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 July 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 September 15, 1997

                  Transitional Small Business Disclosure Format
                                   Yes X No__

                           This is Page 1 of 13 Pages.

<PAGE>

                               CAREADVANTAGE, INC
                           CONSOLIDATED BALANCE SHEETS

ASSETS                                               July 31,        October 31,
                                                       1997             1996
                                                  ------------     ------------
Current assets:

Cash and cash equivalents                         $    776,828     $  1,167,147
Accounts receivable-stockholder                        955,122          833,333
Accounts receivable-other                              753,958           90,000
Other current assets                                   222,596          129,829
                                                  ------------     ------------

Total current assets                                 2,708,504        2,220,309

Property and equipment, at cost less

accumulated depreciation                             1,564,567        1,480,746
Intangible assets (net)                              1,761,412        2,080,769
Other assets                                            85,417           79,184
                                                  ------------     ------------

Total assets                                      $  6,119,900     $  5,861,008
                                                  ============     ============

LIABILITIES AND CAPITAL DEFICIENCY

Current liabilities:

Current portion of long-term debt                 $    558,628     $    623,472
Note payable-stockholder                             2,000,000        2,000,000
Accounts payable-trade                                 731,068          569,346
Due to customer                                              0          485,594
Due to stockholder                                           0        1,525,694
Accrued salaries and employee benefits                 393,433          512,505
Accrued expenses and other current
 liabilities (Note F)                                1,496,526          694,996
                                                  ------------     ------------

Total current liabilities                            5,179,655        6,411,607

Capital lease obligations, less
 current portion (Note E)                              571,707          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                                 640,813                0
                                                  ------------     ------------

Total liabilities                                    8,254,998        7,844,110

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                                (21,850,074)     (21,697,583)

Total capital deficiency                            (2,135,098)      (1,983,102)
                                                  ------------     ------------

Total liabilities and capital deficiency          $  6,119,900     $  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             Nine Months Ended
                                                 July 31,                      July 31,

                                          1997            1996*         1997             1996*
                                          ----            ----          ----             ---- 
<S>                                   <C>            <C>             <C>             <C>         
Net revenues                          $  4,088,791   $  2,313,715    $ 10,424,189    $  9,777,839
Costs of services                        2,041,175      2,281,916       6,080,539       7,368,195
                                      ------------   ------------    ------------    ------------

Gross margin                             2,047,616         31,799       4,343,650       2,409,644
                                      ------------   ------------    ------------    ------------
Operating expenses:
Selling, general and administration      1,277,863      1,493,013       4,017,060       4,256,713
Depreciation and amortization               75,421         27,387         235,960         200,338
                                      ------------   ------------    ------------    ------------
Total operating expenses                 1,353,284      1,520,400       4,253,020       4,457,051
                                      ------------   ------------    ------------    ------------

Operating income(loss)                     694,332     (1,488,601)         90,630      (2,047,407)

Interest                                   101,190        156,664         243,122         351,669
                                      ------------   ------------    ------------    ------------
Net income (loss)                     $    593,142   ($ 1,645,265)   ($   152,492)   ($ 2,399,076)
                                      ============   ============    ============    ============

Pro forma net income (loss)
per share of common stock                    $ .01          ($.03)          ($.00)          ($.04)
                                      ============   ============    ============    ============
Pro forma weighted average number
of common shares outstanding            74,389,886     65,149,000      74,389,886      55,319,000
                                      ============   ============    ============    ============
</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

                                                         Nine Months Ended
                                                              July 31,
                                                              --------
                                                        1997           1996*
                                                        ----           ---- 

