<PAGE>

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

                       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, 2003
                         Commission File Number 0-26168

                                   ----------

                               CAREADVANTAGE, INC.
                               (Name of Business)

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

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

       Registrant's telephone number, including area code: (732) 362-5000
        Securities registered pursuant to Section 12 (b) of the Exchange
                               Act of 1934: NONE

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

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

                                   ----------

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days:
Yes  [X]   No  [_]

Check if there is no disclosure of delinquent filers in response 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 $3,550,000

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 2, 2004 (assuming solely for purposes of this calculation
that all directors and executive officers of the Registrant are affiliates) was
$53,932.

The number of shares of common stock outstanding as of March 2, 2004 was
99,794,152.

        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 and self-insured
employers and unions 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).

                                        1

<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 to new customers, 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) 362-5000.

                                        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. Initially, while premium
price differences may appear to be less significant, provider network quality
may be assumed, and benefit design and service may become the differentiators
that separate winners from losers, there still remains the need to measure
quality, effectiveness and efficiency of all of the above measures in a more
tangible way.

     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 is a management consulting firm specializing in the improvement of
health care delivery and quality while reducing cost. The Company has a proven
track record for reducing unnecessary utilization while optimizing program
performance and quality of care as measured by increased savings, reduced risk
and improved member and provider relations.

CareAdvantage clients include health plans, employers, hospital systems,
provider and other purchaser groups. For the past nine years, the Company has
worked with many leading health plans to develop effective, affordable and
timely data-driven strategies that improve case, disease and utilization, as
well as operations and network management. These strategies have helped
CareAdvantage clients to more effectively:

               .    Identify and manage their disease burdens and
                    associated risk
               .    Improve member care quality through the evaluation
                    of health care providers and facilities
               .    Facilitate provider cooperation and collaboration
               .    Forecast resource consumption based on the disease
                    burden
               .    Optimize allocation of resources

In addition, this expertise has been applied to help employers assess the
efficiency and effectiveness of their present health care insurers, carriers and
supporting vendors. CareAdvantage achieves this by empowering employers with the

                                        3

<PAGE>

information, skills and guidance necessary to facilitate future purchasing
decisions and optimize managerial and administrative practices.

In order to deliver these solutions, CareAdvantage utilizes experienced health
plan executives and medical directors as well as a wide range of care management
operations, clinical data analysis, educational resource and informational
technology (IT) subject-matter experts. It is this vast array of experience that
enables CareAdvantage to benefit clients with objective and quantifiable insight
to develop the strategies and tactical initiatives that combine care management
processes with a deep understanding of medical and health care insurance-related
best practices.

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 and data analysis. At the center of
CareAdvantage's data-driven analyses is RightPath(TM) Navigator (RPNavigator),
the next generation software solution and an element of the Company's Right Path
Care Management(TM) product site. RPNavigator categorizes and quantifies a
population's disease burden and provides a clear picture of the health status
and severity of its clients' member populations. RPNavigator's underlying
infrastructure incorporates a classification methodology from 3M Health
Information Systems along with various analytical techniques to stratify the
population and describe the individual member's associated risks in intuitive
ways. It also enables the valid assessment of existing health care quality and
cost as well as projection of future risk from a resource consumption, disease
progression and mortality perspective.

RPNavigator utilizes this information to stratify its client's members through
the use of a wide range of clinical and demographic descriptors to quantify
their risk. Among the benefits of this solution is the ability of CareAdvantage
clients to:

               .    Access meaningful information via an
                    Internet-based portal
               .    Track population and member-related changes in
                    disease status and severity over time
               .    Compare client sub-populations
               .    Profile providers using case mix and
                    severity-adjusted techniques
               .    Select and prioritize members who would best
                    benefit from care management interventions
               .    Reduce the dependence on internal resources to
                    develop and produce required reports to accomplish
                    these tasks

     A logical adjunct to RPNavigator is the Company's RightPath Care
Management(TM) methodology. This URAC-compliant approach utilizes evidence-based
assessment tools and treatment guidelines to gauge the health and status of
individual members identified by RPNavigator. This benefits the Company's
clients by providing a method for managing members' health risks to minimize
their disease progression.

     In addition to these efforts, CareAdvantage also supports its clients
through the provision of consulting services to develop and implement the right
solutions. These solutions provide the health care industry with strategies and
tactical initiatives for effectively managing health care consumption, reducing
costs and improving the quality of care.

     For its services, the Company seeks to be compensated either (i) on a
fee-for-service basis; (ii) per member per month (PMPM); or (iii) on the basis
of a combination of both fee-for-service and PMPM.

Customers and Marketing

     The Company currently provides its services to three Blue Cross Blue Shield
("BCBS") organizations, Kaiser Permanente, employers and integrated health care
delivery systems pursuant to one or a combination of the compensation
arrangements described above.

     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.

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

                                        5

<PAGE>

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.

     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, 2003, the Company employed a total of 25 full-time
employees. Of this total, 19 employees are engaged in servicing its clients. The
6 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. During the first three quarters of 2003, the Company attempted to
sublease this space and negotiated with the landlord to retake possession.
Because of the market conditions for space of this type, the likely cost of
subleasing or the landlord's retaking was deemed by the Company to be excessive
and would likely be required to be paid upon subleasing or the landlord's
retaking. Therefore, during the fourth quarter of 2003 the Company determined to
continue to occupy such space and has ceased its efforts to sublease the space
and its negotiations with the landlord to retake the space. Nevertheless, the
Company would entertain offers to sublease such space were such offers to be
made. In the event that market conditions for such space improve, the Company
may again attempt to sublease all or a portion of the unneeded space and or
resume its negotiations with the landlord regarding retaking such space.

