SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                  For the quarterly period ended April 30, 1997

                         COMMISSION FILE NUMBER 0-26168

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

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

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

       Registrant's telephone number, including area code: (908) 602-7000

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

                                   74,389,886
        Number of shares of Common Stock outstanding as of June 16, 1997

                  Transitional Small Business Disclosure Format
                                  Yes _X_ No__

                           This is Page 1 of 14 Pages.

<PAGE>

                               CAREADVANTAGE, INC
                           CONSOLIDATED BALANCE SHEETS

                                    ASSETS             April 30,    October 31,
                                                         1997          1996
                                                       --------     ----------

Current assets:
   Cash and cash equivalents                        $   147,507    $ 1,167,147
   Accounts receivable-stockholder                    1,184,970        833,333
   Accounts receivable-other                            678,476         90,000
   Other current assets                                 186,107        129,829
                                                    -----------    -----------
       Total current assets                           2,197,060      2,220,309
Property and equipment, at cost less 
   accumulated depreciation                           1,464,675      1,480,746
Intangible assets (net)                               1,856,198      2,080,769
Other assets                                             85,417         79,184
                                                    -----------    -----------
       Total assets                                 $ 5,603,350    $ 5,861,008
                                                    ===========    ===========

                       LIABILITIES AND CAPITAL DEFICIENCY

Current liabilities:
   Current portion of long-term debt                $   542,932    $   623,472
   Note payable-stockholder                           2,000,000      2,000,000
   Accounts payable-trade                               384,810        569,346
   Due to customer                                      117,648        485,594
   Due to stockholder                                         0      1,525,694
   Accrued salaries and employee benefits               511,727        512,505
   Accrued expenses and other current liabilities     1,447,720        694,996
                                                    -----------    -----------
       Total current liabilities                      5,004,837      6,411,607

Capital lease obligations, less current portion         717,390        996,591
Due to stockholder, less current portion                      0        435,912
Notes payable-stockholder                             1,862,823              0
Deferred revenue and other long-term liabilities        746,540              0

Capital deficiency:
   Preferred stock-par value $.10 per share; 
      authorized 10,000,000 Shares; none issued 
      and outstanding
   Common stock-par value $.001 per share; 
      authorized  90,000,000 Shares; issued 
      and outstanding 74,389,886 and 24,233,327          74,390         24,233
   Additional capital                                19,640,586     19,690,248
   Accumulated deficit                              (22,443,216)   (21,697,583)
                                                    -----------    -----------
       Total capital deficiency                      (2,728,240)    (1,983,102)
                                                    -----------    -----------

       Total liabilities and capital deficiency     $ 5,603,350    $ 5,861,008
                                                    ===========    ===========

        The accompanying notes are an integral part of these statements.


                                       2
<PAGE>

                               CAREADVANTAGE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                              Three Months Ended         Six Months Ended
                                                  April 30,                 April 30,
                                              ------------------        ------------------
                                              1997        1996*         1997         1996*
                                              ----        -----         ----         -----
<S>                                       <C>          <C>          <C>          <C>       
Net revenues                               3,966,096    3,416,734   $ 6,335,397  $ 7,464,124

Costs of services                          1,796,964    2,289,292     3,685,097    4,719,504
                                           ---------    ---------   -----------  -----------

Gross margin                               2,169,132    1,127,442     2,650,300    2,744,620

Operating expenses:

   Selling, general and administration     1,240,347    1,684,289     2,739,197    2,763,700
   Depreciation and amortization             258,238      300,181       514,805      539,726
                                          ----------   ----------   -----------  -----------
     Total operating expenses              1,498,585    1,984,470     3,254,002    3,303,426

Interest                                      65,730      140,469       141,932      195,005

Net income (loss)                           $604,817    ($997,497)    ($745,634)   ($753,811)
                                          ==========   ==========   ===========  ===========

Pro forma net income (loss)
per share of common stock                       $.01        ($.02)        ($.01)       ($.01)
                                          ==========   ==========   ===========  ===========

Pro forma weighted average number 
of common shares outstanding              74,389,886   59,164,000    74,389,886   50,445,000
                                          ==========   ==========   ===========  ===========
</TABLE>

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                            Six Months Ended
                                                                April 30,
                                                          --------------------
                                                          1997           1996*
                                                          ----           -----

Operating activities:
   Net profit (loss)                                   ($745,634)     ($753,811)
   Adjustments to reconcile  net profit (loss) 
     to net cash Provided from (used for) 
     operating activities:
     Depreciation and amortization                       514,805        539,726
     Expense associated with issuance of warrants              0         98,000