Operating activities:
Net profit (loss)                                   ($  152,492)    ($2,399,076)
Adjustments to reconcile net profit (loss)
to net cash Provided from (used for)
operating activities:
Depreciation and amortization                           768,939         878,784
Deferred contract consideration                               0
Expense associated with issuance of warrants                  0          98,000
Change in assets and liabilities:
Due to/from customers/stockholders                   (1,370,125)       (333,224)
Other assets                                            (99,000)        (23,976)
Accounts payable                                        161,722        (353,746)
Accrued expenses and other liabilities                1,323,271         411,140
Restricted cash account                                       0        (483,283)
                                                    -----------     -----------
Cash provided from (used by)
operating activities                                    632,315      (2,205,381)
                                                    -----------     -----------
Investing activities:
Capital expenditures                                   (532,906)        (33,536)
Acquisition of intangible assets                              0         (79,462)
Acquistion of CHCM(cash proceeds-net of
transaction costs)                                            0         749,171
                                                    -----------     -----------
Cash provided from (used by) investing
activities                                             (532,906)        636,173
                                                    -----------     -----------
Financing activities:
Principal payments under long-term debt                (489,728)       (367,825)
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                                             (489,728)      2,557,175
                                                    -----------     -----------
Net increase (decrease) in cash                        (390,319)        987,967

Cash - beginning of fiscal year                       1,167,147         536,471
                                                    -----------     -----------
Cash - end of period                                $   776,828     $ 1,524,438
                                                    ===========     ===========

           *Reclassified to conform to current period classification.


        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

                               CAREADVANTAGE, INC.
                  NOTES TO FINANCIAL STATEMENT---JULY 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"),  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.

Note A--Basis of Preparation:

The  consolidated  financial  statements  have been prepared by CAI and have not
been audited by the Company's independent auditors.  The accompanying  financial
statements   include  all  adjustments  (which  include  only  normal  recurring
adjustments)  which in the opinion of management are necessary to present fairly
the financial  position,  results of operations  and cash flows at July 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 filed with the
Securities  and Exchange  Commission.  The results of operations  for the period
ended July 31, 1997 are not  necessarily  indicative of operating  results to be
expected for the full year.

Note B--Pro forma Net Income/(Loss) Per Share Common Stock:

Pro forma  weighted  average  common shares  outstanding  include the 25,914,222
shares  issued to CW Ventures II, L.P. ("CW  Ventures")  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 24,242,,337  shares
issued  to Blue  Cross  and  Blue  Shield  of New  Jersey,  Inc.  ("BCBSNJ")  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.  The  operations of the business of CHCM
purchased  by the Company  from BCBSNJ is included in the  Company's  results of
operations for the entire nine-month period ended July 31, 1996.

Note C--Contingencies:

Termination of Employment:

A former Medical Director of CAHS has asserted a claim against the Company.  The
former  Medical  Director was employed from September 1995 through May 1996 when
he voluntarily resigned,  allegedly due to a change of control of the Company in
February 1996. He 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.  For a
discussion of pending  litigation  against the Company,  see the Company's  Form
10-KSB for the fiscal year ended October 31, 1996.

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 STATEMENT---JULY 31, 1997
                                   (Unaudited)


Note D:--Supplemental Cash Flow Information

     Below is  supplemental  cash flow  information  related to the nine  months
ended July 31, 1997 and 1996:

                                                               July 31,
                                                               --------
                                                        1997             1996
                                                        ----             ----
Income Taxes Paid                                            0               0
Interest Paid, IBM capital lease obligations           117,000         154,000

Note E--Long-Term Debt and Leases:

     Below is  information  related to the Company's  long-term debt and capital
lease obligations at July 31, 1997 and October 31, 1996:

                                                        July 31,     October 31,
                                                         1997           1996
                                                         ----           ----

11.39% capital lease obligation due through 1999       1,130,335     1,509,442
11.25% MEDecision Note due through 12/31/96                    0       110,621
Summit Revolving Credit Agreement due June 30, 2000            0             0
                                                       1,130,335     1,620,063
                                                       ---------     ---------
                               Less Current Portion      558,628       623,472
                                                       ---------     ---------
                                                         571,707       996,591
                                                       ---------     ---------


