SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended January 31, 1998

                         COMMISSION FILE NUMBER 0-26168

                               CAREADVANTAGE, INC.
             (Exact name of registrant as specified in its charter)

DELAWARE                                                             52-1849794
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                           Identification Number)

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

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

      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 ___

                                   74,389,886

        Number of shares of Common Stock outstanding as of March 17, 1998

                  Transitional Small Business Disclosure Format

                                  Yes X   No ___


                           This is Page 1 of 12 Pages.

<PAGE>

                               CAREADVANTAGE, INC
                           CONSOLIDATED BALANCE SHEETS

                                                   January 31,
                                                      1998          October 31,
                                                   (unaudited)         1997*
                                                   -----------      ----------
ASSETS

Current assets:
Cash and cash equivalents                         $  1,311,586     $  1,038,190
Accounts receivable-stockholder                      1,006,947        1,047,171
Accounts receivable-other                              547,994          408,348
Other current assets                                   239,289          254,688
                                                  ------------     ------------
Total current assets                                 3,105,816        2,748,397

Property and equipment, at cost less
accumulated depreciation                             1,711,850        1,502,712
Intangible assets (net)                              1,538,751        1,649,126
Other assets                                            96,551           80,984
                                                  ------------     ------------
Total assets                                      $  6,452,968     $  5,981,219
                                                  ============     ============

LIABILITIES AND CAPITAL DEFICIENCY

Current liabilities:
Current portion of long-term debt                 $    591,395     $    574,778
Note payable-stockholder                             2,000,000        2,000,000
Accounts payable-trade                                 640,315          350,893
Due to stockholder                                     354,820           88,705
Accrued salaries and employee benefits                 449,940          562,994
Accrued expenses and other current
liabilities (Note E)                                   724,385          871,844
Deferred revenue, current (Note F)                   1,229,961          786,007
                                                  ------------     ------------
Total current liabilities                            5,990,816        5,235,221

Capital lease obligations, less current
portion                                                267,584          421,813
Due to stockholder, less current portion             1,508,003        1,774,118
Deferred revenue and other long-term
liabilities                                            423,552          525,979
                                                  ------------     ------------
Total liabilities                                    8,189,955        7,957,131
                                                  ------------     ------------

Capital deficiency:
Preferred  stock-par value $.10 per share;
authorized  10,000,000 Shares; none
issued  and  outstanding  
Common stock-par  value  $.01 per  share;
authorized 90,000,000 Shares; issued
and outstanding 74,389,886 and 74,389,886               74,390           74,390
Additional capital                                  19,640,587       19,640,091

Accumulated deficit                                (21,451,964)     (21,690,393)
                                                  ------------     ------------
Total capital deficiency                            (1,736,987)      (1,975,912)
                                                  ------------     ------------
Total liabilities and capital deficiency          $  6,452,968     $  5,981,219
                                                  ============     ============

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                       2
<PAGE>

                               CAREADVANTAGE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

                                                        Three Months Ended
                                                            January 31,
                                                        ------------------
                                                      1998             1997*
                                                      ----             -----
Net revenues                                      $ 4,002,429      $  2,369,301

Costs of services                                   2,026,738         2,042,758
                                                  -----------      ------------
Gross margin                                        1,975,691           326,543
                                                  -----------      ------------

Operating expenses:

Selling, general and administration                 1,536,571         1,482,772
Depreciation and amortization                         127,618           118,018
                                                  -----------      ------------
Total operating expenses                            1,664,189         1,600,790
                                                  -----------      ------------
Operating income (loss)                               311,502        (1,274,247)

Interest                                               73,073            76,203
                                                  -----------      ------------
Net income (loss)                                 $   238,429      ($ 1,350,450)
                                                  ===========      ============

Basic and diluted income (loss)
per share of common stock                         $       .00      ($       .02)
                                                  ===========      ============
Weighted average number of common
shares outstanding-basic and diluted
income (loss) per share                            74,389,886        74,389,886
                                                  ===========      ============

