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, 1999
                         Commission File Number 0-26168

                               CAREADVANTAGE, INC.
                               (Name of Business)

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

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

       Registrant's telephone number, including area code: (732) 602-7000


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)

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

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

The Registrant's revenues for its most recent fiscal year were $16,410,000


The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of  February  3,  2000  (assuming  solely  for  purposes  of this
calculation  that all  directors and executive  officers of the  Registrant  are
affiliates) was $3,399,769


The number of shares of common  stock  outstanding  as of  February  3, 2000 was
82,789,883.

         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


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                                     PART I

Item 1.        Description of Business

Introduction and Background

CareAdvantage, Inc. ("CAI" or the "Company") is a holding company which, through
its  direct  and  indirect  subsidiaries,  CareAdvantage  Health  Systems,  Inc.
("CAHS")  and  Contemporary  HealthCare  Management,  Inc.  ("CHCM"),  is in the
business of providing health care cost containment  services  designed to enable
health care insurers and other health service  organizations to reduce the costs
of medical services provided to their subscribers. The services provided include
utilization review in medical/surgical cases where pre-authorization is required
for hospitalization and for certain in-patient and outpatient  procedures,  case
management  and disease  management,  and  independent  reviews.  The  Company's
services  have been  principally  provided  to  several  of the  statewide  Blue
Cross/Blue  Shield  health  service  organizations  in the  Northeastern  United
States.

CAI was  incorporated  in August 1994 as a wholly owned  subsidiary  of Primedex
Health Systems,  Inc. ("PMDX"),  a publicly traded New York corporation.  During
the Company's fiscal year ended October 31, 1994, the Company  recruited most of
the  members  of its  former  management  team and  began  to put in  place  the
infrastructure  necessary to execute its growth and acquisition  strategies.  No
revenues were realized from the Company's inception through October 31, 1994, as
its principal  operating  activities were those of a development  stage company.
Effective  November 1, 1994,  the beginning of its 1995 fiscal year, the Company
commenced principal operations and began realizing revenues from certain interim
and long-term  service  agreements.  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.


From its inception  through  October 31, 1995, 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,  Inc.,  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  adjustment  for the  "one (1) for six (6)"  reverse  stock  split of the
Company's  outstanding  Common Stock).

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

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<PAGE>

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 (see Note C [1] in the "Notes to the Financial Statements" below).

Since the Company did not have a sufficient  number of  authorized  but 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  authorized  shares  of Common  Stock to
90,000,000  shares,  created 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.

The Company,  Horizon  BCBSNJ and CW Ventures are parties to an agreement  dated
February  22, 1996 (the  "Stockholders  Agreement")  pursuant  to which  Horizon
BCBSNJ and CW Ventures agreed that the Board shall consist of seven numbers.  By
unanimous  written  consent  dated as of May 22,  1997,  the Board of  Directors
reduced  the number of the  Company's  Directors  to six,  and by letters to the
Company  dated the same date ("May 22,  1997  Letters"),  Horizon  BCBSNJ and CW
Ventures consented to such reduction and modified their voting obligations under
the  Stockholders  Agreement.  As  modified  by the May 22,  1997  Letters,  the
Stockholders  Agreement  provides that Horizon BCBSNJ and CW Ventures each shall
vote their  shares in favor of two  members of the Board  designated  by Horizon
BCBSNJ,  two members of the Board  designated  by CW  Ventures,  one member from
senior  management  of the Company who is  acceptable  to Horizon  BCBSNJ and CW
Ventures,  and one member not associated  with  operations of the Company who is
acceptable to Horizon BCBSNJ and CW Ventures.

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

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  in a tight labor  market.
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
defined  contribution,  not defined benefit,  and employees will enjoy selection
among multiple health insurance products. Among health insurers, premium

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price  differences will become less  significant;  quality of provider  networks
will be assumed and  relatively  non-differentiating;  and service will separate
winners from losers.

Concurrently,  the health care providers,  especially  physicians and 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,  provider  systems lack the
capital, claims systems, marketing strength and geographic scope to compete with
health insurers.

Increasingly,   the  market  will  force   providers  and  insurers  to  develop
operational  and  administrative  efficiencies  in their many shared  functions.
Among  these  shared  functions  is care  management,  the  core  capability  of
CareAdvantage.

Services and Products

The Company offers care management  services to the health insurance industry in
order to assure that members  receive  appropriate  health and medical care. The
services  include focused  utilization  management and specialty case management
services. These health care management services adhere to American Accreditation
Healthcare Commission/URAC standards.

The  Company  possesses  substantial  resources  in core  areas  of  information
management,  member and  provider  profiling  and outreach  services,  including
provider  network  management  and  specialty  case  management,  and makes them
available to its clients in specific packages.

Focused Utilization Management and Independent Review

The Company  transforms  the  client's  utilization  management  program from an
administrative  exercise to a program  that uses  focused  profiling to identify
inappropriate  variations  in  medical  practices,  as well as  clinical  review
criteria and highly credible  physician  advisors to actively  engage  attending
physicians  in  treatment  decisions.  These  proactive  utilization  management
methods  enable  the  Company's  clients  to  achieve  utilization   performance
approaching or exceeding that of well-managed health maintenance organizations.

Increasingly,  health  insurers  are  required  by  state  regulation  to  offer
independent  review  of  decisions  that are  appealed  and  affect  the care of
members.  The Company  performs such  independent  reviews on behalf of two Blue
Cross Blue Shield Plans.

Specialty Case Management

Specialty  case  management  services  apply  fundamental   principles  of  case
management to identify those members most in need of  coordination of care, with
potential for  improving  the clinical  outcomes,  and with the  opportunity  to
optimize their health insurance  benefit while avoiding  unnecessary  costs. The
Company's  proprietary  method,  RightPath(TM),  enables  its case  managers  to
systematically  select those members most in need, to apply standard,  validated
approaches to members with common clinical conditions, and to measure outcomes.

Care  coordination,  both outpatient and inpatient,  allows patients to access a
variety of health care services,  such as home health care,  rehabilitation  and
infusion therapy services.  The Company's outpatient care coordination  services
provide an effective  mechanism  for cost  containment  while  safeguarding  the
delivery of quality  health care services.  Additionally,  only members who give
consent are  enrolled in the program.  Currently  the Company  achieves  consent
rates in excess of 80%.

Case  management  also seeks to support the attending  physician in managing the
care of patients with chronic  diseases on an on-going basis.  Case  conferences
with  matched  medical  specialists  are used to  optimize  attending  physician
collaboration.

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Operations

The Company utilizes a multi-disciplinary team approach to ensure effective cost
medical   management   services.   The  Company,   through  its   employees  and
subcontracting physician advisors,  reviews,  evaluates and monitors the medical
necessity and  appropriateness of the medical services prescribed for members in
its clients'  health plans.  Generally,  the  pre-admission  review  process for
elective and non-elective admission is initiated telephonically by the member or
provider.  During this phase,  clinical  review  staffs  evaluate  the need for,
and/or initiate when  appropriate,  pre-certification,  second surgical opinion,
insurance   verification,   pre-admission  testing,   pre-operative   education,
pre-operative anesthesia evaluation, and continuing care planning. Additionally,
pre-admission  review determines if the service requested is medically necessary
by utilizing review criteria,  appropriate  alternatives for providing  service,
length of stay and the need for case management intervention.

The  Company  currently   maintains  a  contracted  network  of  more  than  140
independent,  multi-specialty  physician  advisors,  most of whom are  active in
managed  care  practices  and some of whom are  affiliated  with major  teaching
hospitals.  Several of these physicians are currently  spending  one-to-two days
per week  on-site  with  and on  behalf  of the  Company's  clients,  discussing
questionable  cases with local  specialists and leading  meetings with groups of
local  specialists to disseminate  and implement the care  management  "critical
pathways"  necessary for effective  case  management.  The Company also uses its
nurse  reviewers for  telephonic  review as well as in hospitals to conduct more
extensive  on-site  reviews of patients,  whenever  possible.  On-site review is
performed for concurrent  review and case management  activities.  These on-site
reviews also include  collaboration  with the Company's local and national board
certified physician employees and advisors.  By reviewing on-site,  these nurses
are in a better  position to determine the need for continued  stay, and to make
necessary arrangements for outpatient care.

For its  services,  the Company is  compensated  either:  (i) on a fixed fee per
subscriber basis; (ii) on a combination of both fixed fees and performance-based
fees; or (iii) on a fee-for-service basis. Accordingly,  the Company has adopted
the following  accounting  policies for revenue  recognition under each contract
category:

     (a)  Revenue under the fixed-fee arrangements is recognized as the services
          are provided and the related costs of services are incurred.  Although
          the fixed fee arrangements are not subject to any fee adjustment based
          upon the attainment of target utilization  levels,  such contracts may
          still expose the Company to potential  operating losses,  particularly
          in the initial stages thereof.

     (b)  Revenue  under  the  combination   fixed-fee/incentive  agreements  is
          initially  recognized  for the  monthly  fixed-fee  component  only as
          services  are provided  and related  costs of services  are  incurred.
          Incentives (or  reductions)  based upon  performance are recorded when
          such amounts can reasonably be determined.

     (c)  Revenue  under  fee-for-service  arrangements  is recorded for special
          projects or the review of cases  assigned to the Company on a per case
          or hourly basis.

Customers and Marketing

The  Company  currently  provides  its  services  to five Blue Cross Blue Shield
("BCBS")  organizations in the  Northeastern  United States pursuant to one or a
combination of the  compensation  arrangements  described  above. The Company is
dependent on at least two of such customers  including  Horizon  BCBSNJ,  a more
than 45% stockholder of the Company,  for a substantial portion of its revenues,
gross margins and cash flows.  The loss of either of these two  customers  would
have a  material  adverse  impact on the  Company's  cash  flows and  results of
operations.  The Company  has a service  agreement  with  Horizan  BCBSNJ  which
expires on June 30,  2000 and  accounted  for  approximately  80% of revenue for
1999.  Although the precise terms of a contract renewal have not yet been agreed
upon,  the Company has been informed by Horizon  BCBSNJ that Horizon BCBSNJ will
continue to  contract  with the Company  for care  management  services  for the
indemnity  portion of the business at least until January 1, 2001. The indemnity
portion of the business  accounts  for  approximately  90% of the total  Horizon
BCBSNJ contract revenues on an annual basis.

The Company markets its services to group health insurance companies  throughout
the United States.