Change in assets and liabilities:
     Due to/from customers/stockholders               (1,406,842)    (1,050,650)
     Other assets                                        (62,511)        11,441
     Accounts payable                                   (184,536)      (165,115)
     Accrued expenses and other liabilities            1,498,486        339,896
     Restricted cash account                                   0       (480,318)
                                                     -----------    -----------

       Cash provided from (used by) 
          operating activities                          (386,232)    (1,460,831)
                                                     -----------    -----------

 Investing activities:
   Capital expenditures                                 (273,667)       (11,428)
   Acquisition of intangible assets                            0       (179,462)
   Acquistion of CHCM(cash proceeds-net of 
     transaction costs)                                        0        750,612
                                                     -----------    -----------

       Cash provided from (used by) investing 
          activities                                    (273,667)       559,722
                                                     -----------    -----------

Financing activities:
   Principal payments under long-term debt              (359,741)      (254,451)
   Proceeds from issuance of note payable                      0      2,000,000
   Net proceeds from issuance of common stock                  0        925,000
                                                     -----------    -----------

       Cash provided from  (used by) financing 
          activities                                    (359,741)     2,670,549
                                                     -----------    -----------

Net increase (decrease) in cash                       (1,019,640)     1,769,440

Cash - beginning of fiscal year                        1,167,147        536,471
                                                     -----------    -----------

Cash - end of period                                 $   147,507    $ 2,305,911
                                                     ===========    ===========

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.

                                       4
<PAGE>

                               CAREADVANTAGE, INC.
                 NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1997
                                   (Unaudited)

CareAdvantage,  Inc.  ("CAI"  or the  "Company"),  is a holding  company  which,
through its  subsidiaries,  CareAdvantage  Health  Systems,  Inc.  ("CAHS")  and
Contemporary  HealthCare  Management,  Inc. ("CHCM"),  provides health care cost
containment   services  to  health  care  insurers  and  other  health  services
organizations  to  reduce  the  costs  of  medical  services  provided  to their
subscribers without reducing the quality of service.

Basis of Preparation:

The consolidated balance sheet at April 30, 1997 and the consolidated statements
of operations  and cash flows for the  three-month  and six-month  periods ended
April 30, 1997 and 1996 have been  prepared by CAI and have not been  audited by
the  Company's  independent   auditors.  In  the  opinion  of  management,   the
accompanying  financial  statements  include all adjustments (which include only
normal  recurring   adjustments)  necessary  to  present  fairly  the  financial
position,  results of  operations  and cash flows at April 30,  1997 and for all
periods presented.

Certain  information  and  note  disclosures  required  to be  included  in  the
financial  statements  prepared in accordance with generally accepted accounting
principles have been omitted.  These consolidated financial statements should be
read in conjunction  with the financial  statements  and notes thereto  included
with the Company's  October 31, 1996 Annual Report on Form 10-KSB filed with the
Securities  and Exchange  Commission.  The results of operations  for the period
ended April 30,1997 are not  necessarily  indicative of operating  results to be
expected for the full year.

Pro forma Net Income(Loss) Per Share Common Stock:

Pro forma weighted average common shares outstanding include the CW Ventures II,
L.P. ("CW Ventures") shares of 25,914,222 issued in connection with the terms of
the promissory note by CAHS in favor of CW Ventures,  dated February 22, 1996 as
if they had been issued on February  22, 1996 and the Blue Cross and Blue Shield
of New Jersey,  Inc.  ("BCBSNJ")  shares of 24,242,337 issued in connection with
the terms of the  promissory  note by CAHS in favor of BCBSNJ  (as  assignee  of
Enterprise  Holding  Co.,  Inc.),  dated  February  22, 1996 as if they had been
issued as of November 1, 1995, as the operations of the business  purchased from
BCBSNJ (CHCM) is included in the Company's  results of operations for the entire
six-month period ended April 30, 1996.

Contingencies:

Potential Uninsured Exposure to Litigation:

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

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


                                       5
<PAGE>

                               CAREADVANTAGE, INC.
                 NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1997
                                   (Unaudited)

Termination of Employment:

A former  Medical  Director  of CAHS has  asserted a claim.  The former  Medical
Director was employed from  September  1995 through May 1996 when he voluntarily
resigned,  allegedly due to a change of control of the Company in February 1996.
He contends  that he is entitled to: (i) a severance  payment  equal to one year
annual base compensation ($190,000);  and (ii) vesting in 75,000 qualified stock
options at a strike price of $1.25 per share.  The former Medical Director bases
his claim on an executed  written  agreement  drafted by a placement firm, which
memorializes  some, but not all, of the terms and conditions of his  employment.
The Company  intends to  vigorously  contest this matter on the grounds that the
former  Medical  Director  (i) is not  entitled  to  severance;  and (ii) has no
entitlement to stock options as the plan was never approved by the shareholders.
The former Medical  Director alleges claims of breach of contract and promissory
estoppel;  an action has not yet been  commenced in any court.  The parties have
agreed to submit  this  claim to  arbitration  before the  American  Arbitration
Association in an effort to amicably resolve this matter prior to litigation. At
this  time,  the  Company  cannot  predict  the  likelihood  of a  favorable  or
unfavorable outcome.

