UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For
the quarterly period ended June 30, 2009





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




Issuer's
telephone number, including area code: (732) 362-5000




Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.




Yesx  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 companyx




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)





Yes ̈  Nox





The
number of shares of Common Stock outstanding as of July 17, 2009 is
62,554,442









INDEX





Part
      I - Financial Information
                    2Item
      1. Financial Statements
                    2·  
        Consolidated Balance Sheets -June 30, 2009 (Unaudited) and December
      31, 2008
                    2·     Consolidated Statements of Operations -Three
      and six months ended June 30, 2009 and June 30, 2008
      (Unaudited)
                    3·     Consolidated Statements of Cash Flows
      -Six months ended June 30, 2009 and June 30, 2008
    (Unaudited)
                    4·  
        Notes to Unaudited Condensed Consolidated Financial
      Statements
                    5Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                    8Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                    12Item
      4. Controls and Procedures
                    12Part II – Other
      Information
                    13Item
      1. Legal Proceedings
                    13Item
      1A. Risk Factors
                    13Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                    13Item
      3. Defaults Upon Senior Securities
                    13Item
      4. Submission of Matters to a Vote of Security Holders
                    13Item
      5. Other Information
                    13Item
      6. Exhibits
                    13Signature
                    14










PART
I - FINANCIAL INFORMATION


ITEM
1. Financial Statements





CAREADVANTAGE,
INC AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




June
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008UnauditedASSETSCurrent
      assets:Cash
      and cash equivalents
                              
                              $
                              306,000
                              
                              
                              $
                              88,000Accounts
      receivable
                              
                              
                              70,000
                              
                              
                              
                              239,000Prepaid
      expenses and other current assets
                              
                              
                              123,000
                              
                              
                              
                              102,000Total
      current assets
                              
                              
                              499,000
                              
                              
                              
                              429,000Property
      and equipment, at cost net of accumulated depreciation
                              
                              
                              139,000
                              
                              
                              
                              170,000Intangible
      assets, net of accumulated depreciation
                              
                              
                              2,000
                              
                              
                              
                              4,000Security
      deposits
                              
                              
                              167,000
                              
                              
                              
                              167,000Total
      Assets
                              
                              $
                              807,000
                              
                              
                              $
                              770,000LIABILITIES
      AND STOCKHOLDERS'DEFICITCurrent
      liabilities:Accounts
      payable
                              
                              $
                              456,000
                              
                              
                              $
                              454,000Accrued
      compensation and related benefits
                              
                              
                              164,000
                              
                              
                              
                              73,000Accrued
      professional fees
                              
                              
                              56,000
                              
                              
                              
                              50,000Other
      current liabilities
                              
                              
                              1,000
                              
                              
                              
                              1,000Deferred
      revenue
                              
                              
                              245,000
                              
                              
                              
                              33,000Capital
      lease obligation – current
                              
                              
                              58,000
                              
                              
                              
                              58,000Total
      current liabilities
                              
                              
                              980,000
                              
                              
                              
                              669,000Long
      term liabilities:Capital
      lease obligation - long term
                              
                              
                              46,000
                              
                              
                              
                              76,000Other
      liabilities
                              
                              
                              72,000
                              
                              
                              
                              -Deferred
      rent
                              
                              
                              342,000
                              
                              
                              
                              404,000Total
      long term liabilities
                              
                              
                              460,000
                              
                              
                              
                              480,000Total
      Liabilities
                              
                              
                              1,440,000
                              
                              
                              
                              1,149,000Stockholders'
      deficit: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;62,554,442
      issued and outstanding at June 30, 2009 and issued
    115,534,262shares
      and 62,139,442 outstanding at December 31, 2008
                              
                              
                              63,000
                              
                              
                              
                              115,000Additional
      capital
                              
                              
                              24,148,000
                              
                              
                              
                              24,138,000Accumulated
      deficit
                              
                              
                              (24,844,000
                              )
                              
                              
                              (24,370,000
                              )Treasury
      stock at cost (0  and 53,394,820 shares,
      respectively)
                              
                              
                              -
                              
                              
                              
                              (262,000
                              )Total
      Stockholders' Deficit
                              
                              
                              (633,000
                              )
                              
                              
                              (379,000
                              )Total
      Liabilities and Stockholders' Deficit
                              
                              $
                              807,000
                              
                              
                              $
                              770,000


See Notes
to Unaudited Condensed Consolidated Financial Statements.




