UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 For
the quarterly period ended June 30, 2010
 
 COMMISSION
FILE NUMBER 0-26168
 
 CAREADVANTAGE,
INC.
 (Exact
name of small business issuer as specified in its charter)
 
 DELAWARE
              
              22-3326528(State
      or other jurisdiction of
              
              (I.R.S.
      EmployerIncorporation
      or organization)
              
              Identification
      Number)
 
 485-A
      Route 1 South, Iselin, New Jersey
              
              08830(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 Issuer's
telephone number, including area code: (732) 362-5000
 
 Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
 
 Yesx  Noo
 
 Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).
 
 Yeso  Noo
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):
 
 Large
      accelerated filero
              Accelerated
      fileroNon-accelerated
      filer  o
              Smaller
      reporting companyx
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
 
 Yeso  Nox
 
 The
number of shares of Common Stock outstanding as of July 28, 2010 is
145,250,442
  
  INDEX
 
 Part
      I - Financial InformationItem
      1. Financial Statements·   
       Condensed Consolidated Balance Sheets  - June 30, 2010
      (Unaudited) and December 31, 2009
                
                2·   
       Condensed Consolidated Statements of Operations  - Three
      and six months ended June 30, 2010 and June 30, 2009
      (Unaudited)
                
                3·   
       Condensed Consolidated Statements of Cash Flows - Six months ended
      June 30, 2010 and June 30, 2009 (Unaudited)
                
                4·   
       Notes to Unaudited Condensed Consolidated Financial
      Statements
                
                5Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                8Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                
                12Item
      4. Controls and Procedures
                
                12Part II – Other
      Information
                
                12Item
      1. Legal Proceedings
                
                12Item
      1A. Risk Factors
                
                12Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                
                12Item
      3. Defaults Upon Senior Securities
                
                12Item
      4. [REMOVED AND RESERVED]
                
                12Item
      5. Other Information
                
                12Item
      6. Exhibits
                
                12Signature
                
                13
  
  PART
I - FINANCIAL INFORMATION
 ITEM
1. Financial Statements
 
 CAREADVANTAGE,
INC AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 June
      30,
                            
                            
                            December
      31,2010
                            
                            
                            2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            348,000
                            
                            
                            $
                            510,000Accounts
      receivable
                            
                            
                            112,000
                            
                            
                            
                            143,000Prepaid
      expenses and other current assets
                            
                            
                            89,000
                            
                            
                            
                            108,000Security
      Deposits
                            
                            
                            -
                            
                            
                            
                            167,000Total
      current assets
                            
                            
                            549,000
                            
                            
                            
                            928,000Property
      and equipment, at cost net of accumulated depreciation
                            
                            
                            78,000
                            
                            
                            
                            108,000Intangible
      assets, net of accumulated depreciation
                            
                            
                            -
                            
                            
                            
                            2,000Total
      Assets
                            
                            $
                            627,000
                            
                            
                            $
                            1,038,000LIABILITIES
      AND STOCKHOLDERS' (DEFICIT)/EQUITYCurrent
      liabilities:Accounts
      payable
                            
                            $
                            91,000
                            
                            
                            $
                            82,000Accrued
      compensation and related benefits
                            
                            
                            77,000
                            
                            
                            
                            81,000Accrued
      professional fees
                            
                            
                            91,000
                            
                            
                            
                            65,000Other
      current liabilities
                            
                            
                            1,000
                            
                            
                            
                            1,000Deferred
      revenue
                            
                            
                            36,000
                            
                            
                            
                            231,000Capital
      lease obligation – current
                            
                            
                            40,000
                            
                            
                            
                            51,000Total
      current liabilities
                            
                            
                            336,000
                            
                            
                            
                            511,000Long
      term liabilities:Capital
      lease obligation - long term
                            
                            
                            4,000
                            
                            
                            
                            23,000Deferred
      rent
                            
                            
                            334,000
                            
                            
                            
                            340,000Total
      long term liabilities
                            
                            
                            338,000
                            
                            
                            
                            363,000Total
      Liabilities
                            
                            
                            674,000
                            
                            
                            
                            874,000Stockholders'
      (deficit)/equity:Preferred
      stock-par value $.10 per share;authorized
      10,000,000 shares; none issuedCommon
      stock-par value $.001 per share; authorized 200,000,000
      shares;145,250,442
      shares issued and outstanding at June 30, 2010 and
    142,554,442shares
      issued and outstanding at December 31, 2009
                            
                            
                            145,000
                            
                            
                            
                            143,000Additional
      capital
                            
                            
                            24,446,000
                            
                            
                            
                            24,420,000Accumulated
      deficit
                            
                            
                            (24,638,000
                            )
                            
                            
                            (24,399,000
                            )Total
      stockholders' (deficit)/equity
                            
                            
                            (47,000
                            )
                            