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Typically,  the  Company  will  enter  into a  service  agreement  with a client
pursuant to which the Company provides its utilization  management and specialty
case management services.  The Company's services for an insurer generally cover
all insureds under an indemnity or PPO insurance plan and/or members of a health
maintenance  organization  plan  affiliated  with the insurer.  When the Company
contracts  to  provide  its  services  to  an  insurer,  the  insurer's  account
executives  ordinarily  plan  to  offer  the  Company's  services  to its  group
policyholders  and  those  groups  covered  under   administrative-services-only
arrangements.

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
services. Management is aware of a significant number of independent utilization
review  firms  currently  marketing  utilization  review  services  directly  to
employers, small insurers, and third party administrators.  In addition to other
utilization review and medical management  companies,  the Company competes with
insurance  companies,  that  have  developed  in-house  staffs to  provide  such
services. There are a variety of competitors offering component services such as
physician reviewers and demand  management/patient  advisory products. There are
also a number of  organizations  developing a variety of  approaches to case and
disease management. Some of the Company's competitors have substantially greater
financial resources and employ substantially greater numbers of personnel.

The  Company  intends  to  compete  on the  basis of the  quality  of  services,
including  its  ability to develop  tailored  programs  for large  clients,  its
willingness  to accept risk in methods of  compensation  based on  results,  its
computer-based  clinical decision making and information systems and its current
experience in developing outsourcing  arrangements acceptable to Blue Cross Blue
Shield plans.

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  makes  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.
(See "Legal Proceedings.")

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

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in which the Company can acquire  businesses  and market its services to,
and contract for services with, other health care providers.

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

     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, 1999, the Company  employed a total of 167 full-time  employees,
including 11 full-time  physicians.  Of this total, 132 employees are engaged in
clinical   activities   including   on-site   nurse   reviewers   and   contract
administrators.  The 35 remaining employees include  executives,  administrative
support,  finance,  marketing,  training and education,  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 has executed a six-year lease for this facility
commencing   June  15,  1995,   which  provides  for  an  annual  base  rent  of
approximately $445,000 with annual escalations based on increases in real estate
taxes and  operating  expenses.  The Company  believes that its  facilities  are
adequate  for its  current  needs and that  suitable  additional  space  will be
available as required.

The Company also maintains  rent-free  operations  offices in approximately  600
square  feet of  space in  Providence,  Rhode  Island  under  an  informal  oral
arrangement  with  Blue  Cross  and  Blue  Shield  of Rhode  Island  ("BCBSRI").
Additionally,  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

a) Robert T.  Caruso v. John J.  Petillo,  Vincent  M.  Achillare,  Lawrence  A.
Whipple,  and Horizon Blue Cross Blue Shield of New Jersey,  Inc. et al.,  which
was filed in Superior Court of New Jersey on August 12, 1998.  Messrs.  Petillo,
Achillare  and  Whipple  were  officers  of the  Company and may have claims for
indemnification  for expenses and for any  judgments  against them in this case.
Mr. Caruso was a consultant  to the Company.  The  complaint  alleges  breach of
contract, fraud, conspiracy, promissory estoppel and negligent misrepresentation
in  connection  with,  among  other  things,  the  termination  of Mr.  Caruso's
consulting  arrangement with the Company. The Plaintiff seeks treble damages for
an  unspecified  amount and claims actual damages in the  approximate  amount of
$1.8-2.0 million. The Company received notice from two of its insurance carriers
denying  coverage on this matter,  but the Company plans to  vigorously  contest
these   coverage   decisions.   The  Company   received  a  written   claim  for
indemnification  from  defendants  Petillo and Achillare  and,  subject to their
having  acted in good  faith,  the  Company  has  agreed to  indemnify  them and
defendant Whipple and to pay their reasonable defense costs. The parties to this
litigation are currently taking  discovery.  Until discovery has been completed,
the Company has  insufficient  information  regarding its potential  exposure in
this matter.

                                       7

<PAGE>


b) In December 1999 the Company was  impleaded as a  third-party  defendant in a
lawsuit  entitled  Horizon  Healthcare of New Jersey,  Inc. vs. Allied Specialty
Care  Services,  Inc.,  pending  in the  United  States  District  Court for the
District of New Jersey.  This lawsuit seeks damages  arising out of an agreement
between Horizon Healthcare of New Jersey, Inc.  ("Horizon") and Allied Specialty
Care Services, Inc. ("Allied").  One of the claims made by Horizon is that it is
entitled to damages on account of Allied's  agreement  to repay  certain  monies
("Risk  Amounts")  to Horizon in the event  certain  charges for medical  claims
exceeded certain capitation amounts.  Allied's third-party complaint against the
Company  seeks to enforce an  agreement  among  Horizon,  Allied and the Company
wherein it is claimed that the Company agreed to pay Allied one-half of any Risk
Amounts that Allied "owed" to Horizon,  but no more than certain funds  received
by the  Company on account of such  agreement.  (A copy of the  agreement  among
Horizon,  Allied and the Company has been filed as Exhibit  10(e) to Form 10-QSB
dated  April  30,  1997.)  The  parties  to the  lawsuit  and the  Company  have
informally agreed to settle their various claims. However, until such agreements
have been made definitive,  there can be no assurance that such claims have been
settled.  The Company  has  previously  established  a reserve  that  management
believes is  sufficient to satisfy any liability the Company may have on account
of Allied's  claim.

c) By a letter dated November 9, 1998, the Company  received written notice (the
"Notice")  from Allied Health Group,  Inc.  ("Allied")  pursuant to which Allied
purportedly  terminated without cause,  effective December 9, 1998, that certain
Joint Services  Agreement  dated May 29, 1997 (the "Joint  Services  Agreement")
between  Allied and the Company,  which was attached as Exhibit No. 10(c) to the
Company's  Form 10-QSB for the quarter ended April 30, 1997 and is  incorporated
by reference herein.  By a response letter dated November 16, 1998,  counsel for
the  Company  informed  Allied that the Notice was null and void and of no legal
effect  since the Joint  Services  Agreement  did not  provide  for  termination
without cause prior to the end of the term of the Joint Services Agreement.  The
Company instituted  arbitration  proceedings  against Allied seeking damages for
Allied's  breach;  Allied counter claimed against the Company seeking damages on
account of certain  agreements  that the Company  entered into with certain Blue
Cross plans.  The Allied and the Company have informally  agreed to settle their
respective claims,  without cost to the Company.  However,  until such agreement
has been made  definitive,  there can be no assurance that such claims have been
settled

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

No matters were submitted to a vote of the Company's security holders during the
last quarter of calendar year ended December 31, 1999.

                                     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.

                                 1999                     1998
                                 ----                     ----
Quarter Ended              High          Low        High           Low
-------------              ----          ---        ----           ---
March 31,                  $.25          $.03       $.25           $.23
June 30,                   $.45          $.14       $.27           $.21
September 30,              $.45          $.27       $.24           $.10
December 31,               $.31          $.13       $.10           $.02

(b)  Holders:  As of March 14, 2000 there were  approximately  3,725  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
many factors, including the Company's earnings and capital needs.

                                       8
<PAGE>


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.  For fiscal years prior to 1997, we experienced
significant   operating  losses  on  a  consolidated  basis.  In  addition,   we
experienced  a loss of  $1,275,000  for the year ended  December  31,  1999.  At
December  31,  1999,  we  had  working   capital  of   approximately   $264,000,
stockholders equity of approximately  $2,194,000,  and an accumulated deficit of
approximately $19,950,000.

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

Because  of  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.

We could incur  significant  additional costs as a result of litigation based on
the  adverse  medical  consequences  of our  recommendations.  We  provide  cost
containment services for health care organizations. Our services include:

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

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

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

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

We base our  recommendations  on patient  benefit plan coverage on judgments and
established  protocols  as  to  the  appropriateness  of  the  proposed  medical
treatment.  Our judgments and  established  protocols are based on data gathered

                                       9
<PAGE>


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 engage in the  practice of
medicine or that we deliver 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.

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.

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  our  business  and  financial
conditions.

                                       10
<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 shareholders 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 us states that  Horizon  BCBSNJ and CW Ventures  have
agreed to vote their  shares in us with  respect to the election of our board of
directors for:

o    two designees of CW Ventures;

o    two designees of Horizon BCBSNJNJ;

o    one  member  of  our  management  acceptable  to CW  Ventures  and  Horizon
     BCBSNJNJ; and

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

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 the 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." 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 limited  public  float in our common stock as the
result of the ownership of 91.65% of the common stock by two stockholders.

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

    The rule:

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

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

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

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

                                       11
<PAGE>


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.

Recent Developments of the Business

CareAdvantage  submitted  a  proposal  to Blue  Cross  Blue  Shield of  Michigan
("BCBSM") in June 1999 in response to an RFP issued by BCBSM for vendor partners
to  provide  comprehensive  care  management  programs  to over 3 million  BCBSM
members  enrolled  in  traditional  and PPO  products.  The RFP  was  issued  in
accordance with BCBSM's Health Care Management Strategy which envisions offering
a seamless  array of health  care and use  management  programs  nationwide  and
improvement  of the quality of care and member  health.  The Company was advised
during the first  quarter of  calendar  year 2000 that BCBSM is  performing  due
diligence  on the  Company in  connection  with  comprehensive  care  management
services,  and the Company is cooperating with BCBSM.  BCBSM's actions are not a
commitment by BCBSM to enter into a contract with CareAdvantage at this time.

Change in Fiscal Year

On June 8, 1999, the Company  changed its fiscal year from one ending October 31
to a calendar year ending December 31.

Results of  Operations--12  Months Ended December 31, 1999 Compared to 12 Months
Ended October 31, 1998


Revenues:
<TABLE>
<CAPTION>

                                                                       Year Ended
                                                                       ----------
                                                      December 31,1999                      October 31, 1998
                                                      ----------------                      ----------------

                                                   Amount           Percent             Amount           Percent
                                                   ------           -------             ------           -------
<S>                                                <C>              <C>                 <C>              <C>

Revenues from fixed-fee arrangements               $16,179,000      99%                 $16,821,000      89%

Revenues from performance-based arrangements           218,000       1%                   2,064,000      11%

Consulting revenues                                     13,000       0%                      18,000       0%
                                                        ------     ----                 -----------      ---

          Total revenues                           $16,410,000     100%                 $18,903,000      100%
                                                   ===========     ====                 ===========      ====

</TABLE>


Total  revenues for the years ended  December 31, 1999 and October 31, 1998 were
approximately  $16,410,000  and  $18,903,000,   respectively.  The  decrease  in
revenues of approximately  $2,500,000 was primarily  attributable to: (i) excess
performance  revenues of  approximately  $1,300,000 from BCBSRI in 1998 and (ii)
decreased  fixed  compensation  revenue  of  approximately  $1,300,000  from the
Company's contract with Allied Health, which has been terminated.