Professional Liability:

In providing utilization review and case management services,  the Company makes
recommendations  regarding  benefit  plan  coverage  based  upon  judgments  and
established  protocols  as  to  the  appropriateness  of  the  proposed  medical
treatment.  Consequently, the Company could have potential liability for adverse
medical  results.  The Company  could  become  subject to claims  based upon the
denial of health care benefits and claims such as  malpractice  arising from the
acts or  omissions of health care  professionals.  Although the Company does not
believe that it engages in the practice of medicine or that it delivers  medical
services  directly,  no  assurance  can be given  that the  Company  will not be
subject to  litigation  or liability  which may  adversely  affect its financial
condition and operations in a material  manner.  Although the Company  maintains
comprehensive  general liability and professional  liability insurance coverage,
including  coverage for liability in connection  with the performance of medical
utilization  review  services and  typically  obtains  indemnification  from its
customers, no assurances can be given that such coverage will be adequate in the
event the Company becomes subject to any of the above described claims.

Subsequent Events:

Re-negotiation of contract with Blue Cross and Blue Shield of New Jersey, Inc.
("BCBSNJ"):

In June 1997,  the Company  completed  re-negotiating  its contract with BCBSNJ.
Under the terms of the revised  agreement,  the Company will continue to provide
specialized cost containment  services for BCBSNJ on behalf of its approximately
780,000 indemnity and PPO subscribers. This amended and restated agreement which
expires on June 30, 2000 supersedes the original service  agreement entered into
on February  22,  1996.  Under the revised  terms,  the Company  will  receive a
combination  of fixed-  and  performance-based  compensation.  The  Company  has
recognized revenues from this contract for the three-month and six-month periods
ended   April   30,   1997   of   $3,071,000   and   $4,901,000,   respectively.
Contemporaneously  with the  execution  of this  amended and  restated  services
agreement  the Company  issued to BCBSNJ a  promissory  note in the  approximate
amount of $1,863,000 for repayment of cash received in excess of revenues earned
from such  customer  during 1996.  Interest on the note accrues at the five-year
treasury rate, adjusted  quarterly,  beginning April 1, 1997, with principal and
interest  payments to commence in  substantially  equal monthly  installments on
October 1, 1998.

Resignation of Senior Officer:

On May 23, 1997, a senior  officer of the Company  tendered his  resignation  as
President of CAHS effective June 27, 1997. Pursuant to his Employment Agreement,
dated June 1, 1995, and amended as of June 6, 1996 (the "Employment Agreement"),
the former employee is to receive salary continuation payments for six months or
until such time that he  accepts  another  employment  offer,  whichever  occurs
first.  The Company recorded a severance charge of $134,000 in fiscal year ended
October 31, 1996 pursuant to the provisions of the Employment Agreement.


                                       6
<PAGE>

                               CAREADVANTAGE, INC.
                 NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1997
                                   (Unaudited)

Resignation of Directors:

By  unanimous  written  consent  dated as of May 22, 1997 the Board of Directors
accepted the  resignation,  effective as of May 23, 1997,  of two members of the
Board of Directors,  David Kass and Eric  Schlesinger,  which directors had been
nominated by CW Ventures.  The Board of Directors  filled the vacancies  created
with two new directors, Barry Weinberg and Walter Channing, Jr., nominated by CW
Ventures pursuant to section 1.1(e) of the Stockholders  Agreement,  dated as of
February 22,  1996,  among the Company,  CW  Ventures,  and BCBSNJ.  Each of Mr.
Weinberg  and Mr.  Channing is a co-founder  of Channing,  Weinberg and Company,
Inc.,  a  business  consulting  firm  to  healthcare   companies  and  financial
institutions,  and is a general  partner of CW Partners III,  L.P.,  the general
partner of CW  Ventures.  Additionally,  the Board of  Directors,  by  unanimous
written  consent  dated as of May 22,  1997,  consented  to fixing  the Board of
Directors at six members.