2




CAREADVANTAGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)




Three Months Ended June 30,
                  
                  
                  Six Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008License
      fees and service revenue
                  
                  $
                  950,000
                  
                  
                  $
                  899,000
                  
                  
                  $
                  1,920,000
                  
                  
                  $
                  2,012,000Costs
      of services
                  
                  
                  367,000
                  
                  
                  
                  430,000
                  
                  
                  
                  697,000
                  
                  
                  
                  880,000Gross
      profit
                  
                  
                  583,000
                  
                  
                  
                  469,000
                  
                  
                  
                  1,223,000
                  
                  
                  
                  1,132,000Operating
      expenses:Selling,
      general and administrative
                  
                  
                  807,000
                  
                  
                  
                  727,000
                  
                  
                  
                  1,478,000
                  
                  
                  
                  1,617,000Operating
      loss
                  
                  
                  (224,000
                  )
                  
                  
                  (258,000
                  )
                  
                  
                  (255,000
                  )
                  
                  
                  (485,000
                  )Interest
      expense
                  
                  
                  (5,000
                  )
                  
                  
                  (6,000
                  )
                  
                  
                  (10,000
                  )
                  
                  
                  (12,000
                  )Net
      loss
                  
                  $
                  (229,000
                  )
                  
                  $
                  (264,000
                  )
                  
                  $
                  (265,000
                  )
                  
                  $
                  (497,000
                  )Net
      loss per share of common stock
                  
                  $
                  (.00
                  )
                  
                  $
                  (.00
                  )
                  
                  $
                  (.00
                  )
                  
                  $
                  (.01
                  )Weighted
      average number of common shares outstanding -Basic
      and diluted
                  
                  
                  62,412,000
                  
                  
                  
                  60,861,665
                  
                  
                  
                  62,333,000
                  
                  
                  
                  60,823,000





See Notes
to Unaudited Condensed Consolidated Financial Statements.




3




CAREADVANTAGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




Six Months Ended June 30,2009
                
                
                2008Cash
      flows from operating activities:Net
      loss
                
                $
                (265,000
                )
                
                $
                (497,000
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                33,000
                
                
                
                36,000Stock
      based compensation
                
                
                9,000
                
                
                
                42,000Deferred
      revenue
                
                
                212,000
                
                
                
                27,000Deferred
      rent and other liabilities
                
                
                (69,000
                )
                
                
                (12,000
                )Loss
      on sublease
                
                
                79,000
                
                
                
                -Change
      in:Accounts
      receivable
                
                
                169,000
                
                
                
                71,000Prepaid
      expenses and other current assets
                
                
                (21,000
                )
                
                
                94,000Accounts
      payable
                
                
                2,000
                
                
                
                194,000Accrued
      expenses and other current liabilities
                
                
                97,000
                
                
                
                (107,000
                )Net
      cash provided/(used) in operating activities
                
                
                246,000
                
                
                
                (152,000
                )Cash
      flows from investing activity:Capital
      expenditures
                
                
                -
                
                
                
                (1,000
                )Net
      cash used in investing activities
                
                
                -
                
                
                
                (1,000
                )Cash
      flows from financing activity:Proceeds
      from exercise of stock options
                
                
                2,000
                
                
                
                -Repayment
      of capital leases
                
                
                (30,000
                )
                
                
                (31,000
                )Net
      cash used in financing activities
                
                
                (28,000
                )
                
                
                (31,000
                )Net
      increase in cash and cash equivalents
                
                
                218,000
                
                
                
                (184,000
                )Cash
      and cash equivalents - beginning of period
                
                
                88,000
                
                
                
                508,000Cash
      and cash equivalents - end of period
                
                $
                306,000
                
                
                $
                324,000




See Notes
to Unaudited Condensed Consolidated Financial Statements.


4





Note
A—Business:




[1] Business and Basis of
Presentation:





CareAdvantage,
Inc. (the “Company”) and its direct and indirect subsidiaries, CareAdvantage
Health Systems, Inc. and Contemporary HealthCare Management, Inc., are in the
business of providing healthcare consulting services, data warehousing and
analytic services designed to enable integrated health care delivery systems,
healthcare plans, employee benefit consultants, other care management
organizations, self insured employers and unions to reduce the costs, while
improving the quality, of medical services provided to the healthcare
participants. The services include care management program enhancement services,
executive and clinical management services, training programs, risk
stratification and predictive modeling. The Company operates in one business
segment.