Contracts that provide for  performance-based  revenues require claims data that
is supplied by the Company's customers to calculate the achievement of goals for
each period.  Because  compilation  of claims data  typically lags the Company's
actual  performance  by  several  months,  it is  difficult  to ensure  complete
accuracy  when  recording  performance-based  revenues.  Management  has  worked
closely with its  customers  to secure more timely and accurate  data to improve
the  accuracy  of  reporting  its  revenues,   including,  in  some  cases,  the
re-negotiation  of the  contract to a fixed fee basis.  Management  believes its
estimated  performance-based  revenues  contained  in reported  revenues for the
twelve months ended December 31, 1999 are accurate based upon the data available
to management. However, information received by the

                                       12

<PAGE>


Company  after the filing of this Form 10-KSB could result in an  adjustment  of
its  estimates  of  performance-based  revenues  (which  would be  reflected  in
subsequent quarters, if necessary).

Revenues from at-risk  performance-based  service  contracts  generally  tend to
follow a pattern whereby  significant  revenues are generated during the initial
term of the contract, as savings opportunities are the greatest and then decline
thereafter as the opportunity for additional  savings  diminishes.  As a result,
the Company's  ability to increase  revenues and gross margins is dependent upon
its ability to enter into additional  contracts with new customers and/or expand
the services provided to existing customers.

         Cost of services:

Cost of services  for the fiscal  years ended  December 31, 1999 and October 31,
1998 were approximately $8,955,000 and $7,903,000, respectively. The increase in
the cost of services of approximately  $1,052,000 is largely due to increases in
personnel costs of approximately $1,112,000, information and communication costs
of  approximately  $117,000,  primarily  offset by decreases in professional and
consulting  costs of  approximately  $59,000 and  depreciation  and amortization
costs of  approximately  $103,000.  The increase in personnel costs is primarily
attributed  to  increases in hiring of clinical  personnel  relating to expanded
business opportunities during 1999.

Operating expenses

Selling, general and administrative:

Selling,  general  and  administrative  costs  during  the  calendar  year ended
December  31, 1999 were  $7,931,000  compared to  $6,952,000  in the fiscal year
ended  October 31,  1998.  The increase in selling,  general and  administrative
costs of  approximately  $979,000 is largely due to increases in personnel costs
of approximately $557,000,  including severance costs of approximately $290,000,
travel costs of approximately  $67,000,  information and communication  costs of
approximately  $274,000,  other general & administrative  costs of approximately
$94,000 and  approximately  $344,000 due to a write-off of software  development
costs,  primarily  offset by a decrease in professional  and consulting costs of
approximately  $331,000.  The Company experienced  increased marketing and sales
costs during the period ended December 31, 1999.  This increase is  attributable
to the Company's  increased  marketing and sales efforts,  as well as, increased
emphasis on new product development.

While  management  has  taken and  intends  to take  additional  steps to reduce
general and  administrative  costs,  any future  reductions in such costs may be
offset to some  extent,  by  anticipated  increases  in selling,  marketing  and
service  development  costs.  There  is no  assurance  that  management  will be
successful  in reducing  general  and  administrative  costs by any  significant
amount.  (See "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations-Cautionary Statements")

Depreciation and amortization:

Depreciation  and  amortization  for the fiscal  year ended  December  31,  1999
aggregated  $1,277,000,  of which  $435,000  is  included  in cost of  services,
compared to  $1,143,000  for the fiscal year ended  October 31,  1998,  of which
$538,000 is included in cost of services.  Depreciation and amortization for the
year  ended  December  31,  1999  includes  amortization  of  intangible  assets
attributed to the Services Agreement with Horizon BCBSNJ, in connection with the
acquisition  of  CHCM  of  approximately  $122,000  ( See  "Notes  to  Financial
Statements  -  Introduction  and  Background"),  amortization  of  approximately
$518,000  relating to other  intangible  assets and depreciation of property and
equipment of approximately $637,000.

Interest income/ expense:

Interest  income for the fiscal  years ended  December  31, 1999 and October 31,
1998 was $104,000 and $110,000, respectively. Interest expense during the fiscal
year ended  December  31, 1999 was $61,000  compared  with  interest  expense of
$305,000  for the year ended  October 31,  1998.  The  decrease in net  interest
expense of  approximately  $244,000 is largely due to decreased  interest  costs
under  the IBM  master  lease  agreement  of  approximately  $73,000,  decreased
interest  costs  related to the CW Note of  approximately  $107,000  (for a more
detailed  explanation  of the CW Note,  see  "Notes to  Financial  Statements  -
Introduction  and  Background")  and decreased  interest costs under the Horizon
BCBSNJ Note of

                                       13
<PAGE>


approximately  $64,000 (for a more detailed  explanation  of the Horizon  BCBSNJ
Note, see "Financial Condition-Liquidity and Capital Resources" below).

Financial Condition

Liquidity and Capital Resources:

At December 31, 1999, the Company had cash of $1,615,000  and a working  capital
surplus of  approximately  $264,000.  At December 31, 1998,  the Company's  cash
balance  was  $3,354,000  and the  working  capital  surplus  was  approximately
$715,000.  The decrease in working capital surplus of approximately  $451,000 is
largely due to decreased  operating  income for the twelve months ended December
31, 1999..

Net cash provided from operating  activities amounted to approximately  $244,000
and  $4,415,000  for the fiscal  years ended  December  31, 1999 and October 31,
1998,  respectively.  This  decrease  in cash is  largely  due to the  decreased
operating income generated during the calendar year ended December 31, 1999.

Net cash used by investing  activities  amounted to  approximately  $775,000 and
$1,133,000  for the fiscal  years ended  December 31, 1999 and October 31, 1998,
respectively.  This  decrease  of  approximately  $358,000  is due to  decreased
capital expenditures during the current calendar year.

Net cash used by financing  activities amounted to approximately  $1,208,000 and
$575,000  for the fiscal  years ended  December  31, 1999 and October 31,  1998,
respectively.  This  increase  of  approximately  $633,000 is  primarily  due to
payments  related to the  Horizon  BCBSNJ Note  during the  calendar  year ended
December 31, 1999.

While there can be no  assurances,  management  believes  that its cash on hand,
projected future cash flows from operations and the Company's borrowing capacity
under its credit agreement with a bank (as further described below) will provide
adequate capital  resources to support the Company's  anticipated cash needs for
calendar year ending December 31, 2000.

Pursuant to the BCBSNJ Note,  the Company owes $693,000 to Horizon  BCBSNJ as of
December 31, 1999.  The Company has an agreement  with Horizon BCBSNJ to suspend
payments on the note due to Horizon  BCBSNJ  through August 2000. The Company is
to resume making payments on September 1, 2000 in equal monthly  installments to
repay the debt by March 31, 2001.  While there can be no assurances  that future
operating  results will be  sufficient  to fund this  obligation of the Company,
management expects such amounts to be funded through operations.

The Company has a credit  facility  with a bank that  provides  for a $1,500,000
working capital revolver to be used for general working capital needs, which has
been extended  through June 30, 2000.  In September of 1998,  the bank issued an
irrevocable  letter of credit in the amount of  $250,000  for the account of the
Company in favor of a vendor as security for the  Company's  obligation  under a
non-cancelable  operating  lease.  This  letter of  credit  is issued  under the
Company's  credit  facility  and the  availability  is thus  reduced by the face
amount of the  letter  of  credit.  The  remainder  of the  credit  facility  is
available  to the  Company.  As of December  31, 1999 the  $250,000  irrevocable
letter of credit is still outstanding under the credit facility.

Item 7.   Financial Statements and Supplementary Data

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

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

         None.

                                       14
<PAGE>


                                    PART III

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

The Company's  directors,  executive officers and control persons as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>

Name                                   Age                    Positions with the Company
----                                   ---                    --------------------------
<S>                                    <C>                    <C>

William J. Marino (1)(3)               56                     Chairman of the Board of Directors

Robert J. Pures (2)(3)                 54                     Director

Barry Weinberg (1)(3)                  61                     Director

David McDonnell (1) (2)(3)             57                     Director

Walter Channing, Jr. (2)(3)            59                     Director

David G. Noone(3)                      46                     Director and Chief Executive Officer

Richard W. Freeman                     52                     President and Chief Operating Officer

Dennis Mouras                          43                     Executive Vice President, Marketing and Sales

David G. DeBoskey(4)                   34                     Senior Vice President, Finance and Accounting

<FN>
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Re-elected to the Board of Directors of the Company at the Company's  Annual
    Meeting held on July 7, 1999. (4) Mr. DeBoskey  resigned his employment with
    the Company as of March 23, 2000.
(4) Mr. DeBoskey resigned his employment with the Company as of March 23, 2000.
</FN>
</TABLE>

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; one member
will be management of the Company  acceptable to CW Ventures and Horizon BCBSNJ,
and one member will be a  non-employee  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 William J. Marino and Robert
J. Pures as members of the Board.

                                       15
<PAGE>


The following sets forth certain  information  with respect to each Director and
Executive Officer of the Company:

William J. Marino has been a director of the Company since  February 1996, and a
director of Contemporary HealthCare Management System, Inc. since December 1993.
He has been President,  Chief Executive Officer and a director of Horizon BCBSNJ
since January  1994,  and Senior Vice  President of Horizon  BCBSNJ from January
1992 through  December 1993. Mr. Marino also currently  serves as a director and
member of the compensation committee of TeamStaff, Inc.

Robert J. Pures has been a director of the Company since  February  1996. He has
been  Senior  Vice  President  -  Administration,  Chief  Financial  Officer and
Treasurer of Horizon BCBSNJ since 1995, and Vice President Finance and Treasurer
of Horizon BCBSNJ from October 1985 through July 1995.

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

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

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

David Noone has been a director of the Company and CEO since January  1999.  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 and
from December 1993 to February 1995, as President and Chief Executive Officer of
Value Health Insurance Services Group,  another Value Health,  Inc.  subsidiary,
where he was responsible  for  development of a diversified  managed health care
company serving the property casualty,  group health and auto liability sectors.
Prior to that time, Mr. Noone served as President and Chief Operating Officer of
Preferred  Health Care Ltd.  from 1992 to 1993,  and in a variety of  capacities
with that company from 1987 to 1992.