Form of Chief Executive Officer Employment Agreement Approved by The Board of
Directors:

By unanimous  written  consent dated as of June 11, 1997, the Board of Directors
approved an employment contract for the President and Chief Executive Officer of
the Company ( the "Riley Employment Agreement"), which is attached as an exhibit
hereto and  incorporated by reference  herein.  The Riley  Employment  Agreement
provides  for a term  commencing  June 10, 1997 and ending on December 31, 1998,
with annual  compensation of $275,000 per annum. If Mr. Riley is employed by the
Company on June 30,  1997,  he is  entitled  to receive a bonus in the amount of
$100,000.  The Riley Employment  Agreement also provides for certain payments to
be made to Mr. Riley in the event of a Non-Fault  Termination (as defined in the
Riley Employment Agreement),  including without limitation,  the salary to which
he would be  entitled  during the  12-month  period  following  the date of such
Non-Fault Termination.  Mr. Riley agrees to certain non-compete  provisions,  as
more fully set forth in the Riley Employment Agreement.

Establishment of Credit Facility in the amount of $3 million with Summit Bank:

In June 1997,  the Company  entered into an agreement  (the "Credit  Agreement")
which is attached as an exhibit  hereto and  incorporated  by reference  herein,
with Summit Bank, and BCBSNJ, as guarantor.  The Credit Agreement provides for a
working  capital  facility  in the amount of  $1,500,000  and a term loan in the
amount of $1,500,000.  The Company's  obligations under the Credit Agreement are
guaranteed by BCBSNJ, a principal  stockholder of the Company,  according to the
Guaranty  Agreement  which is attached as an exhibit hereto and  incorporated by
reference  herein,  and are secured by pledged U.S. agency  securities of BCBSNJ
according  to the Pledge  Agreement  which is attached as an exhibit  hereto and
incorporated by reference  herein.  The working capital and term loan facilities
bear  interest  at a 30, 60, or 90-day  Libo rate,  plus 45 and 50 basis  points
respectively  with an option to  convert  to a  base/prime  rate.  The term loan
matures on June 30, 2000 and the working  capital  facility  matures in 360 days
(one year).


                                       7
<PAGE>

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

General Developments of Business:

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a going  concern.  The  accountant's  report  to the
Company's  financial  statements  included  with the annual report filed on Form
10-KSB for the fiscal  year ended  October  31,  1996  contains  an  explanatory
paragraph indicating that there is substantial doubt about the Company's ability
to continue as a going concern. Although the Company has experienced significant
operating  losses  on  a  consolidated  basis,  resulting  in a  deficit  equity
position,  management has taken several steps to build on what it believes to be
a successful business model,  including the re-negotiation of key contracts.  By
continuing to provide high quality health care cost containment  services to its
existing  customer base of Blue Cross and Blue Shield  (BCBS) plans,  management
believes it can continue to leverage its reputation to other similar  customers.
This  strategy  is  particularly  significant  given  the  current  health  care
environment where large  third-party  payers are merging in an effort to protect
their  respective  franchises  and expand their market  reach.  The various BCBS
plans throughout the country are no exception to this phenomenon and the Company
believes  it  can  leverage  its  core   competencies  to  participate  in  this
consolidating environment.

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

The Company is currently in the process of negotiating contracts with two of its
existing customers.  There is no assurance that the revised terms of any revised
contract  will be on  terms  more  favorable  than  the  terms  of the  existing
contracts.  Based on  discussions  with one such  customer  to date,  management
expects  that a new  contract  will be entered into and will provide a mechanism
for the Company to secure more timely and accurate data from which to record its
performance-based  revenue  fees.  However,  there is no  assurance  that such a
mechanism   will   guarantee   timely   and   accurate    recording   of   these
performance-based  fees.  There  is  no  assurance  that  the  Company  will  be
successful in its negotiations with such customers.

Certain  statements in this Form 10-QSB  constitute  forward-looking  statements
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995,
including  those  concerning  management's  expectations  with respect to future
financial performance and future events,  particularly relating to revenues from
performance-based services and re-negotiation of existing and new contracts with
customers.  Such statements  involve known and unknown risks,  uncertainties and
contingencies,  many of which are beyond the control of the Company, which could
cause actual  results and  outcomes to differ  materially  from those  expressed
herein.