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

                                                          Three Months Ended
                                                              January 31,
                                                          ------------------
                                                         1998           1997*
                                                         ----           -----
Operating activities:

Net profit (loss)                                   $   238,429     ($1,350,450)

Adjustments to reconcile net profit
(loss) to net cash provided from (used by):

Operating activities:

Depreciation and amortization                           262,190         256,565

Change in assets and liabilities:

Due to/from customers/stockholders                      (99,421)        374,360
Other assets                                               (168)         42,848
Accounts payable                                        289,422        (177,029)
Accrued expenses and other liabilities                 (260,018)        208,970
Deferred revenue                                        341,527               0
                                                    -----------     -----------
Cash provided from (used by)
operating activities                                    771,961        (644,736)
                                                    -----------     -----------
Investing activities:

Capital expenditures                                   (360,953)        (23,526)
                                                    -----------     -----------
Cash provided from (used by) investing
activities                                             (360,953)        (23,526)
                                                    -----------     -----------
Financing activities:

Principal payments under long-term debt                (137,612)       (233,407)
                                                    -----------     -----------
Cash provided from (used by) financing
activities                                             (137,612)       (233,407)
                                                    -----------     -----------
Net increase (decrease) in cash                         273,396        (901,669)

Cash - beginning of fiscal year                       1,038,190       1,167,147
                                                    -----------     -----------
Cash - end of period                                $ 1,311,586     $   265,478
                                                    ===========     ===========

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

                               CAREADVANTAGE, INC.
                 NOTES TO FINANCIAL STATEMENTS-JANUARY 31, 1998
                                   (UNAUDITED)

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.  The Company's services have been principally
provided to the statewide Blue Cross/Blue Shield health service organizations of
Rhode Island,  Maine,  Vermont,  New Jersey, and in 1998 New York (a division of
New York Care Plus Insurance Company, Inc.).

Note A--Basis of preparation:

The  consolidated  financial  statements  have been prepared by CAI and have not
been audited by the Company's independent auditors.  The accompanying  financial
statements   include  all  adjustments  (which  include  only  normal  recurring
adjustments)  which in the opinion of management are necessary to present fairly
the financial position and January 31, 1998 results of operations and cash flows
for all periods presented.

Certain  information  and  note  disclosures  required  to be  included  in  the
financial  statements  prepared in accordance with generally accepted accounting
principles have been omitted.  These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included with the Company's  October 31, 1997 Annual Report on Form 10-KSB filed
with the Securities and Exchange  Commission on January 29, 1998. The results of
operations for the period ended January 31, 1998 are not necessarily  indicative
of operating results to be expected for the full year.

Note B--Per share data:

Net income  (loss) per share has been  computed  based on the  weighted  average
number of shares  outstanding during the period adjusted for the 1 for 6 reverse
stock split effected in September  1996.  Additional  shares issued to BCBSNJ in
February 1997, pursuant to the terms of the BCBSNJ Note have been included as if
outstanding  from  November 1, 1996, as CHCM's  results of operations  have been
included in the Company's financial statements since April 30, 1995.  Additional
shares  issued to CW Ventures in February 1997 pursuant to the CW Note have been
included as if  outstanding  since  February  22,  1996,  the date CW  Venture's
investment in the Campany.  Common stock equivalents and approximately 7,800,000
shares issuable upon exchange of the CW Venture's convertible note have not been
included since they are not dilutive.

The  Company  adopted  SFAS No. 128  "Earnings  Per  Share" in the period  ended
December  31, 1997 and has  retroactively  applied  the effects  thereof for all
periods  presented.  Accordingly,  the  presentation  of per  share  information
includes  calculations  of basic as diluted income per share.  The impact on the
per share amounts previously reported was not significant.

