number of shares subject to the Director Plan,  materially  change
the requirements of eligibility to such plan or materially increase the benefits
accruing to participants under such plan.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters
-------   ----------------------------------------------------------------------

     The  following  table  sets forth as of March 7, 2003  certain  information
regarding  the  beneficial  ownership of the  Company's  Common Stock by (i) all
persons known to the Company who own more than 5% of the outstanding Common


                                       20
<PAGE>

Stock,  (ii) each  director,  (iii) each of the executive  officers named in the
Summary  Compensation  Table, and (iv) all executive officers and directors as a
group.  Unless  otherwise  indicated,  the persons named in the table below have
sole  voting and  investment  power with  respect to all shares of Common  Stock
shown as beneficially owned by them.

<TABLE>
<CAPTION>
                     Beneficial Ownership of Common Stock by
                       Certain Stockholders and Management

                                    Number of Shares
    Name of Beneficial Owner     Beneficially Owned (1)     Percent of Ownership (2)
    ------------------------     ----------------------     ------------------------
<S>                                           <C>    <C>                      <C>
Principal Holders:
    Horizon Blue Cross Blue Shield of
       New Jersey (3)(4)(5)                   53,394,820                      53.50%
    CW Ventures II, L.P. (5)(6)               37,617,420                      37.69%

Management:

    Walter Channing, Jr. (5)(6)(7)            37,617,420                      37.69%
    Charles Hartman (5)(6)(7)                 37,617,420                      37.69%
    Barry Weinberg (5)(6)(7)                  37,617,420                      37.69%
    David J. McDonnell (8)(9)(10)                300,000                          *
    David G. Noone (9)(11)                     2,191,852                       2.15%
    Dennis J. Mouras (10)(11)                  2,766,304                       2.70%
    Daniel J. Potterton (10)(11)                 281,481                          *
    R. Christopher Minor (10)(11)                616,556                          *
    Patrick J. Geraghty (12)                           0                          *
    Christine L. Nelson (13)                           0                          *


    All directors and executive officers as
    a Group (7 persons) (7)(11)               43,773,613                      41.91%
--------------------------
</TABLE>
   * Less than 1%

(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
Securities  and  Exchange  Commission,   which  generally  attribute  beneficial
ownership  of  securities  to  persons  who  possess  sole or  shared  voting or
investment power with respect to those securities. Beneficial ownership includes
outstanding shares and shares subject to options exercisable within 60 days.

(2) The  percent  beneficially  owned by any  person or group  who held  options
exercisable  within 60 days has been  calculated  assuming all such options have
been  exercised in full and adding the number of shares  subject to such options
to the total number of shares issued and outstanding.

(3) The  business  address of Horizon  Blue Cross Blue Shield of New Jersey is 3
Penn Plaza East, Newark, New Jersey 07105.

(4) In the event that the  Services  Agreement  between  the Company and Horizon
BCBSNJ is  terminated  by Horizon  BCBSNJ,  CW  Ventures  will have the right to
purchase   Horizon   BCBSNJ's  shares  in  accordance  with  the  terms  of  the
Stockholders Agreement between Horizon BCBSNJ and CW Ventures.

(5) Horizon  BCBSNJ may be deemed a member of a "group," as such term is used in
Section 13(d) of the Exchange Act, with CW Ventures,  CW Partners III, L.P., the
general partner of CW Ventures ("CW  Partners"),  and Walter  Channing,  Charles
Hartman and Barry Weinberg, the general partners of CW Partners.  Horizon BCBSNJ
on the one hand, and CW Ventures, CW Partners and Messrs. Channing,  Hartman and
Weinberg,  on the  other,  disclaim  membership  in a group for the  purpose  of
Section 13(d) of the Exchange Act or for any other purpose.

(6) The  business  address of Messrs.  Channing and  Weinberg,  directors of the
Company, and Mr. Hartman is 1041 Third Avenue, New York, New York 10021.


                                       21
<PAGE>

(7) Includes 37,617,420 shares directly owned by CW Ventures.  Messrs. Channing,
Hartman and Weinberg are the general partners of CW Partners, and as such may be
deemed to beneficially own such shares and to have shared voting and disposition
power  over  such  shares.  Messrs.  Channing,  Hartman  and  Weinberg  disclaim
beneficial  ownership  of such shares  except to the extent of their  respective
direct and indirect partnership interests in CW Ventures.

(8) The business  address of Mr.  McDonnell,  a director of the Company,  is 301
Aqua Court, Naples, Florida 34102.

(9)  The  business  address  of Mr.  Noone  is 34  Sunset  Hill  Road,  Redding,
Connecticut, 06896.

(10) The business address of Messrs.  Mouras, Potterton and Minor is 485-C Route
1 South, Iselin, New Jersey 08830.

(11) 300,000 of Mr. McDonnell's  shares of Common Stock,  691,852 of Mr. Noone's
shares of Common Stock, 2,766,204 of Mr. Mouras' shares of Common Stock, 281,481
of Mr.  Potterton's  shares of Common Stock,  585,556 of Mr.  Minor's  shares of
Common  Stock,  and 4,625,093 of the shares of Common Stock of all directors and
executive officers as a group are issuable upon the exercise of stock options to
purchase  shares of Common Stock that were  exercisable on March 7, 2003 or that
will become exercisable within 60 days of such date.

(12) The business address of Mr. Geraghty,  a director of the Company, is 3 Penn
Plaza East, Newark, New Jersey 07105.

(13) The business  address of Ms. Nelson,  a director of the Company,  is 3 Penn
Plaza East, Newark, New Jersey 07105.


Equity Compensation Plans

     The following table sets forth the securities authorized for issuance under
the Company's equity compensation plans as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                 (A)                          (B)                        (C)
                                                        Number of securities to        Weighted-average        Number of securities
                                                        be issued upon exercise       exercise price of,     remaining available for
                                                        of outstanding options,      outstanding options,     future issuance under
                    Plan category                         warrants and rights        warrants and rights       equity compensation
                    -------------                                                                                plans (excluding
                                                                                                             securities reflected in
                                                                                                                      column (A))
                                                       -------------------------    ---------------------   ------------------------
      <S>                                                             <C>                          <C>                    <C>

      Equity compensation plans approved by
         security holders                                             13,942,642                   $ 0.28                 10,159,170
      Equity compensation plans not approved by
         security holders                                                      -                    $   -                          -

      Total                                                           13,942,642                   $ 0.28                 10,159,170
</TABLE>

Item 12.  Certain Relationships and Related Transactions
-------   ----------------------------------------------

     The Company has entered into a series of transactions  with Horizon BCBSNJ.
In February  1996,  the Company  issued the Horizon BCBSNJ Note, in the original
principal  amount of $3,600,000,  which provided for conversion  into 13,375,083
shares of Common Stock and the issuance of an  additional  24,242,337  shares of
Common  Stock for  failure of the  Company to meet  certain  revenue  and income
thresholds.  Accordingly, in conjunction with this obligation the Company issued
to Horizon  BCBSNJ  24,242,337  shares of Common Stock on February 27, 1997. For
further  description of the Horizon BCBSNJ Note, see  "Description of Business -
Introduction and Background." On August 16, 2001,  pursuant to a Satisfaction of
Debt Agreement dated November 1, 2000, among the Company, Horizon BCBSNJ and one
of Horizon BCBSNJ's  subsidiaries,  Horizon Healthcare of New Jersey,  Inc., the
Company  issued  15,777,400  shares  of its  common  stock in  exchange  for the
cancellation of approximately  $1.6 million owed by it. As of December 31, 2002,
Horizon  BCBSNJ is the  beneficial  owner of 53,394,820  shares of Common Stock,
constituting  53.50% of the Company's  outstanding  Common  Stock.  In addition,
until June 19, 2002,  two (2) Horizon  BCBSNJ  officers  were  directors  of the
Company:  Robert  Pures,  a former  director  of the  Company,  is  Senior  Vice
President, Chief Financial Officer and Treasurer of Horizon BCBSNJ; and

                                       22
<PAGE>

William Marino,  a former director of the Company is also a director,  President
and Chief Executive Officer of Horizon BCBSNJ;  and since February 10, 2003, two
(2) other Horizon BCBSNJ officers have been appointed  directors of the Company:
Patrick J. Geraghty is a Senior Vice President of Horizon BCBSNJ,  and Christine
L. Nelson is Deputy General Counsel to Horizon BCBSNJ.

     The  Company  has  also  entered  into a  series  of  transactions  with CW
Ventures.  In February  1996,  the Company  issued the CW Note,  in the original
principal  amount of  $2,000,000,  which  provided for exchange  into  7,799,997
shares of Common Stock and the issuance of an  additional  25,914,222  shares of
Common  Stock  if  the  Company  failed  to  meet  certain  revenue  and  income
thresholds.  Accordingly, the Company issued to CW Ventures 25,914,222 shares of
Common  Stock on  February  27, 1997 for  failure to meet such  thresholds.  For
further  description of the CW Note, see "Description of Business - Introduction
and  Background." In February 1996 the Company also issued to CW Ventures the CW
Warrants.  For further  description  of the CW  Warrants,  see  "Description  of
Business - Introduction  and  Background."  Effective June 30, 1998, the CW Note
was  automatically  converted  into  7,799,997  shares  of Common  Stock.  As of
December 31, 2001, CW Ventures is the beneficial  owner of 37,617,420  shares of
Common Stock,  constituting 37.70% of the outstanding Common Stock. Also, two of
CW Venture  officers are directors of the Company:  Barry  Weinberg is a General
Partner of CW Partners and Walter Channing,  Jr. is also a General Partner of CW
Partners.

Item 13.  Exhibits and Reports on Form 8-K
-------   --------------------------------

(a)      Exhibits

Exhibit  Description of Exhibit No.
-------  -------------------------

2.1       Deposit  Agreement dated October 31, 1994 among Midlantic Bank,  N.A.,
          PMDX and the Registrant incorporated by reference to Exhibit 2.1 filed
          with  the  Company's  Registration  Statement  on Form S-1  (File  No.
          33-89176).

2.2       Certificate  of  Merger  of  Care  Advantage   Health  Systems  (f/k/a
          Advantage   Health  Systems,   Inc.),  a  Georgia   corporation   into
          CareAdvantage   Health   Systems,   Inc.,   a   Delaware   corporation
          incorporated  by  reference  to Exhibit  2.2 filed with the  Company's
          Registration Statement on Form S-1 (File No. 33-89176).

3.1       Registrant's Certificate of Incorporation incorporated by reference to
          Exhibit 3.1 filed with the  Company's  Registration  Statement on Form
          S-1 (File No. 33-89176).