                                       6
<PAGE>

                               CAREADVANTAGE, INC.
                  NOTES TO FINANCIAL STATEMENT---JULY 31, 1997
                                   (Unaudited)

Note F--Accrued expenses and other current liabilities:

     Accrued expenses and other current  liabilities consist of the following at
July 31, 1997 and October 31, 1996:

                                                        July 31,     October 31,
                                                         1997           1996
                                                         ----           ----


Accrued Interest                                       266,000         110,000
Accrued Professional Fees                              123,000         119,000
Deferred revenue                                       615,000               0
Other accrued expenses                                 493,000         466,000
                                                     ---------         -------
Total                                                1,497,000         695,000
                                                     =========         =======

Note G--Employment Agreement:

Effective as of June 11, 1997 the Company  entered into an Employment  Agreement
with Thomas P. Riley,  its current  President and Chief  Executive  Officer (the
"Riley  Employment  Agreement")  ,  which  was  attached  as an  exhibit  to the
Company's  Form 10-QSB for the quarter ended April 30, 1997 and is  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.  The Riley  Employment  Agreement  further
provides  for the payment of a bonus in the amount of $100,000 if Mr.  Riley was
employed by the Company on June 30,  1997.  Accordingly,  the Company  paid this
bonus and has  recorded a charge of $100,000  for the  three-month  period ended
July 31, 1997.

Note H--Subsequent Events:

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

The Company has completed  renegotiating its Services  Agreement with Blue Cross
and Blue Shield of Rhode Island ("BCBSRI") and executed a new Services Agreement
with BCBSRI.  Previously,  the Company had announced the  re-negotiation  of the
compensation   component  of  the  BCBSRI   contract  and  reported  that  final
negotiations  regarding the other  provisions  of the agreement  were under way.
Under the terms of this agreement,  effective  January 1, 1997 through  December
31, 1999, the Company will provide  utilization  management services to BCBSRI's
indemnity subscribers.  The agreement calls for a combination of fixed fees paid
to the Company with additional revenues being recognized on a performance basis.

Excess Performance Fees From Blue Cross Blue Shield Vermont("BCBSVT")

The Company has earned  performance  revenues from Blue Cross and Blue Shield of
Vermont  ("BCBSVT") for BCBSVT's contract year ended March 31, 1997 in excess of
amounts  previously  recorded  by  the  Company.   The  Company  has  recognized
approximately  $315,000 and $30,000 in  performance  revenues from this customer
for the quarters ended July 31, 1997 and April 30, 1997, respectively. There can
be no  assurance,  however,  that the  Company  will  continue  to receive  such
revenues in future quarters.

Note I--Shareholder Option Agreement

Effective  as of June 13,  1997,  CW  Ventures  granted  to  BCBSNJ an option to
purchase  from it  10,031,238  shares  of Common  Stock at $0.38 per share  (the
"BCBSNJ Option"), as provided in the Option Agreement dated as of June 13, 1997,
between CW Ventures  and BCBSNJ  (the  "Option  Agreement").  If the fair market
value per share of Common Stock is greater than the exercise price of the BCBSNJ
Option  on the  applicable  date of  calculation,  BCBSNJ  may elect to pay such
exercise price by surrendering  for  cancellation a portion of the BCBSNJ Option
and  receiving  a number of shares of Common  Stock  according  to a formula set
forth in the Option Agreement. The BCBSNJ Option is exercisable in the event the
Company  achieves  certain goals for defined periods through  February 28, 2000,
all as more fully set forth in the Option Agreement. In addition, exercisability
of the BCBSNJ Option may be  accelerated in certain  circumstances,  all as more
fully set forth in the Option  Agreement.  The option was granted by CW Ventures
to BCBSNJ in consideration  BCBSNJ's revision of its services agreement with the
Company,  the Joint  Services  Agreement  with Allied  Health  Group,  Inc.  and
agreement  to guaranty the Summit Bank Credit  Agreement.  The option grant will
result in a charge of  approximately  $15,000  which will be amortized  over the
three year term of the amended services agreement.