Richard W. Freeman,  M.D has served as President and Chief Operating  Officer of
the Company since October 1998, and from September 1997 through  October 1998 as
Executive  Vice  President of the Company.  Prior to that,  he served from April
1995 through September 1997 as Senior Vice President of CAHS. From 1994 to 1995,
Dr. Freeman served as Vice President for Medical Affairs,  Johns Hopkins Bayview
Medical  Center,  a 667 bed  academic  medical  center,  and from  1992 to 1994,
Director - Office of Managed Care Programs and Physician Support Services, Johns
Hopkins  Bayview  Medical  Center,  The Johns Hopkins Health System,  Baltimore,
Maryland.

Dennis Mouras has served as Executive  Vice  President of Marketing and Sales of
the Company since April 1999.  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.

David G.  DeBoskey  has served as Senior Vice  President  of the  Company  since
October  1999,  and from  November  1997 to October  1999 as Vice  President  of
Finance and  Accounting  of the Company,  and from April 1996  through  November
1997,  as Director of Finance and  Accounting  of the Company.  From August 1992
through April 1996,  Mr.  DeBoskey  served as Accounting  Manager and Subsidiary
Accountant for two New Jersey  hospitals.  Mr. DeBoskey  resigned his employment
with the Company as of March 23, 2000.

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

                                       16
<PAGE>


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.  The
members  of the Board  inadvertently  failed to file  their  Forms 3 on a timely
basis,  but have all made this filing by February 22, 1999 with the exception of
Dennis Mouras,  who made this filing on June 21, 1999. Based solely on review of
the copies of such forms  furnished to the Company,  the Company  believes  that
during  fiscal 1999 its officers,  directors  and ten percent  (10%)  beneficial
owners  complied  with all other  Section  16(a) filing  requirements,  with the
exception  that the annual  statement of beneficial  ownership  (Form 5) was not
filed by CW Ventures II, L.P. on a timely basis.  Appropriate  corrective action
is being taken by this entity.

Item 10.            Executive Compensation

The following table sets forth  information  concerning the compensation paid or
accrued by the Company for each of the three  calendar  years ended December 31,
1999,  1998,  and 1997,  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>

                                                          Summary Compensation Table

<CAPTION>
                                                                              Long Term
                                        Annual Compensation                   Compensation
                          -----------------------------------------------     ------------
                                                                              Securities
                                        Salary      Bonus    Other Annual     Underlying       All Other
    Name and Principle    Year Ended                        Compensation(2)   Options/SARS   Compensation
       Position           December,31   ($)         ($)         ($)             (#)             ($)
       --------           -----------   ---         ---         ---             ---             ---

<S>                         <C>        <C>           <C>         <C>            <C>             <C>
David G. Noone              1999       295,385       -0-         -0-            3,600,000       4,800(1)
Chief Executive Officer     1998         -0-         -0-         -0-               -0-           -0-
                            1997         -0-         -0-         -0-               -0-           -0-


Richard W. Freeman, M.D.    1999       275,009     55,723        -0-            2,541,000       4,800(1)
President &                 1998       270,162       -0-         -0-               -0-          4,917(1)
Chief Operating Officer     1997       261,000     35,000      25,000              -0-          4,750(1)



Dennis Mouras               1999       155,769       -0-       41,538             500,000         -0-
Executive Vice President,   1998         -0-         -0-         -0-               -0-            -0-
Marketing Sales             1997         -0-         -0-         -0-               -0-            -0-



David DeBoskey(3)           1999       107,269       -0-         -0-              610,000       2,718(1)
Senior Vice President       1998        87,654     25,000        -0-               -0-          2,608(1)
Finance & Accounting        1997        75,769     12,500        -0-               -0-          1,894(1)



Stephen D. Deutsch, M.D.(4) 1999       300,000     20,000       22,937            813,000          -0-
Senior Vice President and   1998       300,000       -0-          -0-               -0-            -0-
National Director of CAHS   1997       267,000     92,308         -0-               -0-            -0-

-----------------------------------------------------------
<FN>

(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, and in the Case of Mr. Mouras, advance commissions,
    that were paid.
(3) Mr. DeBoskey resigned his employment with the Company effective March 23,
    2000.
(4) Dr. Deutsch's employment with the Company was terminated without cause on
    October 15, 1999.
</FN>
</TABLE>

                                       17
<PAGE>



Compensation Plans

Stock Option Plan:

The Board of Directors  initially  adopted the Stock Option Plan ("Stock  Option
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.

The Stock Option 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.
Pursuant  to the terms of the Stock  Option  Plan,  the  Committee  will  select
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 in the case of incentive stock options cannot be less
than  100% of the fair  market  value of the  Common  Stock on the date of grant
(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 110% of the total
combined  voting  power of all  classes  of stock of the  Company);  and (v) the
duration of the option,  which  cannot  exceed ten (10) years.  Incentive  stock
options may only be granted to  employees  (including  officers)  of the Company
and/or any of its  subsidiaries.  Non-qualified  stock options may be granted to
any  employees  (including  employees  who have  been  granted  incentive  stock
options) and other persons who the Committee may select.  Under the Stock Option
Plan, as amended,  an aggregate of  18,648,000  shares of Common Stock (equal to
18% of the  Company's  authorized  number of shares of Common Stock) is reserved
for issuance.

All options granted under the Stock Option Plan generally 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. In the event an option grantee's  employment is terminated other than by
death or disability, such person generally shall have three months from the date
of termination to exercise such option to the extent the option was  exercisable
at such  date.  In the  event  of  termination  of  employment  due to  death or
disability of the option grantee,  generally such person (or such person's legal
representative)  shall have twelve months from such date to exercise such option
to the extent the option was exercisable at the date of termination.

The 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  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 Stock Option Plan 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,  unless
approved  by the  stockholders  of the  Company,  the Board may not  change  the
aggregate number of shares subject to the Stock Option Plan,  materially  change
the requirements of eligibility to such plan or materially increase the benefits
accruing to participants under such plan.
<TABLE>
<CAPTION>

                               Option Grants in Last Fiscal Year
                       % of Total Options Granted to Employees in Fiscal Year


                                Options                         Exercise Price
Name                            Granted       Percentage          Per Share           Expiration Date
----                            -------       ----------          ---------           ---------------
<S>                             <C>           <C>               <C>                   <C>
David G. Noone                  3,600,000     4.000 %           $0.03                 January 7, 2009
Richard W. Freeman, M.D.        2,541,000     2.500 %           $0.08                 January 26, 2009
Dennis Mouras                     500,000      .005 %           $0.08                 January 26, 2009
David G. DeBoskey                 610,000      .006 %           $0.08                 January 26, 2009
Stephan D. Deutsch                813,000      .008 %           $0.08                 January 26, 2009
</TABLE>


                                       18
<PAGE>


<TABLE>
<CAPTION>


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


                                                        Number of                              Value of
                                                    Shares Underlying                  Unexercised In-the-Money
                                                 Unexercised Options at                       Options at
                                                    December 31, 1999                      December 31, 1999
Name                                            Exercisable/Unexercisable               Exercisable/Unexercisable
                                                -------------------------               -------------------------
<S>                                                <C>                                     <C>
David G. Noone                                     1,200,000/2,400,000                     $187,560/$375,120
Richard W. Freeman, M.D.                             166,667/2,624,333                          $ 0/$410,183
Dennis Mouras                                                0/500,000                           $ 0/$78,150
David G. DeBoskey, CPA                                       0/610,000                           $ 0/$95,343
Stephan D. Deutsch                                     166,667/896,333                          $ 0/$140,097
-----------------------------------------------------------------------------
</TABLE>

Calculated  on the basis of the closing Bid price on the OTC  Bulletin  Board of
the Company's Common Stock of $0.1563 on December 31, 1999.


Employment Agreements and Board Appointments

        Noone Employment Agreement

Effective as of January 8, 1999 the Company entered into an Employment Agreement
and Confidentiality,  Invention and Non-Compete Agreement of even date therewith
with David Noone, its current Chief Executive Officer (collectively,  the "Noone
Agreements"),  which were attached as Exhibits  10.32 and 10.33 in the Company's
Form 10KSB for the period ended  October 31, 1998 which was filed on January 29,
1999 and are incorporated by reference herein.  The Noone Agreements provide for
a one-year term commencing January 8, 1999, with annual compensation of $300,000
per annum. The Company will pay Mr. Noone a severance payment equal to six-month
salary if he is  terminated  upon a "change of control" (as defined  below).  In
addition,  Mr. Noone is subject to a non-compete  restriction during the term of
employment plus two years thereafter.  The Noone Agreements  further provide for
the issuance of stock options as of the  commencement  date  providing Mr. Noone
with an option to purchase  Common  Stock in an amount equal to four (4%) of the
Company's  capitalization  on such date, upon the terms and conditions set forth
therein. These options are subject to accelerated vesting, if: (a) the Company's
Common Stock reaches certain target levels or (b) if either of the Company's two
largest  shareholders,  Horizon  BCBSNJ and CW Ventures,  sells or transfers its
shares of Common Stock to a  non-affiliated  party  ("Change of Control")  for a
price at least 300% higher than the average sales price of the Company's  Common
Stock,  during the thirty (30) days prior to his employment with the company, as
reported by Bloomberg Business Services. For this purpose, Horizon BCBSNJ and CW
shall not be considered affiliated with each other.

Pursuant to unanimous written consents of each of the Compensation  Committee of
the Board of Directors and the Board of Directors of the Company,  dated January
8, 1999,  David Noone was  appointed  a  "management  director"  of the Board of
Directors effective as of January 8, 1999, filling a vacancy on the Board.

The renewal terms of Mr. Noone's  employment  agreement are currently subject to
negotiation.

         Freeman Employment Agreement

The Company entered into an Amended and Restated Employment Agreement,  dated as
of September 29, 1998,  with Richard  Freeman,  M.D., the current  President and
Chief  Operating  Officer  of the  Company  and CAHS  (the  "Freeman  Employment
Agreement").  The Freeman Employment  Agreement was attached as Exhibit 10.36 in
the Company's Form 10KSB for the period ended October 31, 1998,  which was filed
on January 29, 1999 and is  incorporated  by reference  herein.  The term of the
Freeman Employment  Agreement  commenced on October 30, 1998 and continues for a
two-year period, with an additional one-year renewal. Dr. Freeman is entitled to
an annual salary of $275,000, plus other benefits set forth therein. The Freeman
Employment  Agreement  provides for a cash bonus in the amount of $95,000 in the
event of a "Change in Control of the Company" (as defined therein).  The Freeman
Employment Agreement also contains a non-compete  restriction during the term of
Dr. Freeman's employment plus two years thereafter.