Note C--Contingencies:

Termination of employment:

A former Medical Director of CAHS had asserted a claim against the Company.  The
former  Medical  Director was employed from September 1995 through May 1996 when
he voluntarily resigned,  allegedly due to a change of control of the Company in
February  1996.  He contended  that he was entitled to: (i) a severance  payment
equal to one year  annual  base  compensation  ($190,000);  and (ii)  vesting in
75,000  qualified stock options at a strike price of $1.25 per share. The former
Medical Director based his claim on an executed written  agreement  drafted by a
placement  firm,  which  memorializes  some,  but  not  all,  of the  terms  and
conditions of his employment.  The Company  contested this matter on the grounds
that the former Medical Director (i) is not entitled to severance;  and (ii) has
no  entitlement  to  stock  options  as  the  plan  was  never  approved  by the
shareholders.  The former Medical  Director alleged claims of breach of contract
and  promissory  estoppel.  The  parties  have  agreed to submit  this  claim to
arbitration before the American Arbitration Association in an effort to amicably
resolve this matter prior to litigation. Effective February 9, 1998, the Company
entered into a settlement  agreement with this former employee.  Under the terms
of this  settlement  agreement  the  Company  has paid a sum of  $110,000  ("the
Settlement  Amount")  subject to  deductions  for  payroll  taxes as required by
federal law and the State of Connecticut.

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.  


                                       5
<PAGE>

                               CAREADVANTAGE, INC.
                 NOTES TO FINANCIAL STATEMENTS-JANUARY 31, 1998
                                   (UNAUDITED)

Potential uninsured exposure to litigation:

On or about March 22, 1996, an action  entitled  Francis X. Bodino v. BCBSNJ and
CHCM (the "Bodino  Action") was filed in the Law Division of the Superior  Court
of New Jersey in Hudson County.  The complaint alleges  misrepresentations  with
respect to the type and amount of coverage  afforded by Mr. Bodino's policy with
BCBSNJ,  specifically  with respect to coverage for heart  transplantation.  The
complaint  also  alleges  that  representations  made on  behalf of BCBSNJ by an
employee of CHCM led Mr. Bodino's surgeon to believe that contractually excluded
heart  transplant  coverage was  available.  The complaint  demands a variety of
money  damages,  as well as  punitive  damages,  against  both  defendants.  The
complaint  also  contains a claim for treble  damages and counsel fees under the
New Jersey Consumer Fraud Act.  BCBSNJ is presently  defending the Bodino Action
on behalf of itself and CHCM,  and has denied  liability in all respects and has
specifically  denied  that the policy  purchased  by Mr.  Bodino  covered  heart
transplantation  or that any  misrepresentations  or fraud occurred.  BCBSNJ and
CHCM have filed a motion for summary  judgment,  which remains pending as to all
claims and is subject to further discovery.  The Company,  based upon the advice
of its counsel,  has insufficient  information,  at present,  to evaluate CHCM's
potential exposure, if any, in this litigation.

At the time of the events underlying the Bodino Action, CHCM was a subsidiary of
BCBSNJ and had been engaged by the Company,  through  CAHS,  to provide  certain
staff  and  assistance  to CAHS in  support  of  CAHS's  obligation  to  provide
specified  services for BCBSNJ,  all in accordance  with the terms of an Interim
Services  Agreement  dated as of April 1, 1995 by and among  BCBSNJ,  CHCM,  the
Company and CAHS (the "Interim  Services  Agreement").  By letter dated February
15, 1996,  counsel for Mr.  Bodino gave written  notice to CHCM  contesting  the
denial of coverage  and  threatening  litigation  against  CHCM and BCBSNJ.  The
Company  and CAHS  purchased  CHCM on  February  22,  1996.  The Company did not
maintain  insurance  coverage  that would cover  claims  against  BCBSNJ or CHCM
arising from events occurring prior to February 22, 1996, which might constitute
a breach under the Interim Services Agreement.  The Company has been informed by
BCBSNJ  that  BCBSNJ has  notified  its carrier of the claim and the carrier has
advised  BCBSNJ that certain  policy  exclusions  may be  applicable to preclude
coverage for the claimed damages, either in whole or in part. BCBSNJ has further
asserted that it does not believe any such exclusions are applicable and that it
has furnished additional  information to the carrier in support of its position.
The  Company,  based  upon the  advice  of  counsel,  is not  presently  able to
determine  whether the Bodino  Action might result in any loss to the Company or
CHCM and, if so, whether any such loss would be material.