     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 of approximately $1.5 million, for which it has not been paid by
Horizon BCBSNJ, as well as damages for Horizon BCBSNJ's solicitation and hiring
of certain of the Company's employees in violation of the service agreement.
Horizon BCBSNJ is counterclaiming against CareAdvantage, Inc. seeking damages
for breach of contract, breach of implied duty of good faith and fair dealing,
tortuous interference with prospective economic advantage, trade libel and
unfair competition. Each party believes that the other party's claims are
without merit and is vigorously contesting them.

     Morriale v. CareAdvantage, Inc. is a complaint filed by a former employee,
Adriana Morriale, with the New Jersey Division of Human Rights, in which she
claims that the Company retaliated against her for claiming leave under the New
Jersey Family Leave Act. The Company believes that the complaint is without
merit and is contesting the matter vigorously.

     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.

                       2003             2002
                   ------------     ------------
Quarter Ended      High    Low      High    Low
-------------      -----  -----     -----  -----
March 31,          $ .02  $ .01     $ .20  $ .09
June 30,           $ .02  $ .02     $ .21  $ .08
September 30,      $ .03  $ .03     $ .08  $ .02
December 31,       $ .02  $ .02     $ .07  $ .01

(b)  Holders: As of March 2, 2004 there were approximately 4,045 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.

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, 2003, we had working capital of
approximately $2,874,000, stockholders' equity of approximately $4,045,000, and
an accumulated deficit of approximately $19,856,000.

                                        7

<PAGE>

     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 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:

     .  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;

     .  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;

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

     .  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
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, 2003. Nonetheless, until the applicable statutes of
limitations have run, the

                                        8

<PAGE>

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 April 2007 and renews automatically thereafter for
successive one-year terms unless terminated by either party by written notice at
least one year in advance. In the event that 3M terminated its license at the
end of the term, the Company 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.

     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.

                                        9

<PAGE>

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:

     .  two designees of CW Ventures;

     .  two designees of Horizon BCBSNJ;

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

     .  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:

     .  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;

     .  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>

     .  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, 2003 Compared to 12 Months
Ended December 31, 2002

Revenues

     The following discussion compares the Company's results of operations for
the 12 months ended December 31, 2003, with those for the 12 months ended
December 31, 2002. The Company's consolidated financial statements and notes
thereto included elsewhere in this report contains detailed information that
should be referred to in conjunction with the following discussion.

     Total revenues for the years ended December 31, 2003 and 2002 were
approximately $3,550,000 and $22,963,000, respectively. The decrease in revenues
of approximately $19,413,000 was primarily attributable to decreased revenue of
approximately $19,648,000 due to termination of the Horizon BCBSNJ and Horizon
BCBSRI contracts offset by increased revenue of approximately $235,000 in
consulting business.

Cost of services:

     Cost of services for the years ended December 31, 2003 and 2002 were
approximately $2,376,000 and $9,990,000, respectively. The decrease in the cost
of services of approximately $7,614,000 is largely due to decreases of
approximately $7,020,000 in personnel costs, approximately $19,000 in travel
costs and professional and consulting costs of approximately $575,000.

Operating Expenses

Selling, general and administrative:

     Selling, general and administrative costs for the years ended December 31,
2003 and 2002 were $5,897,000 compared to $7,431,000, respectively. The decrease
in selling, general and administrative costs of approximately $1,534,000 is
largely due to decreases in personnel costs of approximately $2,197,000,
facility costs of approximately

                                       11

<PAGE>

$705,000, travel costs of approximately $117,000, information and communication
costs of approximately $358,000 and other general and administrative costs of
approximately $896,000, which includes a provision for bad debt of $779,000,
offset by increases of approximately $109,000 in professional and consulting
costs and an increase of approximately $2,630,000 related to the sale of assets,
which includes a charge of $2,639,000 relating to the operating leases on
January 1, 2003, the date the Company ceased using the majority of the facility.

Depreciation and amortization:

     Depreciation and amortization for the years ended December 31, 2003
aggregated $462,000 compared to $936,000 for the year ended December 31, 2002.
The decrease in depreciation and amortization costs of approximately $474,000 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, 2003 includes amortization of intangible assets of
approximately $128,000 and depreciation of property and equipment of
approximately $334,000.

Interest income/expense:

     Interest income for the years ended December 31, 2003 and 2002 was $39,000
and $65,000, respectively. The decrease in interest income of approximately
$26,000 is largely due to the decrease in operating cash and the decline of
interest rates in 2003.

Off-Balance Sheet Arrangements
     The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future material effect on the
company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital resources or capital
reserves.

Critical Accounting Policies

     The Company's financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Certain accounting policies have a significant impact on amounts reported in
financial statements. A summary of those significant accounting policies can be
found in Note B to the Company's financial statements. The Company has adopted
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 impact of the
adoption resulted in a charge of $2,639,000 to operations in 2003.