                            
                            164,000Total
      Liabilities and Stockholders' (Deficit)/Equity
                            
                            $
                            627,000
                            
                            
                            $
                            1,038,000
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  2
  CAREADVANTAGE,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 ThreeMonthsEndedJune30,
                            
                            
                            SixMonthsEndedJune30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009License
      fees and service revenue
                            
                            $
                            1,116,000
                            
                            
                            $
                            950,000
                            
                            
                            $
                            1,976,000
                            
                            
                            $
                            1,920,000Costs
      of services
                            
                            
                            323,000
                            
                            
                            
                            367,000
                            
                            
                            
                            671,000
                            
                            
                            
                            697,000Gross
      profit
                            
                            
                            793,000
                            
                            
                            
                            583,000
                            
                            
                            
                            1,305,000
                            
                            
                            
                            1,223,000Operating
      expenses:Selling,
      general and administrative
                            
                            
                            599,000
                            
                            
                            
                            790,000
                            
                            
                            
                            1,278,000
                            
                            
                            
                            1,445,000Depreciation
      and amortization
                            
                            
                            16,000
                            
                            
                            
                            17,000
                            
                            
                            
                            32,000
                            
                            
                            
                            33,000Total
      operating expenses
                            
                            
                            615,000
                            
                            
                            
                            807,000
                            
                            
                            
                            1,310,000
                            
                            
                            
                            1,478,000Operating
      income/(loss)
                            
                            
                            178,000
                            
                            
                            
                            (224,000
                            )
                            
                            
                            (5,000
                            )
                            
                            
                            (255,000
                            )Interest
      expense
                            
                            
                            (5,000
                            )
                            
                            
                            (5,000
                            )
                            
                            
                            (10,000
                            )
                            
                            
                            (10,000
                            )Loss
      on building lease
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (224,000
                            )
                            
                            
                            -Net
      income/(loss)
                            
                            $
                            173,000
                            
                            
                            $
                            (229,000
                            )
                            
                            $
                            (239,000
                            )
                            
                            $
                            (265,000
                            )Net
      income/(loss) per share of common stock
                            
                            $
                            .00
                            
                            
                            $
                            (.00
                            )
                            
                            $
                            (.00
                            )
                            
                            $
                            (.00
                            )Weighted
      average number of common shares outstanding -Basic
      and diluted
                            
                            
                            145,250,000
                            
                            
                            
                            62,412,000
                            
                            
                            
                            144,354,000
                            
                            
                            
                            62,333,000
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  3
  CAREADVANTAGE,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  SixMonthsEndedJune30,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (239,000
                    )
                    
                    $
                    (265,000
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    32,000
                    
                    
                    
                    33,000Stock
      based compensation
                    
                    
                    5,000
                    
                    
                    
                    9,000Deferred
      revenue
                    
                    
                    (195,000
                    )
                    
                    
                    212,000Deferred
      rent
                    
                    
                    (63,000
                    )
                    
                    
                    (69,000
                    )Loss
      on building lease – security deposit
                    
                    
                    167,000
                    
                    
                    
                    -Loss
      on building lease – deferred rent
                    
                    
                    57,000
                    
                    
                    
                    -Loss
      on sublease
                    
                    
                    -
                    
                    
                    
                    79,000Change
      in:Accounts
      receivable
                    
                    
                    31,000
                    
                    
                    
                    169,000Prepaid
      expenses and other current assets
                    
                    
                    19,000
                    
                    
                    
                    (21,000
                    )Accounts
      payable
                    
                    
                    9,000
                    
                    
                    
                    2,000Accrued
      expenses and other current liabilities
                    
                    
                    22,000
                    
                    
                    
                    97,000
                    )Net
      cash (used in)/provided by operating activities
                    
                    
                    (155,000
                    )
                    
                    
                    246,000Cash
      flows from financing activity:Proceeds
      from exercise of stock options, net of costs
                    
                    
                    23,000
                    
                    
                    
                    2,000Repayment
      of capital leases
                    
                    
                    (30,000
                    )
                    
                    
                    (30,000
                    )Net
      cash used in financing activities
                    
                    
                    (7,000
                    )
                    
                    
                    (28,000
                    )Net
      (decrease)/increase in cash and cash equivalents
                    
                    
                    (162,000
                    )
                    
                    
                    218,000Cash
      and cash equivalents - beginning of period
                    
                    
                    510,000
                    
                    
                    
                    88,000Cash
      and cash equivalents - end of period
                    
                    $
                    348,000
                    
                    
                    $
                    306,000
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  4
  Note
A—Business:
 
 [1] Business:
 
 CareAdvantage,
Inc. (the “Company”) and its direct and indirect subsidiaries, CareAdvantage
Health Systems, Inc. and Contemporary HealthCare Management, Inc., are in the
business of providing healthcare consulting services, data warehousing and
analytic services designed to enable integrated health care delivery systems,
healthcare plans, employee benefit consultants, other care management
organizations, self insured employers and unions to reduce the costs, while
improving the quality, of medical services provided to the healthcare
participants. The services include care management program enhancement services,
executive and clinical management services, training programs, risk
stratification and predictive modeling. The Company operates in one business
segment.
 