3.1(a)    Amended and Restated  Certificate  of  Incorporation  incorporated  by
          reference to the Company's Information Statement dated September 1996.

3.2       Registrant's  By-Laws  incorporated  by reference to Exhibit 3.2 filed
          with  the  Company's  Registration  Statement  on Form S-1  (File  No.
          33-89176).

10.1      Letter of intent dated  September 30, 1994 between the  Registrant and
          New Jersey BCBS, amendments thereto of December 29, 1994, February 27,
          1995 and April 4, 1995 and Interim  Services  Agreement as of April 1,
          1995  between  the  Registrant  and New Jersey  BCBS  incorporated  by
          reference  to  Exhibit  10.12  filed with the  Company's  Registration
          Statement on Form S-1 (File No. 33-89176).

10.1(a)   December  22, 1995 Letter  Agreement  between the  Registrant  and New
          Jersey  BCBS  extending  the  Letter of Intent  and  Interim  Services
          Agreement  to March 31,  1996  incorporated  by  reference  to Exhibit
          10.12(a) filed with the Company's Annual Report on Form 10-KSB for the
          year ended October 31, 1996.

10.2      Lease  Agreement  dated April 14,  1995  between  the  Registrant  and
          Metropolitan  Life  Insurance  Company  incorporated  by  reference to
          Exhibit 10.13 filed with the Company's  Registration Statement on Form
          S-1 (File No. 33-89176).

10.3      Letter of Intent  dated  January 2, 1996 between CW Ventures II, L.P.,
          the Registrant and its CareAdvantage  Health Systems,  Inc. subsidiary
          incorporated  by reference to Exhibit  10.14 filed with the  Company's
          Annual Report on Form 10-KSB for the year ended October 31, 1996.


                                       23
<PAGE>

10.4      Securities  Purchase  Agreement  dated  February  22,  1996  among  CW
          Ventures, CAHS and the Registrant incorporated by reference to Exhibit
          10.15 filed with the  Company's  Annual  Report on Form 10-KSB for the
          year ended October 31, 1996.

10.5      CW Exchangeable  Note incorporated by reference to Exhibit 10.16 filed
          with the  Company's  Annual  Report on Form  10-KSB for the year ended
          October 31, 1996.

10.6      Stock  Acquisition  Agreement dated February 22, 1996 among EHC, CHCM,
          CAHS and the  Registrant  incorporated  by reference to Exhibit  10.17
          filed with the  Company's  Annual  Report on Form  10-KSB for the year
          ended October 31, 1996.

10.7      EHC Exchangeable Note incorporated by reference to Exhibit 10.18 filed
          with the  Company's  Annual  Report on Form  10-KSB for the year ended
          October 31, 1996.

10.8      Services Agreement dated February 22, 1996 among Horizon BCBSNJ, CHCM,
          CAHS and the  Registrant  incorporated  by reference to Exhibit  10.19
          filed with the  Company's  Annual  Report on Form  10-KSB for the year
          ended October 31, 1996.

10.9      Stockholders' Agreement dated February 22, 1996 among EHC, CW Ventures
          and the  Registrant  incorporated  by reference to Exhibit 10.20 filed
          with the  Company's  Annual  Report on Form  10-KSB for the year ended
          October 31, 1996.

10.10     Joint  Services  Agreement,  dated May 29, 1997,  among Allied  Health
          Group,  Inc., CAHS, Inc. and the Company  incorporated by reference to
          Exhibit  10(c)  filed with the  Company's  Form 10-QSB for the quarter
          ended April 30, 1997.

10.11     Agreement,  dated as of  January 1, 1997  between  Blue Cross and Blue
          Shield of Rhode  Island  ("BCBSRI")  and CAHS,  Inc.  incorporated  by
          reference to Exhibit  10(a) filed with the  Company's  Form 10-QSB for
          the quarter ended July 31, 1997.

10.12     Consultant  Agreement dated March 17, 1997, between Coordinated Health
          Partners,  Inc.  d/b/a  Blue  Chip,  and CAHS,  Inc.  incorporated  by
          reference to Exhibit  10(d) filed with the  Company's  Form 10-QSB for
          the quarter ended April 30, 1997.

10.13     Letter Agreement,  dated as of March 1, 1997, between Medigroup of New
          Jersey, Inc. d/b/a HMO Blue, the Company and Allied Health Group, Inc.
          incorporated  by reference to Exhibit  10(e) filed with the  Company's
          Form 10-QSB for the quarter ended April 30, 1997.

10.14     First  Amendment and  Restatement of Services  Agreement,  dated as of
          June 13, 1997,  among CAHS, Inc., CHCM, the Company and Horizon BCBSNJ
          incorporated  by reference to Exhibit  10(b) filed with the  Company's
          Form 10-QSB for the quarter ended April 30, 1997.

10.15     Credit  Agreement  among Summit Bank, the Company and Horizon  BCBSNJ,
          dated June 13, 1997  incorporated  by reference to Exhibit 10(f) filed
          with the Company's Form 10-QSB for the quarter ended April 30, 1997.

10.16     Revolving  Credit Note, dated June 13, 1997 by the Company in favor of
          Summit  Bank  in  the   original   principal   amount  of   $1,500,000
          incorporated by reference to Exhibit 10(f)(1) filed with the Company's
          Form 10-QSB for the quarter ended April 30, 1997.

10.17     Term Note, dated June 13, 1997, by the Company in favor of Summit Bank
          in  the  original  principal  amount  of  $1,500,000  incorporated  by
          reference to Exhibit 10(f)(2) filed with the Company's Form 10-QSB for
          the quarter ended April 30, 1997.

                                       24
<PAGE>


10.18     Promissory Note and Security  Agreement,  dated April 1, 1997, by CHCM
          in favor of  Horizon  BCBSNJ,  in the  original  principal  amount  of
          $1,862,823  incorporated  by reference to Exhibit  10(f)(3) filed with
          the Company's Form 10-QSB for the quarter ended April 30, 1997.

10.19     Employment  Agreement between the Company and Thomas Riley, dated June
          10, 1997,  as  supplemented  by a side  agreement  with CW and Horizon
          BCBSNJ,  of even date therewith  incorporated  by reference to Exhibit
          10(a) filed with the Company's Form 10-QSB for the quarter ended April
          30, 1997.

10.20     Services Agreement as of January 5, 1998, by and between New York Care
          Plus  Insurance  Company,  Inc.  and  the  Company,   incorporated  by
          reference to Exhibit 10.20 filed with the Company's Form 10KSB for the
          year ended October 31, 1997.

10.21     Consultation  Agreement  dated  October  1,  1997 by and  between  the
          Company and David McDonnell,  an independent  director of the Company,
          incorporated  by reference to Exhibit  10.21 filed with the  Company's
          Form 10KSB for the year ended October 31, 1997.

10.22     Mutual  Release  Agreement  dated as of  January 6, 1998  between  the
          Company and  MEDecision,  Inc.,  incorporated  by reference to Exhibit
          10.22 filed with the  Company's  Form 10KSB for the year ended October
          31, 1997.

10.23     Separation  Agreement  dated  April  20,  1995  between  PMDX  and the
          Registrant  incorporated  by  reference to Exhibit 10.1 filed with the
          Company's Registration Statement on Form S-1 (File No. 33-89176).

10.24     Agreement  dated as of January 1,  1995,  between  Maine BCBS and CAHS
          incorporated  by reference  to Exhibit  10.2 filed with the  Company's
          Registration Statement on Form S-1 (File No. 33-89176).

10.25     Products  and  Services  Agreement  dated  November  7,  1994  between
          MEDecision,  Inc. and CAHS  incorporated  by reference to Exhibit 10.3
          filed with the Company's  Registration Statement on Form S-1 (File No.
          33-89176).

10.26     Registrant's 1995  Comprehensive  Stock Incentive Plan incorporated by
          reference  to  Exhibit  4.2  filed  with  the  Company's  Registration
          Statement on Form S-1 (File No. 33-89176).

10.27     Registrant's  1996 Stock Option Plan  incorporated by reference to the
          Company's Information Statement dated September 1996.

10.28     Registrant's 1996 Director Stock Option Plan incorporated by reference
          to the Company's Information Statement dated September 1996.

10.29     Option Agreement  between CW Ventures and Horizon BCBSNJ  incorporated
          by  reference  to  Exhibit  5 of  Schedule  13(d)  of  Horizon  BCBSNJ
          respecting  beneficial  ownership of Common Stock of the Company dated
          June 1997.

10.30     Settlement  and Release  Agreement  dated January 13, 1998 between the
          Company and John Petillo  incorporated  by reference to Exhibit  10.30
          filed with the  Company's  Form 10KSB for the year ended  October  31,
          1997.

10.31     Settlement and Release  Agreement  dated December 19, 1997 between the
          Company and Vince Achilarre incorporated by reference to Exhibit 10.31
          filed with the  Company's  Form 10KSB for the year ended  October  31,
          1997.

10.32     Employment  Agreement  between  the  Company  and David  Noone,  dated
          January 8, 1999, incorporated by reference to Exhibit 10.32 filed with
          the Company's Form 10KSB for the year ended September 30, 1998.

10.33     Confidentiality,  Invention,  and  Non-Compete  Agreement  between the
          Company and David Noone, dated as of January 8, 1999,  incorporated by
          reference to Exhibit 10.33 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

                                       25
<PAGE>


10.34     Settlement and Release  Agreement  entered into among Horizon  BCBSNJ,
          the Company,  CAHS, and CHCM, Enterprise Holding Company, Inc. ("EHC")
          and CW Ventures, incorporated by reference to Exhibit 10(a) filed with
          the Company's Form 10-QSB for the quarter ended July 31, 1998.

10.35     Services  Agreement  dated  as of  January  1,  1999,  by and  between
          HealthNow New York,  Inc.  ("HNNY") and the Company,  incorporated  by
          reference to Exhibit 10.35 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

10.36     Amended and Restated Employment  Agreement,  dated as of September 29,
          1998,  with  Richard  W.  Freeman,  M.D.,  CAHS and the  Company  (the
          "Freeman Employment Agreement"),  incorporated by reference to Exhibit
          10.36 filed with the Company's Form 10KSB for the year ended September
          30, 1998.

10.37     Employment  Agreement,  dated as of March 25, 1997, by and between the
          Company and Elaine del Rossi,  incorporated  by  reference  to Exhibit
          10.37 filed with the Company's Form 10KSB for the year ended September
          30, 1998.

