<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB

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

                 For the quarterly period ended January 31, 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 March 17, 1997

                  Transitional Small Business Disclosure Format
                                 Yes |X| No |_|


                            This is Page 1 of 12 Pages.
<PAGE>   2

                               CAREADVANTAGE, INC
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                               ASSETS                                 January 31,    October 31,
                                                                         1997           1996
                                                                     ------------   ------------
<S>                                                                  <C>            <C>         
Current assets:
    Cash and cash equivalents                                        $    265,478   $  1,167,147
    Accounts receivable-stockholder                                       610,000        833,333
    Accounts receivable-other                                             209,168         90,000
    Other current assets                                                   82,547        129,829
                                                                     ------------   ------------
        Total current assets                                            1,167,193      2,220,309

Property and equipment, at cost less accumulated depreciation           1,359,993      1,480,746
Intangible assets (net)                                                 1,968,483      2,080,769
Other assets                                                               83,618         79,184
                                                                     ------------   ------------
        Total assets                                                 $  4,579,287   $  5,861,008
                                                                     ============   ============

               LIABILITIES AND CAPITAL DEFICIENCY

Current liabilities:
    Current portion of long-term debt                                $    416,954   $    623,472
    Note payable-stockholder                                            2,000,000      2,000,000
    Accounts payable-trade                                                392,317        569,346
    Due to customers                                                      309,122        485,594
    Due to stockholders                                                 2,408,272      1,525,694
    Accrued salaries and employee benefits                                428,682        512,505
    Accrued expenses and other current liabilities                        987,789        694,996
                                                                     ------------   ------------
        Total current liabilities                                       6,943,136      6,411,607

Capital lease obligations, less current portion                           969,703        996,591
Due to stockholders                                                                      435,912

Commitments and contingencies
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                                                 19,640,091     19,690,248
    Accumulated deficit                                               (23,048,033)   (21,697,583)
                                                                     ------------   ------------

        Total capital deficiency                                       (3,333,552)    (1,983,102)
                                                                     ------------   ------------

        Total liabilities and capital deficiency                     $  4,579,287   $  5,861,008
                                                                     ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                        2
<PAGE>   3

                               CAREADVANTAGE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         Three Months Ended
                                                             January 31,
                                                   -----------------------------
                                                       1997             1996*
                                                   ------------     ------------
Net revenues                                       $  2,369,301     $  4,047,391

Costs of services                                     1,904,211        2,426,937
                                                   ------------     ------------
Gross margin                                            465,090        1,620,454

Operating expenses:
    Selling, general and administration               1,482,772        1,082,687
    Depreciation and amortization                       256,565          239,545
                                                   ------------     ------------

        Total operating expenses                      1,739,337        1,322,232

Interest                                                 76,203           54,536

Net income (loss)                                  ($ 1,350,450)    $    243,686
                                                   ============     ============
Pro forma net income (loss) per share of           ($       .02)    $        .01
common stock                                       ============     ============

Pro forma weighted average number of                 74,389,886       44,571,838
common shares outstanding                          ============     ============

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                        3
<PAGE>   4

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                       January 31,
                                                               -------------------------
                                                                   1997         1996*
                                                               -----------   -----------
<S>                                                            <C>           <C>        
Operating activities:
    Net profit (loss)                                          ($1,350,450)  $   243,686
    Adjustments to reconcile net profit (loss) to net cash
        Provided from (used for) operating activities:
        Depreciation and amortization                              256,565       239,545

    Change in assets and liabilities:
        Due to/from customers/stockholders                         374,360      (905,999)
        Other assets                                                42,848        12,589
        Accounts payable                                          (177,029)      236,597
        Accrued expenses and other liabilities                     208,970       215,575
                                                               -----------   -----------
           Cash provided from (used by) operating activities      (644,736)       41,993
                                                               -----------   -----------

Investing activities:
    Capital expenditures                                           (23,526)       (2,528)
    Acquisition of intangible assets                                            (153,076)
                                                               -----------   -----------
           Cash provided from (used by) investing activities       (23,526)     (155,604)
                                                               -----------   -----------

Financing activities:
    Principal payments under long-term debt                       (233,407)     (107,646)
                                                               -----------   -----------
           Cash provided from  (used by) financing activities     (233,407)     (107,646)
                                                               -----------   -----------

Net increase (decrease) in cash                                   (901,669)     (221,257)

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

Cash - end of period                                           $   265,478   $   315,214
                                                               ===========   ===========
</TABLE>

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                        4
<PAGE>   5

                               CAREADVANTAGE, INC.
                NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 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"), operates in one business
segment, providing 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 January 31, 1997 and the consolidated
statements of operations and cash flows for the three months ended January 31,
1997 and 1996 have been prepared by CareAdvantage, Inc. (the "Company") 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 January 31, 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 filled with the
Securities and Exchange Commission. The results of operations for the period
ended January 31, 1997 are not necessarily indicative of operating results to be
expected for the full year.