 As part
of offering its healthcare consulting services, the Company has developed
RightPath® Navigator (“RPNavigator”), a proprietary tool to help its customers
better understand and forecast resource consumption, risk, and costs associated
with their respective populations. In providing its services, the Company
licenses RPNavigator to its customers and provides consulting services in
connection with that licensing.
 
 [2] Basis of
Presentation:
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) and in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim
information.  Certain information and note disclosures normally
included in financial statements prepared in accordance with GAAP have been
omitted or condensed.  These interim condensed consolidated financial
statements should be read in conjunction with the Company’s consolidated
financial statements and notes hereto included in our Annual Report on Form 10-K
for the year ended December 31, 2009.
 
 The
unaudited condensed consolidated financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair statement of
results of operations, financial position and cash flows for the interim periods
presented.  All such adjustments are of a normal recurring
nature.  The results for the interim periods are not necessarily
indicative of results which may be expected for any other interim period or for
the full year.
 
 The
Company generates most of its revenue from the licensing of RPNavigator and
providing consulting services in connection with that licensing. Based on cash
on hand at June 30, 2010 and a forecast prepared by management, which takes into
account executed contracts, and cost reductions, management expects the
Company to be able to meet its obligations as they become due during the next
twelve months. However, there can be no assurances that management’s plans,
including projected revenue, will be attained. For the three and six months
ended June 30, 2010, the Company had net income/(loss) of $173,000 and
($239,000), respectively.  Additionally, at June 30, 2010, the Company
has an accumulated deficit of $24,638,000, stockholders’ deficit of $47,000 and
cash and cash equivalents of $348,000.
 
 The
company has reclassified certain 2009 balances to conform to the current period
presentation.
 
 [3]     Recent
Accounting Pronouncements:
 
 In
October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Multiple
Deliverable Revenue Arrangements” (ASU 2009-13).  ASU 2009-13 replaces
EITF 00-21, and clarifies the criteria for separating revenue between multiple
deliverables.  This statement is effective for new revenue
arrangements or materially modified arrangements in periods subsequent to
adoption.  The accounting guidance is effective for fiscal years
beginning on or after June 15, 2010, but early adoption is
allowed.  We anticipate the adoption of this pronouncement will
not have any impact on the Company’s financial position and results of
operations.
 
 Note
B—Per share data:
 
 Basic
loss per share is computed based on the weighted average number of outstanding
shares of common stock.  Potentially dilutive securities where the exercise
prices were greater than the average market price of the common stock during the
period were excluded from the computation of diluted income or loss
because they had an anti-dilutive impact are as follows:
  ThreeandSixMonthsEnded
                      June30,2010
                    
                    
                    2009Total
      Potential Dilutive Shares
                    
                    
                    9,472,000
                    
                    
                    
                    12,287,000
  5
  Note
C—Stock-Based Compensation:
 
 The
Company recognizes stock-based compensation for all equity-based payments,
including grants of stock options, in the statement of operations as a
compensation expense, based on their fair value at the date of the
grant.  The estimated fair value of options granted under the
Company's Employee Stock Option Plan and Director Stock Option Plan are
recognized as compensation expense over the option-vesting period; all
outstanding stock options are fully exercisable.
 
 For the
six months ended June 30, 2010, the Company included approximately $5,000 of
equity-based compensation in its operating expenses (selling, general and
administrative) in the Company’s condensed consolidated statement of
operations.  For the six months ended June 30, 2010, the total
equity-based compensation was related to an approximate $5,000 one-time stock
charge related to a stock grant of 599,000 shares of the Company’s common stock
to an employee in connection with the employee’s termination of
employment.  For the three and six months ended June 30, 2009, the
Company included approximately $4,000 and $9,000, respectively, of equity-based
compensation in its operating expenses (selling, general and administrative) in
the Company’s condensed consolidated statement of operations.
 
 Cash
flows resulting from the tax benefits of tax deductions in excess of the
compensation cost recognized for those options (excess tax benefits) are to be
classified as financing cash flows.  The Company did not realize any
tax benefits from stock options during the three and six months ended June 30,
2010 and 2009.
 
 As of
June 30, 2010, there was no unrecognized compensation cost related to non-vested
equity-based compensation arrangements granted under existing stock option
plans.
 
 During
the six months ended June 30, 2010, the exercise of certain stock options
resulted in the issuance of 2,097,000 shares of common stock for proceeds of
approximately $23,000.  Proceeds of approximately $12,000 from one
exercise that were collected during the three month period ended June 30, 2010
were related to the issuance of 1,250,000 shares during the three month period
ended March 31, 2010.  The intrinsic value of the options exercised for the
six months ended June 30, 2010 was $0.
 