10.38     Confidentiality, Invention and Non-Compete Agreement dated as of March
          25, 1998  between the  Company and Elaine del Rossi,  incorporated  by
          reference to Exhibit 10.38 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

10.39     Employment  Agreement,  effective as of April 28,  1998,  by and among
          Stephan D.  Deutsch,  M.D.,  the  Company  and CAHS,  incorporated  by
          reference to Exhibit 10.39 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

10.40     Employment  Agreement,  effective as of April 19, 1999, between Dennis
          M. Mouras, and the Company, incorporated by reference to Exhibit 10.40
          filed with the  Company's  Form 10KSB for the year ended  December 31,
          1999.

10.41     Settlement  Agreement  Settlement Agreement dated August 9, 2000 among
          the  Company,  Horizon  Healthcare  of New  Jersey,  Inc.  and  Allied
          Specialty Care Services, Inc.

10.42     Employment  Agreement,   effective  as  of  April  17,  2000,  between
          Christopher  Minor  and the  Company,  incorporated  by  reference  to
          Exhibit 10.2 filed with the Company's Form 10QSB for the quarter ended
          September 30, 2000.

10.43     Satisfaction of Debt Agreement among Horizon Blue Cross Blue Shield of
          New Jersey,  Horizon  Healthcare  of New Jersey,  Inc.,  CareAdvantage
          Inc.,  CareAdvantage Health Systems, Inc. and Contemporary  Healthcare
          Management,  Inc.,  incorporated by reference to Exhibit 10.1 filed on
          the  Company's  Form 8-K dated  December 5, 2000 and filed on December
          13, 2000.

10.44     Amendment dated March 26, 2001 to Satisfaction of Debt Agreement dated
          as of November 1, 2000 among Horizon BCBSNJ, Horizon Healthcare of New
          Jersey, Inc., CareAdvantage,  Inc., CareAdvantage Health Systems, Inc.
          and Contemporary HealthCare Management, Inc, incorporated by reference
          to Exhibit 10.1 filed with the  Company's  Form 10-QSB for the quarter
          ended March 31, 2001.

10.45     Service  Agreement dated as of January 1, 2000 between Blue Cross Blue
          Shield  of  Rhode  Island,   Coordinated  Health  Partners,  Inc.  and
          CareAdvantage  Health  Systems,  Inc.,  incorporated  by  reference to
          Exhibit  10.2 filed with the  Company's  Form  10-QSB for the  quarter
          ended March 31, 2001.

10.46     Amendment dated as of August 9, 2001 to Satisfaction of Debt Agreement
          dated as of November 1, 2000 among Horizon BCBSNJ,  Horizon Healthcare
          of  New  Jersey,  Inc.,  CareAdvantage,   Inc.,  CareAdvantage  Health
          Systems,   Inc.   and   Contemporary   Healthcare   Management,   Inc.
          incorporated  by reference  to Exhibit  10.1 filed with the  Company's
          Form 10-QSB for the quarter ended June 30, 2001.

16.1      Letter regarding  change in accountants,  incorporated by reference to
          Exhibit 16.1 filed on the Company's Form 8-K dated June 6, 1996.

                                       26
<PAGE>


16.2      Letter regarding  change in accountants,  incorporated by reference to
          Exhibit 16 filed on the Company's Form 8-K dated July 31, 2001.

16.3      Letter regarding  change in accountants,  incorporated by reference to
          Exhibit 16.1 filed on the Company's Form 8-K dated June 6, 2002.

23.1      Consent of Independent Auditors*

23.2      Notice Regarding Consent of Independent Auditors*

-------------------------------------
*filed herewith

Item 14.  Controls and Procedures
-------   -----------------------

     (a) Evaluation of disclosure  controls and  procedures.  Within the 90 days
prior to the date of this report,  the Company  carried out an  evaluation  (the
"Evaluation"), under the supervision and with the participation of the Company's
management,  including  the  Company's  Chief  Executive  Officer,  who is  also
currently the acting chief financial  officer ("CEO"),  of the  effectiveness of
the design and operation of the Company's  "disclosure  controls and procedures"
("Disclosure  Controls") and its "internal controls and procedures for financial
reporting" ("Internal Controls").

     Disclosure  Controls are procedures that are designed with the objective of
ensuring  that  information  required to be disclosed in our reports filed under
the  Securities  Exchange  Act of 1934  ("Exchange  Act"),  such as this  Annual
Report, is recorded, processed,  summarized and reported within the time periods
specified in the Securities and Exchange  Commission's  ("SEC") rules and forms.
Disclosure  Controls are also  designed with the objective of ensuring that such
information is accumulated and  communicated  to our  management,  including the
CEO, as appropriate to allow timely  decisions  regarding  required  disclosure.
Internal  Controls  are  procedures  which are  designed  with the  objective of
providing   reasonable   assurance  that  (1)  our   transactions  are  properly
authorized; (2) our assets are safeguarded against unauthorized or improper use;
and (3) our transactions are properly  recorded and reported,  all to permit the
preparation of our financial  statements in conformity  with generally  accepted
accounting principles.

     (b) Certifications.  Appearing immediately following the Signatures section
of this Annual Report there are  "Certifications" of the CEO. The Certifications
are required in accordance with Section 302 of the  Sarbanes-Oxley  Act of 2002.
This  section  of the  Annual  Report  which you are  currently  reading  is the
information concerning the Evaluation referred to in the Certifications and this
information  should be read in conjunction  with the  Certifications  for a more
complete understanding of the topics presented.

     (c) Limitations on the effectiveness of controls. The Company's management,
including the CEO, does not expect that our Disclosure  Controls or our Internal
Controls will prevent all error and all fraud. A control  system,  no matter how
well  conceived  and  operated,  can  provide  only  reasonable,  not  absolute,
assurance that the objectives of the control system are met. Further, the design
of a control  system must reflect the fact that there are resource  constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent  limitations in all control  systems,  no evaluation of controls
can provide  absolute  assurance that all control issues and instances of fraud,
if any,  within the  company  have been  detected.  These  inherent  limitations
include the realities that judgments in decision-making  can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally,  controls
can be circumvented by the individual acts of some persons,  by collusion of two
or more people,  or by  management  override of the  control.  The design of any
system of  controls  also is based in part upon  certain  assumptions  about the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions;
over time,  control may become inadequate  because of changes in conditions,  or
the degree of  compliance  with the  policies  or  procedures  may  deteriorate.
Because  of  the  inherent  limitations  in  a  cost-effective  control  system,
misstatements due to error or fraud may occur and not be detected.

     (d)  Conclusions.  Based upon the  Evaluation,  the Company's CEO concluded
that the Company's  Disclosure Controls are effective in timely alerting them to
material  information  relating  to  the  Company  (including  its  consolidated
subsidiaries) required to be included in the Company's periodic SEC filings, and
that our Internal  Controls are effective to provide  reasonable  assurance that
our  financial  statements  are fairly  presented in conformity  with  generally
accepted

                                       27
<PAGE>


accounting principles.

     (e) Changes in Internal Controls.  There were no significant changes in the
Company's Internal Controls or in other factors that could significantly  affect
those  Internal  Controls,  including  any  corrective  actions  with  regard to
significant deficiencies and material weaknesses.


                                       28
<PAGE>








                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                CareAdvantage, Inc.
                                ------------------
                                (Registrant)

Date:   March 27, 2003    By:    /s/ Dennis J. Mouras
        ---------------      ----------------------------------------
                                 Dennis J. Mouras, Chief Executive Officer

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

Date: March 27, 2003      By:      /s/ Dennis J. Mouras
      --------------          --------------------------------------------------
                                   Dennis J. Mouras, Chief Executive Officer,
                                   Director and acting Principal
                                   Financial Officer and Accounting Officer

Date: March 27, 2003      By:       /s/ Walter J,. Channing
      --------------          --------------------------------------------------
                                   Walter Channing, Jr., Director

Date: March 31, 2003      By:      /s/ Patrick J. Geraghty
      --------------          --------------------------------------------------
                                   Patrick J. Geraghty, Director

Date: March 31, 2003      By:      /s/ Christine L. Nelson
      --------------          --------------------------------------------------
                                   Christine L. Nelson, Director

Date: March 27, 2003      By:      /s/ David J. McDonnell
      --------------            ------------------------------------------------
                                   David J. McDonnell, Director

Date: March 27, 2003      By:      /s/ David G. Noone
      --------------           -------------------------------------------------
                                   David  G.  Noone, Director

Date: March 27, 2003      By:      /s/ Barry Weinberg
      --------------             -----------------------------------------------
                                   Barry Weinberg, Director


<PAGE>
                      CAREADVANTAGE, INC. AND SUBSIDIARIES

                                 CERTIFICATIONS

I, Dennis J. Mouras,  Chief  Executive  Officer and acting  Principal  Financial
Officer of CareAdvantage, Inc. certify that:

     1. I have  reviewed  this annual  report on Form  10-KSB of  CareAdvantage,
Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a) designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

          b) evaluated the effectiveness of the registrant's disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

          c)  presented  in  this  annual  report  our  conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:    March 27, 2003
                                        /s/Dennis J. Mouras
                                        ------------------------------------
                                        Dennis J. Mouras,
                                        Chief Executive Officer and acting
                                        Principal Financial Officer



<PAGE>



                               CAREADVANTAGE, INC.
                                AND SUBSIDIARIES

                             CONSOLIDATED FINANCIAL
                                   STATEMENTS

                           DECEMBER 31, 2002 AND 2001












<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements
                                      Page
                                      ----
<TABLE>
      <S>                                                                                                               <C>

      Independent Auditors' Report                                                                                      F-2

      Independent Auditors' Report                                                                                      F-3

      Consolidated Balance sheets as of December 31, 2002 and 2001                                                      F-4

      Consolidated Statements of operations for the years ended December 31, 2002 and 2001                              F-5

      Consolidated Statements of stockholders' equity for the years ended December 31, 2002 and 2001                    F-6

      Consolidated Statements of cash flows for the years ended December 31, 2002 and 2001                              F-7

      Notes to financial statements                                                                                     F-8
</TABLE>

                                      F-1
<PAGE>


                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors
CareAdvantage, Inc.
New York, New York


We have audited the accompanying  consolidated  balance sheet of  CareAdvantage,
Inc.  and  subsidiaries  as of December  31,  2002 and the related  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated  financial  statements based on our audit. The financial statements
of CareAdvantage, Inc. and subsidiaries as of December 31, 2001 and for the year
then ended were  audited by other  auditors  who have ceased  operations.  Those
auditors have expressed an unqualified opinion on those financial  statements in
their report dated March 18, 2002.

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

In our opinion,  the 2002 financial statements referred to above present fairly,
in all material respects,  the consolidated financial position of CareAdvantage,
Inc. and subsidiaries as of December 31, 2002, and the  consolidated  results of
their  operations and their  consolidated  cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

See Note G[1] with  respect to a claim in the amount of  $1,547,000  against the
Company's majority stockholder/customer.