                                       19
<PAGE>


        Mouras Employment Agreement

As of April 19, 1999,  the Company  entered into an  Employment  Agreement  with
Dennis Mouras (the "Mouras  Employment  Agreement"),  the current Executive Vice
President  of  Marketing  and Sales,  which is attached as Exhibit  10.40 in the
Company's Form 10KSB for the period ended December 31, 1999 and is  incorporated
by reference herein. The term of the Mouras Employment Agreement commenced April
19, 1999, and 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  $225,000,  (b)
commissions  with respect to any new accounts  generally  equal to the lesser of
(i) 2.5% of first  year  collected  revenues  from  such new  accounts,  or (ii)
$150,000,  and (c) other  benefits  set forth  therein.  The  Mouras  Employment
Agreement also contains a  non-solicitation  restriction  for one year after Mr.
Mouras's termination of employment.

              Deutsch Employment Agreement

Effective as of April 28, 1998 the Company and CAHS  entered into an  Employment
Agreement with Stephan D. Deutsch,  M.D. (the "Deutsch  Employment  Agreement"),
the current Senior Vice President of CAHS and National Medical Director of CAHS,
which was attached as Exhibit 10.39 in the Company's  Form 10-KSB for the period
ended  October 31, 1998 which was filed on January 29, 1999 and is  incorporated
by reference herein. The term of the Deutsch Employment  Agreement  commenced on
April 28, 1998 and continues for a two-year period,  with a successive  one-year
renewal term. Dr. Deutsch is entitled to an annual salary of $250,000, an annual
supplemental  salary of $50,000 for his services as National Medical Director of
CAHS,  plus other  benefits  set forth  therein.  Under the  Deutsch  Employment
Agreement,  Dr. Deutsch is entitled to participate in any CAHS' Executive Annual
Bonus Incentive Plan as may be established by the Board. The Deutsch  Employment
Agreement also contains  solicitation  and non-compete  restrictions  during the
term of Dr.  Deutsch's  employment  plus  one  year  thereafter.  Dr.  Deutsch's
employment with the Company was terminated without cause on October 15, 1999.


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 $1,000 for each  meeting of the Board they attend and are  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, 1999, Mr.  McDonnell is
the only  director  that has been granted any options  pursuant to the Directors
Stock Option Plan.  Mr.  McDonnell was awarded as of January 26, 1999, an option
to purchase  300,000  shares of the Company's  Common  Stock.  The option may be
exercised at $.08 per share, and becomes exercisable as follows:  (a) 100,000 of
such  shares were  immediately  exercisable;  (b) 66,666 of such  shares  became
exercisable  on January 26, 2000;  and (c) the remaining  133,334 of such shares
become  exercisable in 24 equal monthly amounts  commencing on February 26, 2000
and on the 26th day of the  following 23 months.  The market price of the Common
Stock on January 26, 1999, the date the option was granted, was $.08 per share.

Directors Stock Option Plan

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

Pursuant to the terms of the Directors Stock Option Plan, the Board of Directors
may grant  non-qualified  stock options to  non-employee  directors  (other than
directors  appointed by CW Partners 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

                                       20
<PAGE>

ten (10) years. Under the Directors Stock Option 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 Directors Stock Option 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 Directors Stock Option
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  Directors  Stock  Option 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

The following table sets forth as of March 1, 2000 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.

<TABLE>
<CAPTION>

                               Beneficial Ownership of Common Stock by
                                  Certain Stockholders and Management

                                                                   Number of Shares
Name                                                             Beneficially Owned (1)   Percent of Ownership(2)
----                                                             ----------------------   -----------------------

<S>                                                                     <C>                       <C>
Horizon Blue Cross and Blue Shield of
   New Jersey, Inc. (3)(4)(5)...................................    37,617,420                   45.44
CW Ventures II, L.P.(5)(6)(7)...................................    37,784,087                   45.55
William J. Marino(3)............................................           334                       *
Robert J. Pures(3)..............................................             0                       0
Walter Channing, Jr.(5)(6)(7)(8)................................    37,784,087                   45.55
Charles Hartman(5)(6)(7)(8).....................................    37,784,087                   45.55
Barry Weinberg(5)(6)(7)(8)......................................    37,784,087                   45.55
David J. McDonnell(9)(11).......................................       125,000                       *
David Noone(10)(11).............................................     1,400,000                    1.67
Richard W. Freeman, M.D (10)(11)................................     1,312,799                    1.56
Dennis Mouras(10)(11)...........................................             0                       *
David DeBoskey (10)(11) (12)....................................       254,165                       *
Stephan D. Deutsch(10)(13)......................................         1,233                       *

All Directors and executive officers as
a Group (10 persons) (8) (10)(11)...............................    40,497,336                   47.07

-------------------------------------------------------------
<FN>
*        Less than 1%
                                       21
<PAGE>


(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 such person or entity is 3 Penn Plaza East, Newark, New Jersey 07105.

(4)      In the event that the Services Agreement is terminated by Horizon BCBSNJ, CW Ventures will have
         the right to purchase Horizon BCBSNJ shares in accordance with the terms of the Stockholders Agreement.
         (See below, "Certain Relationships and Related Transactions.")

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

(6)      The business address of such person or entity is 1041 Third Avenue, New York, New York 10021.

(7)      Includes shares of Common Stock issuable upon exercise of the CW Warrants. CW Ventures has sole voting and disposition
         power over shares owned by it.

(8)      Includes 37,617,420 shares directly owned by CW Ventures and 166,667 shares of Common Stock issuable upon
         exercise of the CW Warrants.  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.

(9)      The business address of such person is 301 Aqua Court, Naples, Florida 34102.

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

(11)     125,000 of Mr.  McDonnell's  shares of Common  Stock,  1,400,000 of Mr.  Noone's shares of Common  Stock,  1,312,799  of
         Dr.  Freeman's  shares of Common  Stock, 254,165 of Mr. DeBoskey's shares of Common Stock, and 3,087,915 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 are exercisable on March 1, 2000 or that will be exercisable  within 60 days of such
         date.

(12)     Mr. DeBoskey resigned his employment with the Company as of March 23, 2000.

(13)     Dr. Deutsch's employment with the Company was terminated without cause on October 15, 1999.
</FN>
</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
                                       22
<PAGE>


HORIZON  BCBSNJ  Note,  see   "Description   of  Business  -  Introduction   and
Background." As of December 31, 1999,  Horizon BCBSNJ is the beneficial owner of
37,617,420 shares of Common Stock, constituting 45.44% of the outstanding Common
Stock at December 31, 1999.  Effective June 13, 1997 the Services Agreement with
Horizon BCBSNJ was amended and restated, which amendment was attached as Exhibit
10(a) to the  Company's  Form 10-QSB for the quarter ended April 30, 1997 and is
incorporated  by reference  herein.  The First  Amendment and Restatement of the
Services Agreement requires, among other things, Horizon BCBSNJ to pay a monthly
"interim payment" based on current enrollment data which is adjusted every April
and October.  Currently,  the Company is receiving approximately  $1,000,000 per
month as a result of this  agreement.  In  addition,  two (2) of Horizon  BCBSNJ
officers are directors of the Company:  Robert Pures, a director of the Company,
is Senior Vice  President,  Chief  Financial  Officer and  Treasurer  of Horizon
BCBSNJ;  and William  Marino,  a director  of the  Company  and CHCM,  is also a
director, President and Chief Executive Officer of 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 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, 1999, CW Ventures is the  beneficial
owner  of  37,784,087  shares  of  Common  Stock,  constituting  45.55%  of  the
outstanding  Common Stock,  assuming the exercise of the CW Warrants only. Also,
two of CW Venture  officers are  directors of the Company:  Barry  Weinberg is a
director  of the  Company,  CAHS and CHCM and is also a  General  Partner  of CW
Partners;  Walter  Channing,  Jr. is a  director  of the  Company  and is also a
General Partner of CW Partners.

In June 1997, CW Ventures  granted to Horizon  BCBSNJ an option to purchase from
it  10,031,238  shares of common stock at $0.38 per share (the  "Horizon  BCBSNJ
Option"). The Horizon BCBSNJ Option would have been exercisable in the event the
Company had achieved  certain goals for defined periods  through  February 2000,
which goals were not achieved.  The option was granted by CW Ventures to Horizon
BCBSNJ in consideration  of Horizon BCBSNJ revising its Services  Agreement with
the Company,  entering into a joint services  agreement  between Horizon BCBSNJ,
the Company and an unrelated party, and an agreement to guaranty the Summit Bank
Credit Agreement.

Item 13.  Exhibits and Reports on Form 10-KSB

<TABLE>
<CAPTION>


         (a)      Exhibits

Exhibit No.                Description of Exhibit
-----------                ----------------------
<S>                        <C>

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).

3.11                       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).

                                       23
<PAGE>


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.

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.

                                     24
<PAGE>


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.

10.21                      Consultation  Agreement  dated October 1, 1997 by and between the Company
                           and David McDonnell, an independent director of the Company.

10.22                      Mutual Release  Agreement  dated as of January 6, 1998 between the Company
                           and MEDecision, Inc.

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.

                                       25
<PAGE>


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.

10.33                      Confidentiality,  Invention, and Non-Compete Agreement between the Company
                           and David Noone, dated as of January 8, 1999.

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 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.

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").

10.37                      Employment  Agreement,  dated as of March 25,  1997,  by and  between the
                           Company and Elaine del Rossi.

10.38                      Confidentiality, Invention and Non-Compete Agreement dated as of March 25,
                           1998 between the Company and Elaine del Rossi.

10.39                      Employment Agreement, effective as of April 28, 1998, by and among Stephan
                           D. Deutsch, M.D., the Company and CAHS.

10.40                      Employment  Agreement,  effective as of April 19, 1999,  between Dennis M.
                           Mouras, and the Company.