 Note
D—Contingencies:
 
 Alan Fontes v. CareAdvantage,
Inc., pending in Superior Court of New Jersey, Chancery Division,
Monmouth County, was commenced in June 2004 by a former employee of the Company
seeking compensation under various legal theories.  In October 2005,
the court dismissed the claim under all theories except express
contract.  The Company believes that Mr. Fontes’s claim is without
merit and is contesting the matter vigorously.  Moreover, the Company
filed a counterclaim for damages against Mr. Fontes claiming Mr. Fontes induced
another employee to quit his employment with the Company. In October 2005,
pursuant to court order, the Company amended its counterclaim to seek equitable
relief and damages against Mr. Fontes and Integrated eCare Solutions, LLC,
claiming Mr. Fontes misappropriated and used certain Company
property.  This matter is presently being tried before a chancery
judge; it is anticipated that the trial will conclude during 2010.
 
 Note
E—Concentration of Credit Risk/Fair Value of Financial Instruments:
 
 Financial
instruments that potentially subject the Company to credit risk consist of cash
and cash equivalents and accounts receivable.  The Company maintains
its cash and cash equivalents balances in financial institutions.  At
times, the amount of cash maintained in a given financial institution may exceed
the federally insured limits.
 
 The fair
value of the following instruments approximates their carrying values due to the
short-term nature of such instruments:  cash and cash equivalents;
accounts receivable; accounts payable; and accrued liabilities.
 
 Note
F—Leased Space:
 
 On
January 10, 2005, the Company, through CAHS, entered into a Second Amendment to
Lease Agreement commencing January 1, 2005 to provide for the reduction in base
rent and the waiver of escalations based on increases in real estate taxes and
operating expenses, and to provide the landlord with the option to recapture up
to 50% of the leased premises at any time. (The landlord was granted the
recapture option because when the Company ceased providing services to Horizon
BCBSNJ, the Company no longer needed this space.)  The expiration date
of the lease, March 31, 2011, remained unchanged by this Second
Amendment.
 
 Under the
Second Amendment to Lease Agreement, the Company was required to
meet the following conditions: (1) the Company cannot assign the lease except
for an assignment of the lease or a sublet provided under the original lease;
(2) the Company cannot be in default under any terms and conditions of the
original lease.  In the event the Company failed to meet these
conditions, the reduction in base rent, real estate taxes and operating expenses
would be nullified and entirely forfeited, and the Company would be immediately
required to pay the landlord additional rent for the difference in the base
rent, and additional rent for all escalations provided in the Second Amendment
to Lease Agreement and the original lease as extended. As of January 1, 2005,
the additional rent attributable to the difference in base rent was
$1,257,000.
  6
  Effective
April 19, 2007 (the “Recapture Date”), the landlord “recaptured” certain
portions of the leased premises pursuant to the provisions of the Second
Amendment to Lease Agreement. This recapture did not reduce or modify, in any
respect, the Company’s obligations to pay to the landlord monthly rent or, in
the event the Company failed to meet above conditions, additional rent.
Effective as of the Recapture Date, the premises leased by the Company under the
lease was deemed to be, and refer only to, 15,629 rentable square
feet.
 
 As of
March 26, 2008, the Company and landlord entered into a Third Amendment of Lease
which provided that the reduction in base rent and the waiver of escalations
based on increases in real estate taxes and operating expenses shall be deemed
to be amortized on a straight line basis over the period commencing January 1,
2005 and ending March 31, 2011.
 
 Effective
May 1, 2009 and September 1, 2009, the Company signed sublease agreements with
the same subtenant (the “Subtenant”) for approximately 3,700 and 600 square
feet, respectively, of its office space which called for monthly rental payments
of approximately $7,000 and $1,200, respectively, to the Company from the
Subtenant.  The term of the subleases ran 23 and 19 months,
respectively, through March 31, 2011.  The sublease income did not
cover the costs of the primary lease for the related
space.  Consequently, in accordance with ASC Topic 840, formerly FASB
Technical Bulletin 79-15,Accounting for Loss on a Sublease Not Involving the Disposal of a
Segment, during the year ended December 31, 2009, the Company recognized
a combined loss of approximately $90,000, which was included in selling, general
and administrative expense.  The subleases were terminated in
connection with the entry by the Company into a new lease with the landlord,
discussed below.
 