         /s/ Eisner, LLP
         ------------------------
         Eisner, LLP

         New York, New York
         March 4, 2003
         With respect to Note G[1], March 17, 2003
                                      F-2
<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES

                          INDEPENDENT AUDITORS' REPORT


THE FOLLOWING REPORT IS A COPY OF A REPORT  PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR  ANDERSEN  LLP, NOR HAS ARTHUR  ANDERSEN
LLP PROVIDED A CONSENT TO THE INCLUSION OF ITS REPORT IN THIS FORM 10-K.

The Board of Directors and Stockholders of
CareAdvantage, Inc:

We have  audited  the  consolidated  balance  sheet  of  CareAdvantage,  Inc and
subsidiaries as of December 31, 2001, and the related consolidated statements of
operations,  changes  in  stockholders'  equity and cash flows for the year then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of CareAdvantage,  Inc
and subsidiaries as of December 31, 2001 and the results of their operations and
their cash flows for year then ended in conformity  with  accounting  principles
generally accepted in the United States.

/s//Arthur Andersen LLP
-------------------

Arthur Andersen LLP
New York, New York
March 18, 2002

                                      F-3

<PAGE>

<TABLE>
                      CAREADVANTAGE, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
<CAPTION>

                                                                                                        December 31,
                                                                                                   ----------------------
                                                                                                   2002             2001
                                                                                                   -----------  ---------

                                           ASSETS
<S>                                                                                             <C>               <C>
Current assets:
   Cash                                                                                         $   7,793,000     $  4,297,000
   Restricted cash                                                                                    100,000          100,000
   Accounts receivable:
      Stockholder                                                                                   1,531,000        1,303,000
      Other                                                                                           441,000          375,000
   Other current assets                                                                               221,000          139,000
                                                                                                -------------  ---------------

        Total current assets                                                                       10,086,000        6,214,000

Property and equipment, at cost less accumulated depreciation                                       1,056,000          738,000
Intangible assets, net of accumulated amortization                                                    277,000          562,000
Other assets                                                                                           84,000           78,000
                                                                                                -------------  ---------------

        Total Assets                                                                            $  11,503,000      $ 7,592,000
                                                                                               ==============  ===============

                            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                             $     114,000      $   412,000
   Accrued compensation and related benefits                                                        1,801,000          757,000
   Accrued expenses and other current liabilities                                                     385,000          520,000
                                                                                               --------------  ---------------

        Total current liabilities                                                                   2,300,000        1,689,000
                                                                                               --------------  ---------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock - par value $.10 per share; authorized 10,000,000
      shares; none issued
   Common stock - par value $.001 per share, authorized 200,000,000
      shares; issued and outstanding 99,794,152 and 99,781,152 shares                                 100,000          100,000
   Additional paid in capital                                                                      23,801,000       23,800,000
   Accumulated deficit                                                                            (14,698,000)     (17,997,000)
                                                                                               --------------  ---------------

                                                                                                    9,203,000        5,903,000

        Total Liabilities and Stockholders' Equity                                             $   11,503,000    $   7,592,000
                                                                                              ===============  ===============
See notes to consolidated financial statements
</TABLE>
--------------------------------------------------------------------------------
                                      F-4

<PAGE>
<TABLE>
<CAPTION>

                                                     CAREADVANTAGE, INC. AND SUBSIDIARIES


                                                     Consolidated Statements of Operations

                                                                                                      Year Ended
                                                                                                     December 31,
                                                                                              -------------------------
                                                                                               2002                2001
                                                                                              -------------------------
<S>                                                                                     <C>                 <C>
Net service revenue (See note B[8])                                                       $  22,963,000      $   20,309,000
Cost of services                                                                              9,990,000          10,953,000
                                                                                        ---------------     ---------------

Gross profit                                                                                 12,973,000           9,356,000
                                                                                        ---------------     ---------------

Operating expenses:
   Selling, general and administrative                                                        7,431,000           7,184,000
   Depreciation and amortization                                                                468,000             509,000
   Employee termination costs                                                                 1,128,000                   -
   Write off of service contract                                                                468,000                   -
                                                                                        ---------------     ---------------

      Total operating expenses                                                                9,495,000           7,693,000
                                                                                        ---------------     ---------------

Operating income                                                                              3,478,000           1,663,000
Interest income                                                                                  65,000              92,000
Interest expense                                                                                      0             (49,000)
                                                                                        ---------------     ---------------

      Income before provision for income taxes                                                3,543,000           1,706,000

State income taxes                                                                              244,000             165,000
                                                                                        ---------------     ---------------
      Net income                                                                          $   3,299,000      $    1,541,000
Net income per share of common stock -                                                  ===============     ===============

              Basic                                                                           $ .03               $ .02
                                                                                              =====               =====

              Diluted                                                                         $ .03               $ .02
                                                                                              =====               =====

Weighted average number of common shares outstanding -

              Basic                                                                         99,792,000          89,420,000
                                                                                            ==========          ==========

              Diluted                                                                      100,249,000          91,465,000
                                                                                           ===========          ==========

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

See notes to consolidated financial statements
</TABLE>
                                       F-5


<PAGE>
<TABLE>
<CAPTION>

                                                    CAREADVANTAGE, INC. AND SUBSIDIARIES

                                                Consolidated Statements of Stockholders' Equity

                                                                  Common Stock
                                                               ------------------
                                                               Number        Par
                                                                 of         Value     Additional     Accumulated      Stockholders'
                                                               Shares       Amount      Capital        Deficit           Equity
                                                               ---------   ---------  ------------  --------------  ----------------
<S>                                                           <C>          <C>        <C>            <C>                  <C>
Balance as of January 1, 2001                                 83,533,752    $ 83,000  $22,238,000      $(19,538,000)     $ 2,783,000

Stock option modification compensation expense                                             14,000                             14,000
Exercise of stock options                                        470,000       1,000       14,000                             15,000
Issuance of shares for satisfaction of debt                   15,777,400      16,000    1,534,000                          1,550,000
Net income for the year ended December 31, 2001                                                           1,541,000        1,541,000
                                                            ------------  ----------  -----------      ------------        ---------
Balance as of December 31, 2001                               99,781,152     100,000   23,800,000      (17,997,000)        5,903,000

Exercise of stock options                                         13,000                    1,000                              1,000
Net income for the year ended December 31, 2002                                                           3,299,000        3,299,000
                                                            ------------  ----------  -----------         ---------        ---------

Balance as of December 31, 2002                               99,794,152    $100,000  $23,801,000     $ (14,698,000)    $  9,203,000
                                                            ============    ========  ===========     =============     ============

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

See notes to consolidated financial statements

                                      F-6

<PAGE>

<TABLE>
<CAPTION>

                                           CAREADVANTAGE, INC. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2002 AND 2001

                                         Consolidated Statements of Cash Flows

                                                                                                          Year Ended
                                                                                                          December 31
                                                                                                    ------------------------
                                                                                                    2002                2001
                                                                                                    ------------------------

<S>                                                                                                <C>                  <C>
Cash flows from operating activities:
   Net income                                                                                    $  3,299,000         $  1,541,000
   Adjustments to reconcile net income to net cash
   provided by operating activities:
        Depreciation and amortization                                                                 936,000              640,000
        Bad debt expense                                                                              779,000                    -
        Compensation due to option issuance                                                                 -               14,000
        Changes in:
           Accounts receivable stockholder                                                         (1,007,000)             (75,000)
           Accounts receivable other                                                                  (66,000)             703,000
           Other assets                                                                               (88,000)              41,000
           Accounts payable                                                                          (298,000)             222,000
           Accrued expenses and other current liabilities                                             909,000              212,000
                                                                                             ----------------     ----------------

              Net cash provided by operating activities                                             4,464,000            3,298,000
                                                                                             ----------------     ----------------

Cash flows from investing activity:
   Capital expenditures                                                                              (969,000)            (651,000)
                                                                                             ----------------     ----------------

              Net cash used  by investing activity                                                   (969,000)            (651,000)
                                                                                             ----------------     ----------------

Cash flows from financing activities:
   Proceeds from exercise of stock options                                                              1,000               15,000
   Transfer from restricted cash                                                                            -              156,000
                                                                                             ----------------     ----------------

              Net cash provided by financing activities                                                 1,000              171,000
                                                                                             ----------------     ----------------

                                   Net increase in cash                                             3,496,000            2,818,000
Cash - beginning of year                                                                            4,297,000            1,479,000
                                                                                             ----------------     ----------------

                                    Cash - end of year                                           $  7,793,000         $  4,297,000
                                                                                             ================     =================

Supplemental disclosures of cash flow information:
   Interest paid                                                                                 $          -         $     44,000
   Income taxes paid                                                                             $    292,000         $     51,000

Supplemental schedule of noncash operating and financing activities:

    Shares issued to stockholder to satisfy debt
                                                                                                 $          -         $  1,550,000

------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
                                      F-7

<PAGE>
                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 AND 2001

NOTE A - INTRODUCTION AND BACKGROUND

     CareAdvantage,  Inc.  ("CAI" or the  "Company") and its direct and indirect
subsidiaries,  CareAdvantage  Health  Systems,  Inc.  ("CAHS") and  Contemporary
HealthCare  Management,   Inc.  ("CHCM"),  are  in  the  business  of  providing
management and consulting  services  designed to enable  integrated  health care
delivery  systems and other care management  organizations  to reduce the costs,
while improving the quality,  of medical services provided to their subscribers.
The  management  and  consulting   services  include  care  management   program
enhancement services,  executive and clinical management services,  and training
programs. The Company's management and consulting services have been provided to
integrated health care delivery systems and other care management organizations.
The Company operates in one business segment.

     On November 1, 2000,  the  Company and Horizon  BCBSNJ (a 45%  stockholder)
signed a "Satisfaction  of Debt  Agreement"  which was  subsequently  amended to
extend the closing date to September 30, 2001. Under the terms of the agreement,
the  Company  paid and  satisfied  amounts  outstanding  to  Horizon  BCBSNJ  of
$1,577,740 by issuance of its common stock. The amount of $1,577,740 consists of
a  promissory  note  dated  April 1, 1997,  with a balance  at June 30,  2001 of
$692,571, the amount due to a Horizon BCBSNJ subsidiary of $839,000, and accrued
interest of $46,169.  The transaction  closed on August 16, 2001. As a result of
this transaction, Horizon BCBSNJ's current percentage ownership is 53.5% and the
ownership percentage of CW Ventures, the other major stockholder, is 37.7%.