Liquidity, Financial Condition and Capital Resources

General Overview:

     At December 31, 2003, the Company had cash of $4,238,000 and working
capital of approximately $2,874,000. At December 31, 2002, the Company's cash
balance was $7,793,000 and working capital was approximately $7,786,000. The
decrease in working capital of approximately $4,912,000 is largely due to
decreased operating activities for the twelve months ended December 31, 2003,
including the reserve recorded by the Company associated with its lease
termination. 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 2001 from Horizon BCBSNJ due to the services
arrangement. The termination of this services arrangement had 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

                                       12

<PAGE>

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. As of December 31, 2003, the Company had 25 full
time employees. 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.
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 (used by)/provided from operating activities amounted to
approximately ($3,330,000) and $4,464,000 for the years ended December 31, 2003
and 2002, respectively. This increase in cash used by operating activities is
largely due to an increase in accrued expenses and other liabilities of
approximately $152,000, an increase in accounts payable of approximately
$105,000, a decrease in other customer receivable of approximately $266,000, a
decrease in stockholder receivable of approximately $769,000, an increase of
approximately $1,000 in other assets, an increase of approximately $75,000 in
deferred revenue, an increase in non-cash charges of approximately $462,000 and
a decrease of $5,158,000 in net loss.

     Net cash used by investing activities amounted to approximately $225,000
and $969,000 for the years ended December 31, 2003 and 2002, respectively. This
decrease in cash used of approximately $744,000 is due to decreased capital
expenditures during the current calendar year.

     Net cash provided from financing activities amounted to approximately $0
and $1,000 for the years ended December 31, 2003 and December 31, 2002,
respectively. This decrease is primarily due to proceeds from issuance of common
stock of approximately $1,000 in 2002.

     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, 2004.

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

None.

Item 8A. Controls and Procedures
--------------------------------

     Senior management maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods
provided in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including the Chief Executive Officer, who
is also currently the acting Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, senior management has recognized that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and
therefore has been required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

                                       13

<PAGE>

     In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the
fiscal year ended December 31, 2003, we carried out an evaluation under the
supervisions and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation,
our Chief Executive Officer and acting Chief Financial Officer has concluded
that our disclosure controls and procedures are effective.

     During the quarter ended December 31, 2003, there have been no changes in
our internal controls over financial reporting that that have materially
affected, or are reasonably likely to materially affect, these controls.

                                    PART III

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

The Company's directors, executive officers and control persons as of December
31, 2003 are as follows:

Name                        Age  Positions with the Company
--------------------------  ---  -----------------------------------------------
David G. Noone /(2)/         50  Chairman of the Board of Directors
Dennis J. Mouras /(1)/       47  Chief Executive Officer, President and Director
Walter Channing, Jr. /(2)/   63  Director
Patrick J. Geraghty /(1)/    44  Director
David J. McDonnell /(1) /    61  Director
Christine L. Nelson /(2)/    57  Director
Barry Weinberg /(1)/         65  Director

----------

/(1)/ Member of Compensation Committee.
/(2)/ 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.

     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 has designated Patrick J. Geraghty, and Christine L. Nelson as
members of the Board.

                                       14

<PAGE>

     The following sets forth certain information with respect to each director
and executive officer of the Company as of December 31, 2003:

     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 field since 1981. Mr. Channing currently serves on the boards of
directors of several privately owned companies (including Alignis, Inc.) and is
a partner of several private investment partnerships.

     Patrick J. Geraghty has been a director of the Company since February 2003.
He is currently the Senior Vice President-Service of Horizon BCBSNJ, a position
he has held since September 1999. Previously, he had been President, Southeast
Region, Prudential Healthcare in Atlanta, Georgia.

     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.

     Christine L. Nelson has been a director of the Company since February 2003.
She is currently Deputy General Counsel of Horizon BCBSNJ, a position she has
held since October 1998. Previously, she had been Associate General Counsel of
The Prudential Insurance Company of America in Newark, New Jersey.

     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 field since 1981. Mr. Weinberg currently serves on the boards of
directors of several privately owned companies and is a partner of three
investment partnerships.

Audit Committee Financial Expert

     The Company does not have a financial expert on its audit committee because
the Company's extremely small size, limited financial resources and limited
activity make such a position unnecessary.

                                       15

<PAGE>

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 2003 its officers, directors
and ten percent (10%) beneficial owners complied with all the Section 16(a)
filing requirements, with the exception that Mr. Geraghty and Ms. Nelson each
inadvertently failed to file in a timely manner on Form 3 their Initial
Statement of Beneficial Ownership of Securities following their appointment as
directors on February 10, 2003.

Code of Ethics

     During fiscal year 2003, the Company's resources and operations were
substantially curtailed. The Company currently has approximately 25 employees,
of which only one is a principal executive and financial officer, and has
reduced its overhead expenses in order to operate within the constraints of its
limited revenues. Because of the small staff, the involvement of management and
the Board of Directors in the business and operations of the Company, and the
internal policies of the Company, the Company has not adopted a separate code of
ethics for principal executive and financial officers. We experience a limited
number of financial transactions in our present operations, all of which are
approved and executed by our chief executive officer, who is also currently
acting as our principal financial officer. The Board of Directors and Management
have unequivocally set the tone for integrity and credibility in all aspects of
the Company's operations. In view of the Company's very small size and the
limited number of personnel who are responsible for its operations, a formal
code of ethics is not necessary. Our Board of Directors will revisit this issue
in the future to determine if adoption of a code of ethics is appropriate. In
the meantime, our management intends to promote honest and ethical conduct, full
and fair disclosure in our reports to the SEC, and compliance with applicable
governmental laws and regulations.