On  or  about   January  16,  1998,  an  action   entitled  Mary   DeStefano  v.
CareAdvantage,  Inc.,  Carol  Manzella,  and  Thomas P.  Riley  (the  "DeStefano
Action") was filed in the Law  Division of the  Superior  Court of New Jersey in
Middlesex  County.  The complaint  alleges (i) that the plaintiff was terminated
from her employment with the Company in retaliation for her complaints regarding
alleged  violations  of state and  federal  labor laws and (ii) that the Company
violated the New Jersey Wiretapping and Electronic Surveillance Control Act. The
complaint did not demand an amount of specific monetary damages.  The defendants
have denied  liability in all  respects.  The Company,  based upon advice of its
counsel,  has insufficient  information,  at present,  to evaluate its potential
exposure, if any, in this, litigation.

Note D:--Supplemental Cash Flow Information

     Below is  supplemental  cash flow  information  related to the three months
ended January 31, 1998 and 1997:

                                                              January 31,
                                                        ----------------------
                                                        1998              1997
                                                        ----              ----
Income Taxes Paid                                          0                 0
Interest Paid, IBM capital lease obligations          26,888            40,770


                                       6
<PAGE>

                               CAREADVANTAGE, INC.
                 NOTES TO FINANCIAL STATEMENTS-JANUARY 31, 1998
                                   (UNAUDITED)

Note E--Accrued expenses and other current liabilities:

     Accrued expenses and other current  liabilities consist of the following at
January 31, 1998 and October 31, 1997:

                                           January 31, 1998     October 31, 1997
                                           ----------------     ----------------
Accrued Interest                                391,566              329,626
                                                                    
Accrued Professional Fees                        33,766              125,000
                                                                    
Other accrued expenses                          299,053              417,218
                                                -------              -------
Total                                           724,385              871,844
                                                =======              =======
                                                            
Note F-- Deferred Revenue:

     As  of  January  31,  1998  revenue   received  in   connection   with  the
renegotiating  of two of the  Company's  contracts  during the prior fiscal year
ended  October  31,1997  has  been  deferred  over  the  term of the  respective
contracts.  Additionally, the Company has deferred a portion of fees advanced in
connection with a joint service agreement. The agreement provides for additional
compensation based on exceeding a certain level of performance. The Company will
recognize these fees when earned.


                                       7
<PAGE>

                               CAREADVANTAGE, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

General developments of business:

Certain   statements  in  this  Form  10QSB  may   constitute   "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of  1995,  including  those  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.  Such statements
involve known and unknown risks, uncertainties and contingencies,  many of which
are beyond the control of the  Company,  which could  cause  actual  results and
outcomes to differ materially from those expressed herein.  Although the Company
believes that its plans,  intentions and expectations  reflected in such forward
looking  statements  is  reasonable,  it can give no assurance  that such plans,
intentions or expectations will be achieved. Certain risk factors exist, such as
the  Company's  inability to prevent its  customers  from  terminating  existing
contracts by invoking standard  termination  clauses,  as well as other inherent
contractual risks, which are beyond the control of the Company.