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

27                         Financial Data Schedule

</TABLE>

                                       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, 2000        By:   /s/ David Noone
      --------------              -----------------
                                  David Noone, Chief Executive Officer, Director

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, 2000        By:   /s/ David Noone
      --------------              ---------------
                                  David Noone, Chief Executive Officer, Director
                                  (Principal Executive Officer)

Date: March 30, 2000        By:   /s/ Richard Freeman
      --------------              ---------------------
                                  Richard Freeman, President & Chief Operating
                                  Officer(Principal Financial and Accounting
                                  Officer)

Date: March 30, 2000        By:   /s/ William J. Marino
      --------------              ----------------------
                                  William J. Marino, Director

Date: March 30, 2000        By:   /s/ Robert J. Pures
      --------------              --------------------
                                  Robert J. Pures, Director

Date: March 30, 2000        By:   /s/ Barry Weinberg
      --------------              -------------------
                                  Barry Weinberg, Director

Date: March 30, 2000        By    /s/ Walter Channing, Jr.
      --------------              --------------------------
                                  Walter Channing, Jr., Director

Date: March 30, 2000        By:   /s/ David McDonnell
      --------------              -------------------
                                  David McDonnell, Director




                                       27
<PAGE>



<PAGE>

Index to Consolidated Financial Statements

Independent auditors' report                                                 F-2

Balance sheets as of December 31, 1999 and 1998                              F-3

Statements of operations for the year ended
December 31, 1999, the two-month period
ended December 31, 1998 and the year ended
October 31, 1998                                                             F-4

Statements of stockholders' equity for the
year ended December 31, 1999, the two-month
period ended December 31, 1998 and the year
ended October 31, 1998                                                       F-5

Statements  of cash flows for the year ended
December 31, 1999,  the  two-month period
ended December 31, 1998 and the year ended
October 31, 1998                                                             F-6

Notes to financial statements                                                F-7




<PAGE>





INDEPENDENT AUDITORS' REPORT

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


We have audited the accompanying  consolidated  balance sheets of CareAdvantage,
Inc.  and  subsidiaries  as of  December  31,  1999  and  1998  and the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the year ended December 31, 1999, the two months ended December 31, 1998 and the
year ended October 31, 1998.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements  enumerated above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
CareAdvantage,  Inc. and  subsidiaries as of December 31, 1999 and 1998, and the
consolidated  results of their  operations  and their cash flows for the periods
indicated in conformity with generally accepted accounting principles.



Richard A. Eisner & Company, LLP

New York, New York
February 4, 2000



                                      F-2

<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                     December 31,
                                                 ------------------
                                                 1999          1998
                                                 ----          ----

<S>                                            <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents            $   1,615,000   $  3,354,000
   Accounts receivable for services:
      Stockholder                           1,135,000      1,080,000
      Other                                   173,000        315,000
   Other current assets                       220,000        159,000
                                        -------------   ------------

        Total current assets                3,143,000      4,908,000

Property and equipment, at cost less
accumulated depreciation                      845,000      1,279,000
Intangible assets                           1,283,000      1,695,000
Other assets                                  102,000        243,000
                                        -------------   ------------

                                        $   5,373,000   $  8,125,000
                                        =============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Capital lease obligation                             $    319,000
   Accounts payable                     $     313,000        193,000
   Due to stockholder                         393,000      1,153,000
   Due to customer                            902,000        902,000
   Accrued compensation and
   related benefits                           841,000        959,000
   Accrued expenses and
   other current liabilities                  332,000        483,000
   Deferred revenue, current                   98,000        184,000
                                        -------------   ------------

        Total current liabilities           2,879,000      4,193,000

Due to stockholder, less current portion      300,000        429,000
Deferred revenue, less current portion                        87,000
                                        -------------   ------------

                                            3,179,000      4,709,000
                                        -------------   ------------
</TABLE>

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 103,600,000
   shares; issued and outstanding
   82,189,883 shares                           82,000         82,000
   Additional capital                      22,062,000     22,009,000
   Accumulated deficit                    (19,950,000)   (18,675,000)
                                        -------------   ------------

                                            2,194,000      3,416,000
                                        -------------   ------------
                                         $  5,373,000    $ 8,125,000
                                        =============   ============



See notes to financial statements
                                      F-3


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>



Consolidated Statements of Operations

                                                                                                    Two Months
                                                                               Year Ended              Ended             Year Ended
                                                                              December 31,         December 31,         October 31,
                                                                                  1999                 1998                 1998
                                                                              ------------         ------------         ------------
<S>                                                                                <C>                  <C>                 <C>

Net revenues                                                               $    16,410,000      $    2,742,000      $    18,903,000
Cost of services                                                                 8,955,000           1,414,000            7,903,000
                                                                           ---------------      --------------      ---------------

Gross profit                                                                     7,455,000           1,328,000           11,000,000
                                                                           ---------------      --------------      ---------------

Operating expenses:
   Selling general and administrative                                            7,931,000           1,279,000            6,952,000
   Depreciation and amortization                                                   842,000             125,000              605,000
                                                                           ---------------      --------------      ---------------

           Total operating expenses                                              8,773,000           1,404,000            7,557,000
                                                                           ---------------      --------------      ---------------

      Operating income (loss)                                                   (1,318,000)            (76,000)           3,443,000
      Interest income (expense), net                                                43,000               8,000             (195,000)
                                                                           ---------------      --------------      ---------------

      Income (loss) before provision for income tax                             (1,275,000)            (68,000)           3,248,000
      Provision for income tax                                                                                              165,000

      Net income (loss)                                                        $(1,275,000)         $  (68,000)        $  3,083,000
                                                                           ===============      ==============         ============
      Net income (loss) per share of common
        stock - basic and diluted                                                    $(.02)              $(.00)                $.04
                                                                           ===============      ==============         ============

      Weighted average number of common shares
        outstanding - basic and diluted                                         82,190,000          82,190,000           76,990,000
                                                                           ===============      ==============         ============

</TABLE>


See notes to financial statements
                                                                             F-4


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

Consolidated Statements of Stockholders' Equity

                                                            Common Stock
                                                         ------------------

                                                         Number         Par
                                                           of          Value         Additional       Accumulated      Stockholders'
                                                         Shares       Amount           Capital          Deficit           Equity
                                                         ------       ------         ----------       -----------      -------------
<S>                                                  <C>            <C>         <C>              <C>                 <C>
Balance as of November 1, 1997                       $74,389,886     $   74,000  $   19,640,000   $   (21,690,000)    $ (1,976,000)
Exchange of CW Ventures note for common
   stock                                               7,799,997          8,000       2,369,000                          2,377,000
Net income for the year ended October 31,
   1998                                                                                                 3,083,000        3,083,000
                                                     -----------     ----------   -------------    --------------      -----------
Balance as of October 31, 1998                        82,189,883         82,000      22,009,000       (18,607,000)       3,484,000

Net loss for the two-month period ended
   December 31, 1998                                                                                      (68,000)         (68,000)
                                                     -----------     ----------   -------------    --------------      -----------
Balance as of December 31, 1998                       82,189,883         82,000      22,009,000       (18,675,000)       3,416,000
Issuance of compensatory stock options                                                   53,000                             53,000
Net loss for the year ended December 31, 1999                                                          (1,275,000)      (1,275,000)
                                                     -----------     ----------   -------------    --------------      -----------

Balance as of December 31, 1999                       82,189,883     $   82,000   $  22,062,000   $   (19,950,000)   $   2,194,000
                                                     ===========     ==========   =============    ==============      ===========

</TABLE>


See notes to financial statements
                                                                             F-5


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows

                                                                                                    Two Months
                                                                             Year Ended               Ended              Year Ended
                                                                            December 31,           December 31,         October 31,
                                                                                1999                   1998                 1998
                                                                            ------------           ------------         -----------

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

Cash flows from operating activities:
   Net income (loss)                                                     $    (1,275,000)       $       (68,000)     $   3,083,000
   Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
        Depreciation and amortization                                          1,277,000                215,000          1,143,000
        Write off of software development cost                                   344,000
        Compensatory stock options                                                53,000
        Changes in:
           Accounts receivable stockholder                                       (55,000)                                  (33,000)
           Accounts receivable other                                             142,000                352,000           (259,000)
           Other current assets                                                   80,000               (236,000)           170,000
           Accounts payable                                                      120,000                 30,000           (188,000)
           Accrued compensation and related benefits                                                   (252,000)           648,000
           Accrued expenses and other current liabilities                       (269,000)                28,000           (180,000)
           Deferred revenue                                                     (173,000)               (29,000)            31,000
                                                                         ---------------             ----------       -------------

              Net cash provided by operating activities                          244,000                 40,000          4,415,000
                                                                         ---------------             ----------        -------------

Cash flows from investing activities:
   Capital expenditures                                                         (775,000)               (47,000)        (1,133,000)
                                                                         ---------------        ---------------      -------------

Cash flows from financing activities:
   Principal payments under long-term debt                                      (319,000)              (103,000)          (575,000)
   Principal payments under note payable, stockholder                           (889,000)              (281,000)
                                                                         ---------------        ---------------      -------------


              Net cash used in financing activities                           (1,208,000)              (384,000)          (575,000)
                                                                         ---------------        ---------------      -------------


Net increase (decrease) in cash and cash equivalents                          (1,739,000)              (391,000)         2,707,000
Cash and cash equivalents - beginning of period                                3,354,000              3,745,000          1,038,000
                                                                         ---------------        ---------------      -------------


Cash and cash equivalents - end of period                                $     1,615,000        $     3,354,000      $   3,745,000
                                                                         ===============        ===============      =============



Noncash operating activity:

   Reclassification of deferred revenue to due to customer
      as a result of cancellation of contract                                                                        $     902,000



Noncash financing activities:

   Effective June 30, 1998, the $2,000,000 principal amount
      8% exchangeable note (plus $377,000 accrued
      interest) issued by the Company to CW Ventures II L.P.
      was automatically cancelled and converted into
      7,799,997 shares of the Company's common stock.


Supplemental disclosures of cash flow information:

   Interest paid                                                         $        61,000        $        27,000      $      85,000
   Income taxes paid                                                     $        56,000                             $     115,000

</TABLE>


See notes to financial statements                                           F-6


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




NOTE A - INTRODUCTION AND BACKGROUND

CareAdvantage,  Inc.  ("CAI"  or the  "Company"),  is a holding  company  which,
through its  subsidiaries,  CareAdvantage  Health  Systems,  Inc.  ("CAHS")  and
Contemporary  HealthCare  Management,  Inc.  ("CHCM"),  operates in one business
segment, providing health care cost containment services to health care insurers
and other health service  organizations  to reduce the costs of medical services
provided to their subscribers.

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 ("Horizon BCBSNJ"). The transactions included the sale to CW Ventures
of (i)  3,903,201  shares of the Company's  common stock at a purchase  price of
$0.2562  per  share  for an  aggregate  of  $1,000,000;  and  (ii) a  $2,000,000
principal  amount 8%  Exchangeable  Note which matured on June 30, 1998 (the "CW
Note") and was then  converted  into  7,799,997  shares of the Company's  common
stock.

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.  The CHCM stock was acquired in exchange
for CAHS's $3,600,000  principal amount 8% Exchangeable Note which, in turn, was
exchanged on September 30, 1996 for  13,375,000  shares of the Company's  common
stock.