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, 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
---------------------------------------------------------------------------------------------------------------
                                                                                     Long Term
                                                   Annual Compensation             Compensation
---------------------------------------------------------------------------------------------------------------
                               Year                                                 Securities
    Name and Principal        Ended                             Other Annual        Underlying      All Other
         Position          December 31,   Salary     Bonus    Compensation/(2)/  Options/SARSs(#)  Compensation
---------------------------------------------------------------------------------------------------------------
<S>                        <C>           <C>        <C>       <C>                <C>               <C>
Dennis J. Mouras/(3)/          2003      $ 285,000  $ 86,436  $          29,630               -0-  $      6,000/(1)/
Chief Executive Officer &      2002      $ 285,000  $ 50,000  $          31,496         1,500,000  $      5,250/(1)/
President                      2001      $ 285,000  $    -0-  $          31,774         2,500,000  $      5,100/(1)/
</TABLE>

----------

(1)  Represents Company matching contributions to a 401(k) profit
     sharing/savings plan.
(2)  Other Annual Compensation includes taxable fringe benefits and unused
     accrued vacation days.
(3)  As of February 15, 2001, Mr. Mouras was appointed to the office of Chief
     Executive Officer.

Compensation Plans

Stock Option Plan:

                                       16

<PAGE>

     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
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

                                       17

<PAGE>

     There were no options granted to the Chief Executive Officer, the only
named executive officer, in the fiscal year ended December 31, 2003.

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

                          Number of                      Value of
                       Shares Underlying         Unexercised In-the-Money
                    Unexercised Options at              Options at
                       December 31, 2003            December 31, 2003
       Name        Exercisable/Unexercisable   Exercisable/Unexercisable(1)
----------------   -------------------------   ----------------------------

Dennis J. Mouras         3,316,767/1,183,233              $0/$0

----------

(1)  Calculated on the basis of the closing bid price on the OTC Bulletin Board
     of the Company's Common Stock of $.019 on December 31, 2003.

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.

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, 2003, 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 26/th/ 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

                                       18

<PAGE>

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 2, 2004 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
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.

                     Beneficial Ownership of Common Stock by
                       Certain Stockholders and Management

<TABLE>
<CAPTION>
                                                Number of Shares
      Name of Beneficial Owner               Beneficially Owned (1)   Percent of Ownership (2)
------------------------------------------   ----------------------   ------------------------
<S>                                          <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. (4)(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)                                 2,300,000                       2.30%
   Dennis J. Mouras (10)(11)                              3,344,544                       3.35%
   Patrick J. Geraghty (12)                                       0                          *
   Christine L. Nelson (13)                                       0                          *
   All directors and executive officers as
    a Group (7 persons) (7)(11)                          43,561,964                      43.65%
</TABLE>

                                       19

<PAGE>

----------
* 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) Pursuant to the terms of the Stockholders Agreement, in the event either
Horizon BCBSNJ or CW Ventures proposes to sell the Company's securities owned by
it to a third party (excluding certain transactions specified in the Stockholder
Agreement), the other party has the right to purchase such securities at the
same price as they are proposed to be sold to such third party.

(3) 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.

(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, a director of the Company, is 34 Sunset
Hill Road, Redding, Connecticut, 06896.

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

(11) 300,000 of Mr. McDonnell's shares of Common Stock, 800,000 of Mr. Noone's
shares of Common Stock, 3,344,444 of Mr. Mouras' shares of Common Stock, and
4,444,444 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 2, 2004 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, 2003:

                                       20

<PAGE>

<TABLE>
<CAPTION>
                                                                                                     (C)
                                                                                              Number of securities
                                                                                              remaining available
                                                                                              for future issuance
                                                      (A)                    (B)                  under equity
                                            Number of securities to     Weighted-average      compensation plans
                                            be issued upon exercise    exercise price of,    (excluding securities
                                            of outstanding options,   outstanding options,    reflected in column
            Plan category                     warrants and rights      warrants and rights            (A))
-----------------------------------------   -----------------------   --------------------   ---------------------
<S>                                         <C>                       <C>                    <C>
Equity compensation plans approved by
 security holders                                        10,046,141   $               0.22              14,062,671
Equity compensation plans not approved by
 security holders                                                --   $                 --                      --
Total                                                    10,046,141   $               0.22              14,062,671
</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 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
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).

                                       21

<PAGE>

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.

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.

                                       22

<PAGE>

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.

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).

                                       23

<PAGE>

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.

10.34     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.

                                       24

<PAGE>

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 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*

31        Certifications pursuant to Rule 13a-14(a), promulgated under the
          Securities Exchange Act of 1934, as amended, and Section 302 of the
          Sarbanes-Oxley Act of 2002*

32        Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002 *

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

Item 14. Principal Accountant Fees and Services
-------- --------------------------------------

Audit and Non-Audit Fees

     The following table shows the fees billed to the Company for the audit and
other services provided by Eisner, LLP in 2002 and 2003:

                                       25

<PAGE>

Services Performed           2003            2002
----------------------   ------------    ------------

Audit Fees (1)                 57,000          64,000*
Audit-Related Fees (2)              0               0
Tax Fees (3)                   10,000          15,000
All Other Fees (4)             12,500          15,000
                         ------------    ------------
   Total Fees                  79,500          94,000


(1)  Audit fees represent fees for professional services provided in connection
with the audit of the Company's financial statements and review of the financial
statements included in the Company's 10-Q and 10-K filings, and services that
are normally provided in connections with statutory and regulatory filings or
engagements.