Re-negotiation of contract with Blue Cross and Blue Shield of New Jersey, Inc.
("BCBSNJ"):

In June 1997,  the Company  completed  re-negotiating  its contract with BCBSNJ.
Under the terms of the revised agreement, which is attached as an exhibit hereto
and  incorporated  herein by  reference,  the Company  will  continue to provide
specialized cost containment  services for BCBSNJ on behalf of its approximately
780,000  indemnity  and PPO  subscribers.  This amended and restated  agreement,
which  expires on June 30,  2000,  supersedes  the original  services  agreement
entered  into on February 22, 1996.  Under the revised  terms,  the Company will
receive a combination of fixed- and performance-based  compensation. The Company
has  recognized  revenues from this contract for the  three-month  and six-month
periods  ended  April  30,  1997 of  $3,071,000  and  $4,901,000,  respectively.
Contemporaneously  with the  execution  of this  amended and  restated  services
agreement  the Company  issued to BCBSNJ a  promissory  note in the  approximate
amount of $1,863,000 for repayment of cash received in excess of revenues earned
from such  customer  during 1996.  Interest on the note accrues at the five-year
treasury rate, adjusted  quarterly,  beginning April 1, 1997, with principal and
interest  payments to commence in  substantially  equal monthly  installments on
October 1, 1998.


                                       8
<PAGE>

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

Establishment of Credit Facility in the amount of $3,000,000 with Summit Bank:

In June 1997,  the Company  entered into an agreement  (the "Credit  Agreement")
which is attached as an exhibit  hereto and  incorporated  by reference  herein,
with Summit Bank, and BCBSNJ, as guarantor.  The Credit Agreement provides for a
working  capital  facility  in the amount of  $1,500,000  and a term loan in the
amount of $1,500,000.  The Company's  obligations under the Credit Agreement are
guaranteed by BCBSNJ, a principal stockholder of the Company,  according to (the
`Guarantee  Agreement")  which is attached as an exhibit hereto and incorporated
by reference herein, and are secured by pledged U.S. agency securities of BCBSNJ
according to (the "Pledge Agreement") which is attached as an exhibit hereto and
incorporated by reference  herein.  The working capital and term loan facilities
bear  interest  at a 30, 60, or 90-day  Libo rate,  plus 45 and 50 basis  points
respectively  with an option to  convert  to a  base/prime  rate.  The term loan
matures on June 30, 2000 and the working  capital  facility  matures in 360 days
(one year).

Re-negotiation of contract with Blue Cross Blue Shield of Rhode Island
("BCBSRI"):

The Company has announced that it has reached a compensation agreement with Blue
Cross  and Blue  Shield  of Rhode  Island  ("BCBSRI").  Under  the terms of this
agreement, effective January 1, 1997 through December 31, 1999, the Company will
provide  utilization  management  services  to  BCBSRI's  approximately  360,000
indemnity subscribers. The agreement calls for the payment of approximately $1.1
million  in fixed  fees for  fiscal  year 1997 with  additional  revenues  being
recognized on a performance  basis.  However,  there are no assurances  that the
Company can recognize  such  revenues.  Final  negotiations  regarding the other
agreements between the Company and BCBSRI are in process.

Joint Services Agreement With Allied Health Group, Inc.:

In May 1997,  the Company  entered  into a Joint  Services  Agreement,  which is
attached as an exhibit hereto and incorporated by reference herein,  with Allied
Health Group, Inc.  ("Allied"),  a Florida  corporation,  to deliver specialized
health care cost  management  services in the form of  physician  management  of
specialty  networks  to various  Blue Cross and Blue  Shield  plans (the  "Blues
Plans")  throughout  the United States.  The Company and Allied have  determined
that the  combination  of services  offered by the two  organizations  can be an
effective and competitive  advantage in the marketplace.  The agreement provides
for a three-year term with an automatic three-year renewal clause, unless either
Allied or the Company  gives  notice to the other of its intent not to renew the
agreement  at  least  90  days  before  the  end  of  any  three-  year  period.
Compensation  will be shared according to level of services provided and will be
phased in over a three-year  period with incremental  services being provided by
the  Company  to the Blues  Plans.  However,  there are no  assurances  that the
Company can secure such  contracts with any Blues Plans or can contract with the
Blues Plans in a manner that would be  financially  beneficial to the parties to
this  agreement.  Except for the agreement  with HMO Blue and Allied  (discussed
below),  the Company has not entered into any such  relationship  with any Blues
Plans pursuant to this agreement.

Consulting Agreement With Coordinated Health Partners, Inc. d/b/a (BlueCHiP):

In April  1997,  the  Company  entered  into a  consulting  agreement,  which is
attached  as an exhibit  hereto  and  incorporated  by  reference  herein,  with
Coordinated   Health   Partners,   Inc.  a  Rhode  Island   health   maintenance
organization. The Company has been engaged to provide various utilization review
services  including  prospective,  concurrent,  and  retrospective  requests for
covered services for purposes of determining whether such services are medically
appropriate.  Additionally,  the agreement provides that the Company will assist
in the education and training of claims  administration and claims  adjudication
of BlueCHiP  personnel.  The Company will be  compensated at a capitated rate of
($.48) for each BlueCHiP member per month. The Company  anticipates  recognizing
approximately $100,000 in revenue for fiscal year ended October 31, 1997.