As part
of offering its healthcare consulting services, the Company has developed
RightPath® Navigator (RPNavigator), a proprietary tool to help its customers
better understand and forecast resource consumption, risk, and costs associated
with their respective populations. In providing its services, the Company
licenses RPNavigator to its customers and provides consulting services in
connection with that licensing.





The
unaudited condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  The
Company generates most of its revenue from the licensing of RPNavigator and
providing consulting services in connection with that licensing. Based on cash
on hand at June 30, 2009 and 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. However, there can be no assurances that management’s plans,
including projected revenue, will be attained. The Company has a history of
losses in prior periods. For the three and six months ended June 30, 2009, the
Company had a net loss of $229,000 and $265,000,
respectively.  Additionally, at June 30, 2009, the Company has an
accumulated deficit of $24,844,000, stockholders’ deficit of $633,000 and cash
and cash equivalents of $306,000. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern.  The
unaudited condensed consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. For
further information, see Note A(2) to the audited consolidated financial
statements included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.





The
Company has prepared the condensed consolidated interim financial statements
included herein, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC").  Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been omitted pursuant to such rules and regulations. In the opinion
of management, such financial statements reflect all adjustments necessary for a
fair presentation of the results for the interim periods presented. All
adjustments necessary for a fair presentation of interim period results are of a
normal recurring nature unless otherwise noted. The Company’s results of
operations for the three and six months ended June 30, 2009 are not necessarily
indicative of the results to be expected for the full year or any future interim
period.  These interim financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.




[2]     Recent
Accounting Pronouncements:




In
September 2006, the Financial Accounting Standards Board issued SFAS No. 157,
“Fair Value Measurements”, to define fair value, establish a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expand disclosures about fair value measurements. SFAS No. 157
is effective for fiscal years beginning after November 15, 2007. The provisions
under SFAS No. 157 were effective for the Company beginning January 1, 2008. In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157”, which defers the effective date of SFAS No. 157 for all
nonrecurring fair-value measurements of nonfinancial assets and liabilities
until fiscal years beginning after November 15, 2008.  The adoption of
these pronouncements did not have a material impact on the Company’s financial
position and results of operations.





In
October 2008, the Financial Accounting Standards Board issued Staff Position No.
157-3, “Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active,” which clarifies the application of FASB Statement No. 157
in a market that is not active.  This FSP is effective for fiscal
years beginning after October 10, 2008.  The adoption of this
pronouncement did not have a material impact on the Company’s financial position
and results of operations.





In April
2008, the Financial Accounting Standards Board issued Staff Position No. 142-3,
“Determination of the Useful Life of Intangible Assets” (“FSP No.
142-3”).  FSP No. 142-3 amends the factors to be considered when
developing renewal or extension assumptions that are used to estimate an
intangible asset’s useful life under SFAS No. 142, “Goodwill and Other
Intangible Assets.”  FSP No. 142-3 is effective for fiscal years
beginning after December 15, 2008.  The adoption of this pronouncement
did not have a material impact on the Company’s financial position and results
of operations




5





In April
2009, the Financial Accounting Standards Board issued Staff Position No. 107-1,
“Interim Disclosures about Fair Value of Financial Instruments” (“FSP No.
107-1”).  FSP No. 107-1 requires disclosing qualitative and
quantitative information about the fair value of all financial instruments on a
quarterly basis, including methods and significant assumptions used to estimate
fair value during the period.  These disclosures were previously
required annually.  The disclosures required by the FSP are effective
for quarter ending June 30, 2009 and are included in Note E to the unaudited
consolidated financial statements for the period ended June 30,
2009.





In May
2009, the Financial Accounting Standards Board issued Staff Position No. 165,
“Subsequent Events” (“SFAS. 165”).  SFAS 165 establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or available
to be issued.  SFAS 165 provides guidance on the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and disclosures that an entity should make about events or
transactions that occurred after the balance sheet date.  The adoption
of this pronouncement during the quarter ended June 30, 2009 did not have any
impact on the Company’s financial position and results of
operations.