* Included in 2002 Audit Fees is $4,000 for services performed by Arthur
  Andersen, LLP with respect to the review of the Form 10-QSB for the quarter
  ended March 31, 2002.

(2) There were no audit-related fees for services performed by Eisner, LLP that
were reasonably related to the performance of the audit or review of the
Company's financial statements.

(3) Tax fees are fees for professional services performed by Eisner, LLP with
respect to tax compliance, tax preparation, tax advice and tax planning in 2002
and 2003.

(4) All other fees include work performed by Eisner, LLP relating to the 401(k)
audit and employee benefit plan filings that do not meet the above category
descriptions.

Pre-Approval of Audit and Non-Audit Services
--------------------------------------------

     The audit committee currently pre-approves all services provided by our
independent auditors. The pre-approval process has just been implemented in
response to the new SEC rules, and therefore, the audit committee does not have
records of what percentage of the above fees were pre-approved. However, all of
the above services and fees were reviewed and approved by the audit committee
either before or after the respective services were rendered.

The audit committee has considered the nature and amount of fees billed by
Eisner, LLP and believes that the provision of services for activities unrelated
to the audit is compatible with maintaining Eisner LLP's independence.

                                       26

<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 30, 2004                    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 30, 2004                    By:  /s/ Dennis J. Mouras
      --------------                       -------------------------------------
                                             Dennis J. Mouras, Chief Executive
                                             Officer, Director and acting
                                             Principal Financial Officer and
                                             Accounting Officer

Date:                                   By
      --------------                       -------------------------------------
                                             Walter Channing, Jr., Director

Date: March 30, 2004                    By:  /s/ Patrick J. Geraghty
      --------------                       -------------------------------------
                                             Patrick J. Geraghty, Director

Date:                                   By:
      --------------                       -------------------------------------
                                             Christine L. Nelson, Director

Date: March 30, 2004                    By:  /s/ David J. McDonnell
      --------------                       -------------------------------------
                                             David J. McDonnell, Director

Date:                                   By:
      --------------                       -------------------------------------
                                             David G. Noone, Director

Date: March 30, 2004                    By:  /s/ Barry Weinberg
      --------------                       -------------------------------------
                                             Barry Weinberg, Director

                                       27

<PAGE>

                               CAREADVANTAGE, INC.
                                AND SUBSIDIARIES

                             CONSOLIDATED FINANCIAL
                                   STATEMENTS

                           DECEMBER 31, 2003 AND 2002

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements
                                                                            Page
                                                                            ----

     Independent Auditors' Report                                            F-2

     Consolidated Balance sheets as of
      December 31, 2003 and 2002                                             F-3

     Consolidated Statements of operations for the years ended
      December 31, 2003 and 2002                                             F-4

     Consolidated Statements of stockholders' equity for the years
      ended December 31, 2003 and 2002                                       F-5

     Consolidated Statements of cash flows for the years
      ended December 31, 2003 and 2002                                       F-6

     Notes to consolidated financial statements                              F-7

                                       F-1

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of CareAdvantage,
Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years 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 audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of CareAdvantage, Inc.
and subsidiaries as of December 31, 2003 and 2002, and the consolidated results
of their operations and their consolidated cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States
of America.


Eisner, LLP

New York, New York
March 15, 2004

                                       F-2

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                                                           December 31,
                                                    ---------------------------
                                                        2003           2002
                                                    ------------   ------------
                      ASSETS
Current assets:
   Cash                                             $  4,238,000   $  7,793,000
   Restricted cash                                       100,000        100,000
   Accounts receivable:
      Stockholder, net of allowance of $0 in 2003
       and $779,000 in 2002                              762,000      1,531,000
      Other                                              175,000        441,000
   Other current assets                                  231,000        221,000
                                                    ------------   ------------
         Total current assets                          5,506,000    10, 086,000
Property and equipment, at cost, less accumulated
 depreciation                                            938,000      1,056,000
Intangible assets, net of accumulated amortization       158,000        277,000
Other assets                                              75,000         84,000
                                                    ------------   ------------
         Total Assets                               $  6,677,000   $ 11,503,000
                                                    ============   ============
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Deferred revenue                                 $     75,000             --
   Accounts payable                                      219,000   $    114,000
   Accrued compensation and related benefits             268,000      1,801,000
   Accrued expenses and other current liabilities      2,070,000        385,000
                                                    ------------   ------------
         Total current liabilities                     2,632,000      2,300,000
                                                    ------------   ------------
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 99,794,152 shares         100,000        100,000
   Additional paid in capital                         23,801,000     23,801,000
   Accumulated deficit                               (19,856,000)   (14,698,000)
                                                    ------------   ------------
         Total stockholders' equity                    4,045,000      9,203,000
                                                    ------------   ------------
         Total Liabilities and Stockholders'
          Equity                                    $  6,677,000   $ 11,503,000
                                                    ============   ============