     Prior to January 1, 2003,  the  Company  provided,  principally  to Horizon
BCBSNJ and another  Blue Cross Blue  Shield  organization,  certain  health care
containment services,  including utilization review, case management and disease
management and independent  reviews.  During 2002, the Company ceased  providing
these services to the other Blue Cross Blue Shield organization, which accounted
for 4% and 9% of net  revenues  for the  years  ended  December  2002 and  2001,
respectively.  As of December 31, 2002,  Horizon  BCBSNJ ceased  purchasing  the
Company's services.  As a result,  beginning January 1, 2003, the Company ceased
offering  these  services,  since it no  longer  maintained  the  employees  and
infrastructure necessary to support their delivery. Horizon BCBSNJ accounted for
82% and 70% of net  revenues  for the years  ended  December  31, 2002 and 2001,
respectively.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] Principles of consolidation:

     The consolidated  financial statements include the accounts of CAI, and its
wholly  owned  subsidiary,  CAHS  and  CAHS's  wholly  owned  subsidiary,  CHCM.
Intercompany accounts and transactions have been eliminated in consolidation.

[2] Revenue recognition:

     For its  services,  the  Company  seeks to be  compensated  either (i) on a
fee-for-service basis; (ii) on a performance-based  method whereby the Company's
compensation is based on achieving certain defined  benchmarks;  or (iii) on the
basis of a  combination  of both  fee-for-service  and  performance-based  fees.
Accordingly,  the  Company has adopted the  following  accounting  policies  for
revenue recognition under each contract category:

          (a)       Revenue under the fee-for-service arrangements is recognized
                    as the  services  are  provided  and the  related  costs  of
                    services are incurred on a pro-rata basis.

          (b)       Revenue  under the  performance-based  method is  recognized
                    when such amounts can reasonably be determined.

          (c)       Revenue           under           the            combination
                    fee-for-service/performance-based arrangements is recognized
                    as follows: the fee-for-service revenue is recognized as the
                    services  are  provided and the related cost of services are
                    incurred and the revenue based on  performance is recognized
                    when such amounts can reasonably be determined.


                                       F-8
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[3]  Depreciation and amortization:

     Depreciation  is computed by the  straight-line  method and is based on the
     estimated  useful lives of the various  assets.  Estimated  useful lives of
     depreciable assets range from three to seven years.  Leasehold improvements
     are amortized using the straight-line method over the remaining term of the
     related lease.  Depreciation  expense amounted to $350,000 and $336,000 for
     the years ended December 31, 2002 and 2001, respectively.

     Intangible assets are amortized over their expected useful lives of five to
     seven years on the straight-line method (see Note C).

     Depreciation  and  amortization  expense of $131,000 is included in cost of
     services for December 31, 2001.

[4]  Per share data:

     Basic net income per share has been computed based on the weighted  average
     number of shares  outstanding  during the  periods.  Dilutive  earnings per
     share reflects the potential  dilution that could occur if dilutive options
     and warrants outstanding were exercised and converted into common stock.

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                        -------------------------
                                                                                        2002                 2001
                                                                                        -------------------------
                 <S>                                                              <C>                  <C>

                 Weighted average common shares outstanding - basic                 99,792,000         89,420,000

                 Effect of dilutive options                                            457,000          2,045,000
                                                                              ----------------  -----------------
                 Weighted average common shares outstanding - diluted              100,249,000         91,465,000
                                                                              ================  =================

</TABLE>

     Options and warrants  outstanding at December 31, 2002 and 2001 to purchase
     approximately   12,013,000   and   5,648,000   shares  of   common   stock,
     respectively,  were not  included in the diluted per share  computation  as
     their effect would be antidilutive.

[5]  Concentration of credit risk:

     Financial  instruments that potentially  subject the Company to credit risk
     consist of cash and accounts  receivable.  The Company  maintains  its cash
     balances in high quality  financial  institutions.  The Company markets its
     services  primarily to Blue Cross and Blue Shield companies.  Collateral is
     not required to support these financial instruments.

[6]  Estimates:

     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally  accepted  in the United  States of America  requires
     management  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.

[7]  Fair value of financial instruments:

     The fair value of financial instruments  approximates their carrying amount
     due to the short-term nature of such instruments.


                                      F-9
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[8]  Major customers:

     One  customer  accounted  for  approximately  82%  (Horizon  BCBSNJ) of net
     revenues for the year ended December 31, 2002 and  approximately 70% of net
     revenues for the year ended  December  31,  2001.  As of December 31, 2002,
     Horizon BCBSNJ ceased purchasing the Company's services.

[9]  Stock-based compensation:

     The Financial Accounting Standard Board's Statement of Financial Accounting
     Standards  ("SFAS")  No. 123,  "Accounting  for  Stock-Based  Compensation"
     encourages, but does not require, companies to record compensation cost for
     stock-based  employee  compensation  plans at fair  value.  The Company has
     elected to continue to account for its stock-based compensation plans using
     the  intrinsic  value method  prescribed  by  Accounting  Principles  Board
     Opinion No. 25 ("APB No. 25"),  "Accounting  for Stock Issued to Employees"
     and to disclose  the pro forma  effects on net income  (loss) and  earnings
     (loss)  per share had the fair value of options  been  expensed.  Under the
     provisions of APB No. 25,  compensation  cost for stock options is measured
     as the excess,  if any, of the quoted market price of the Company's  common
     stock at the date of the  grant  over the  amount an  employee  must pay to
     acquire the stock (see Note E [2]).

[10] Recently issued accounting standards:

     In June 2002, the Financial  Accounting  Standards  Board  ("FASB")  issued
     Statement of Financial  Accounting  Standards ("SFAS") No. 146, "Accounting
     for Costs  Associated  with Exit or  disposal  activities,"  and  nullifies
     Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability  Recognition
     for  Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an
     Activity  (including Certain Costs Incurred in a Restructuring").  SFAS No.
     146  requires  that a  liability  for a cost  associated  with  an  exit or
     disposal activity be recognized when the liability is incurred.  Under EITF
     Issue No. 94-3, a liability for exit costs was recognized at the date of an
     entity's  commitment to an exit plan. SFAS No. 146 is effective for exit or
     disposal activities that are initiated after December 31, 2002.

     The Company adopted SFAS No. 146, and  accordingly  has recognized  certain
     costs in exiting the following activities. As of December 31, 2002, Horizon
     BCBSNJ ceased  purchasing  the Company's  certain  health care  containment
     services,  including  utilization  review,  case  management,  and  disease
     management  and  independent  reviews.  As a  result,  the  Company  ceased
     offering these services as of January 1, 2003. As of December 31, 2002, the
     Company  incurred  certain costs in exiting this  business,  which included
     employee  termination costs of approximately  $1,128,000 and the write down
     of intangible  assets related to the Horizon  BCBSNJ  service  agreement of
     approximately  $468,000.  In 2003, the Company expects to incur  additional
     costs in connection with exiting this business,  including costs associated
     with the termination of certain operating  leases,  including the lease for
     its office space in Iselin, NJ. Such costs will be material.

NOTE C - INTANGIBLE ASSETS

     Intangible  assets,  net  of  accumulated   amortization   consist  of  the
     following:
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                               2002                    2001
                 <S>                                                        <C>                    <C>
                 Service agreement                                          $1,100,000             $1,100,000
                 License agreement                                           1,103,000              1,103,000
                 Software development cost                                     851,000                549,000
                                                                            ----------             ----------

                                                                             3,054,000              2,752,000

                 Less accumulated amortization                               2,777,000              2,190,000
                                                                           -----------             ----------
                                                                            $  277,000             $  562,000
                                                                           ===========             ==========

</TABLE>
                                      F-10
<PAGE>

     Amortization  expense  for the years ended  December  31, 2002 and 2001 was
     $587,000 and $304,000, respectively.


[1]  Service agreement:

     This amount represents the Company's service agreement with Horizon BCBSNJ,
     which was recorded upon the  acquisition of CHCM. As the service  agreement
     was terminated, the related asset was fully amortized at December 31, 2002.

[2]  License agreement:

     The Company signed a five-year  agreement  commencing  November 1, 1994 for
     products and services (the "License Agreement") with a software development
     company,  which required an advance payment of $1,000,000.  Pursuant to the
     License Agreement,  the Company was granted a license for 100 users under a
     non-exclusive  five-year license for the use of certain existing  software.
     In December 1998,  the Company  upgraded the software and extended the term
     through  the later of  October  31,  2001 or the  termination  of a license
     agreement  that a  subsidiary  of  Horizon  BCBSNJ  has with such  software
     development company.  Such contract was terminated as of December 31, 2002.
     The related asset has been fully amortized at December 31, 2002.

[3]  Software development costs:

     Software   development   costs  are  capitalized   beginning  when  project
     technological feasibility is established and concluding when the product is
     ready for  release.  Research  and  development  costs  related to software
     development are expensed as incurred.  Amortization of software development
     costs  amounted to $117,000 and  $173,000 for the years ended  December 31,
     2002 and 2001, respectively.

NOTE D - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                        2002                    2001
                 <S>                                                               <C>                      <C>
                 Computer equipment                                                $2,699,000               $2,597,000
                 Furniture and fixtures                                               499,000                  498,000
                 Office machines and telephone equipment                              627,000                  496,000
                 Leasehold improvements                                             1,245,000                  811,000
                                                                                    ---------               ----------

                                                                                    5,070,000                4,402,000
                 Less accumulated depreciation and amortization                    (4,014,000)              (3,664,000)
                                                                                    ---------               ----------

                                                                                   $1,056,000                 $738,000
                                                                                   ==========                =========
</TABLE>

NOTE E - STOCKHOLDERS' EQUITY


[1]  Preferred stock:

     The preferred stock is issuable in such series and with such  designations,
     preferences,  conversion  rights,  cumulative,  participating,  optional or
     other rights,  including  voting  rights,  qualifications,  limitations  or
     restrictions  thereof  as  determined  by the  Board  of  Directors  of the
     Company.  As such,  the Board of  Directors  of the  Company is entitled to

                                      F-11
<PAGE>

 NOTE E - STOCKHOLDERS' EQUITY  (CONTINUED)

     authorize the creation and issuance of 10,000,000 shares of preferred stock
     in one or more  series with such  limitations  and  restrictions  as may be
     determined in the Board's sole discretion, with no further authorization by
     stockholders required for the creation and issuance thereof.

[2]  Stock option plans:

     The Stock  Option Plan (the "Plan") is  administered  by a Committee of the
     Board of  Directors  consisting  of at least two members  who are  "outside
     directors"  as defined in Section  162(m) of the Internal  Revenue Code who
     are also  "disinterested  persons"  as  defined  in  regulations  under the
     Securities and Exchange Act of 1934. Employees, officers, and other persons
     selected by the Committee are eligible to receive options under the Plan.