Capital Deficiency:

Pursuant to the terms of promissory notes issued by CAHS to each of CW Ventures
II, L.P. ("CW Ventures") and Blue Cross and Blue Shield of New Jersey
("BCBSNJ")(as assignee of Enterprise Holding Company, Inc.)(the "CW Note" and
the "BCBSNJ Note", respectively), in connection with the change of control of
the Company, the Company was obligated to issue CW Ventures and BCBSNJ
additional shares of common stock of the Company to bring their ownership of the
Company up to approximately 45% each, on a fully-diluted basis, as of February
22, 1996. Accordingly, on February 27, 1997, the Company issued CW Ventures and
BCBSNJ, 25,914,222 and 24,242,337 shares of common stock of the Company
respectively. Pro forma weighted average common shares outstanding include the
CW Ventures shares as if they had been issued on February 22, 1996 and the
BCBSNJ shares 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 three-month period ended January
31, 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, has denied liability in all respects and has
specifically denied that Mr. Bodino's policy 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 counsel, at
present, has insufficient information 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


                                        5
<PAGE>   6

                               CAREADVANTAGE, INC.
                NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 1997
                                   (Unaudited)

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. (See "Change
in Control" above.) The Company did not maintain insurance coverage which 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 it has not yet
determined whether and to what extent coverage may exist. 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.

Termination of Employment:

A claim has been asserted by a former Medical Director of CAHS. 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's 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:

Resignation of Senior Officer and Subsequent Consulting Agreement:

On March 17, 1997, a senior officer of the Company tendered his resignation as
Vice President, Treasurer, Secretary and Chief Financial Officer and was
retained by the Company as a consultant for a period of approximately seven
months. The former employee is to receive severance payments approximating
$100,000. In accordance therewith, the Company recorded a separation cost of
$100,000 for the quarter ended January 31, 1997.

Contract Cancellation:

Effective March 1, 1997, one of the Company's customers, Blue Cross Blue Shield
of Delaware ("BCBSDE"), canceled its consulting agreement with the Company. The
Company participated in lengthy discussions with such customer upon receiving
its cancellation notice on February 3, 1997; however, the Company was
unsuccessful in agreeing to terms that were acceptable to both parties. Revenues
and gross margins relating to BCBSDE for the quarter ended January 31,


                                        6
<PAGE>   7

                               CAREADVANTAGE, INC.
                NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 1997
                                   (Unaudited)

1997 were $102,000 and $50,231 respectively. No revenues were recognized
relating to BCBSDE during the three months ended January 31, 1996. The loss of
this customer will not have a material adverse impact on results of operations
and financial condition of the Company.


                                        7
<PAGE>   8

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

General:

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Reference is made in the accountants
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. 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 an
infusion of equity capital and acquisition of CHCM. 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.
Additionally, while the Company may have to seek additional financing to
accomplish its objectives, management intends to secure appropriate capital as
the business needs warrant. In this regard, the Company is currently negotiating
with several financial institutions for necessary financing of its future
operating and capital expansion needs. However, there is no assurance that such
financing will be received at all or received on a timely basis or on terms
acceptable to the Company.

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 renegotiations 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.

Net revenues:

<TABLE>
<CAPTION>
                                                                     Three Months Ended 
                                                                     ------------------ 
                                                        January 31, 1997              January 31, 1996
                                                        ----------------              ----------------
                                                      Amount        Percent         Amount        Percent
                                                      ------        -------         ------        -------
<S>                                                 <C>                <C>        <C>                <C>
Revenues from fixed fee arrangements                $2,187,301         92%        $2,937,623         58%

Revenues from performance-based arrangements            80,000          4%         1,551,768         38%


Consulting revenues                                    102,000          4%           218,000          5%
                                                    ----------        ---         ----------        ---
     Total revenues                                 $2,369,301        100%        $4,047,391        100%
                                                    ==========        ===         ==========        === 
</TABLE>

The Company's contracts with its customers are complicated. For example,
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. For these and other reasons, 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
renegotiation of the contract itself.

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(s)
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(s) will guarantee timely and accurate recording of these
performance-based fees. The Company is also in negotiations with BCBSNJ. The


                                        8
<PAGE>   9

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

Company is seeking certain modifications to the existing service agreement under
which the Company is technically in default. Such modifications will provide the
Company with an opportunity to realize performance-based fees. There is no
assurance that the Company will be successful in its negotiations with such
customers.

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 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.

Net revenues for the quarter ending January 31, 1997 and 1996 were $2,369,301
and $4,047,391, respectively, representing a decrease of approximately
$1,678,090. 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 (where the majority of
revenues are typically earned) generally tend to follow a pattern whereby
significant revenues are generated during the initial term of the contact 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 are dependent upon its ability to
enter into additional contracts with new customers and/or expand the services
provided to existing customers.

Cost of services:

Costs of services for the three months ended January 31, 1997 and 1996 were
$1,904,211 and $2,426,937 respectively, representing a decrease of approximately
$524,000. This decrease in the cost of services was primarily due to decreases
in personnel costs of approximately $266,000, and professional and consulting
costs of approximately $202,000.