See notes to consolidated financial statements

                                       F-3

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations

                                                      Year Ended December 31,
                                                   ----------------------------
                                                        2003           2002
                                                   -------------   ------------
Net service revenue (see Notes B [8] and B [10])    $  3,550,000   $ 22,963,000
Cost of services                                       2,376,000      9,990,000
                                                   -------------   ------------
Gross profit                                           1,174,000     12,973,000
                                                   -------------   ------------
Operating expenses:
   Selling, general and administrative                 5,897,000      7,431,000
   Depreciation and amortization                         462,000        468,000
   Employee termination costs                                  0      1,128,000
   Write off of service contract                               0        468,000
                                                   -------------   ------------
      Total operating expenses                         6,359,000      9,495,000
                                                   -------------   ------------
Operating (loss)/income                               (5,185,000)     3,478,000
Interest income                                           39,000         65,000
Interest expense                                               0              0
                                                   -------------   ------------
      (Loss)/income before provision for income
       taxes                                          (5,146,000)     3,543,000
Provision for income taxes                                12,000        244,000
                                                   -------------   ------------
      Net (loss)/income                             $ (5,158,000)  $  3,299,000
                                                   =============   ============
Net (loss)/income per share of common stock -
         Basic                                     ($        .05)  $        .03
                                                   =============   ============
         Diluted                                   ($        .05)  $        .03
                                                   =============   ============
Weighted average number of common shares
 outstanding -
         Basic                                        99,794,000     99,792,000
                                                   =============   ============
         Diluted                                      99,794,000    100,249,000
                                                   =============   ============

See notes to consolidated financial statements

                                       F-4

<PAGE>

                       CAREADVANTAGE, INC.AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                           Common Stock
                                                   ---------------------------
                                                      Number          Par         Additional
                                                        of            Value        Paid In       Accumulated    Stockholders'
                                                      Shares         Amount        Capital         Deficit         Equity
                                                   ------------   ------------   ------------   -------------   -------------
<S>                                                  <C>          <C>            <C>            <C>             <C>
Balance as of January 1, 2002                        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
Net (loss)  for the year ended December 31,
2003                                                                                               (5,158,000)     (5,158,000)
                                                   ------------   ------------   ------------   -------------   -------------
Balance as of December 31, 2003                      99,794,152   $    100,000   $ 23,801,000   $ (19,856,000)  $   4,045,000
                                                   ============   ============   ============   =============   =============
</TABLE>

See notes to consolidated financial statements


                                       F-5

<PAGE>

                       CAREADVANTAGE, INC.AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                  Year Ended
                                                                  December 31
                                                          ---------------------------
                                                              2003           2002
                                                          ------------   ------------
<S>                                                       <C>            <C>
Cash flows from operating activities:
   Net (loss)/income                                      $ (5,158,000)  $  3,299,000
   Adjustments to reconcile net (loss)/income
   to net cash (used in)/provided by operating
   activities:
      Depreciation and amortization                            462,000        936,000
      Bad debt expense                                              --        779,000
      Deferred revenue                                          75,000
      Changes in:
         Accounts receivable stockholder                       769,000     (1,007,000)
         Accounts receivable other                             266,000        (66,000)
         Other assets                                           (1,000)       (88,000)
         Accounts payable                                      105,000       (298,000)
         Accrued expenses and other current
         liabilities                                           152,000        909,000
                                                          ------------   ------------
            Net cash (used in)/provided by
            operating activities                            (3,330,000)     4,464,000
                                                          ------------   ------------
Cash flows from investing activity:
   Capital expenditures                                       (225,000)      (969,000)
                                                          ------------   ------------
            Net cash used in investing activity               (225,000)      (969,000)
                                                          ------------   ------------
Cash flows from financing activity:
   Proceeds from exercise of stock options                          --          1,000
                                                          ------------   ------------
            Net cash provided by financing activity                 --          1,000
                                                          ------------   ------------
               Net (decrease)/increase in cash              (3,555,000)     3,496,000
Cash - beginning of year                                     7,793,000      4,297,000
                                                          ------------   ------------
Cash - end of year                                        $  4,238,000   $  7,793,000
                                                          ============   ============
Supplemental disclosures of cash flow information:
   Income taxes paid                                      $    202,000   $    292,000
</TABLE>

See notes to consolidated financial statements

                                       F-6

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

Note A - Introduction and Background and Basis of Preparation

     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.

     Significant shareholders of the Company include Horizon BCBSNJ (a 53.5%
stockholder) and CW Ventures (a 37.7% stockholder).

     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, which accounted
for 4% of net revenues for the year ended December 31, 2002. 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% of net revenues for the year ended
December 31, 2002.

     The Company has incurred a net loss in 2003 and has an accumulated deficit
of $19,856,000 as of December 31, 2003. Approximately $2,639,000 of the loss for
2003 is attributable to the adoption of FAS 146 in connection with the Company
exiting its business services with Horizon BCBSNJ. Such charges are primarily
attributable to accruing for the net present value of the facility lease
payments as further described in Notes B [10] and H. Management does not expect
to incur any further significant costs in connection with this event in the
future, although, the Company will be required to continue making lease payments
as described in Note G [3]. After giving effect to the above, management
believes that it has sufficient cash resources and combined with the expected
continued growth of its consulting business to meet its current obligations as
they come due during the next 12 months.

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) per member per month (PMPM); or (iii) on the
     basis of a combination of both fee-for-service and PMPM. 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 on a
               pro-rata basis as the services are provided and the related costs
               of services are incurred.

          (b)  Revenue under the PMPM method is recognized as the services are
               provided when such amounts can reasonably be determined.

          (c)  Revenue under the combination fee-for-service/PMPM 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

                                       F-7

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

               the revenue based on PMPM is recognized as the services are
               provided when performance is completed and such amounts can
               reasonably be determined.


                                       F-8

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

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 or the estimated useful life method, whichever is shorter.
     Depreciation expense amounted to $334,000 and $350,000 for the years ended
     December 31, 2003 and 2002, respectively.