     Under the Plan,  as  amended,  the Company has  reserved  an  aggregate  of
     22,648,000  shares of Common Stock for issuance pursuant to options granted
     under the Plan.  Beginning  on  January  1,  2002,  and on each  subsequent
     January 1, the number of shares  reserved for issuance under the Plan shall
     be increased  by three  percent  (3%),  provided,  however,  that no shares
     authorized pursuant to such annual increase shall be issued with respect to
     incentive stock options.

     Pursuant to the terms of the Plan, the Committee will select the persons to
     be granted options and will determine: (i) whether to grant a non-qualified
     stock option and/or an incentive stock option; (ii) the number of shares of
     the Company's  Common Stock that may be purchased upon the exercise of such
     option; (iii) the time or times when the option becomes  exercisable;  (iv)
     the exercise price, which cannot be less than 100% of the fair market value
     of the Common Stock on the date of grant for incentive  stock options (110%
     of such fair market  value for  incentive  options  granted to a person who
     owns or who is  considered  to own  stock  possessing  more than 10% of the
     total  combined  voting power of all classes of stock of the Company);  (v)
     the duration of the option,  which cannot exceed ten (10) years.  Incentive
     stock options may only be granted to employees  (including officers) of the
     Company and/or any of its subsidiaries.  Non-qualified stock options may be
     granted  to any  employees  (including  employees  who  have  been  granted
     incentive  stock  options) and other  persons who the Committee may select.
     The Committee may issue  non-qualified stock options with an exercise price
     less than 100% of fair market value of the Common Stock.

     All  options  granted  under the Plan are  exercisable  during  the  option
     grantee's  lifetime  only  by the  option  holder  (or  his  or  her  legal
     representative)  and  generally  only while such  option  grantee is in the
     Company's employ.  Unless the Committee otherwise provides, in the event an
     option   grantee's   employment  is  terminated  other  than  by  death  or
     disability,   such  person  shall  have  three  months  from  the  date  of
     termination   to  exercise  such  option  to  the  extent  the  option  was
     exercisable  at such  date,  but in no  event  subsequent  to the  option's
     expiration date. Unless the Committee otherwise  provides,  in the event of
     termination of employment due to death or disability of the option grantee,
     such person (or such person's  legal  representative)  shall have 12 months
     from  such date to  exercise  such  option to the  extent  the  option  was
     exercisable at the date of termination,  but in no event  subsequent to the
     option's  expiration date. An optionee may exercise an option by payment of
     the exercise price via any lawful method authorized by the Committee.

     The Plan contains anti-dilution provisions which provide that, in the event
     of any change in the  Company's  outstanding  capital  stock by reason of a
     stock dividend,  recapitalization,  stock split,  combination,  exchange of
     shares  or merger  or  consolidation,  the  Committee  or the  Board  shall
     proportionately  adjust the number of shares covered by each option granted
     and the exercise price per share.  The Committee or Board's  determinations
     in these matters shall be conclusive.

     The Board of Directors  has the  authority to terminate the Plan as well as
     to make changes in and  additions to the Plan.  The Plan will  terminate on
     June 6, 2006, unless previously  terminated by the Board.  However,  unless
     approved by the  stockholders of the Company,  the Board may not change the
     aggregate  number of shares  subject  to the Plan,  materially  modify  the
     requirements  of  eligibility  to such  Plan  or  materially  increase  the
     benefits accruing to participants under such Plan.

     Pursuant to the terms of the  Director  Stock  Option  Plan (the  "Director
     Plan"),  the Board of Directors  may grant  non-qualified  stock options to

                                      F-12
<PAGE>

NOTE E -  STOCKHOLDERS' EQUITY (CONTINUED)

     non-employee  directors  (other than directors  appointed by CW Ventures or
     Horizon  BCBSNJ)  and will  determine:  (i) the  number  of  shares  of the
     Company's  common  stock that may be  purchased  upon the  exercise of such
     option; (ii) the time or times when the option becomes  exercisable;  (iii)
     the  exercise  price;  and (iv) the  duration of the option,  which  cannot
     exceed ten (10) years.  Under the Director  Plan, an aggregate of 2% of the
     Company's  authorized  number of shares of common stock (equal to 2,072,000
     shares of common  stock) is reserved for issuance.

     All options  granted  under the Director  Plan are  exercisable  during the
     option  grantee's  lifetime only by the option grantee (or his or her legal
     representative).  In  the  event  of  termination  of an  option  grantee's
     directorship,  such  person  shall  have  three  months  from  such date to
     exercise  such  option to the extent the option was  exercisable  as at the
     date of termination,  but in no event subsequent to the option's expiration
     date. In the event of termination of an option  grantee's  directorship due
     to death, such person's legal representative shall have 12 months from such
     date to exercise  such option to the extent the option was  exercisable  at
     the date of death,  but in no event  subsequent to the option's  expiration
     date.

     The Director Plan contains  anti-dilution  provisions which provide that in
     the  event of any  change in the  Company's  outstanding  capital  stock by
     reason  of stock  dividend,  recapitalization,  stock  split,  combination,
     exchange of shares or merger or  consolidation,  the Board shall  equitably
     adjust the aggregate  number and kind of shares reserved for issuance,  and
     for  outstanding  options,  the number of shares covered by each option and
     the exercise prices per share.

     The Board of Directors  has the  authority to terminate  the Director  Plan
     with  respect to any shares of common  stock not at the time  subject to an
     option  as well as to make  changes  in and  additions  to such  plan.  The
     Director Plan will terminate on June 6, 2006, unless previously  terminated
     by the Board. The Board may not, unless approved by the stockholders of the
     Company,  change the  aggregate  number of shares  subject to the  Director
     Plan,  materially  change the  requirements  of eligibility to such plan or
     materially increase the benefits accruing to participants under such plan.

     The following is a summary of stock option  activity during the years ended
     December 31:

<TABLE>
<CAPTION>
                                                                          2002                             2001
                                                                          ----                             ----
                                                                                Weighted                          Weighted
                                                                                Average                            Average
                                                                                Exercise                          Exercise
                                                            Shares              Price            Shares             Price
                                                            ------              -----            ------           --------

                <S>                                         <C>                 <C>              <C>              <C>
                Outstanding at beginning of year            11,670,000          $.22             15,297,000       $.23
                Granted                                      4,202,000           .12              1,588,000        .12
                Exercised                                      (13,000)          .08               (470,000)       .03
                Cancelled                                   (1,909,000)          .08             (4,745,000)       .23
                                                            ----------                           ----------

                Outstanding at end of year                  13,950,000           .28             11,670,000        .22
                                                            ==========                           ==========

                Exercisable at end of year                   8,692,000           .24              7,813,000        .30
                                                            ==========                           ==========
</TABLE>


     In addition,  approximately  3,600,000 options held by terminated employees
     will be cancelled in the first quarter of 2003.

                                      F-13
<PAGE>

NOTE E - STOCKHOLDERS' EQUITY  (CONTINUED)

[2]  Stock option plans:  (continued)

     The following table summarizes  information about stock options at December
     31, 2002:
<TABLE>
<CAPTION>

                                                    Options Outstanding                       Options Exercisable
                                                    -------------------                       -------------------
                                                           Weighted
                                                            Average
                                                           Remaining        Weighted                        Weighted
                                                          Contractual        Average                        Average
                    Range of             Number              Life           Exercise        Number          Exercise
                 Exercise Price        Outstanding         In Years           Price       Exercisable        Price
                 --------------        -----------        -----------       --------      -----------       --------

                 <C>                    <C>                  <C>              <C>           <C>             <C>
                 $0.03 to $0.15         11,433,000            8.2             $0.10         6,259,000       $0.09
                 $0.16 to $0.30          1,334,000           7.10              0.23         1,321,000        0.23
                 $0.31 to $0.45            647,000           7.25              0.40           575,000        0.40
                     $0.78                 125,000           4.60              0.78           125,000        0.78
                     $1.32                  82,000           3.70              1.32            82,000        1.32
                     $2.82                 329,000           3.70              2.82           330,000        2.82
                                           -------                                            -------

                                         13,950,00                            $0.28         8,692,000       $0.24
                                     =============                                        ===========
</TABLE>



     The  weighted  average  fair value of options  granted in 2002 and 2001 was
     approximately $.10 and $.13,  respectively,  using the Black-Scholes Option
     Pricing model utilizing the following assumptions:
<TABLE>
<CAPTION>

                                                                     December 31,
                                                                     ------------
                                                             2002                     2001
                                                             ----                     ----

                 <S>                                      <C>                      <C>
                 Dividend yield                            0                        0
                 Volatility                                121%                     158.9%
                 Risk free interest rate                   3.22-4.74%               4.56-6.16%
                 Expected life in years                       5                          5
</TABLE>


     Had the Company  elected to recognize  compensation  cost based on the fair
     value of the options at the date of grant as  prescribed  by SFAS 123,  pro
     forma net income for the years ended  December 31, 2002 and 2001 would have
     been  approximately  $3,898,000  and  $997,000  or $.04 and $.01 per share,
     respectively.

                                      F-14

<PAGE>

NOTE F - INCOME TAX

Under the asset and liability method used by the Company as outlined in SFAS No.
109,  "Accounting  for Income Taxes",  deferred tax assets and  liabilities  are
recognized for the future tax consequences attributable to temporary differences
between the  consolidated  financial  statements'  carrying  amounts of existing
assets  and  liabilities  and their  respective  tax bases.

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets are as follows:
<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                             2002             2001

      <S>                                                                          <C>              <C>
      Current portion of deferred tax assets:
         Accrued liabilities                                                       $        76,000  $       172,000
                                                                                   ---------------  ---------------

                                                                                            76,000          172,000
                                                                                   ---------------  ---------------

      Noncurrent portion of deferred tax assets/(liabilities):
         Net operating loss carryforwards                                                2,853,000        4,217,000
         Allowance for doubtful accounts                                                   265,000                -
         Tax/ book basis of fixed assets                                                   107,000         (133,000)
         Intangibles                                                                       996,000        1,128,000
         Alternative minimum tax credit                                                     55,000           55,000
                                                                                   ---------------  ---------------

                                                                                         4,011,000        5,267,000

      Deferred tax assets                                                                4,087,000        5,439,000
      Valuation allowance                                                               (4,087,000)      (5,439,000)
                                                                                   ---------------  ---------------

                                                                                   $             0  $             0
                                                                                   ===============  ===============
</TABLE>

The  Company's  deferred  tax  asset  has been  fully  reserved,  as its  future
realization   cannot  be   determined.   The  Company  has  net  operating  loss
carryforwards of approximately $8,393,000 at December 31, 2002, expiring through
2019.  Pursuant to Section 382 of the Internal  Revenue Code, the  carryforwards
are subject to limitations on annual  utilization based upon an ownership change
that took place during 1996.  As of December  31,  2002,  $7,108,000  of the net
operating loss  carryforwards  are subject to such limitation.  It is reasonably
possible that the amount of the carryforward  and its annual  utilization may be
reduced  upon  examination  by  the  Internal  Revenue  Service.  The  valuation
allowance on the Company's deferred tax asset decreased approximately $1,087,000
and $1,118,000 for the years ended December 31, 2002 and 2001, respectively. The
Company incurred state income tax of approximately $244,000 and $165,000 for the
years ended December 31, 2002 and 2001, respectively.

