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 March 31, 2010





COMMISSION
FILE NUMBER 0-26168





CAREADVANTAGE,
INC.


(Exact
name of small business issuer as specified in its charter)





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





485-A
      Route 1 South, Second Floor, Suite 200,
              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.
 Yes           x  No              ̈
  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).
 Yes            ̈
No                ̈
 
 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 filer
               ̈
              Accelerated
      filer
               ̈Non-accelerated
      filer
               ̈
              Smaller reporting company
              x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
 Yes            ̈
No              x
 
 The
number of shares of Common Stock outstanding as of April 26, 2010:
145,250,442.










INDEX





Part
      I – Financial InformationItem
      1.
                              
                              Financial
      Statements
                              2·
                              Condensed
      Consolidated Balance Sheets –March
      31, 2010 (Unaudited) and December 31, 2009
                              2·
                              Condensed
      Consolidated Statements of Operations –Three
      months ended March 31, 2010 and March 31,
      2009  (Unaudited)
                              3·
                              Condensed
      Consolidated Statements of Cash Flows –Three
      months ended March 31, 2010 and March 31, 2009 (Unaudited)
                              4Notes
      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
                              11Item
      4T.
                              
                              Controls
      and Procedures
                              11Part
      II – Other InformationItem
      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
                              12Signatures
                              13







PART I –
FINANCIAL INFORMATION


ITEM
1.  Financial Statements





CAREADVANTAGE,
INC AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





March 31,
                
                
                December 31,2010
                
                
                2009UnauditedASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                362,000
                
                
                $
                510,000Accounts
      receivable
                
                
                199,000
                
                
                
                143,000Prepaid
      expenses and other current assets
                
                
                75,000
                
                
                
                108,000Security
      deposits
                
                
                -
                
                
                
                167,000Total
      current assets
                
                
                636,000
                
                
                
                928,000Property
      and equipment, at cost net of accumulated depreciation
                
                
                93,000
                
                
                
                108,000Intangible
      assets, net of accumulated depreciation
                
                
                1,000
                
                
                
                2,000Total
      Assets
                
                $
                730,000
                
                
                $
                1,038,000LIABILITIES
      AND STOCKHOLDERS' (DEFICIT)/EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                135,000
                
                
                $
                82,000Accrued
      compensation and related benefits
                
                
                101,000
                
                
                
                81,000Accrued
      professional fees
                
                
                82,000
                
                
                
                65,000Other
      current liabilities
                
                
                1,000
                
                
                
                1,000Deferred
      revenue
                
                
                254,000
                
                
                
                231,000Capital
      lease obligation – current
                
                
                51,000
                
                
                
                51,000Total
      current liabilities
                
                
                624,000
                
                
                
                511,000Long
      term liabilities:Capital
      lease obligation – long term
                
                
                9,000
                
                
                
                23,000Deferred
      rent
                
                
                329,000
                
                
                
                340,000Total
      long term liabilities
                
                
                338,000
                
                
                
                363,000Total
      Liabilities
                
                
                962,000
                
                
                
                874,000Commitments
      and Contingencies (Notes D and F)Stockholders'
      (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 issued  and outstanding at March 31, 2010 and
      142,554,442 shares issued and outstanding at December 31,
    2009
                
                
                144,000
                
                
                
                143,000Additional
      paid in capital
                
                
                24,435,000
                
                
                
                24,420,000Accumulated
      deficit
                
                
                (24,811,000
                )
                
                
                (24,399,000
                )Total
      stockholders' (deficit)/equity
                
                
                (232,000
                )
                
                
                164,000Total
      Liabilities and Stockholders' (Deficit)/Equity
                
                $
                730,000
                
                
                $
                1,038,000





See Notes
to Unaudited Condensed Consolidated Financial Statements.


2





CAREADVANTAGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months EndedMarch
      31,2010
                
                
                2009License
      fees and service revenue
                
                $
                860,000
                
                
                $
                970,000Costs
      of services
                
                
                348,000
                
                
                
                330,000Gross
      profit
                
                
                512,000
                
                
                
                640,000Operating
      expenses:Selling,
      general and administrative
                
                
                679,000
                
                
                
                655,000Depreciation
      and amortization
                
                
                16,000
                
                
                
                16,000Total
      operating expenses
                
                
                695,000
                
                
                
                671,000Operating
      loss
                
                
                (183,000
                )
                
                
                (31,000
                )Interest
      expense
                
                
                (5,000
                )
                
                
                (5,000
                )Loss
      on building lease
                
                
                (224,000
                )
                
                
                -Net
      loss
                
                $
                (412,000
                )
                
                $
                (36,000
                )Net
      loss per share of common stock -Basic
      and diluted
                
                $
                (.00
                )
                
                $
                (.00
                )Weighted
      average number of common shares outstanding –Basic
      and diluted
                
                
                143,448,000
                
                
                
                62,254,000





See Notes
to Unaudited Condensed Consolidated Financial Statements.