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

[4]  Per share data:

          Basic net (loss)/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.

                                                              December 31,
                                                        ------------------------
                                                           2003          2002
                                                        ----------   -----------
Weighted average common shares outstanding - basic      99,794,000    99,792,000
Effect of dilutive options                                      --       457,000
                                                        ----------   -----------
Weighted average common shares outstanding - diluted    99,794,000   100,249,000
                                                        ==========   ===========

     Options and warrants outstanding at December 31, 2003 and 2002 to purchase
     approximately 8,110,000 and 12,013,000 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. 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. Significant estimates include
     the collectibility of the amount due from Horizon BCBSNJ and the Company's
     reserve for the lease termination as a result of the termination of the
     Horizon BCBSNJ agreement.

[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>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

Note B - Summary of Significant Accounting Policies (CONTINUED)

[8]  Major customers:

     Two customers each accounted for approximately 23% (Geisinger Health
     Systems and Welborn Health Plan) of net revenues for the year ended
     December 31, 2003 and approximately 20% of net revenues for the year ended
     December 31, 2003 were from each of two BCBS organizations. 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 Company accounts for stock-based employee compensation under Accounting
     Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
     Employees", and related interpretations. The Company has adopted the
     disclosure-only provisions of Statement of Financial Accounting Standards
     ("SFAS") No. 123, "Accounting for Stock-Based Compensation" and SFAS No.
     148, "Accounting for Stock-Based Compensation - Transition and Disclosure",
     which was released in December 2002 as an amendment of SFAS No. 123. The
     Company's stock option plans are described in Note E. The following table
     illustrates the effect on net (loss) income and earnings per share if the
     fair value based method had been applied to all awards.

                                                      Year Ended December 31,
                                                     ------------------------
                                                        2003          2002
                                                     ----------   -----------
Reported net income (loss)                           (5,158,000)    3,299,000
Stock-based employee compensation determined under
 the fair value based method, net of tax effects        (15,000)     (257,000)
Pro forma net loss                                   (5,173,000)    3,042,000
Basic loss per share:
   As reported                                             (.05)          .03
   Pro forma                                               (.05)          .03
Diluted income (loss) per share:
   As reported                                             (.05)          .03
   Pro forma                                               (.05)          .03

     The weighted average fair value of options granted in 2003 and 2002 was
     approximately $.02 and $.10, respectively, using the Black-Scholes Option
     Pricing model utilizing the following assumptions:

                                December 31,
                           ----------------------
                              2003         2002
                           ----------   ---------
Dividend yield                      0           0
Volatility                        121%        121%
Risk free interest rate     2.41-3.28%  3.22-4.74%
Expected life in years              5           5

[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.

                                      F-10

<PAGE>
                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

     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 recorded a reserve for 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 amounted to $2,639,000.

Note C - Intangible Assets

     Intangible assets, net of accumulated amortization consist of the
     following:

                                         December 31,
                                  -------------------------
                                     2003          2002
                                  ---------   -------------
Service agreement                 $      --   $   1,100,000
License agreement                     3,000       1,103,000
Software development cost           860,000         851,000
                                  ---------   -------------
                                    863,000       3,054,000
Less accumulated amortization      (705,000)     (2,777,000)
                                  ---------   -------------
                                  $ 158,000   $     277,000
                                  =========   =============

     Amortization expense for the years ended December 31, 2003 and 2002 was
     $128,000 and $587,000, respectively. The Company wrote off fully amortized
     service agreement and license agreement related to Horizon BCSNJ.

[1]  Service agreement:

     This amount represented 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. The
     remaining $3,000 as of December 31, 2003 relates to licensing fees
     associated with RPNavigator.

[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 $128,000 and $117,000 for the years ended December 31,
     2003 and 2002, respectively.

                                      F-11

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE D - Property and Equipment

     Property and equipment consist of the following:

                                                   December 31,
                                          -----------------------------
                                               2003            2002
                                          -------------   -------------
Computer equipment                        $   2,878,000   $   2,699,000
Furniture and fixtures                          499,000         499,000
Office machines and telephone equipment         661,000         627,000
Leasehold improvements                        1,248,000       1,245,000
                                          -------------   -------------
                                              5,286,000       5,070,000
Less accumulated depreciation and
 amortization                                (4,348,000)     (4,014,000)
                                          -------------   -------------
                                          $     938,000   $   1,056,000
                                          =============   =============

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
     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 initial 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. The amount reserved as of December 31,
     2003 is 24,027,263 shares of Common Stock.

     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)

                                      F-12

<PAGE>
                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

Note E - Stockholders' Equity (continued)

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 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
                                      F-13

<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

Note E - Stockholders' Equity (continued)

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 total reserved shares for both plans are 26,099,263 shares of Common Stock.

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

                                     2003                       2002
                             -----------------------   -----------------------
                                            Weighted                  Weighted
                                             Average                   Average
                                            Exercise                  Exercise
                                Shares        Price       Shares        Price
                             ------------   --------   ------------   --------
Outstanding at beginning
 of year                       13,950,000   $    .28     11,670,000   $    .22
Granted                           715,000        .03      4,202,000        .12
Exercised                              --         --        (13,000)       .08
Cancelled                      (4,619,000)       .13     (1,909,000)       .08
                             ------------              ------------
Outstanding at end of year     10,046,000        .22     13,950,000        .28
                             ============              ============
Exercisable at end of year      8,129,000        .25      8,692,000        .24
                             ============              ============

In addition, approximately 101,000 options held by terminated employees will be
cancelled in the first quarter of 2004.