 On
January 18, 2010, the Company received delivery of an executed new Office Lease
with its current landlord for 6,189 square feet of space in Building A at
Woodbridge Corporate Plaza, 485 Route One South, Iselin, New Jersey, the same
office park in which the Company previously maintained its offices in Building
C.  The new lease (“New Lease”) was made as of December 28, 2009, and
its term commenced on April 15, 2010, the date the landlord delivered the new
space to the Company.  The New Lease has a term of seventy-six full
calendar months commencing May 1, 2010 (each a “Lease Month”), and a monthly
base rent for Lease Months 1 to 12 of $22,512.49, and for Lease Months 13 to 76
of $14,441.00.  (The rent for the partial calendar month of April 2010
is a prorated portion of the base rent for the first Lease Month.)  In
addition to the base rent, the Company is obligated to pay separately metered
electric charges, and commencing January 1, 2011, a ratable portion of increases
from 2010 in real estate taxes, operating expenses and certain utility
charges.  The New Lease provides the Company a credit of $10,057.13
against the monthly base rent for Lease Months 1, 2, 7 and 14.  In
addition, the New Lease provides the Company an additional credit of $8,379.67
per month for the first 12 Lease Months.  The New Lease does not
initially provide for a security deposit; however, the Company is required to
deliver to the landlord no later than January 15, 2011, the sum of $10,000 to be
held as a security deposit.  Finally, the landlord performed, at its
expense, certain work in readying the leased premises for the Company’s
occupancy.
 
 In
connection with entering into the New Lease, the landlord and CAHS, entered into
a Surrender Agreement, delivered on January 18, 2010, and made as of December
28, 2009, pursuant to which the landlord agreed to terminate the prior lease as
of March 31, 2010 (or the day before the commencement date of the New Lease, if
later) (the “Surrender Date”), which existing lease would have otherwise expired
on March 31, 2011.  As of the date the New Lease commenced, the
security deposit of $167,027 under the existing lease was forfeited to the
landlord.
 
 Pursuant
to the Surrender Agreement, (i) CAHS releases the landlord from all claims
arising out of the prior lease, and (ii) upon CAHS’s delivery of the premises
(excluding the subleased space) to the landlord in accordance with the Surrender
Agreement, and CAHS’s timely payment of rent and other expenses owed to the
Landlord under the prior lease through the Surrender Date, the landlord released
CAHS of all claims arising out of the prior lease.  Pursuant to the
Surrender Agreement, the sublease agreements with the Subtenant were terminated
effective as of the Surrender Date, and the Subtenant is currently leasing the
subleased space directly from the landlord.
 
 As a
result of the New Lease, during the three and six months ended June 30, 2010,
the Company recorded a loss of approximately $0 and $224,000,
respectively, which included the forfeiture of the security deposit under
the existing lease as described above.
 
 At June
30, 2010, the Company had deferred rent of approximately $334,000, representing
the difference between the negotiated lease obligation and the fair market rent
expense on a straight-line basis over the term of the lease.
  7
  ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
 
 Forward-Looking
Information:
 
 Portions
of this Quarterly Report of CareAdvantage, Inc. (the “Company”) on Form 10-Q
contain “forward-looking statements” within the meaning of The Private
Securities Litigation Reform Act of 1995.  Statements that are not
historical in nature, including statements that include the words “anticipate”,
“estimate”, “should”, “expect”, “believe”, “intend”, and similar expressions,
are expressions about management’s confidence, policies, and strategies, the
adequacy of capital levels, and liquidity and are not guarantees of future
performance.  Such forward-looking statements involve certain risks
and uncertainties, including economic conditions, competition in the geographic
and business areas in which the Company operates, inflation, fluctuations in
interest rates, legislation, and governmental regulation.  These risks
and uncertainties are described in detail in the section of the periodic reports
that the Company files with the Securities and Exchange Commission (the “SEC”)
entitled “Risk Factors” (see Item 1A of Part II of this
report).  Actual results may differ materially from such
forward-looking statements, and the Company assumes no obligation to update
forward-looking statements at any time except as required by law.
 
 GENERAL
OVERVIEW:
 
 The
Company is in the business of providing healthcare consulting services, data
warehousing and analytic services designed to enable integrated health care
delivery systems, healthcare plans, employee benefit consultants, other care
management organizations, self-insured employers and unions to reduce the costs,
while improving the quality of medical services provided to the healthcare
participants. The services include care management program enhancement services,
executive and clinical management services, training programs, risk
stratification and predictive modeling.  The Company operates in one
business segment.
 
 As part
of offering its healthcare consulting services, the Company has developed
RightPath®
Navigator (“RPNavigator”), a proprietary tool to help its customers better
understand and forecast resource consumption, risk, and costs associated with
their respective populations. In providing its services, the Company licenses
RPNavigator to its customers and provides consulting services in connection with
that licensing.  The tool uses 3M’s Clinical Risk Group (CRGs), a
classification methodology that groups members according to risk related to the
individual’s clinical history and demographic information. RPNavigator, offers
customers:
 
 •
              actionable
      financial and utilization data
analytics;
 
 •
              clinical
      analyses of health status and medical cost
  trends;
 
 •
              identification
      of key management and quality
opportunities;
 
 •
              enhanced
      group-/segment-specific reporting;
 
 •
              transparent
      methodology;
 
 •
              measurement
      of performance of internal and external vendors;
  and
 
 •
              reduced
      dependence on internal resources to develop and produce required reports
      to accomplish these tasks.
 