Pursuant to the terms of the CW Note and the Horizon  BCBSNJ  Note,  because the
Company  failed to realize at least $15  million in net  revenues  or  specified
earnings  before taxes for its fiscal year ended  October 31, 1996,  on February
27,  1997,  the Company  issued  50,156,559  additional  shares of common  stock
resulting in an increase of both Horizon BCBSNJ and CW Ventures equity to 45% on
a fully diluted basis.

The Company has a service  agreement  with Horizon  BCBSNJ which expires on June
30, 2000 and accounted for approximately  80% of revenue for 1999.  Although the
precise terms of a contract  renewal have not yet been agreed upon,  the Company
has been  informed  by Horizon  BCBSNJ  that  Horizon  BCBSNJ  will  continue to
contract with the Company for care management services for the indemnity portion
of the business at least until  January 1, 2001.  The  indemnity  portion of the
business  accounts for  approximately  90% of the total Horizon BCBSNJ  contract
revenues on an annual basis.

The  Company,  Horizon  BCBSNJ and CW Ventures  are  parties to a  stockholders'
agreement dated February 22, 1996 (the  "Stockholders'  Agreement") whereby each
of  Horizon  BCBSNJ and CW  Ventures  have  agreed to vote  their  shares in the
Company with respect to the election of the  Company's  Board of Directors  for:
(i) two designees of CW Ventures;  (ii) two designees of Horizon  BCBSNJ;  (iii)
two members of the  Company's  management  acceptable to CW Ventures and Horizon
BCBSNJ; and (iv) one nonemployee  outside director acceptable to CW Ventures and
Horizon BCBSNJ.  The  Stockholders'  Agreement  prevents the Company from taking
certain  material  actions without Horizon BCBSNJ's and/or CW Ventures' or their
designated directors' consent.

On June 8, 1999, the Company  changed its fiscal year from one ending October 31
to a calendar year ending December 31.


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.
Significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.


                                       F-7


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[2] Revenue recognition:

For  its  services,  the  Company  is  compensated  either  (i)  on a  capitated
(fixed-fee) per subscriber basis; (ii) on a performance-based method whereby the
Company  shares in the  realized  cost  savings per member as  measured  against
certain  defined  benchmarks;  (iii)  on the  basis  of a  combination  of  both
capitation  and  performance-based  fees;  and  (iv)  on a  fee-for-service  and
consulting  fee basis.  Accordingly,  the  Company  has  adopted  the  following
accounting policies for revenue recognition under each contract category:

(a) Revenue under the fixed-fee  arrangements  is recognized as the services are
provided and the related costs of services are incurred.  Although the fixed fee
arrangements  are not subject to any fee adjustment based upon the attainment of
target  utilization  levels,  such  contracts  may still  expose the  Company to
potential  operating  losses,  particularly  in the  inception  stages  thereof.

(b) Revenue  under the  partial  fixed  fee/incentive  agreements  is  initially
recognized for the monthly fixed fee component only as services are provided and
related costs of services are incurred.  Incentives (or  reductions)  based upon
performance are recorded when such amounts can reasonably be determined.

(c) Revenue under fee-for-service  arrangements is recorded for special projects
or the review of cases assigned to the Company on a per case or hourly basis.

Effective  August  27,  1998,  the  Company  received  notice  from  one  of its
customers, that it has decided to resume internal network management that it had
been outsourcing. Revenues for the Company from this contract were approximately
$1,432,000  for the year ended October 31, 1998. No revenue has been  recognized
from  this  contract   since   October  31,  1998.   The  Company  has  provided
approximately  $902,000 to cover possible  repayment of advances related to this
contract (see Note I[4]).

[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.  Intangible assets are amortized over their expected useful lives of five
to seven  years  on the  straight-line  method.  Depreciation  and  amortization
included in cost of services  amounted to $435,000  and  $538,000  for the years
ended  December 31, 1999 and October 31, 1998,  respectively  and  approximately
$90,000 for the two months ended December 31, 1998.

[4] Per share data:

Net income per share has been computed  based on the weighted  average number of
shares outstanding during the periods. The 7,799,997 additional shares of common
stock, which were issued to CW Ventures upon exchange and cancellation of the CW
Note as of June 30,  1998,  have been  included  from the date of the  exchange.
Common stock equivalents have not been included since they are not dilutive.


                                       F-8


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

[5] Cash equivalents:

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid money market  instruments with original  maturity of three months or less
to be cash equivalents.

[6] Concentration of credit risk:

Financial  instruments  that  potentially  subject  the  Company to credit  risk
consist of accounts  receivable.  The Company  currently markets its services to
Blue Cross and Blue Shield companies. Collateral is not required.

[7] Estimates:

Preparation of these financial  statements in conformity with generally accepted
accounting principles requires the use of management's estimates. Actual results
could differ from such estimates.

The values of  intangible  assets are based on  management's  best  estimates of
future revenues and cash flows to be derived from such assets.

[8] Fair value of financial instruments:

The fair value of financial instruments approximates their carrying amount.

[9] Major customers:

Two of the Company's  customers accounted for approximately 80% (Horizon BCBSNJ)
and 10% of net revenues for the year ended  December 31, 1999 and  approximately
67%  (Horizon  BCBSNJ) and 17% of net  revenues  for the year ended  October 31,
1998. Two of the Company's  customers  accounted for  approximately 80% (Horizon
BCBSNJ) and 9% of net revenues for the two months ended  December 31, 1998.  The
loss of either of these  customers  would have a material  adverse impact on the
Company's business.

[10] Stock-based compensation:

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


                                       F-9


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




NOTE C - INTANGIBLE ASSETS

Intangible assets net of accumulated amortization consist of the following:


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

                                                     1999              1998
                                                     ----              ----


Service agreement                           $        713,000  $        835,000
License fees                                          58,000           167,000
Software development cost                            512,000           693,000
                                            ----------------  ----------------

                                            $      1,283,000  $      1,695,000
                                            ================  ================


[1] Service agreement:

This amount  represents the Company's  service  agreement  with Horizon  BCBSNJ,
which was recorded upon the acquisition of CHCM.

[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 March 1999, the
Company  upgraded the software and extended the term through  February 2001 at a
cost of $100,000.

[3] Software development costs:

Software   development   costs  are  capitalized   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 $412,000 and
$135,000  for  the  years  ended   December  31,  1999  and  October  31,  1998,
respectively and  approximately  $50,000 for the two-month period ended December
31, 1998.


                                      F-10


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements


NOTE D - PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


<TABLE>
<CAPTION>
                                                                              December 31,
                                                                              ------------
                                                                         1999               1998
                                                                         ----               ----

<S>                                                            <C>                 <C>
Computer equipment                                             $      1,330,000    $     1,300,000
Furniture and fixtures                                                  472,000            466,000
Office machines and telephone equipment                                 297,000            231,000
Leasehold improvements                                                  218,000            118,000
Equipment under capital lease, consisting of:
   Computer equipment                                                   860,000            860,000
   Telephone equipment                                                  156,000            156,000
   Leasehold improvements                                               309,000            309,000
                                                              -----------------     --------------

                                                                      3,642,000          3,440,000

Less accumulated depreciation and amortization                       (2,797,000)        (2,161,000)
                                                              -----------------     --------------

                                                               $       845,000     $    1,279,000
                                                               ===============     ==============

</TABLE>

Amortization  in connection  with  equipment  under capital  leases  amounted to
$170,000  and  $321,000  for the years ended  December  31, 1999 and October 31,
1998, respectively and $50,000 for the two-month period ended December 31, 1998.


NOTE E - CAPITAL LEASE OBLIGATION

The Company has satisfied its lease  obligation  during the year ended  December
31, 1999.  The  Company's  obligations  under the agreement  were  guaranteed by
Horizon BCBSNJ. The present value of minimum lease payments under capital leases
as of December 31, 1998 was $319,000.


NOTE F - DUE TO STOCKHOLDER

The  amount due to  stockholder  represents  cash  advanced  under the  original
service  agreement  with  Horizon  BCBSNJ  in excess of  revenues  earned.  This
liability was subsequently  restructured as a promissory note in the approximate
amount of $1,863,000 to Horizon BCBSNJ with interest accruing beginning in April
1997 and equal monthly payments of principal and interest  commencing on October
1, 1998.  The  promissory  note bears  interest at the five-year  U.S.  treasury
yield, adjusted quarterly, and matures on Jun 30, 2000.

The Company has an agreement  with Horizon  BCBSNJ to suspend  payments  through
August 2000.  Interest will continue to accrue at the  five-year  U.S.  Treasury
yield, adjusted quarterly. Commencing September 1, 2000 the Company is to resume
making equal monthly installments of principal and interest to repay the debt by
March 31, 2001.


                                      F-11


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




NOTE G - STOCKHOLDERS' EQUITY

[1] Issuance of common stock:

On June 30, 1998,  the Company became  contractually  obligated to issue and did
issue 7,799,997  shares of common stock to CW Ventures upon conversion of the CW
Note.  The offer and sale of these  shares  have not been  registered  under the
Securities Act of 1933, as amended.

[2] 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.

[3] Stock option plans:

The 1996 Stock Option Plan as amended, (the "Stock Option Plan") is administered
by the Board of  Directors  of the  Company.  Pursuant  to the terms of the 1996
Amended  Plan,  the Board will  select  persons to be granted  options  and will
determine  the terms of the  options,  which must have an exercise  price of not
less than 100% of the fair market value of the common stock on the date of grant
and must have a duration  not to exceed ten years.  Under the Stock Option Plan,
an aggregate of 18% of the Company's authorized number of shares of common stock
or 18,648,000 shares has been reserved for issuance.

The Board of Directors  initially adopted the Stock Option 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 increased  the number of shares and certain other
benefits available under the plan. Among other things, the amendments  increased
the number of shares available for issuance under the plan by 9,648,000  shares,
permit the extension of the exercise  periods of options upon the termination of
employment  or the  death or  disability  of a plan  participant,  provide  that
nonqualified  options may be issued with an exercise price less than 100% of the
fair market value, permit the payment of the exercise price by any lawful method
authorized by the Board of Directors,  and remove  certain  restrictions  on the
authority  of the  Board of  Directors  to amend  the plan  without  stockholder
approval. The stockholders approved the amendments to the plan on July 7, 1999.

The 1996  Director  Stock  Option Plan as amended  (the  "Director  Stock Option
Plan") is also  administered by the Board of Directors of the Company.  Pursuant
to the terms of the 1996 Amended Director Plan, the Board may select nonemployee
individual directors to be granted options.  Each such option grant shall be (i)
at an exercise price which can be less than 100% of the fair market value of the
common stock on the date of grant; (ii) immediately exercisable, and (iii) for a
duration of ten years from the date of grant.  An aggregate of 2,072,000  shares
has been reserved for issuance pursuant to the Director Stock Option Plan.