Operating expenses:

Selling, general and administrative:

Selling, general and administrative costs for the three months ended January 31,
1997 and 1996 were $1,482,772 and $1,082,687 respectively, representing an
increase of approximately $400,000. This increase is attributable to increases
in personnel costs of approximately $400,000, and is largely due to
non-recurring charges related to the Company's ongoing reorganization efforts.

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 were $256,565 and $239,545 for the three
months ended January 31, 1997 and 1996, respectively, representing an increase
of approximately $17,000. The increase is primarily due to amortization related
to the acquisition of CHCM, offset in part by a decrease in the amortization
related to software development costs that were written off during the year
ended October 31, 1996.

Interest expense:

Net interest expense was $76,203 and $65,749 for the three months ended January
31, 1997 and 1996, respectively, representing an increase of approximately
$15,000. The increase is primarily due to interest on the CW Note offset in part
by decreased interest related to the Company's master lease agreement with IBM
Credit Corporation.


                                        9
<PAGE>   10

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

Interest expense related to the CW Note will cease and any accrued interest
forgiven should the CW Note be exchanged into shares of Common Stock of the
Company pursuant to the terms of the CW Note.

Loss from operations:

Results of operations in the future are dependent on management's ability to
increase revenues and reduce both direct costs of services and general and
administrative costs. While there can be no assurance that such efforts will be
successful, management believes that opportunities exist to increase revenues
and reduce costs in areas that will not adversely effect the operations of the
Company. However, based upon the current level of revenues and the current level
of costs and expense, management does not expect the Company to be profitable in
the foreseeable future.

Financial Condition:

Liquidity and Capital Resources:

At January 31, 1997, the Company had cash of $265,000 and a working capital
deficiency of approximately $5,775,943. At October 31, 1996, the Company's cash
balance was $1,167,000 and it had a working capital deficiency of approximately
$4,191,298. This decrease is due to the Company's inability to generate cash
flows from operations. Accordingly, it is anticipated that the Company will not
be able to generate cash flows from operations in the foreseeable future.
Management feels that the outcome of current contract negotiations with a few of
its customers is critical to the future profitability and improved operating
cash flows of the Company.

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
thirds parties of debt to fund its operating activities and capital
expenditures. Relatedly, while the Company's current level of liquidity may not
be sufficient in the future to accommodate the Company's growth plans,
management intends to secure appropriate capital to accomplish its objectives.
There is no assurance, however, that such financing will be received on a timely
basis or on terms acceptable to the Company. See "Financing" below.

Cash and cash equivalents decreased approximately $902,000 as of January 31,
1997 from October 31, 1996 and approximately $222,000 as of January 31, 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 $645,000 for the
three months ended January 31, 1997. The decrease of approximately $645,000 is
partially due to 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 $309,122 and does not bear interest nor is it
secured or collateralized by any assets of the Company.

Net cash used in investing activities amounted to approximately $23,526 and
$155,604 for the three months ended January 31, 1997 and 1996, respectively. The
decrease of approximately $132,000 is primarily due to the reduction in software
development costs of approximately $153,076 which were incurred during the same
period of last year when the Company was implementing its new computer system.

Net cash used in financing activities amounted to approximately $233,407 for the
three months ended January 31, 1997. This use was largely due to the repayment
of a note payable to one of the Company's vendors of approximately $126,000.
This note has been fully satisfied as of January 31, 1997 and the Company has no
further obligation thereunder.

Financing:

Amounts payable pursuant to long-term financing arrangements as of January 31,
1997 were approximately $1,400,000, 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


                                       10
<PAGE>   11

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

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.

The Company has provided for approximately $2,400,000 to be repaid to BCBSNJ (a
stockholder of the Company), representing cash received in excess of revenues
earned from such customer. However, the Company is in negotiation with BCBSNJ to
modify the terms of the Service Agreement with BCBSNJ and has not reached a
mutually satisfactory arrangement with this customer.

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 second and third quarter of
fiscal 1997 of approximately $450,000. Such costs are expected to be financed in
the form of a capital lease arrangement. Accordingly, the Company is negotiating
with several lending institutions to secure the best available financing for
this obligation, which would be guaranteed by BCBSNJ. There is no assurance that
such financing will be guaranteed by BCBSNJ or without such guarantee, will be
available on terms agreeable to the Company.

Item 1. Legal Proceedings

Termination of Employment:

A claim has been asserted by a former Medical Director of CAHS. 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's 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.

Item 2. Changes in Securities

On February 27, 1997, the Company issued 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. 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 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended
January 31, 1997.

Item 6. Exhibits and Reports on Form 8-K

Exhibits -- No. 10 - "Consulting Agreement"

Reports on Form 8-K -- None


                                       11
<PAGE>   12

                               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)

March 20, 1997                            /s/ Thomas P. Riley
                                          -------------------------------------
                                          Thomas P. Riley
                                          President and Chief Executive Officer
                                          Acting Chief Financial Officer


                                       12

<PAGE>   13
                                EXHIBIT INDEX
                                -------------


     Exhibit No.                    Description
     -----------                    -----------

        10                    Consulting Agreement

        27                    Financial Data Schedule