In June
2009, the Financial Accounting Standards Board issued Staff Position No. 168,
“The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles”.  This standard replaces SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles”, and establishes
only two levels of U.S. generally accepted accounting principles (“GAAP”),
authoritative and nonauthoritative.  The FASB Accounting Standards
Codification (the “Codification”) will become the source of authoritative,
nongovernmental GAAP, except for the rules and interpretive releases of the
Securities and Exchange Commission (“SEC”), which are sources of authoritative
GAAP for SEC registrants.  All other nongrandfathered, non-SEC
accounting literature not included in the Codification will become
nonauthoritative.  This standard is effective for financial statements
for interim or annual reporting periods ending after September 15,
2009.  The adoptions of this pronouncement will not have any impact on
the Company’s financial position and results of operations, as the Codification
was not intended to change or alter existing GAAP.





Note
B—Per share data:




Basic
loss per share is calculated by dividing net loss by the weighted average number
of common shares outstanding during the period. Diluted loss per share is
calculated by dividing net loss by the weighted average number of common shares
outstanding during the period, adjusted for the dilutive effect of the
outstanding stock options and awards.  Potentially dilutive securities
which were excluded from the computation of basic loss per share because they
had an anti-dilutive impact are as follows:




Three and Six Months Ended June
      30,2009
                              
                              
                              2008Total
      Potential Dilutive shares
                              
                              
                              12,287,000
                              
                              
                              
                              16,266,000




Note
C—Stock-Based Compensation:




The
Company recognizes stock-based compensation in accordance with Statement of
Financial Accounting Standard No. 123R, “Share Based Payment” (“FAS 123R”),
which requires that all equity-based payments, including grants of stock
options, be recognized in the statement of operations as a compensation
expense, based on their fair values at the date of grant. Under the provisions
of FAS 123R, 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.





For the
three and six-month periods ended June 30, 2009, the Company included
approximately $4,000 and $9,000, respectively, of equity-based compensation in
its operating expenses (Selling, general and administrative) in the Company’s
statement of operations. For the three and six months ended June 30, 2008, the
Company included approximately $10,000 and $42,000, respectively, of
equity-based compensation in the Company’s statement of
operations.  For the six months ended June 30, 2008, the total
equity-based compensation included approximately $20,000 stock charge related to
a stock bonus grant of 1,000,000 shares of common stock to an
employee.





FAS 123R
requires cash flows resulting from the tax benefits of tax deductions in excess
of the compensation cost recognized for those options (excess tax benefits) to
be classified as financing cash flows. The Company did not realize any tax
benefits from stock options during the three and six months ended June 30, 2009
and 2008.


6





As of
June 30, 2009, there was no unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under existing stock option
plans.





During
the six months ended June 30, 2009, the exercise of certain stock options
resulted in the issuance of 215,000 shares of common stock for proceeds of
$2,000.




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 and in October 2005,
pursuant to court order, 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.





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 accounts receivable. The Company maintains its cash balances in financial
institutions. At times, the amount of cash maintained in a given financial
institution may exceed the federally insured limits.





The fair
values of the following instruments approximate 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:





The
Company's executive offices and operations, comprising approximately 28,000
square feet of office space, are located in the Metropolitan Corporate Plaza in
Iselin, New Jersey. The Company had executed a six-year lease for this facility
commencing June 15, 1995, which was extended during 2000 for 10 additional
years. The extended lease provides for an annual base rent of approximately
$668,000 with annual escalations based on increases in real estate taxes and
operating expenses.





On
January 10, 2005, the Company 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. (With respect to the option granted the
landlord, as a result of the Company’s ceasing to provide services to Horizon
BCBSNJ, the Company no longer needed this space.)  The expiration date
of the lease, March 31, 2011, remains unchanged by this Second
Amendment.





Under the
Second Amendment to Lease Agreement, the Company is 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;
and (2) the Company may not be in default under any terms or conditions of the
original lease.  In the event the Company fails to meet these
conditions, the reduction in base rent, real estate taxes and operating expenses
will be nullified and entirely forfeited, and the Company will 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 is
$1,257,000.





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 does not reduce or modify, in any
respect, the Company’s obligations to pay to the landlord monthly rent or, in
the event the Company fails to meet above conditions, additional rent. Effective
as of the Recapture Date, the premises leased by the Company under the lease is
deemed to be 15,629 rentable square feet.