3


CAREADVANTAGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





Three Months Ended March 31,2010
                
                
                2009Cash
      flows from operating activities:Net
      loss
                
                $
                (412,000
                )
                
                $
                (36,000
                )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                16,000
                
                
                
                16,000Stock
      based compensation
                
                
                5,000
                
                
                
                5,000Deferred
      revenue
                
                
                23,000
                
                
                
                221,000Loss
      on building lease - security
      deposit
                
                
                167,000
                
                
                
                -Loss
      on building lease - deferred rent
                
                
                57,000
                
                
                
                -Deferred
      rent
                
                
                (68,000
                )
                
                
                (31,000
                )Changes
      in:Accounts
      receivable
                
                
                (56,000
                )
                
                
                (203,000
                )Prepaid
      expenses and other assets
                
                
                33,000
                
                
                
                (4,000
                )Accounts
      payable
                
                
                53,000
                
                
                
                2,000Accrued
      expenses and other liabilities
                
                
                37,000
                
                
                
                42,000Net
      cash (used in)/provided by operating activities
                
                
                (145,000
                )
                
                
                12,000Cash
      flows from financing activity:Proceeds
      from exercise of stock options, net of costs
                
                
                11,000
                
                
                
                1,000Repayment
      of capital leases
                
                
                (14,000
                )
                
                
                (15,000
                )Net
      cash used in financing activities
                
                
                (3,000
                )
                
                
                (14,000
                )Net
      decrease in cash
                
                
                (148,000
                )
                
                
                (2,000
                )Cash
      and cash equivalents - beginning of period
                
                
                510,000
                
                
                
                88,000Cash
      and cash equivalents - end of period
                
                $
                362,000
                
                
                $
                86,000





See Notes
to Unaudited Condensed Consolidated Financial Statements.


4


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Note
A—Business:




[1]
            Business:




CareAdvantage,
Inc. ( “the “Company”) and its direct and indirect subsidiaries, CareAdvantage
Health Systems, Inc. (“CAHS”) and Contemporary HealthCare Management, Inc.
(“CHCM”), are in the business of providing 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 financial
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.








[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 basic loss per share because they
had an anti-dilutive impact are as follows:




March 31,2010
                  
                  
                  2009Total
      Potential Dilutive Shares
                  
                  
                  9,472,000
                  
                  
                  
                  12,357,000


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 values at the date of 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
three months periods ended March 31, 2010 and 2009, the Company included
approximately $5,000 of equity-based compensation in its operating expenses
(Selling, general and administrative)  in the Company’s statement of
operations.  For the quarter ended March 31, 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.





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 months ended March 31, 2010 and
2009.





As of
March 31, 2010, there was no unrecognized compensation cost related to
non-vested equity-based compensation arrangements granted under existing stock
option plans.





During
the three months ended March 31, 2010, the exercise of certain stock options
resulted in the issuance of 2,097,000 shares of common stock for proceeds of
approximately $11,000. Proceeds of approximately $12,000 from one exercise were
collected subsequent to the period ended March 31, 2010.





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
losses of approximately $79,000 and $11,000, respectively, which were 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 presently maintains 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 will perform, 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 $167,027under 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 period ended March 31, 2010, the Company
recorded a loss of approximately $224,000, which includes the forfeiture of the
security deposit under the existing lease as described above.


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 and its direct and indirect subsidiaries, CAHS and CHCM, 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.  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
months ended March 31, 2010 with those for the three months ended March 31,
2009.  This 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 March 31, 2010, Compared to Three Months Ended March 31,
2009





Revenues:





The
Company's total operating revenues for the three-month periods ended March 31,
2010 and March 31, 2009 were approximately $860,000 and $970,000,
respectively.  The revenue was generated primarily from license and
consulting fees earned during the periods.  The decrease in revenue
for the three months ended March 31, 2010 over the same period last year was
primarily attributable to a decrease of approximately $196,000 due to
termination of care management services for one customer, and decreased revenue
of approximately $22,000 due to one-time engagements in 2009 that did not
reoccur in 2010, offset by an increase of approximately $54,000 in current
customer business and approximately $54,000 due to a one-time
engagement.