                                       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 of the  Company 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 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.

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.

In  addition,  certain  risk  factors  exist which are beyond the control of the
Company,  such  as  the  Company's  inability  to  prevent  its  customers  from
terminating  existing contracts by invoking standard termination clauses, all of
which can affect future financial performance of the Company.

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

The Company has completed  renegotiating its Services  Agreement with Blue Cross
and Blue Shield of Rhode Island ("BCBSRI") and executed a new services agreement
with BCBSRI,  which is attached as an exhibit hereto and incorporated  herein by
reference.  Previously,  the Company had  announced  the  re-negotiation  of the
compensation   component  of  the  BCBSRI   contract  and  reported  that  final
negotiations  regarding the other  provisions  of the agreement  were under way.
Under the terms of this agreement,  effective  January 1, 1997 through  December
31, 1999, the Company will provide  utilization  management services to BCBSRI's
indemnity subscribers.  The agreement calls for a combination of fixed fees paid
to the Company with additional revenues being recognized on a performance basis.

The Company has earned  performance  revenues from Blue Cross and Blue Shield of
Vermont  ("BCBSVT") for BCBSVT's contract year ended March 31, 1997 in excess of
amounts  previously  recorded  by  the  Company.   The  Company  has  recognized
approximately  $315,000 and $30,000 in  performance  revenues from this customer
for the quarters ended July 31, 1997 and April 30, 1997, respectively. There can
be no  assurance,  however,  that the  Company  will  continue  to receive  such
revenues in future quarters.

Chief Executive  Officer  Employment  Agreement ("Riley  Employment  Agreement")
Executed by The Chairman of the Board of Directors:

Effective as of June 11, 1997 the Company  entered into an Employment  Agreement
with Thomas P. Riley,  its current  President and Chief  Executive  Officer (the
"Riley Employment Agreement"); which was attached as an exhibit to the Company's
Form  10-QSB  for the  quarter  ended  April  30,  1997 and is  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.  The Riley  Employment  Agreement  further  provides for the
payment of a bonus in the amount of  $100,000  if Mr.  Riley is  employed by the
Company  on June 30,  1997.  Accordingly,  the  Company  paid this bonus and has
recorded a charge of $100,000 for the three-month period ended July 31, 1997.


                                       8
<PAGE>

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

Net revenues:                   
                                               Nine Months Ended
                                               -----------------
                                     July 31, 1997            July 31, 1996
                                     -------------            -------------
                                   Amount     Percent       Amount     Percent
                                   ------     -------       ------     -------
Revenues from fixed fee
    arrangements                 $9,419,000     90%       $6,789,000     69%
Revenues from performance- 
   based arrangements               861,000      8%        2,553,000     26%
Consulting revenues                 144,000      2%          436,000      5%
                                -----------    ----       ----------    ----
Total revenues                  $10,424,000    100%       $9,778,000    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  compilation  of claims data  typically lags the Company's
actual  performance  by  several  months,  it is  difficult  to ensure  complete
accuracy  when  recording  performance-based  revenues.  Management  is  working
closely with its  customers  to secure more timely and accurate  data to improve
the  accuracy  of  reporting  its  revenues,   including,  in  some  cases,  the
re-negotiation of the contract itself.  While management  believes its estimated
performance-based  revenues  contained in reported revenues for the three months
and nine months ended July 31, 1997 are accurate  based upon the data  available
to management. Information received by the Company after the filing of this Form
10-QSB  could result in an  adjustment  of its  estimates  of  performance-based
revenues (which would be reflected in subsequent quarters, if necessary).