Agreement by and among Medigroup of New Jersey, Inc. (d/b/a "HMO Blue") and
Allied Health Group, Inc. ("Allied"):

In March 1997,  the Company  entered into an agreement,  which is attached as an
exhibit  hereto and  incorporated  by reference  herein,  with  Medigroup of New
Jersey,  Inc.  (d/b/a HMO Blue) and Allied for the provision of certain  network
management  services  to  Allied  and  HMO  Blue.  HMO  Blue is a  wholly  owned
subsidiary of BCBSNJ.  Under the terms of this agreement,  the Company will work
with Allied to effect cost  management  strategies  directed  toward  specialist
costs in the HMO.  Pursuant to certain  side letter  agreements,  dated June 13,
1997 and March 1, 1997, respectively, between HMO Blue and the Company, HMO Blue
retains the right,  in its sole  discretion,  to terminate this agreement at any
time.  There can be no  assurances  that HMO Blue will not  exercise  its rights
thereunder.  These letter  agreements  are attached to the agreement as exhibits
hereto and are incorporated herein by reference.

Form of  Chief  Executive  Officer  Employment  Agreement  Approved  by Board of
Directors:

By unanimous  written  consent dated as of June 11, 1997, the Board of Directors
approved an employment contract for the President and Chief Executive Officer of
the Company ( the "Riley Employment Agreement"), which is attached as an exhibit
hereto and  incorporated by reference  herein.  The Riley  Employment  Agreement
provides  for a term  commencing  June 10, 1997 and ending on December 31, 1998,
with annual  compensation of $275,000 per annum. If Mr. Riley is employed by the
Company on June 30,  1997,  he is  entitled  to receive a bonus in the amount of
$100,000.  The Riley Employment  Agreement also provides for certain payments to
be made to Mr. Riley in the event of a Non-Fault  Termination (as defined in the
Riley Employment Agreement),  including without limitation,  the salary to which
he would be  entitled  during the  12-month  period  following  the date of such
Non-Fault Termination.  Mr. Riley agrees to certain non-compete  provisions,  as
more fully set forth in the Riley Employment Agreement.  In addition,  Mr. Riley
entered  into a letter  agreement,  dated  June 10,  1997,  with  BCBSNJ  and CW
Ventures,  pursuant to which each of BCBSNJ and CW Ventures agrees to pay to Mr.
Riley a certain  bonus upon the  disposition  by such  stockholder  of a certain
percentage of shares of common stock of the Company  owned by such  stockholder.
Each  of  BCBSNJ  and  CW  Ventures   also  agrees  to  certain   releases   and
indemnification  of Mr.  Riley,  all as more  fully  set  forth  in such  letter
agreement,  which is attached to the Riley  Employment  Agreement  as an exhibit
hereto and incorporated by reference.



                                       9
<PAGE>

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

Net revenues:

                                                Six Months Ended
                                                ----------------
                                    April 30, 1997             April 30, 1996
                                    --------------             --------------
                                Amount        Percent       Amount       Percent
                                ------        -------       ------       -------

Revenues from fixed fee 
  arrangements                $4,883,000        77%       $4,550,000        61%

Revenues from performance-
  based arrangements           1,292,000        20%        2,543,000        34%

Consulting revenues              160,000         3%          371,000         5%
                              ----------       ---        ----------       --- 

   Total revenues             $6,335,000       100%       $7,464,000       100%
                              ==========       ===        ==========       === 

Contracts that provide for  performance-based  revenues require claims data that
is supplied by the Company's customers to calculate the achievement of goals for
each period. Because claims data typically lags the Company's actual performance
by several  months,  it is difficult to ensure  maximum  accuracy when recording
performance-based revenues.  Management is working closely with its customers to
secure more timely and accurate  data to improve the  accuracy of reporting  its
revenues, including, in some cases, the re-negotiation of the contract itself.

Revenues:

Net revenues for the three-month and six-month periods ended April 30, 1997 were
$3,966,000  and  $6,335,000,  respectively,  compared  to  net  revenues  in the
corresponding  periods of the prior fiscal year of  $3,417,000  and  $7,464,000,
respectively,  representing a decrease for the six-month period of approximately
$1,129,000.  This  decrease  is  primarily  due  to a  reduction  in  recognized
performance-based fees from one of the Company's major customers.