For  fiscal  years  prior to  1997,  the  Company  has  experienced  significant
operating  losses on a consolidated  basis, and has a working capital deficit at
January  31,  1998  of  approximately   $2,885,000,   a  capital  deficiency  of
approximately $1,737,000 and an accumulated deficit of approximately $21,452,000
since its inception. By continuing to provide high quality care cost containment
services to its existing  customer  base of BCBS plans and pursuant to the joint
service  agreement with Allied Health Group,  Inc.,  management  believes it can
continue to leverage its reputation to other similar customers. This strategy is
particularly  significant  given the current health care environment where large
third-party  payers  are  merging  in an  effort  to  protect  their  respective
franchises and expand their market reach.  The various BCBS plans throughout the
country are no  exception  to this  phenomenon  and the Company  believes it can
leverage its core competencies to participate in this consolidating environment.

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

                                                Three Months Ended
                                                ------------------
                                      January 31, 1998       January 31, 1997
                                      ----------------       ----------------
                                     Amount     Percent     Amount      Percent
                                     ------     -------     ------      -------
Net revenues:

Revenues from fixed fee
  arrangements                     $3,802,814     95%      $2,289,301     97%
                                                         
Revenues from performance -                               
  based arrangements                  195,855      5%          80,000      3%
                                                         
Other revenues                          3,760      0%               0      0%
                                   ----------    ---       ----------    --- 
Total revenues                     $4,002,429    100%      $2,369,301    100%
                                   ==========    ===       ==========    ===

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  is  working
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 itself.  While management  believes its estimated
performance-based  revenues  contained in reported revenues for the three months
ended January 31, 1998 are accurate based upon the data available to management.


                                       8
<PAGE>

                               CAREADVANTAGE, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

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

Revenues:

Net  revenues  for the  three  months  ended  January  31,  1998 and  1997  were
approximately $4,002,000 and $2,369,000, respectively,  representing an increase
of approximately  $1,633,000.  This increase is largely due to increased revenue
from one of the  Company's  major  customers/(stockholders)  as a result  of its
re-negotiation  of the  contract  on terms  more  favorable  to the  Company  of
approximately  $1,300,000.  Additionally,  the Company has entered  into a joint
services  agreement  with  Allied  Health  Group,  Inc.,  which has  contributed
approximately  $245,000 to the Company's improved revenue position for the three
months ended January 31, 1998.

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 three  months  ended  January  31, 1998 and 1997 were
approximately $2,027,000 and $2,043,000,  respectively,  representing a decrease
of  approximately  $16,000.  This  decrease in the cost of  services  was due to
decreases/(increases) in personnel costs of approximately $27,000,  professional
and consulting costs of approximately  ($51,000),  information and communication
costs  of  approximately  $39,000,  travel  costs  of  approximately  ($19,000),
depreciation  and  amortization  allocations of  approximately  $4,000 and other
costs of  approximately  $16,000 for the three month  periods  ended January 31,
1998 compared with the three months ended January 31, 1997.

Operating expenses:

Selling, general and administrative:

Selling, general and administrative costs for the three months ended January 31,
1998  and 1997  were  approximately  $1,537,000  and  $1,483,000,  respectively,
representing  an  increase of  approximately  $54,000.  This  increase is due to
(increases)/decreases  in personnel costs of  approximately  $128,000,  facility
costs  of  approximately  $17,000,   travel  costs  of  approximately  ($3,000),
information and communication costs of approximately ($19,000), professional and
consulting  costs of  approximately  ($134,000)  and general and  administrative
costs of  approximately  ($44,000)  for the three month period ended January 31,
1998 compared with the three months ended January 31, 1997.

While  management  intends  to take steps in the  future to reduce  general  and
administrative  costs,  such reduction in costs may be offset to some extent, by
anticipated increases in selling, marketing and service development costs. There
is no  assurance,  however,  that the  Company  will be  successful  in reducing
general and administrative costs.

Depreciation and amortization:

Depreciation and amortization  costs for the three months ended January 31, 1998
and 1997  were  approximately  $262,190,  and  257,000,  respectively,  of which
approximately   $135,000  and  $139,000  were  included  in  cost  of  services,
respectively.