Revenues:

Net revenues for the three-month and nine-month periods ended July 31, 1997 were
$4,089,000  and  $10,424,000,  respectively,  compared  to net  revenues  in the
corresponding  periods of the prior fiscal year of  $2,314,000  and  $9,778,000,
respectively,  representing  an  increase  for the  three-month  and  nine-month
periods of approximately  $1,775,000 and $646,000,  respectively.  The increases
are primarily due to increased revenue from one of the Company's major customers
as a result of its re-negotiation of the contract on terms more favorable to the
Company.  Additionally,  the Company has entered into a joint services agreement
with Allied Health Systems,  Inc. which has contributed  approximately  $178,000
and $295,000 to the Company's improved revenue position for the three months and
nine months ended July 31,  1997,  respectively.  The Company has also  recorded
approximately   $285,000  in  the  three-month   period  ended  July  31,  1997,
representing  excess performance  revenues from BCBSVT for services performed in
prior periods in excess of amounts previously recorded by the Company.

These  incremental  revenues  are largely  offset by (i) loss of revenue  from a
contract  which was  terminated by a customer and converted to a Fee for Service
agreement  during the fourth quarter of the prior fiscal year and (ii) decreased
revenue  from  one  of  the  Company's  major  customers  as  a  result  of  its
re-negotiation  of the contract which has resulted in decreased  performance fee
revenues being  recognized for the three- and nine-month  period ending July 31,
1997. Additionally,  the Company has experienced a shift in its revenue mix as a
result of the  re-negotiation  of two major contracts leading to increased Fixed
Fees  being  recognized  for the  nine-month  period  ending  July  31,  1997 of
approximately $2,600,000 over the amount in the corresponding 1996 period.

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.


                                       9
<PAGE>

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

Cost of services:

Cost of services for the three-month and nine-month  periods ended July 31, 1997
were  $2,041,000  and  $6,081,000,  respectively,  compared  to  $2,282,000  and
$7,368,000 in the corresponding periods of the prior fiscal year, representing a
decrease for the three-month and nine-month period of approximately $241,000 and
$1,287,000,  respectively.  This  decrease in the cost of services was primarily
due to  decreases/(increases) in personnel costs of approximately ($113,000) and
$517,000,  professional  and  consulting  costs of  approximately  $104,000  and
$337,000 and  information and  communication  costs of $119,000 and $255,000 and
depreciation  and  amortization  of $127,000 and $139,000 and other  expenses of
$4,000 and $39,000 for the  three-month  and nine-month  periods ending July 31,
1997, respectively.

Operating expenses:

Selling, general and administrative:

Selling,  general and  administrative  costs for the  three-month and nine-month
periods  ended  July 31,  1997 were  $1,278,000  and  $4,017,000,  respectively,
compared to $1,493,000 and $4,257,000 in the corresponding  periods of the prior
fiscal year, representing a decrease for the three-month period of approximately
$215,000.  This decrease is largely due to non-recurring charges incurred during
the corresponding  period of the prior fiscal year and was partially offset by a
charge of  $100,000  for a bonus paid to a senior  officer of the  Company.  The
decrease during the nine-month  period of  approximately  $240,000 was offset by
non-recurring  charges  incurred during the current fiscal year of approximately
$400,000 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 and $100,000 during the three
and nine month periods ended January 31, 1997 and July 31, 1997, respectively.

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

Depreciation and amortization:

Depreciation and amortization  costs for the three-month and nine-month  periods
ended July 31, 1997 were $75,000 and $236,000, respectively, compared to $27,000
and  $200,000  for the  corresponding  periods of the prior  fiscal  year.  This
represents (i) an increase for the three-month  period of approximately  $48,000
and is  primarily  due to  increased  capital  spending and is offset in part by
decreased  goodwill  amortization  related to the  acquisition of CHCM which was
written down during the fiscal year ended  October 31, 1996 and (ii) an increase
in the nine-month  period of  approximately  $36,000,  which is partially due to
increased  depreciation  related to increased  spending on capital  expenditures
during fiscal year 1997.