The Board of Directors  initially adopted the Director Stock Option Plan on June
6, 1996, and the  stockholders  approved the plan on August 23, 1996.  Effective
January 26, 1999,  the Board of  Directors  approved  amendments  to the plan to
provide  the Board of  Directors  with  increased  flexibility  in the terms and
conditions of stock options it may award.  Among other  things,  the  amendments
authorize the Board of Directors to determine the number of shares to be covered
under an option, the term of each option and the vesting of each option;  permit
the  extension  of the  exercise  periods of  options  upon the  termination  of
directorship  or the death or  disability of a plan  participant;  eliminate the
requirement  that an option grantee sign an option  agreement in order for it to
be effective;  and remove certain  restrictions on the authority of the Board of
Directors  to amend the plan  without  stockholder  approval.  The  stockholders
approved the amendments to the plan on July 7, 1999.


                                      F-12


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




NOTE G - STOCKHOLDERS' EQUITY  (CONTINUED)

[3] Stock option plans:  (continued)

       The  following  is a summary of stock  option  activity  during the years
ended December 31, 1999 and October 31, 1998:
<TABLE>
<CAPTION>



                                                            1999                             1998
                                                            ----                             ----


                                                                    Weighted                             Weighted
                                                                     Average                             Average
                                                                    Exercise                             Exercise
                                                   Shares             Price             Shares            Price
                                                   ------          ---------            ------           --------


<S>                                                <C>              <C>                 <C>               <C>
Outstanding at beginning of period                 1,420,000        $1.44               1,853,000         $1.50
Granted                                           15,279,000         0.08
Cancelled                                         (2,250,000)        0.12                (433,000)         1.67
                                                  ----------                            ---------

Outstanding at end of period                      14,449,000         0.21               1,420,000          1.44
                                                  ==========                            =========

Exercisable at end of period                       2,528,000        $0.65               1,170,000         $1.58
                                                  ==========                            =========

</TABLE>

No options were granted or cancelled in the two-month  period ended December 31,
1998.

The fair value of options at date of grant was estimated using the Black-Scholes
Option Pricing model utilizing the following assumptions:  dividend yield of 0%,
volatility of 67.67%,  risk-free  interest  rates ranging from 6.8% to 6.95% and
expected life of 10 years.

Had the Company elected to recognize  compensation  cost based on the fair value
of the  options at the date of grant as  prescribed  by SFAS 123,  pro forma net
income  (loss) for the years ended  December 31, 1999 and October 31, 1998 would
have been  approximately  $(1,559,000)  and  $3,070,000  or $(.02)  and $.04 per
share,  respectively.  Pro forma net loss for the two months ended  December 31,
1998 would have been approximately $70,000.

[4] Warrants:

The Company issued 166,667  warrants in 1996 to CW Ventures in connection with a
bridge financing. The warrants expire in February 2001.



                                      F-13


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements



NOTE H - INCOME TAX

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


                                                                                December 31,
                                                                                ------------
                                                                            1999                1998
                                                                            ----                ----
<S>                                                                      <C>                    <C>
Deferred tax assets:
   Net operating loss carryforwards                                 $    4,199,000      $    3,863,000
   Accrued liabilities                                                     244,000             192,000
   Deferred revenue                                                         33,000             105,000
   Alternative minimum tax credit                                           50,000              50,000
                                                                     -------------      --------------

                                                                         4,526,000           4,210,000

Deferred tax liabilities:
   Excess of book over tax cost basis of fixed
      assets and software costs                                            364,000             474,000
                                                                     -------------       -------------

Net deferred tax asset                                                   4,162,000           3,736,000
Valuation allowance                                                     (4,162,000)         (3,736,000)
                                                                     -------------       -------------

                                                                     $           0      $            0
                                                                     =============      ==============

</TABLE>

The  Company's  deferred  tax  asset  has  been  fully  reserved  as its  future
realization   cannot  be   determined.   The  Company  has  net  operating  loss
carryforwards   of   approximately   $12,350,000   at  December   31,  1999  and
approximately  $11,362,000 at December 31, 1998, expiring through 2019. Pursuant
to Section 382 of the Internal  Revenue Code, the  carryforwards  are subject to
limitations on annual utilization based upon an ownership change that took place
during 1996. 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  $426,000 and $21,000 for the year ended December 31, 1999 and the
two months ended  December 31, 1998 and decreased  approximately  $1,023,000 for
the year ended October 31, 1998.

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


                                                                          Year             Two Months            Year
                                                                          Ended              Ended               Ended
                                                                          -----              -----
                                                                                December 31,                  October 31,
                                                                                ------------                  -----------
                                                                          1999                1998               1998
                                                                          ----                ----               ----




<S>                                                                  <C>                <C>                <C>
Income taxes at federal statutory rate                               $     (434,000)    $   (23,000)      $       1,104,000
Net operating loss carryforward benefit                                                                            (913,000)
State income tax, net of federal income tax benefit                                                                 110,000
Alternative minimum tax                                                                                              55,000
Permanent differences                                                         8,000           2,000
Change in valuation reserve                                                 426,000          21,000                (191,000)
                                                                     --------------      ----------         ----------------

                                                                     $            0     $         0       $         165,000
                                                                     ===============    ===========       ==================

</TABLE>


                                      F-14


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements



NOTE I - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[1] Potential uninsured exposure to litigation:

The Company has been named as a party in an action  entitled Robert T. Caruso v.
Care  Advantage,  Inc.,  John J.  Petillo,  Vincent M.  Achillare,  Lawrence  A.
Whipple, Horizon BCBSNJ et al., which was filed in Superior Court of New Jersey.
Messrs. Petillo, Achillare and Whipple were officers of the Company and may have
claims for  indemnification for expenses and for any judgments against them. Mr.
Caruso  was a  consultant  to the  Company.  The  complaint  alleges  breach  of
contract, fraud, conspiracy, promissory estoppel and negligent misrepresentation
in  connection  with,  among  other  things,  the  termination  of Mr.  Caruso's
consulting  arrangement  with the Company.  The plaintiff seeks treble and other
damages for an unspecified  amount and claims actual damages in the  approximate
amount of $1.8 - $2.0 million.  On September 15, 1998 and October 30, 1998,  the
Company received notice from two of its insurance carriers that they have denied
coverage on this  matter,  but the Company  plans to  vigorously  contest  these
coverage decisions.  The Company has received written claims for indemnification
from  Whipple,  Petillo  and  Achillare.  The  parties  to this  litigation  are
currently  taking  discovery,  and no trial  date has been set.  The  Company is
unable, at this stage of the proceeding,  to evaluate the merits of this action,
but  intends  to defend the  matter  vigorously.  The  Company  believes  it has
adequately provided for this claim as of December 31, 1999.


                                      F-15


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements




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

[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.

[3] Contract termination:

In November 1998, the Company  received written notice from one of its customers
that the  customer  terminated  its contract  with the Company.  Counsel for the
Company  informed the customer that the notice was null and void and of no legal
effect since the agreement did not provide for  termination  without cause prior
to the end of the term.  The  Company  and the  customer  have  since  commenced
binding arbitration. In July 1999, the Company received a second notice from the
customer pursuant to which the customer has purportedly  terminated the contract
due to the Company's  material breach. The Company vigorously denies that it has
breached the contract and continues to pursue its rights against the customer in
the arbitration proceeding (see Note B[2]).

In a related matter,  the customer has made a third party complaint  against the
Company alleging that in the event the customer is required to pay certain funds
to Horizon BCBSNJ,  as alleged in a complaint  brought by Horizon BCBSNJ against
the  customer,  that the Company is obligated to pay the customer up to one-half
of such amount on account of an agreement among the customer, Horizon BCBSNJ and
the Company (see Note B[2]).

[4] Operating leases:

The Company leases facilities and equipment under operating leases.

On April 14, 1995, the Company entered into a noncancelable  operating lease for
approximately  28,000  square feet of office space  commencing on June 15, 1995.
The term of the lease is for six years and  provides for annual base rent in the
amount of $445,000 with annual escalation based on increase in real estate taxes
and operating expenses.

On October 1, 1998, the Company entered into a noncancelable operating lease for
various computer equipment.  The term of the lease is for two years and provides
for annual base rent in the approximate amount of $192,000.

Rent  expense  for the years  ended  December  31, 1999 and October 31, 1998 was
$479,000 and  $463,000,  respectively.  Rent  expense for each of the  two-month
period ended December 31, 1998 was $77,000.


                                      F-16


<PAGE>


CAREADVANTAGE, INC. AND SUBSIDIARIES

Notes to Financial Statements



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

[5] 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  $186,000 and $163,000 for the years
ended December 31, 1999 and October 31, 1998, respectively,  and $31,000 for the
two-month period ended December 31, 1998.


NOTE J - CREDIT FACILITY

The Company has a working  capital  facility in the amount of $1,500,000,  which
bears  interest at a 30, 60, or 90-day LIBOR rate,  plus 45 basis points with an
option to convert to a base prime rate.  The facility  expires June 30, 2000. As
of  December  31,  1999,  there were no amounts  outstanding  under the  working
capital facility, except a letter of credit in favor of a vendor (see Note K).


NOTE K - STAND BY LETTER OF CREDIT

In September 1998, the Company obtained an irrevocable letter of credit in favor
of a vendor as security  for the  Company's  obligations  under a  noncancelable
operating lease dated October 1, 1998 in the amount of $250,000;  such letter of
credit is issued under the Company's  credit facility with Summit Bank (see Note
J).


NOTE L - SHAREHOLDER OPTION AGREEMENT

In June 1997, CW Ventures  granted to Horizon  BCBSNJ an option to purchase from
it  10,031,238  shares of common stock at $0.38 per share (the " Horizon  BCBSNJ
Option"). The Horizon BCBSNJ Option would have been exercisable in the event the
Company had achieved  certain goals for defined periods  through  February 2000,
which goals were not achieved.  The option was granted by CW Ventures to Horizon
BCBSNJ in consideration  of Horizon BCBSNJ revising its Services  Agreement with
the Company,  entering into a joint services  agreement  between Horizon BCBSNJ,
the Company and an unrelated party, and an agreement to guaranty the Summit Bank
Credit Agreement.


NOTE M - RELATED PARTY TRANSACTION

Consulting fees of  approximately  $50,000 were paid to a member of the Board of
Directors for the year ended October 31, 1998.



                                      F-17