On 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, the Company signed a sublease agreement for approximately 3,700
square feet of its office space which calls for monthly rental payments of
approximately $7,000 to the Company from the sublessee.  The term of
the sublease runs 23 months through March 31, 2011.  The sublease
income does not cover the costs of the primary lease for the related
space.  Consequently, in accordance with FASB Technical Bulletin
79-15, Accounting for Loss on
a Sublease Not Involving the Disposal of a Segment (FTB 79-15), the
Company recognized a loss of approximately $79,000, which is included in
selling, general and administrative expense.




7


At June
30, 2009, the additional base rent that would be due if the Company failed to
meet the conditions of the Second Amendment to Lease Agreement would be
$352,000.  The additional base rent that would be due at December 31
of the next two years if the Company failed to meet the conditions of the Second
Amendment is as follows:




Year
                    Ending
                  
                  Additional
                    Rent2009
                  
                  $
                  251,0002010
                  
                  
                  50,000





Note
G—Retirement of Treasury Stock:




On June
30, 2009, the Company retired 53,394,820 shares of common stock that the Company
was carrying on its balance sheet as treasury stock.  The retired
shares are now classified as authorized but unissued shares of common
stock.




Note
H – Subsequent Events:




The
Company evaluated subsequent events through the date the accompanying financial
statements were issued, which was August 13, 2009.




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, CareAdvantage Health Systems,
Inc. and Contemporary Healthcare Management, Inc., are in the business of
providing healthcare consulting services, data warehousing and analytic services
designed to enable integrated health care delivery systems, healthcare plans,
employee benefit consultants, other care management organizations, self-insured
employers and unions to reduce the costs, while improving the quality, of
medical services provided to their health plan 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 internal and external vendors;
and




•
            Reduced
      dependence on internal resources to develop and produce required reports
      to accomplish these tasks


8




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.





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, 2008 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 Statement of
Financial Accounting Standard No. 123R, “Share Based Payment” (FAS123R), 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 FAS 123R, 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 FAS 123R, 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 FAS 123R, 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.


9





Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board issued SFAS No. 157,
“Fair Value Measurements”, to define fair value, establish a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expand disclosures about fair value measurements. SFAS No. 157
is effective for fiscal years beginning after November 15, 2007. The provisions
under SFAS No. 157 were effective for the Company beginning January 1, 2008. In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157”, which defers the effective date of SFAS No. 157 for all
nonrecurring fair-value measurements of nonfinancial assets and liabilities
until fiscal years beginning after November 15, 2008.  The adoption of
this pronouncement did not have a material impact on the Company’s financial
position and results of operations.




In
October 2008, the Financial Accounting Standards Board issued Staff Position No.
157-3, “Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active,” which clarifies the application of FASB Statement No. 157
in a market that is not active.  This FSP is effective for fiscal
years beginning after October 10, 2008.  The adoption of this
pronouncement did not have a material impact on the Company’s financial position
and results of operations.





In April
2008, the Financial Accounting Standards Board issued Staff Position No. 142-3,
“Determination of the Useful Life of Intangible Assets” (“FSP No.
142-3”). , FSP No. 142-3 amends the factors to be considered when
developing renewal or extension assumptions that are used to estimate an
intangible asset’s useful life under SFAS No. 142, “Goodwill and Other
Intangible Assets.”  FSP No. 142-3 is effective for fiscal years
beginning after December 15, 2008.  The adoption of this pronouncement
did not have a material impact on the Company’s financial position and results
of operations.





In April
2009, the Financial Accounting Standards Board issued Staff Position No. 107-1,
“Interim Disclosures about Fair Value of Financial Instruments” (“FSP No.
107-1”).  FSP No. 107-1 requires disclosing qualitative and
quantitative information about the fair value of all financial instruments on a
quarterly basis, including methods and significant assumptions used to estimate
fair value during the period.  These disclosures were previously only
done annually.  The disclosures required by the FSP were effective
starting with the quarter ended June 30, 2009 and are included in Note E to the
unaudited consolidated financial statements for the period ended June 30,
2009.