Interest expense:

Net interest  expense for the three-month and nine-month  periods ended July 31,
1997 was $101,000 and $243,000, respectively,  compared to $157,000 and $352,000
for the corresponding periods of the same fiscal period last year,  representing
a  decrease  for the  three  and nine  month  periods  ended  July  31,  1997 of
approximately  $56,000 and $109,000,  respectively.  The decreases are primarily
due to the  elimination  of  interest on a  promissory  note issued to BCBSNJ on
February 22,  1996,  which was  converted to equity on September  30, 1996 and a
reduction in interest  related to the Company's  master lease agreement with IBM
Credit Corporation.

Results of 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.


                                       10
<PAGE>

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

Financial Condition:

Liquidity and Capital Resources:

At July 31,  1997,  the  Company  had cash of  $777,000  and a  working  capital
deficiency of approximately  $2,471,000. 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  of  approximately
$1,720,000  is due  to  the  Company's  ability  to  generate  cash  flows  from
operations  during the six and nine month  periods ended April 30, 1997 and July
31, 1997, respectively, and reclassification of notes payable in the approximate
amount of $1,863,000 as a long-term liability,  which was previously  classified
as short-term obligation in prior periods.

The  Company  has  entered  into a  Credit  Agreement  with  Summit  Bank for an
aggregate  amount  of $3  million  dollars  for  use in  funding  its  operating
activities and the Company's capital expansion needs. The Company's  obligations
under this Credit  Agreement  are  guaranteed by BCBSNJ.  See "Future  Financing
Needs" below.

Net cash  (used)/provided  from operating  activities  amounted to approximately
$632,000 and (2,205,381) for the nine-months  ended July 31, 1997 and 1996. This
improvement is partially due to the increased  operating income generated during
the second and third quarters of fiscal year 1997.

Net cash  (used)/provided  by  investing  activities  amounted to  approximately
($533,000)  and  $636,000  for the  nine-months  ended  July 31,  1997 and 1996,
respectively. The decrease of approximately ($1,169,000) is primarily due to the
cash received from the acquisition by CHCM of  approximately  ($751,000)  during
the  nine-months  ended July 31, 1996 and  increased  capital  outlays  incurred
during the current fiscal year of approximately ($500,000).

While there can be no  assurances,  management  believes  that its cash on hand,
projected future cash flows from operations and the Company's borrowing capacity
under the Summit Bank Credit Agreement will provide  adequate capital  resources
to support the  Company's  anticipated  cash needs for the balance of the fiscal
year which ends on October 31, 1997. This projection  assumes that the Company's
operations and revenues will continue at their current levels.

Net cash  (used)/provided  by  financing  activities  amounted to  approximately
($490,000)  and $2,557,000 for the nine months ended July 31, 1997 and 1996. The
decrease of approximately  ($3,047,000) is largely due to the proceeds  received
from the  issuance of a note  payable to CW Ventures in the  original  principal
amount of  $2,000,000  and the  issuance of common  stock of the Company  with a
value of approximately $925,000 during the nine months ended July 31, 1996.

Financing:

Amounts payable pursuant to long-term financing arrangements as of July 31, 1997
were approximately $1,130,000,  consisting of capital lease obligations pursuant
to a Master Lease  Agreement  with IBM Credit  Corporation  for the financing of
computer and  telephone  equipment,  installation,  software and related  system
integration  expenses.  The term of the Master  Lease is four years  expiring in
1999, and bears interest at 11.39% per annum.  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,  which was completed in June 1997,  the Company issued a
promissory note in the approximate  amount of $1,863,000 to BCBSNJ with interest
accruing  beginning in April 1997 and equal  monthly  payments of principal  and
interest  commencing on October 1, 1998. The promissory note bears interest at a
five-year U.S. treasury yield, adjusted quarterly, and matures on June 30, 2000.
While  there  can  be no  assurances  that  future  operating  results  will  be
sufficient to fund this obligation of the Company,  such amounts are expected by
management  to  be  funded  through  operations  and  no  outside  financing  is
anticipated for this obligation.