                                      F-14

<PAGE>

                               CAREADVANTAGE, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

Note E - Stockholders' Equity (continued)

[2]  Stock option plans: (continued)

     The following table summarizes information about stock options at December
     31, 2003:

                          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
--------------   -----------   -----------   --------   -----------   --------
$0.03 to $0.15     8,544,000          7.26   $   0.09     6,627,000   $   0.10
$0.16 to $0.30       941,000          6.15       0.24       941,000       0.24
$0.31 to $0.45        25,000          7.25       0.40        25,000       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       329,000       2.82
                 -----------                            -----------
                  10,046,000                 $   0.22     8,129,000   $   0.25
                 ===========                            ===========

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:

                                                  December 31,
                                          ---------------------------
                                              2003           2002
                                          ------------   ------------
Current portion of deferred tax assets:
   Accrued liabilities                    $         --   $     76,000
                                          ------------   ------------
                                                    --         76,000
                                          ------------   ------------
Noncurrent portion of deferred tax
 assets/(liabilities):
   Net operating loss carryforwards          5,119,000      2,853,000
   Allowance for doubtful accounts                            265,000
   Tax/ book basis of fixed assets              76,000        107,000
   Intangibles                                 835,000        996,000
   Alternative minimum tax credit               55,000         55,000
                                          ------------   ------------
                                             6,085,000      4,276,000
                                          ------------   ------------
Deferred tax assets                          6,085,000      4,352,000
Valuation allowance                         (6,085,000)    (4,352,000)
                                          ------------   ------------
                                          $          0   $          0
                                          ============   ============

                                      F-15


<PAGE>
                               CAREADVANTAGE, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

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 $15,055,000 at December 31, 2003, expiring
through 2023. 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, 2003,
$6,311,000 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 increased
approximately $1,733,000 and decreased approximately $1,087,000 for the years
ended December 31, 2003 and 2002, respectively. The Company incurred state
income tax of approximately $12,000 and $244,000 for the years ended December
31, 2003 and 2002, respectively.

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

                                                   Year Ended
                                                  December 31,
                                          ---------------------------
                                              2003           2002
                                          ------------   ------------
Income taxes at federal statutory rate    $ (1,754,000)  $  1,205,000
Permanent differences                            9,000          9,000
Change in valuation allowance                1,733,000     (1,087,000)
State taxes, net of federal benefit              8,000        146,000
Other                                           16,000        (29,000)
                                          ------------   ------------
                                          $     12,000   $    244,000
                                          ============   ============

Note G - Commitments, Contingencies and Other Matters

[1]  Contingencies:

     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 of approximately $1.5 million, for which it has not been paid by
Horizon BCBSNJ, as well as damages for Horizon BCBSNJ's solicitation and hiring
of certain of the Company's employees in violation of the service agreement.
Horizon BCBSNJ is counterclaiming against CareAdvantage, Inc. seeking damages
for breach of contract, breach of implied duty of good faith and fair dealing,
tortuous interference with prospective economic advantage, trade libel and
unfair competition. Each party believes that the other party's claims are
without merit and is vigorously contesting them.

     Morriale v. CareAdvantage, Inc. is a complaint filed by a former employee,
Adriana Morriale, with the New Jersey Division of Human Rights, in which she
claims that the Company retaliated against her for claiming leave under the New
Jersey Family Leave Act. The Company believes that the complaint is without
merit and is contesting the matter vigorously.

[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

                                      F-16

<PAGE>

                               CAREADVANTAGE, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

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 expired, 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-17

<PAGE>

                               CAREADVANTAGE, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

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:

   Year         Office
  Ending         Space        Equipment        Total
----------   ------------   ------------   ------------
2004         $    699,000   $     44,000   $    743,000
2005              696,000          4,000        700,000
2006              717,000             --        717,000
2007              724,000             --        724,000
2008              724,000             --        724,000
Thereafter      1,684,000             --      1,684,000
             ------------   ------------   ------------
             $  5,244,000   $     48,000   $  5,292,000
             ============   ============   ============

Rent expense for the years ended December 31, 2003 and 2002 was $8,000 and
$783,000, 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 $68,000 and $195,000 for the years ended
December 31, 2003 and 2002, respectively.

NOTE H - Loss on office space lease:

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 incurred costs associated with the termination of certain
operating leases, including the lease for its office space in Iselin, NJ in
connection with exiting its prior service business with Horizon BCBSNJ and
another BCBS customer under SFAS No. 146. The Company recorded a charge in the
amount of approximately $2,639,000 relating to the operating leases during 2003.
The charge is included in selling, general and administrative expenses on the
accompanying statement of operations. Rent in the amount of approximately
$689,000 was charged to such liability for the twelve months ended December 31,
2003. As of December 31, 2003, the remaining liability is $1,950,000.

                                      F-18

<PAGE>

                               CAREADVANTAGE, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE I - 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.

NOTE J - Subsequent Events

The Company issued 525,000 shares of Common Stock to certain employees in first
quarter 2004 at a grant price of $0.02.

                                      F-19

<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.

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.

<PAGE>

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.

10.34   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

<PAGE>

        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.

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*

31      Certifications pursuant to Rule 13a-14(a), promulgated under the
        Securities Exchange Act of 1934, as amended, and Section 302 of the
        Sarbanes-Oxley Act of 2002*

32      Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002 *

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