In May
2009, the Financial Accounting Standards Board issued Staff Position No. 165,
“Subsequent Events” (“SFAS. 165”).  SFAS 165 establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or available
to be issued.  SFAS 165 provides guidance on the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and disclosures that an entity should make about events or
transactions that occurred after the balance sheet date.  The adoption
of this pronouncement during the quarter ended June 30, 2009 did not have any
impact on the Company’s financial position and results of
operations.





In June
2009, the Financial Accounting Standards Board issued Staff Position No. 168,
“The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles”.  This standard replaces SFAS No. 162,
“The Hierarchy of Generally Accepted Accounting Principles”, and establishes
only two levels of U.S. generally accepted accounting principles (“GAAP”),
authoritative and nonauthoritative.  The FASB Accounting Standards
Codification (the “Codification”) will become the source of authoritative,
nongovernmental GAAP, except for the rules and interpretive releases of the
Securities and Exchange Commission (“SEC”), which are sources of authoritative
GAAP for SEC registrants.  All other nongrandfathered, non-SEC
accounting literature not included in the Codification will become
nonauthoritative.  This standard is effective for financial statements
for interim or annual reporting periods ending after September 15,
2009.  The adoptions of this pronouncement will not have any impact on
the Company’s financial position and results of operations, as the Codification
was not intended to change or alter existing GAAP.




RESULTS
OF OPERATIONS:




The
following discussion compares the Company’s results of operations for the three
and six months ended June 30, 2009, with those for the three and six months
ended June 30, 2008. The discussion should be read in conjunction with the
unaudited consolidated financial statements and related notes presented in this
report, as well as the audited consolidated financial statements and related
notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.


10





Three
Months Ended June 30, 2009, Compared to Three Months Ended June 30,
2008




Revenues:




The
Company's total operating revenues for the three-month periods ended June 30,
2009 and June 30, 2008 were approximately $950,000 and $899,000, respectively.
The revenue was generated primarily from license and consulting fees earned
during these periods. The increase in revenue for the three months ended June
30, 2009 over the same period last year was primarily attributable to an
increase of $80,000 in current customer business, largely due to increased
membership on one major customer, offset by a decrease of approximately $29,000
due to a one-time engagement in 2008 that did not reoccur in 2009.





Cost
of services:




The
Company’s total direct cost of services for the three-month periods ended June
30, 2009 and June 30, 2008 was approximately $367,000 and $430,000,
respectively. The decrease in the cost of services for the three-month period
ended June 30, 2009 when compared to the same period last year was primarily due
to decreases in personnel costs largely due to reductions in
headcount.




Selling,
general and administrative expenses:




The
Company’s total selling, general, and administrative costs for the three-month
periods ended June 30, 2009 and June 30, 2008 were approximately $807,000 and
$727,000, respectively. The increase for the three-month period ended June 30,
2009 when compared to the same period last year is primarily due to increases in
other general and administrative costs of approximately $59,000, largely
relating to a loss of approximately $79,000 on the sublease, increases in
personnel costs of approximately $10,000, increases in professional costs of
approximately $29,000, offset by decreases of approximately $18,000 in facility
costs.





Six
Months Ended June 30, 2009, Compared to Six Months Ended June 30,
2008




Revenues:




The
Company's total operating revenues for the six-month periods ended June 30, 2009
and June 30, 2008 were approximately $1,920,000 and $2,012,000, respectively.
The revenue was generated primarily from license and consulting fees earned
during these periods. The decrease in revenue for the six months ended June 30,
2009 over the same period last year was primarily attributable to approximately
$95,000 of one-time engagements in 2008 that did not reoccur in 2009, offset by
an increase of approximately $3,000 in current customer business as a result of
fluctuations in membership for certain customers.





Cost
of services:




The
Company’s total direct cost of services for the six-month periods ended June 30,
2009 and June 30, 2008 was approximately $697,000 and $880,000, respectively.
The decrease in the cost of services for the six-month period ended June 20,
2009 when compared to the same period last year is primarily due to decreases in
personnel costs of approximately $194,000 largely due to reductions in
headcount, decreases in billable travel of approximately $5,000, offset by
increases of approximately $16,000 in professional costs.




Selling,
general and administrative expenses:




The
Company’s total selling, general, and administrative costs for the six-month
periods ended June 30, 2009 and June 30, 2008 were approximately $1,478,000 and
$1,617,000, respectively. The decrease for the six-month period ended June 20,
2009 when compared to the same period last year is primarily due to decreases in
personnel costs of approximately $43,000, decreases in facility and travel costs
of approximately $28,000 and decreases of approximately $89,000 in professional
costs, offset with an increase of approximately $21,000 in other general and
administrative costs, largely relating to a loss of approximately $79,000 on the
sublease.