 With
respect to RPNavigator license fees, most of the Company's customers that
license RPNavigator are required, as part of their agreements with the Company,
to receive consulting services from the Company. All contracts provide for
licensing of RPNavigator and consulting services at a fixed monthly fee, a per
member per month fee, or a combination of both. The Company earns the revenue
from licensing and consulting services on a monthly basis and recognizes revenue
from both services on a monthly basis at either a fixed monthly fee, a per
member per month fee or a combination of both. Additionally, the Company
provides separate consulting services on a fee for service basis. Revenue for
these consulting services is recognized as the services are provided.
  Management
believes that the Company must continue refinement of its current service lines
in order to continue adding value to existing and potential customers.
Management intends to continue its evaluation of 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.
  8
  Critical
Accounting Policies:
 
 The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Estimates and assumptions about future events and their effects cannot be
determined with certainty. These estimates may change as new events occur, as
additional information is obtained and as the Company’s operating environment
changes. These changes have historically been minor and have been included in
the consolidated financial statements as soon as they became known. In addition,
management is periodically faced with uncertainties, the outcomes of which are
not within the Company’s control and will not be known for prolonged periods of
time. Actual results may differ from these estimates under different assumptions
or conditions.
 
 Certain
accounting policies have a significant impact on amounts reported in financial
statements.  The Company’s most critical accounting policies are
discussed in Note B to the audited financial statements presented in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and
relate to revenue recognition, and equity-based
compensation.  Management continuously monitors the Company’s
application of these policies to its operations and makes changes as
necessary.
 
 A
critical accounting policy is one that is both important to the portrayal of the
Company's financial condition or results of operations and requires significant
judgment or a complex estimation process. The Company believes the following fit
that definition:
 
 Revenue
recognition
 
 With
respect to RPNavigator license fees, most of the Company’s customers that
license RPNavigator are required, as part of their agreements with the Company,
to receive consulting services from the Company. All contracts provide for
licensing of RPNavigator and consulting services at a fixed monthly fee, a per
member per month fee, or a combination of both. The Company earns the revenue
from licensing and consulting services on a monthly basis and recognizes revenue
from both services on a monthly basis at either a fixed monthly fee, a per
member per month fee or a combination of both. Additionally, the Company
provides separate consulting services on a fee for service basis. Revenue for
these consulting services is recognized as the services are
provided.
 
 Accounting
for stock-based compensation
 
 The
Company accounts for stock-based compensation in accordance with ASC Topic 718 ,
“Share Based Payment”, which requires that all equity-based payments, including
grants of stock options, be recognized in the statement of operations as
compensation expense, based on their fair values at the date of grant. Under the
provisions of ASC Topic 718, the estimated fair value of options granted under
the Company’s Employee Stock Option Plan and Director Stock Option Plan are
recognized as compensation expense over the service period which is generally
the same as the option-vesting period.
 
 For the
purposes of determining estimated fair value under ASC Topic 718, the Company
has computed the fair values of all equity-based compensation using the
Black-Scholes option pricing model. This model requires the Company to make
certain estimates and assumptions. The Company calculated expected volatility
based on the Company’s historical stock volatility. The computation of expected
life is determined based on historical experience of similar awards, giving
consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at the time of grant.
Under ASC Topic 718, forfeitures are estimated at the time of valuation and
reduce expense ratably over the vesting period. This estimate is adjusted
periodically based on the extent to which the actual forfeitures differ, or are
expected to differ, from the previous estimate.
 
 Recent
Accounting Pronouncements
  In
October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Multiple
Deliverable Revenue Arrangements” (ASU 2009-13).  ASU 2009-13 replaces
EITF 00-21, and clarifies the criteria for separating revenue between multiple
deliverables.  This statement is effective for new revenue
arrangements or materially modified arrangements in periods subsequent to
adoption.  The accounting guidance is effective for fiscal years
beginning on or after June 15, 2010, but early adoption is
allowed.  We anticipate the adoption of this pronouncement will
not have any impact on the Company’s financial position and results of
operations.
  9
  RESULTS
OF OPERATIONS:
 
 The
following discussion compares the Company’s results of operations for the three
and six months ended June 30, 2010, with those for the three and six months
ended June 30, 2009. The discussion should be read in conjunction with the
unaudited consolidated financial statements and related notes presented in this
report, as well as the audited consolidated financial statements and related
notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009.
 