Interest expense:

Net interest  expense for the three  months ended  January 31, 1998 and 1997 was
approximately  $73,000 and  $76,000,  respectively,  representing  a decrease of
approximately $3,000. This decrease is due to a reduction in interest related to
the Company's master lease agreement with IBM Credit  Corporation, mostly offset


                                       9
<PAGE>

                               CAREADVANTAGE, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

by   increased    interest    related   to   a   promissory   note   between   a
customer/stockholder  and the Company,  calling for equal  payments of principal
and interest commencing in October 1998.

Net incme from operations:

Results of  operations in the future are  dependent on  management's  ability to
increase  revenues  and reduce  both direct  costs of  services  and general and
administrative  costs. While there can be no assurance that such efforts will be
successful,  management  believes that opportunities  exist to increase revenues
and reduce costs in areas that will not adversely  effect the  operations of the
Company.  Further, during fiscal year 1997, the Company re-negotiated two (2) of
its key  contracts  and executed a joint  service  agreement  with Allied Health
Group,  Inc.,  and an  additional  agreement  with New York Care Plus  Insurance
Company,  Inc.,  all of which  management  anticipates  will  generate  positive
operating cash flows and results of operations during fiscal year 1998.

Financial condition:

Liquidity and Capital Resources:

At January 31,  1998,  the Company had cash of  approximately  $1,312,000  and a
working capital deficiency of approximately $2,885,000. At October 31, 1997, the
Company had cash of approximately $1,038,000 and a working capital deficiency of
approximately  $2,487,000.   The  increase  in  working  capital  deficiency  of
approximately  $398,000 is due to the  Company's  ability to generate cash flows
from operations  during the three month period ended January 31, 1998, offset by
the reclassification of notes payable in the approximate amount of $266,000 as a
current  liability,  as well as an increase in deferred revenue of approximately
$444,000  related  to  a  joint  service  agreement  with  a  customer;  whereby
additional  revenue is earned  for  meeting  certain  performance  targets,  and
accordingly such performance revenue will be recognized when earned.

Net cash  provided/(used)  from operating  activities  amounted to approximately
$772,000 and  (645,000)  for the three month  periods ended January 31, 1998 and
1997, respectively. This improvement is primarily due to the increased operating
income generated during the first quarter of fiscal year 1998.

Net cash used in investing  activities amounted to approximately  ($361,000) and
($24,000)  for the  three  month  periods  ended  January  31,  1998  and  1997,
respectively.  The increase in cash (used) of approximately ($337,000) is due to
increased  capital outlays for computer  related  equipment  incurred during the
current fiscal year of approximately ($337,000).

Net cash used in financing  activities amounted to approximately  ($138,000) and
($233,000)  for the  three  month  periods  ended  January  31,  1998 and  1997,
respectively.  The decrease in cash (used) of approximately ($95,000) is largely
due to decreased  principal  payments related to a note payable issued to one of
the Company's  vendors of approximately  ($126,000) which was retired during the
prior fiscal year, offset in part by increased principal payments related to the
master lease agreement with IBM Credit Corporation of approximately $15,000.

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 the Summit Bank Credit Agreement will provide  adequate capital  resources
to support the  Company's  anticipated  cash needs for the balance of the fiscal
year which ends on October 31, 1998. This projection  assumes that the Company's
operations and revenues will continue at their current levels.

Financing:

Amounts payable pursuant to long-term  financing  arrangements as of January 31,
1998 were  approximately  $859,000,  consisting  of  capital  lease  obligations
pursuant  to a Master  Lease  Agreement  with  IBM  Credit  Corporation  for the
financing  of computer  and  telephone  equipment,  installation,  software  and
related system integration expenses.  The term of the Master Lease is four years
expiring in 1999,  and bears  interest at 11.39% per annum.  Blue Cross and Blue
Shield of New New Jersey, Inc. ("BCBSNJ"),  guarantee the Company's  obligations
under this Master Lease arrangement