The difference  between the federal  statutory rate and the Company's  effective
tax rate is as follows:
<TABLE>
<CAPTION>

                                                                                       Year Ended
                                                                                      December 31,
                                                                             2002            2001

        <S>                                                             <C>             <C>
        Income taxes at federal statutory rate                          $  1,205,000    $    362,000
        Permanent differences                                                  9,000          10,000
        Change in valuation allowance                                     (1,087,000)       (372,000)
        State taxes, net of federal benefit                                  146,000         165,000
        Other                                                                (29,000)              -
                                                                        ------------    ------------
                                                                        $    244,000    $    165,000
                                                                        ============    ============
</TABLE>


                                      F-15
<PAGE>

NOTE G - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[1] Contingencies:

     With respect to the previously  reported action by Robert T. Caruso against
the  Company  and three of its  former  officers,  John J.  Petillo,  Vincent M.
Achillare  and Lawrence A.  Whipple,  in October  2002,  Caruso  dismissed  with
prejudice all claims against the Company,  and  defendants  Petillo and Whipple,
except  the claim for  negligent  misrepresentation  (the  court had  previously
dismissed this action with  prejudice with respect to the defendant  Achillare).
Thereafter,  the Company  made a payment to Caruso,  which is not  material,  in
return for the  dismissal  with  prejudice of the  remaining  claim of negligent
misrepresentation  and the release of all claims against the Company and Messrs.
Petillo,  Whipple and Achillare and the  litigation  was settled.  No additional
charge on account of the settlement  will be recorded by the Company beyond that
previously recorded.

     CareAdvantage,  Inc.  v.  Horizon  Blue  Cross Blue  Shield of New  Jersey,
pending in Superior Court of New Jersey,  arises under a service  agreement that
Horizon  BCBSNJ  terminated  as of  December  31,  2002.  The Company is seeking
service  fees  being  withheld  by Horizon  BCBSNJ in  connection  with  certain
disputes under the agreement,  as well as damages for Horizon BCBSNJ's hiring of
the  Company's  employees.  Included in accounts  receivable  stockholder  as of
December 31, 2002 on the accompanying balance sheet is approximately  $1,547,000
that the Company is seeking to recover  under the claim.  This  amount  includes
approximately  $779,000  for which  the  Company  has  provided  a full  reserve
relating  to a rate  adjustment  that is in dispute  and  $768,000  relating  to
services  provided in December,  2002.  Management  intends to vigorously pursue
such  claim.  The  remaining  balance of  accounts  receivable  stockholder  was
collected  in the first  quarter of 2003.  The  Company  has  provided a reserve
against  accounts   receivable  relating  to  the  retroactive  rate  adjustment
component portion of this claim.

[2] Professional liability:

     In providing  utilization review and case management services,  the Company
makes  recommendations  regarding benefit plan coverage based upon judgments and
established  protocols  as  to  the  appropriateness  of  the  proposed  medical
treatment.  Consequently, the Company could have potential liability for adverse
medical  results.  The Company  could  become  subject to claims  based upon the
denial of health care benefits and claims such as  malpractice  arising from the
acts or  omissions of health care  professionals.  Although the Company does not
believe that it engages in the practice of medicine or that it delivers  medical
services  directly,  no  assurance  can be given  that the  Company  will not be
subject to  litigation  or liability  which may  adversely  affect its financial
condition and operations in a material  manner.  Although the Company  maintains
comprehensive  general liability and professional  liability insurance coverage,
including  coverage for liability in connection  with the performance of medical
utilization  review  services and  typically  obtains  indemnification  from its
customers, no assurances can be given that such coverage will be adequate in the
event the Company  becomes  subject to any of the above  described  claims.  Its
exposure  in this  regard is  substantially  reduced  since it ceased  providing
utilization  review  and case  management  services  as of  December  31,  2002.
Nonetheless,  until the applicable statutes of limitations have run, the Company
retains  exposure  for past  activities  as well as on account of its  continued
internal physician review services offered as part of its Executive and Clinical
Management Services.

                                      F-16
<PAGE>

NOTE G - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS  (CONTINUED)

[3] Operating leases:

The  Company  has a lease for  office  space  which  expires  in March  2011 and
equipment leases expiring  various dates through May 2005.  Minimum annual lease
payments for office space and  equipment  for each of the next five years ending
December 31 and thereafter are as follows:

<TABLE>
<CAPTION>

                        Year                       Office
                       Ending                      Space                    Equipment             Payments
                       ------                      ------                   ---------             --------
                       <C>                         <C>                      <C>                   <C>

                       2003                        $ 697,000                $55,000               $752,000
                       2004                          701,000                 31,000                732,000
                       2005                          701,000                705,000                705,000
                       2006                          722,000                      -                722,000
                       2007                          729,000                      -                729,000
                       Thereafter                  2,408,000                      -              2,408,000
                                                   ---------                -------              ---------

                                                  $5,958,000                $90,000             $6,048,000
                                                  ==========                =======             ==========
</TABLE>

Rent  expense for the years ended  December  31, 2002 and 2001 was  $783,000 and
$728,000,  respectively.  See Note B[10] with respect to partial  termination of
the Company's business.

[4]  Employee benefit plans:

     The Company administers a  profit-sharing/savings  plan pursuant to Section
     401(k) of the  Internal  Revenue  Code.  The plan  provides  for a matching
     contribution by the Company up to a maximum level, which in no case exceeds
     3% of the employees'  compensation.  Company contributions are fully vested
     immediately.

     The Company's matching contribution was $195,000 and $232,000 for the years
     ended December 31, 2002 and 2001, respectively.

NOTE H  - STAND BY LETTER OF CREDIT

During 2001, the Company obtained an irrevocable  letter of credit in the amount
of $100,000 in favor of the landlord for the Company's obligation under its real
estate lease.

                                      F-17
<PAGE>

                                  EXHIBIT INDEX

Exhibit
No.      Description of Exhibit
-------  ----------------------


2.1       Deposit  Agreement dated October 31, 1994 among Midlantic Bank,  N.A.,
          PMDX and the Registrant incorporated by reference to Exhibit 2.1 filed
          with  the  Company's  Registration  Statement  on Form S-1  (File  No.
          33-89176).

2.2       Certificate  of  Merger  of  Care  Advantage   Health  Systems  (f/k/a
          Advantage   Health  Systems,   Inc.),  a  Georgia   corporation   into
          CareAdvantage   Health   Systems,   Inc.,   a   Delaware   corporation
          incorporated  by  reference  to Exhibit  2.2 filed with the  Company's
          Registration Statement on Form S-1 (File No. 33-89176).

3.1       Registrant's Certificate of Incorporation incorporated by reference to
          Exhibit 3.1 filed with the  Company's  Registration  Statement on Form
          S-1 (File No. 33-89176).

3.1(a)    Amended and Restated  Certificate  of  Incorporation  incorporated  by
          reference to the Company's Information Statement dated September 1996.

3.2       Registrant's  By-Laws  incorporated  by reference to Exhibit 3.2 filed
          with  the  Company's  Registration  Statement  on Form S-1  (File  No.
          33-89176).

10.1      Letter of intent dated  September 30, 1994 between the  Registrant and
          New Jersey BCBS, amendments thereto of December 29, 1994, February 27,
          1995 and April 4, 1995 and Interim  Services  Agreement as of April 1,
          1995  between  the  Registrant  and New Jersey  BCBS  incorporated  by
          reference  to  Exhibit  10.12  filed with the  Company's  Registration
          Statement on Form S-1 (File No. 33-89176).

10.1(a)   December  22, 1995 Letter  Agreement  between the  Registrant  and New
          Jersey  BCBS  extending  the  Letter of Intent  and  Interim  Services
          Agreement  to March 31,  1996  incorporated  by  reference  to Exhibit
          10.12(a) filed with the Company's Annual Report on Form 10-KSB for the
          year ended October 31, 1996.

10.2      Lease  Agreement  dated April 14,  1995  between  the  Registrant  and
          Metropolitan  Life  Insurance  Company  incorporated  by  reference to
          Exhibit 10.13 filed with the Company's  Registration Statement on Form
          S-1 (File No. 33-89176).

10.3      Letter of Intent  dated  January 2, 1996 between CW Ventures II, L.P.,
          the Registrant and its CareAdvantage  Health Systems,  Inc. subsidiary
          incorporated  by reference to Exhibit  10.14 filed with the  Company's
          Annual Report on Form 10-KSB for the year ended October 31, 1996.

10.4      Securities  Purchase  Agreement  dated  February  22,  1996  among  CW
          Ventures, CAHS and the Registrant incorporated by reference to Exhibit
          10.15 filed with the  Company's  Annual  Report on Form 10-KSB for the
          year ended October 31, 1996.

10.5      CW Exchangeable  Note incorporated by reference to Exhibit 10.16 filed
          with the  Company's  Annual  Report on Form  10-KSB for the year ended
          October 31, 1996.

10.6      Stock  Acquisition  Agreement dated February 22, 1996 among EHC, CHCM,
          CAHS and the  Registrant  incorporated  by reference to Exhibit  10.17
          filed with the  Company's  Annual  Report on Form  10-KSB for the year
          ended October 31, 1996.

10.7      EHC Exchangeable Note incorporated by reference to Exhibit 10.18 filed
          with the  Company's  Annual  Report on Form  10-KSB for the year ended
          October 31, 1996.

<PAGE>

10.8      Services Agreement dated February 22, 1996 among Horizon BCBSNJ, CHCM,
          CAHS and the  Registrant  incorporated  by reference to Exhibit  10.19
          filed with the  Company's  Annual  Report on Form  10-KSB for the year
          ended October 31, 1996.

10.9      Stockholders' Agreement dated February 22, 1996 among EHC, CW Ventures
          and the  Registrant  incorporated  by reference to Exhibit 10.20 filed
          with the  Company's  Annual  Report on Form  10-KSB for the year ended
          October 31, 1996.