 Three
Months Ended June 30, 2010, Compared to Three Months Ended June 30,
2009
 
 Revenues:
 
 The
Company's total operating revenues for the three-month periods ended June 30,
2010 and June 30, 2009 were approximately $1,116,000 and $950,000, respectively.
The revenue was generated primarily from license and consulting fees earned
during these periods. The increase in revenue for the three months ended June
30, 2010 over the same period last year was primarily attributable to an
increase of $374,000 in current customer business, largely due to the
recognition of deferred revenue for one customer of approximately $190,000 and
increased business of approximately $77,000 for another customer due to
increased membership, offset by a decrease of approximately
$194,000 largely due to termination of certain care management services for
one customer and approximately $14,000 due to one-time engagements that did not
reoccur in 2010.
 
 Cost
of services:
 
 The
Company’s total direct cost of services for the three-month periods ended June
30, 2010 and June 30, 2009 was approximately $323,000 and $367,000,
respectively. The decrease in the cost of services for the three-month period
ended June 30, 2010 when compared to the same period last year was primarily due
to decreases in personnel costs largely due to accrued vacation liability and
employee terminations arising out Blue Cross Blue Shield of Vermont's assuming
for itself the performance of certain consulting functions that had previously
been performed by the Company as more fully described in Part II, Item 9B of our
Annual Report on Form 10-K for the year ended December 31, 2009.As a result of this
and the deferred revenue from one client mentioned above, the Company's margins
have improved favorably—71% gross profit margin and 61% gross profit margin,
respectively, for the three months ended June 30, 2010 compared to the three
months ended June 30, 2009.
 
 Selling,
general and administrative expenses:
 
 The
Company’s total selling, general, and administrative costs for the three-month
periods ended June 30, 2010 and June 30, 2009 were approximately $599,000 and
$790,000, respectively. The decrease for the three-month period ended June 30,
2010 when compared to the same period last year is primarily due to a loss of
approximately $79,000 on the sublease in 2009, decreases in personnel costs of
approximately $36,000 largely relating to accrued vacation liability, decreases
in facility costs of approximately $55,000 largely relating to a new lease,
decreases in professional costs of approximately $26,000, offset by increases of
approximately $2,000 in travel and communication costs and increases of
approximately $3,000 in other general and administrative costs.
 
 Six
Months Ended June 30, 2010, Compared to Six Months Ended June 30,
2009
 
 Revenues:
 
 The
Company's total operating revenues for the six-month periods ended June 30, 2010
and June 30, 2009 were approximately $1,976,000 and $1,920,000, respectively.
The revenue was generated primarily from license and consulting fees earned
during these periods. The increase in revenue for the six months ended June 30,
2010 over the same period last year was primarily attributable to approximately
$428,000 in current customer business, largely due to the recognition of
deferred revenue for one customer  of approximately $187,000 and
increased membership and services with certain customers as a result of
fluctuation in membership and approximately $54,000 due to a one-time
engagement, offset by a decrease of approximately $390,000 due to termination of
certain care management services for one customer and approximately $36,000 due
to one-time engagements that did not reoccur in 2010.
 
 Cost
of services:
 
 The
Company’s total direct cost of services for the six-month periods ended June 30,
2010 and June 30, 2009 was approximately $671,000 and $697,000, respectively.
The decrease in the cost of services for the six-month period ended June 30,
2010 when compared to the same period last year is primarily due to decreases in
personnel costs of approximately $7,000 and decreases of approximately $19,000
in professional costs.
  10
  Selling,
general and administrative expenses:
 
 The
Company’s total selling, general, and administrative costs for the six-month
periods ended June 30, 2010 and June 30, 2009 were approximately $1,278,000 and
$1,445,000, respectively. The decrease for the six-month period ended June 30,
2010 when compared to the same period last year is primarily due to a loss of
approximately $79,000 on the sublease in 2009, decreases in personnel costs of
approximately $12,000, decreases in facility costs of approximately $71,000
largely due to a new lease,  decreases of approximately $11,000 in
professional costs and a decrease in travel and communication costs of
approximately $1,000, offset with an increase of approximately $7,000 in other
general and administrative costs.
 
 Loss
on building lease:
 
 During
the six months ended June 30, 2010, the Company recorded a loss of approximately
$224,000 in connection with the entry into a new building lease, which included
the forfeiture of the security deposit under the prior lease as described in
Note F in the Notes to Unaudited Condensed Consolidated Financial
Statements.
 
 LIQUIDITY, FINANCIAL CONDITION AND
CAPITAL RESOURCES:
 
 General
overview:
 
 At June
30, 2010, the Company had working capital of approximately $213,000,
stockholders’ deficit of approximately $47,000 and an accumulated deficit of
approximately $24,638,000.
 