In  connection  with the  re-negotiation  of the  amended and  restated  service
agreement  with BCBSNJ,  which was completed in June 1997,  the Company issued a
promissory note in the approximate  amount of $1,863,000 to BCBSNJ with interest
accruing beginning in April 1997 and equal monthly payments of principal and


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<PAGE>

                               CAREADVANTAGE, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

interest  commencing on October 1, 1998. The promissory note bears interest at a
five-year U.S. treasury yield, adjusted quarterly, and matures on June 30, 2000.
While  there  can  be no  assurances  that  future  operating  results  will  be
sufficient to fund this obligation of the Company,  such amounts are expected by
management  to  be  funded  through  operations  and  no  outside  financing  is
anticipated for this obligation.

The Company has a $2,000,000  principal amount 8% Exchangeable  Note maturing on
June 30,  1998 due to CW  Ventures.  On such date,  CW  Ventures  is required to
exchange  the CW Note for shares of the  Company's  common  stock  absent of any
events of default, as defined.

As of January 31, 1998,  the Company had $3.0 million of available  credit under
the Summit Revolving Credit Agreement.

Future financing needs:

In connection with  management's  decision to adopt and implement a new and more
comprehensive  clinical  software  product,  as well as  increased  emphasis  on
developing  in-house data management  capabilities  and training and educational
programs  for its clinical  staff and  customers,  the Company  expects to incur
additional  software and computer  hardware costs during the second,  third, and
fourth quarter of fiscal 1998 of approximately $500,000. Such costs are expected
to be financed with the future operating cash flows of the Company. However, the
Company may draw down the term loan from Summit Bank (which was discussed in the
Company's  10-QSB for the quarter  ended April 30, 1997 and  included as Exhibit
No. 10(f) thereto and is incorporated by reference herein), of which 1.5 million
was available at January 31, 1998.  The remaining  balance under the Summit Bank
credit facility is $1.5 million,  which is available as a revolving  credit line
and is to be used for general working  capital needs,  resulting in an aggregate
facility amount of $3.0 million.

Item 1. Legal proceedings

Termination of employment:

A former  Medical  Director of CAHS has  asserted a claim  against the  Company,
which was discussed in the Company's Form 10-KSB for the year, ended October 31,
1997.  Effective  February  9,  1998,  the  Company  entered  into a  settlement
agreement  with  this  former  employee.  Under  the  terms  of this  settlement
agreement  the  Company  has paid a sum of $110,000  ("the  Settlement  Amount")
subject to deductions for payroll taxes as required by federal law and the State
of Connecticut.

Potential uninsured exposure to litigation:

On  or  about   January  16,  1998,  an  action   entitled  Mary   DeStefano  v.
CareAdvantage,  Inc.,  Carol  Manzella,  and  Thomas P.  Riley  (the  "DeStefano
Action") was filed in the Law  Division of the  Superior  Court of New Jersey in
Middlesex  County.  The complaint  alleges (i) that the plaintiff was terminated
from her employment with the Company in retaliation for her complaints regarding
alleged  violations  of state and  federal  labor laws and (ii) that the Company
violated the New Jersey Wiretapping and Electronic Surveillance Control Act. The
complaint did not demand an amount of specific monetary damages.  The defendants
have denied  liability in all  respects.  The Company,  based upon advice of its
counsel,  has insufficient  information,  at present,  to evaluate its potential
exposure, if any, in this, litigation.

Item 6. Exhibits and Reports on Form 8-K

Exhibit 27--Financial Data Schedule

Reports on Form 8-K--None


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<PAGE>

                                   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, Inc
                                      
March 17, 1998                        /s/ Thomas P. Riley
                                      ------------------------------------------
                                      Thomas P. Riley
                                      President and Chief Executive Officer
                                      
March 17, 1998                        /s/ David G. DeBoskey
                                      ------------------------------------------
                                      David G. DeBoskey
                                      Principal Financial and Accounting Officer
                                   

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