10.10     Joint  Services  Agreement,  dated May 29, 1997,  among Allied  Health
          Group,  Inc., CAHS, Inc. and the Company  incorporated by reference to
          Exhibit  10(c)  filed with the  Company's  Form 10-QSB for the quarter
          ended April 30, 1997.

10.11     Agreement,  dated as of  January 1, 1997  between  Blue Cross and Blue
          Shield of Rhode  Island  ("BCBSRI")  and CAHS,  Inc.  incorporated  by
          reference to Exhibit  10(a) filed with the  Company's  Form 10-QSB for
          the quarter ended July 31, 1997.

10.12     Consultant  Agreement dated March 17, 1997, between Coordinated Health
          Partners,  Inc.  d/b/a  Blue  Chip,  and CAHS,  Inc.  incorporated  by
          reference to Exhibit  10(d) filed with the  Company's  Form 10-QSB for
          the quarter ended April 30, 1997.

10.13     Letter Agreement,  dated as of March 1, 1997, between Medigroup of New
          Jersey, Inc. d/b/a HMO Blue, the Company and Allied Health Group, Inc.
          incorporated  by reference to Exhibit  10(e) filed with the  Company's
          Form 10-QSB for the quarter ended April 30, 1997.

10.14     First  Amendment and  Restatement of Services  Agreement,  dated as of
          June 13, 1997,  among CAHS, Inc., CHCM, the Company and Horizon BCBSNJ
          incorporated  by reference to Exhibit  10(b) filed with the  Company's
          Form 10-QSB for the quarter ended April 30, 1997.

10.15     Credit  Agreement  among Summit Bank, the Company and Horizon  BCBSNJ,
          dated June 13, 1997  incorporated  by reference to Exhibit 10(f) filed
          with the Company's Form 10-QSB for the quarter ended April 30, 1997.

10.16     Revolving  Credit Note, dated June 13, 1997 by the Company in favor of
          Summit  Bank  in  the   original   principal   amount  of   $1,500,000
          incorporated by reference to Exhibit 10(f)(1) filed with the Company's
          Form 10-QSB for the quarter ended April 30, 1997.

10.17     Term Note, dated June 13, 1997, by the Company in favor of Summit Bank
          in  the  original  principal  amount  of  $1,500,000  incorporated  by
          reference to Exhibit 10(f)(2) filed with the Company's Form 10-QSB for
          the quarter ended April 30, 1997.

10.18     Promissory Note and Security  Agreement,  dated April 1, 1997, by CHCM
          in favor of  Horizon  BCBSNJ,  in the  original  principal  amount  of
          $1,862,823  incorporated  by reference to Exhibit  10(f)(3) filed with
          the Company's Form 10-QSB for the quarter ended April 30, 1997.

10.19     Employment  Agreement between the Company and Thomas Riley, dated June
          10, 1997,  as  supplemented  by a side  agreement  with CW and Horizon
          BCBSNJ,  of even date therewith  incorporated  by reference to Exhibit
          10(a) filed with the Company's Form 10-QSB for the quarter ended April
          30, 1997.

10.20     Services Agreement as of January 5, 1998, by and between New York Care
          Plus  Insurance  Company,  Inc.  and  the  Company,   incorporated  by
          reference to Exhibit 10.20 filed with the Company's Form 10KSB for the
          year ended October 31, 1997.

10.21     Consultation  Agreement  dated  October  1,  1997 by and  between  the
          Company and David McDonnell,  an independent  director of the Company,
          incorporated  by reference to Exhibit  10.21 filed with the  Company's
          Form 10KSB for the year ended October 31, 1997.

10.22     Mutual  Release  Agreement  dated as of  January 6, 1998  between  the
          Company and  MEDecision,  Inc.,  incorporated  by reference to Exhibit
          10.22 filed with the  Company's  Form 10KSB for the year ended October
          31, 1997.
<PAGE>

10.23     Separation  Agreement  dated  April  20,  1995  between  PMDX  and the
          Registrant  incorporated  by  reference to Exhibit 10.1 filed with the
          Company's Registration Statement on Form S-1 (File No. 33-89176).

10.24     Agreement  dated as of January 1,  1995,  between  Maine BCBS and CAHS
          incorporated  by reference  to Exhibit  10.2 filed with the  Company's
          Registration Statement on Form S-1 (File No. 33-89176).

10.25     Products  and  Services  Agreement  dated  November  7,  1994  between
          MEDecision,  Inc. and CAHS  incorporated  by reference to Exhibit 10.3
          filed with the Company's  Registration Statement on Form S-1 (File No.
          33-89176).

10.26     Registrant's 1995  Comprehensive  Stock Incentive Plan incorporated by
          reference  to  Exhibit  4.2  filed  with  the  Company's  Registration
          Statement on Form S-1 (File No. 33-89176).

10.27     Registrant's  1996 Stock Option Plan  incorporated by reference to the
          Company's Information Statement dated September 1996.

10.28     Registrant's 1996 Director Stock Option Plan incorporated by reference
          to the Company's Information Statement dated September 1996.

10.29     Option Agreement  between CW Ventures and Horizon BCBSNJ  incorporated
          by  reference  to  Exhibit  5 of  Schedule  13(d)  of  Horizon  BCBSNJ
          respecting  beneficial  ownership of Common Stock of the Company dated
          June 1997.

10.30     Settlement  and Release  Agreement  dated January 13, 1998 between the
          Company and John Petillo  incorporated  by reference to Exhibit  10.30
          filed with the  Company's  Form 10KSB for the year ended  October  31,
          1997.

10.31     Settlement and Release  Agreement  dated December 19, 1997 between the
          Company and Vince Achilarre incorporated by reference to Exhibit 10.31
          filed with the  Company's  Form 10KSB for the year ended  October  31,
          1997.

10.32     Employment  Agreement  between  the  Company  and David  Noone,  dated
          January 8, 1999, incorporated by reference to Exhibit 10.32 filed with
          the Company's Form 10KSB for the year ended September 30, 1998..

10.33     Confidentiality,  Invention,  and  Non-Compete  Agreement  between the
          Company and David Noone, dated as of January 8, 1999,  incorporated by
          reference to Exhibit 10.33 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

10.36     Settlement and Release  Agreement  entered into among Horizon  BCBSNJ,
          the Company,  CAHS, and CHCM, Enterprise Holding Company, Inc. ("EHC")
          and CW Ventures, incorporated by reference to Exhibit 10(a) filed with
          the Company's Form 10-QSB for the quarter ended July 31, 1998.

10.37     Services  Agreement  dated  as of  January  1,  1999,  by and  between
          HealthNow New York,  Inc.  ("HNNY") and the Company,  incorporated  by
          reference to Exhibit 10.35 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

10.36     Amended and Restated Employment  Agreement,  dated as of September 29,
          1998,  with  Richard  W.  Freeman,  M.D.,  CAHS and the  Company  (the
          "Freeman Employment Agreement"),  incorporated by reference to Exhibit
          10.36 filed with the Company's Form 10KSB for the year ended September
          30, 1998.

10.37     Employment  Agreement,  dated as of March 25, 1997, by and between the
          Company and Elaine del Rossi,  incorporated  by  reference  to Exhibit
          10.37 filed with the Company's Form 10KSB for the year ended September
          30, 1998.

10.38     Confidentiality, Invention and Non-Compete Agreement dated as of March
          25, 1998  between the  Company and Elaine del Rossi,  incorporated  by
          reference to Exhibit 10.38 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.

10.39     Employment  Agreement,  effective as of April 28,  1998,  by and among
          Stephan D.  Deutsch,  M.D.,  the  Company  and CAHS,  incorporated  by
          reference to Exhibit 10.39 filed with the Company's Form 10KSB for the
          year ended September 30, 1998.


<PAGE>

10.40     Employment  Agreement,  effective as of April 19, 1999, between Dennis
          M. Mouras, and the Company, incorporated by reference to Exhibit 10.40
          filed with the  Company's  Form 10KSB for the year ended  December 31,
          1999.

10.41     Settlement  Agreement  Settlement Agreement dated August 9, 2000 among
          the  Company,  Horizon  Healthcare  of New  Jersey,  Inc.  and  Allied
          Specialty Care Services, Inc.

10.42     Employment  Agreement,   effective  as  of  April  17,  2000,  between
          Christopher  Minor  and the  Company,  incorporated  by  reference  to
          Exhibit 10.2 filed with the Company's Form 10QSB for the quarter ended
          September 30, 2000.

10.43     Satisfaction of Debt Agreement among Horizon Blue Cross Blue Shield of
          New Jersey,  Horizon  Healthcare of New Jersey,  Inc.,  CareAdvantage,
          Inc.,  CareAdvantage Health Systems, Inc. and Contemporary  HealthCare
          Management,  Inc,  incorporated  by reference to Exhibit 10.1 filed on
          the  Company's  Form 8-K dated  December 5, 2000 and filed on December
          13, 2000.

10.44     Amendment dated March 26, 2001 to Satisfaction of Debt Agreement dated
          as of November 1, 2000 among Horizon BCBSNJ, Horizon Healthcare of New
          Jersey, Inc., CareAdvantage,  Inc., CareAdvantage Health Systems, Inc.
          and Contemporary HealthCare Management, Inc, incorporated by reference
          to Exhibit 10.1 filed with the  Company's  Form 10-QSB for the quarter
          ended March 31, 2001.

10.45     Service  Agreement dated as of January 1, 2000 between Blue Cross Blue
          Shield  of  Rhode  Island,   Coordinated  Health  Partners,  Inc.  and
          CareAdvantage  Health  Systems,  Inc.,  incorporated  by  reference to
          Exhibit  10.2 filed with the  Company's  Form  10-QSB for the  quarter
          ended March 31, 2001.

10.46     Amendment dated as of August 9, 2001 to Satisfaction of Debt Agreement
          dated as of November 1, 2000 among Horizon BCBSNJ,  Horizon Healthcare
          of  New  Jersey,  Inc.,  CareAdvantage,   Inc.,  CareAdvantage  Health
          Systems,   Inc.   and   Contemporary   HealthCare   Management,   Inc,
          incorporated  by reference  to Exhibit  10.1 filed with the  Company's
          Form 10-QSB for the quarter ended June 30, 2001.

16.1      Letter regarding  change in accountants,  incorporated by reference to
          Exhibit 16.1 filed on the Company's Form 8-K dated June 6, 1996.

16.2      Letter regarding  change in accountants,  incorporated by reference to
          Exhibit 16.1 filed on the Company's Form 8-K dated July 31, 2001.

16.3      Letter regarding  change in accountants,  incorporated by reference to
          Exhibit 16.1 filed on the Company's Form 8-K dated June 6, 2002.

23.1      Consent of Independent Auditors*

23.2      Notice Regarding Consent of Independent Auditors*

-------------------------------------
*filed herewith