As of July 31, 1997, the Company had $3.0 million of available  credit under the
Summit Revolving Credit Agreement.


                                       11
<PAGE>

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

Future Financing Needs:

In connection with  management's  decision to adopt and implement a new and more
comprehensive  clinical  software  product,  as well as  increased  emphasis  on
developing  in-house data management  capabilities  and training and educational
programs  for its clinical  staff and  customers,  the Company  expects to incur
additional  software and computer  hardware  costs during the fourth  quarter of
fiscal 1997 of  approximately  $250,000.  Such costs are expected to be financed
with the future  operating cash flows of the Company.  However,  the Company may
draw down the term loan from Summit Bank (which was  discussed in the  Company's
10-QSB for the quarter  ended April 30, 1997 and  included as Exhibit No.  10(f)
thereto  and is  incorporated  by  reference  herein),  of which 1.5 million was
available at July 31, 1997.  The remaining  balance under the Summit Bank credit
facility is $1.5 million,  which is available as a revolving  credit line and is
to be used for general working capital needs, resulting in an aggregate facility
amount of $3.0 million.

Item 1. Legal Proceedings

Termination of Employment:

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

Potential Uninsured Exposure to Litigation:

The Company is involved  in an action  entitled  Francis X. Bodino v. BCBSNJ and
CHCM (the "Bodino Action"), which was discussed in the Company's Form 10-QSB for
the quarter ended April 30, 1997.

Item 2. Changes in Securities--None

Item 5.  Effective as of June 13, 1997, CW Ventures  granted to BCBSNJ an option
to purchase  from it  10,031,238  shares of Common Stock at $0.38 per share (the
"BCBSNJ  Option"),  as provided the Option  Agreement dated as of June 13, 1997,
between CW Ventures and BCBSNJ (the "Option  Agreement"),  which is incorporated
herein by  reference  to Exhibit  No.5 to  schedule  13D  respecting  beneficial
ownership of Common Stock of the Company  filed by BCBSNJ in June,  1997. If the
fair market value per share of Common  Stock is greater than the exercise  price
of BCBSNJ Option on the applicable date of calculation,  BCBSNJ may elect to pay
such exercise  price by  surrendering  for  cancellation a portion of the BCBSNJ
Option and  receiving a number of shares of Common Stock  according to a formula
set forth in the Option Agreement. The BCBSNJ Option is exercisable in the event
the Company  achieves  certain goals for defined  periods  through  February 28,
2000,  all as more  fully  set for the in the  Option  Agreement.  In  addition,
exercisability of the BCBSNJ Option may be accelerated in certain circumstances,
all as more fully set forth in the Option  Agreement.  The option was granted by
CW Ventures to BCBSNJ in  consideration  of BCBSNJ's  revisions  of its Services
Agreement with the Company and the Joint  Services  Agreement with Allied Health
Group,  Inc.  (both  discussed in the Company's Form 10-QSB filed for the fiscal
quarter ended April 30, 1997),  and agreement to guaranty the Summit Bank Credit
Agreement.

Item 6. Exhibits and Reports on Form 8-K

Exhibit 10(a)--Agreement with BCBSRI

Exhibit 10(b)--Option  Agreement between CW Ventures and  BCBSNJ-incorporated by
reference from Exhibit No.5 of Schedule of 13D respecting  beneficial  ownership
of Common Stock of the Company filed with the Commission in June 1997 by BCBSNJ.

Exhibit 27--Financial Data Schedule

Reports on Form 8-K--None


                                       12
<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)
 September 15, 1997                      
                                         /s/ Thomas P. Riley
                                         ---------------------------------
                                         Thomas P. Riley
                                         President and Chief Executive Officer
                                         Acting Chief Financial Officer


                                       13