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

Cost of services:

Cost of services for the three-month and six-month  periods ended April 30, 1997
were  $1,796,964  and  $3,685,000,  respectively,  compared  to  $2,289,000  and
$4,720,000 in the corresponding periods of the prior fiscal year, representing a
decrease for the six-month period of approximately $1,035,000.  This decrease in
the cost of services  was  primarily  due to  decreases  in  personnel  costs of
approximately  $635,000,  professional  and  consulting  costs of  approximately
$200,000 and information and communication costs of $200,000.


                                       10
<PAGE>

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

Operating expenses:

Selling, general and administrative:

Selling,  general and  administrative  costs for the  three-month  and six-month
periods  ended  April 30, 1997 were  $1,240,000  and  $2,739,000,  respectively,
compared to $1,684,000 and $2,764,000 in the corresponding  periods of the prior
fiscal year, representing a decrease for the three-month period of approximately
$444,000.  This decrease is largely due to non-recurring charges incurred during
the  corresponding  period of the prior fiscal year. The decrease during the six
-month  period of  approximately  $25,000  is offset  by  non-recurring  charges
incurred  during the current  fiscal year of  approximately  300,000  related to
severance  payments to a senior officer of the Company in the approximate amount
of $100,000 and payment of a bonus to an executive officer of the Company in the
approximate amount of $200,000.

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

Depreciation and amortization:

Depreciation  and amortization  costs for the three-month and six-month  periods
ended April 30,  1997 were  $258,000  and  $515,000,  respectively,  compared to
$300,000  and $540,000  for the  corresponding  period of the prior fiscal year.
This represents a decrease for the three-month  period of approximately  $42,000
and  is  primarily  due  to  decreased  goodwill  amortization  related  to  the
acquisition  of CHCM which was written  down  during the year ended  October 31,
1996 and the decrease in the six-month period of approximately $25,000 is offset
in part by  increased  depreciation  related to  increased  spending  on capital
expenditures during fiscal year 1997.

Interest expense:

Net interest  expense for the three-month and six-month  periods ended April 30,
1997 was $66,000 and $142,000,  respectively,  compared to $140,000 and $195,000
for the corresponding period of the prior fiscal year. The decrease is primarily
due to interest on the BCBSNJ Note which was  converted  to equity on  September
30, 1996 and interest  related to the Company's  master lease agreement with IBM
Credit Corporation. As a result of the securing of a credit facility with Summit
Bank (discussed above) the Company anticipates increased interest expense in the
third and fourth quarter of fiscal year 1997.

Loss from operations:

Results of  operations in the future are  dependent on  management's  ability to
increase  revenues  and  leverage  both direct costs of services and general and
administrative  costs. While there can be no assurance that such efforts will be
successful,  management  believes that opportunities  exist to increase revenues
and leverage costs in areas that will not adversely effect the operations of the
Company.

Financial Condition:

Liquidity and Capital Resources:

At April 30,  1997,  the  Company  had cash of  $148,000  and a working  capital
deficiency of approximately  $2,808,000. At October 31, 1996, the Company's cash
balance was $1,167,000 and it had a working capital  deficiency of approximately
$4,191,000.  The decrease in working capital  deficiency is due to the Company's
ability to generate cash flows from  operations  during the second quarter ended
April 30, 1997 and  reclassification  of notes payable in the approximate amount
of  $1,863,000 as long-term  liabilities,  which were  previously  classified as
short-term obligations in prior periods.

Since the Company's  inception,  the  Company's  operating  activities  have not
generated  sufficient cash to fund its operations;  as a result, the Company has
relied on the sales of capital stock,  capital  contributions  and guarantees by


                                       11
<PAGE>

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

thirds   parties  of  debt  to  fund  its  operating   activities   and  capital
expenditures.  As  discussed  above,  the  Company  has  entered  into a  Credit
Agreement with Summit Bank for an aggregate amount of $3 million dollars for use
in funding  operating  activities and the Company's capital expansion needs. See
"Future Financing Needs" below.

Cash and cash  equivalents  decreased  approximately  $1,020,000 as of April 30,
1997 from October 31, 1996 and  increased  approximately  $1,769,000 as of April
30, 1996 from  October 31,  1995,  due to changes in cash flows from  operating,
investing, and financing activities which are explained below.

Net cash used in operating activities amounted to approximately $386,000 for the
six- months ended April 30,  1997.  The  decrease of  approximately  $386,000 is
partially  due to the net loss and the  repayment  of  amounts  related  to cash
received  from one of its  customers  in excess  of  revenues  earned  from such
customer. The remaining balance of this obligation is $118,000 and does not bear
interest nor is it secured or collateralized by any assets of the Company.