 Financial
condition:
 
 At June
30, 2010, the Company had cash of $348,000 as compared to $510,000 as of
December 31, 2009.  The decrease in cash was primarily due to net cash
used in operating activities of $155,000 and net cash used in financing
activities of $7,000.  The net cash used in operating activities was
largely due to the write off of the lease security deposit of $167,000, an
adjustment to deferred rent relating to loss on building lease, non-cash charges
of approximately $32,000, a decrease in deferred revenue of approximately
$195,000, a decrease in deferred rent of approximately $63,000, increases in
accounts payable and accrued expenses of approximately $31,000, an increase in
accounts receivable of approximately $31,000 and increases in prepaid expenses
and other assets of approximately $19,000, offset with a net operating loss of
$239,000 for the six months ended June 30, 2010.
 
 The
Company had working capital at June 30, 2010 of approximately $213,000 as
compared to working capital of approximately $417,000 at December 31, 2009. The
decrease in working capital was primarily due to a decrease in current
liabilities of $175,000 largely relating to deferred revenue decrease of
approximately $195,000 and a decrease in current assets of approximately
$379,000, largely due to a write off of the $167,000 security deposit pursuant
to the new building lease agreement.
 
 There
were no cash flows from investing activity for the six-month period ended June
30, 2010.
 
 During
the six months ended June 30, 2010, the Company recorded a loss of approximately
$224,000 in connection with the entry into a new building lease, which included
the forfeiture of the security deposit under the prior lease as described in
Note F in the Notes to Unaudited Condensed Consolidated Financial
Statements.
 
 The
Company generates most of its revenue from the licensing of RPNavigator and
providing consulting services in connection with that
licensing.  Based on cash on hand at June 30, 2010 and cash flow from
operations based on a forecast prepared by management, which takes into account
executed contracts and planned cost reductions, management expects the Company
to be able to meet its obligations as they become due during the next 12
months.  Such executed contracts include contracts with new customers
as well as expanding business with current customers.  However, there
can be no assurances that management’s plans, including projected revenue, will
be attained.   No adjustments have been made to the accompanying
financial statements with respect to such uncertainty.
  11
  ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk
 
 The
Company is a smaller reporting company and is not required to provide the
information contemplated by this item.
 
 ITEM
4.  Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Senior
management maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods provided in
the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including the Chief Executive Officer, who is
also currently the acting Principal Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.  In designing and
evaluating the disclosure controls and procedures, senior management has
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and therefore has been required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
 
 In
accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the quarter
ended June 30, 2010, the Company evaluated, under the supervision and with the
participation of management, including the Chief Executive Officer, who is also
the acting Principal Financial Officer, the effectiveness of the design and
operation of our disclosure controls and procedures as defined in Rule 13a-15(e)
and 15d-15(e) under the Exchange Act.  Based on that evaluation, the
Chief Executive Officer has concluded that our disclosure controls and
procedures are, in fact, effective at the reasonable assurance
level.
 
 Internal
Control Over Financial Reporting
 
 There
were no changes in our internal controls over financial reporting during the
quarter ended June 30, 2010 that have materially affected, or are reasonably
likely to materially affect the Company’s internal control over financial
reporting.
 
 PART
II—OTHER INFORMATION
 
 Item
1.  Legal Proceedings
 
 In March
2010, the Company commenced an action in United States District Court, District
of New Jersey, against Rosario Noto, a former employee of the Company and a
member of Integrated eCareSolutions, LLC (see Part 1, Item 1, Note D), alleging
Noto’s breach of his employee confidentiality agreement, breach of his implied
covenant of good faith and fair dealing and unfair competition.  Noto
has denied liability and asserted certain affirmative defenses.
 
 For a
description of additional legal proceedings, see Note D to the unaudited
condensed consolidated financial statements presented elsewhere in this report.
With the exception of such proceedings and the proceeding described in this Item
1, there are no material pending legal proceedings other than ordinary routine
litigation incidental to the business of the Company.
 
 Item
1A.  Risk Factors
 
 The risks
and uncertainties to which the Company’s financial condition and results of
operations are subject are discussed in detail in Item 1A of Part I of the
Company’s Annual Report on Form 10-K for the year ended December 31,
2009.  Management does not believe that any material changes in such
risk factors have occurred since they were last disclosed.
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
 None.
 
 Item
3.  Defaults Upon Senior Securities
 
 None.
 
 Item
4.  (REMOVED AND RESERVED)
 
 Item
5.  Other Information
 
 None.
  Item
6. Exhibits
 
 The
exhibits that are filed or furnished with this report are listed in the Exhibit
Index which immediately follows the signatures to this report, which Exhibit
Index is incorporated herein by reference.
  12
  SIGNATURES
 
 Pursuant
to the requirements 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,
      IncAugust
      12, 2010
              /s/ Dennis
      J. MourasDennis
      J. MourasChief
      Executive Officer andActing
      Principal Financial Officer
  13
  EXHIBIT
INDEX
  31
              Certifications
      pursuant to Rule 13a-14(a), promulgated under the Securities Exchange Act
      of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
      (filed herewith)
 
 32
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (furnished
  herewith)
  14