LIQUIDITY, FINANCIAL CONDITION AND
CAPITAL RESOURCES:




General
overview:




At June
30, 2009, the Company had negative working capital of approximately $481,000,
stockholders’ deficit of approximately $633,000 and an accumulated deficit of
approximately $24,844,000.




11





Financial
condition:




At June
30, 2009, the Company had cash of approximately $306,000 as compared to $88,000
as of December 31, 2008.  The increase in cash was primarily due to
$246,000 of net cash provided by operating activities, primarily relating to
deferred revenue of approximately $250,000 for one new customer, offset by
$28,000 of net cash used in financing activities, which primarily relates to the
repayment of capital leases.




The
Company had negative working capital at June 30, 2009 of approximately $481,000
as compared to negative working capital of approximately $240,000 at December
31, 2008.  The increase in negative working capital was primarily due
to an increase in current liabilities of approximately $311,000 largely due to
deferred revenue of approximately $250,000 for one new customer and accrued
vacation liability of approximately $53,000.





There
were no cash flows from investing activity for the six-month period ended June
30, 2009.





During
the first quarter of 2009, the Company signed a sublease agreement effective May
1, 2009 for approximately 3,700 square feet of its office space which calls for
monthly rental payment of approximately $7,000 to the Company from the
sublessee.




The
Company generates most of its revenue from the licensing of RPNavigator and
providing consulting services in connection with that
licensing.  Management believes that its cash on hand at June 30, 2009
and cash flow from operations based on a forecast prepared by management, which
takes into account executed contracts, and planned cost reductions, should
enable the Company to meet its obligations as they become due during the next 12
months.  However, there can be no assurances that management’s plans,
including projected revenue, will be attained.    If the
Company is unsuccessful in increasing its business, obtaining additional
financing, or curtailing operational costs to the point that net revenues are
sufficient to offset expenses, the Company will continue to operate at a loss
and will be required to wind up its operations, sell its assets, restructure the
business, or liquidate, as a result of which there is substantial doubt about
its ability to continue as a going concern.  No adjustments have been
made to the accompanying financial statements with respect to such
uncertainty.  Notwithstanding the foregoing, the Company is cautiously
optimistic about opportunities in its business and currently plans to pursue
those opportunities.  The Company has a history of losses in prior
periods. For the six months ended June 30, 2009, the Company had a net loss of
$265,000. Additionally, at June 30, 2009, the Company had an accumulated deficit
of $24,844,000, stockholders’ deficit of $633,000 and cash and cash equivalents
of $306,000.




ITEM
3. Quantitative and Qualitative Disclosures About Market Risk





The
Company is a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 (the “Exchange Act”) and is not required to
provide the information under this item.





ITEM
4. Controls and Procedures




(a)
Disclosure Controls and Procedures




Senior
management maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company’s 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, an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures as of the end of the quarter ended June 30, 2009 was carried out
under the supervision and with the participation of management, including the
Chief Executive Officer, who is also the acting Principal Financial Officer, of
the effectiveness of the design and operation of the Company’s 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 the Company’s disclosure controls and procedures are, in
fact, effective at the reasonable assurance level.





(b) Changes
in Internal Control Over Financial Reporting





During
the quarter ended June 30, 2009, there were no changes in the Company’s internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




12




PART
II—OTHER INFORMATION




Item
1. Legal Proceedings





For a
description of legal proceedings, see Note D to the unaudited 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 details in Item 1A of Part I of the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.   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. Submission of Matters to a Vote of Security Holders




No
matters were submitted to a vote of the Company’s security holders during the
quarter ended June 30, 2009.




Item
5. Other Information




None.




Item
6. Exhibits





The
exhibits that are filed or furnished with this report are listed in the Exhibit
Index that immediately follows the signatures to this report, which index is
incorporated herein by reference.


13




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




CareAdvantage,
      IncAugust
      13, 2009
            /s/ Dennis J. MourasDennis
      J. MourasChief
      Executive Officer andActing
      Principal Financial Officer




14




EXHIBIT
INDEX





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





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





15