Net cash  (used)/provided  by  investing  activities  amounted to  approximately
($274,000)  and  $560,000  for the  six-months  ended  April 30,  1997 and 1996,
respectively.  The decrease of approximately  ($834,000) is primarily due to the
cash received from the acquisition of CHCM of  approximately  ($751,000)  during
the  six-months  ended April 30, 1996 and  increased  capital  outlays  incurred
during the current fiscal year of approximately ($262,000) offset by a reduction
in software  development  costs of  approximately  $179,000  which were incurred
during the same period of last year when the Company  was  implementing  its new
computer system.

Net cash  (used)/provided  by  financing  activities  amounted to  approximately
($360,000)  and $2,671,000 for the six months ended April 30, 1997 and 1996. The
decrease of approximately  $3,031,000 is primarily due to the proceeds  received
from the  issuance  of a note  payable  to CW  Ventures  of  $2,000,000  and the
issuance of common stock of the Company with a value of  approximately  $925,000
during the six- months ended April 30, 1996.

Financing

Amounts  payable  pursuant to long-term  financing  arrangements as of April 30,
1997 were  approximately  $1,260,000,  consisting of capital  lease  obligations
pursuant  to a Master  Lease  Agreement  with  IBM  Credit  Corporation  for the
financing  of computer  and  telephone  equipment,  installation,  software  and
related system integration expenses.  The term of the Master Lease is four years
and bears  interest at 11.39% per annum.  The Company's  obligations  under this
Master Lease arrangement are guaranteed by BCBSNJ.

In  connection  with the  re-negotiation  of the amended and  restated  services
agreement with BCBSNJ (discussed above), the Company issued a promissory note in
the approximate  amount of $1,863,000 with non-cash  interest  accruing in April
1997 and equal monthly payments of principal and interest  commencing on October
1, 1998. The promissory note bears interest at a five-year U.S.  treasury yield,
adjusted  quarterly,  and matures on June 30, 2000. Such amounts are expected to
be funded through  operations and no outside  financing is anticipated  for this
obligation.  However, there are no assurances that future operating results will
be sufficient to fund this obligation.

Future Financing Needs:

In connection with  management's  decision to adopt and implement a new and more
comprehensive clinical software product, the Company expects to incur additional
software and  computer  hardware  costs  during the third and fourth  quarter of
fiscal 1997 of  approximately  $750,000.  Such costs are expected to be financed
with the term loan  from  Summit  Bank  (discussed  above),  or 90 day Libo rate
payable in equal monthly installments with a maturity date.

Item 1.  Legal Proceedings

Termination of Employment:

A former Medical  Director of CAHS has asserted a claim,  which was discussed in
the Company's Form 10-QSB for the quarter ended January 31, 1997.


                                       12
<PAGE>

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

Potential Uninsured Exposure to Litigation:

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

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

Item 2.  Changes in Securities

On January 5, 1997,  the  Company  became  contractually  obligated  to issue CW
Ventures  and BCBSNJ  25,914,222  and  24,242,337  shares of common stock of the
Company, respectively, pursuant to the terms of the CW Note and the BCBSNJ Note.
Such shares were issued by the Company to CW Ventures and BCBSNJ on February 27,
1997 after the Company's compliance with state blue sky laws. The offer and sale
of these  shares  were not  registered  under  the  Securities  Act of 1933,  as
amended. These shares were issued pursuant to the exemption contained in Section
4(2) of the Securities Act of 1933, as amended.

Item 6.  Exhibits and Reports on Form 8-K

Exhibits - No. 10(a)   - "Form of Employment Agreement with Thomas Riley" and 
                         Side  Letter
Exhibits - No. 10(b)   - "First Amendment and Restatement of Services Agreement 
                         with BCBSNJ"
Exhibits - No. 10(c)   - "Joint Services Agreement with Allied Health Group, 
                         Inc."
Exhibits - No. 10(d)   - "Consulting Agreement with Coordinated Health Partners,
                         Inc."
Exhibits - No. 10(e)   - "Agreement with Medigroup of New Jersey, Inc. and 
                         Allied Health Group, Inc." and Side Letter
Exhibits - No. 10(f)   - "Credit Agreement with Summit Bank and BCBSNJ"
Exhibits - No. 10(f)(1)- "Revolving Credit Note"
Exhibits - No. 10(f)(2)- "Term Note"
Exhibits - No. 10(f)(3)- "Guaranty Agreement"
Exhibits - No. 10(f)(4)- "Pledge Agreement"
Reports on Form 8-K   -- None


                                       13
<PAGE>

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

                                   SIGNATURES

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

                                       CareAdvantage, Inc.
                                       (Registrant)

June 19, 1997                          /s/ Thomas P. Riley
                                       ----------------------------------------
                                       Thomas P. Riley
                                       President and Chief Executive Officer
                                       Acting Chief Financial Officer


                                       14