Cost
of services:





The
Company’s total direct cost of services for the three-month periods ended March
31, 2010 and March 31, 2009 was approximately $348,000 and $330,000,
respectively.  The increase in the cost of services for the
three-month period ended March 31, 2010 when compared to the first quarter of
March 31, 2009 was primarily due to increases in personnel costs largely on
account of severance and bonus payments relating to employee terminations. For
the three months ended March 31, 2009, personnel costs relating to the
terminated employees were approximately $75,000. For the three months ended
March 31, 2010, personnel costs for the same employees were approximately
$18,000 (one of the employees continued employment through January 31, 2010)
plus severance and bonus payments of approximately $75,000 for both
employees.





Selling,
general and administrative expenses:





The
Company’s total selling, general, and administrative costs for the three-month
periods ended March 31, 2010 and March 31, 2009 were approximately $695,000 and
$671,000, respectively. The increase for the three-month period ended March 31,
2010 when compared to the same period last year is primarily due to increases in
personnel costs of approximately $24,000 relating to accrued vacation liability
and increased health premium costs, professional fees of approximately $15,000
largely relating to the Fontes trial discussed in Note D to the unaudited
condensed consolidated financial statements presented elsewhere in this report,
and increases in other general and administrative costs of approximately $4,000,
offset by decreases in facility costs of approximately $16,000 largely due to
sublet income of approximately $25,000, and travel and communication costs of
approximately $3,000.





Loss
on building lease:





During
the first quarter of 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.





LIQUIDITY, FINANCIAL CONDITION AND
CAPITAL RESOURCES:





General
overview:





At March
31, 2010, the Company had working capital of approximately $12,000, stockholders
deficit of approximately $232,000 and an accumulated deficit of approximately
$24,811,000.





Financial
condition:





At March
31, 2010, the Company had cash of $362,000 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 $145,000 and $3,000 net cash used in financing
activities. 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 $21,000, an increase in deferred revenue of
approximately $23,000, a decrease in deferred rent of approximately $68,000,
increases in accounts payable and accrued expenses of approximately $90,000,
decrease in accounts receivable of approximately $56,000 and increases in
prepaid expenses and other assets of approximately $33,000, offset with a net
operating loss of $412,000 for the quarter ended March 31,
2010.


10


The
Company had working capital at March 31, 2010 of approximately $12,000 as
compared to working capital of approximately $417,000 at December 31, 2009. The
decrease in working capital was primarily due to an increase in current
liabilities of $113,000 largely relating to accounts payable and accrued
vacation and a decrease in current assets of approximately $292,000, 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 three-month period ended
March 31, 2010.





During
the first quarter of 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.





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 March 31, 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.





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
4T.  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 March 31, 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 March 31, 2010 that have materially affected, or are reasonably
likely to materially affect the Company’s internal control over financial
reporting.


11


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 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,
      IncMay
      14, 2010
            /s/ Dennis J. MourasDennis
      J. MourasChief
      Executive Officer andActing
      Principal Financial Officer




13





EXHIBIT
INDEX





10.1
            Office
      Lease between SMIII Woodbridge Plaza, LLC and the Company, delivered on
      January 18, 2010 and made as of December 28, 2009 (incorporated by
      reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 20,
      2010).


10.2
            Surrender
      Agreement between SMIII Woodbridge Plaza, LLC and CareAdvantage Health
      Systems, Inc., delivered on January 18, 2010 and made as of December 28,
      2009 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K
      filed on January 20, 2010).


10.3
            Amended
      and Restated Services and License Agreement between the Company and Blue
      Cross Blue Shield of Vermont made as of January 1, 2010 (incorporated by
      reference to Exhibit 10.36 to the Company’s Form 10-K for the year ended
      December 31, 2009). Portions of this exhibit (indicated by asterisks) have
      been omitted pursuant to a request for confidential treatment pursuant to
      Rule 24b-2 of the Securities Exchange Act of
  1934.





10.4
            Letter
      Agreement between the Company and Blue Cross Blue Shield of Vermont made
      as of December 31, 2009 (incorporated by reference to Exhibit 10.37 to the
      Company’s Form 10-K for the year ended December 31, 2009). Portions of
      this exhibit (indicated by asterisks) have been omitted pursuant to a
      request for confidential treatment pursuant to Rule 24b-2 of the
      Securities Exchange Act of 1934.





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