SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                 For the quarterly period ended January 31, 1999

                         COMMISSION FILE NUMBER 0-26168

                               CAREADVANTAGE, INC.
        (Exact name of Small Business Issuer as Specified in Its Charter)

DELAWARE                                                              52-1849794
(State or Other Jurisdiction of                                 (I.R.S. Employer
Incorporation or Organization)                            Identification Number)
                                                
485-C Route 1 South, Iselin, New Jersey 08830
(Address of Principal Executive Offices)

         Issuer's Telephone Number, Including Area Code: (732) 602-7000

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

                                Yes X      No__

State the number of shares outstanding of each of the issuer's classes of common
             equity, as of the latest practicable date: 82,189,883

                  Transitional Small Business Disclosure Format
                                Yes X      No__

                           This is Page 1 of 14 Pages.
<PAGE>

                               CAREADVANTAGE, INC
                           CONSOLIDATED BALANCE SHEET

                                                    January 31,     October 31,
                                                        1999           1998
                 ASSETS                              Unaudited
                                                   ------------    ------------
Current assets:
   Cash and cash equivalents                       $  2,924,000    $  3,745,000
   Accounts receivable for services:
      Stockholder                                     1,044,000       1,080,000
      Other                                             438,000         667,000
   Other current assets                                 373,000          75,000
                                                   ------------    ------------
        Total current assets                          4,779,000       5,567,000

Property and equipment, at cost less
  accumulated depreciation                            1,231,000       1,374,000
Intangible assets                                     1,681,000       1,768,000
Other assets                                             86,000          91,000
                                                   ------------    ------------
Total Assets                                       $  7,777,000    $  8,800,000
                                                   ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

Current liabilities:
   Current portion of capital lease
     obligation                                    $    268,000    $    422,000
   Accounts payable                                      45,000         163,000
   Due to stockholder                                 1,153,000       1,153,000
   Due to customer                                      902,000         902,000
   Accrued salaries and employee benefits               674,000       1,211,000
   Accrued expenses and other current
     liabilities (Note E)                               408,000         455,000
   Deferred revenue, current                            184,000         184,000
                                                   ------------    ------------
        Total current liabilities                     3,634,000       4,490,000

Due to stockholder, less current portion                334,000         710,000
Deferred revenue and other liabilities,
  less current portion                                   72,000         116,000
                                                   ------------    ------------

Total Liabilities                                     4,040,000       5,316,000
                                                   ------------    ------------

Stockholders' equity (capital deficiency):
   Preferred stock-par value $.10 per share;
     authorized 10,000,000 shares; none issued
   Common stock-par value $.001 per share;
     authorized 90,000,000 shares; issued
     and outstanding 82,189,883                          82,000          82,000
   Additional capital                                22,020,000      22,009,000
   Accumulated deficit                              (18,365,000)    (18,607,000)
                                                   ------------    ------------
Total Stockholders' Equity                            3,737,000       3,484,000
                                                   ------------    ------------
Total Liabilities and Stockholders' Equity         $  7,777,000    $  8,800,000
                                                   ============    ============

        The accompanying notes are an integral part of these statements.


                                       2
<PAGE>

                               CAREADVANTAGE, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS

                                   (UNAUDITED)

                                                         Three Months Ended
                                                             January 31,
                                                    ----------------------------
                                                         1999            1998
                                                         ----            ----

Net revenues                                        $  4,056,000     $ 4,002,000

Costs of services                                      2,009,000       2,027,000
                                                    ------------     -----------

Gross margin                                           2,047,000       1,975,000
                                                    ------------     -----------

Operating expenses:

Selling, general and administration                    1,626,000       1,536,000
Depreciation and amortization                            189,000         128,000
                                                    ------------     -----------

Total operating expenses                               1,815,000       1,664,000
                                                    ------------     -----------

Operating income                                         232,000         311,000

Net interest (income)/expense                            (10,000)         73,000
                                                    ------------     -----------

Net income                                          $    242,000     $   238,000
                                                    ============     ===========

Net income per share of common 
stock -- basic and diluted                          $        .00     $       .00
                                                    ============     ===========

Weighted average number of common 
shares outstanding -- diluted                         82,550,000      74,390,000
                                                    ============     ===========

        The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                      CAREADVANTAGE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                   (UNAUDITED)

                                                         Three Months Ended
                                                             January 31,
                                                    ----------------------------
                                                         1999            1998
                                                         ----            ----

Cash flows from operating activities:

Net income                                          $   242,000     $   238,000

Adjustments  to reconcile  net income
to net cash provided from (used by) 
operating activities:

Depreciation and amortization                           309,000         262,000
Compensation due to option issuance                      11,000               0

Change in assets and liabilities:

Due to/from customers/stockholders                      265,000         (99,000)
Other assets                                           (293,000)             (0)
Accounts payable                                       (118,000)        289,000
Accrued expenses and other liabilities                 (584,000)       (260,000)
Deferred revenue                                        (44,000)        342,000
                                                    -----------     -----------

Net cash provided from (used by)
operating activities                                   (212,000)        772,000
                                                    -----------     -----------

Cash flows from investing activities:

Capital expenditures                                    (79,000)       (361,000)
                                                    -----------     -----------
Net cash provided from (used by) investing
activities                                              (79,000)       (361,000)
                                                    -----------     -----------

Cash flows from financing activities:

Principal payments to stockholder                      (376,000)             (0)
Principal payments under long-term debt                (154,000)       (138,000)
                                                    -----------     -----------
Net cash provided from (used by) financing
Activities                                             (530,000)       (138,000)

Net increase (decrease) in cash                        (821,000)        273,000

Cash - beginning of fiscal year                       3,745,000       1,038,000
                                                    -----------     -----------
Cash - end of period                                $ 2,924,000     $ 1,311,000
                                                    ===========     ===========

        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

                               CAREADVANTAGE, INC.

                        NOTES TO THE FINANCIAL STATEMENTS

CareAdvantage, Inc. ("CAI" or the "Company") is a holding company which, through
its  direct  and  indirect  subsidiaries,  CareAdvantage  Health  Systems,  Inc.
("CAHS")  and  Contemporary  HealthCare  Management,  Inc.  ("CHCM"),  is in the
business of providing health care cost containment  services  designed to enable
health care insurers and other health service  organizations to reduce the costs
of medical services provided to their subscribers. The services provided include
utilization review in medical/surgical cases where pre-authorization is required
for hospitalization and for certain in-patient and outpatient  procedures,  case
management and disease management.  The Company's services have been principally
provided to several of the statewide  Blue  Cross/Blue  Shield  health  services
organizations in the Northeastern United States.

Note A--Basis of preparation:

The consolidated financial statements have been prepared by the Company 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
January 31, 1999 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 consolidated financial statements and notes thereto
included with the Company's  October 31, 1998 Annual Report on Form 10-KSB filed
with the Securities and Exchange  Commission on January 29, 1999. The results of
operations for the period ended January 31, 1999 are not necessarily  indicative
of operating results to be expected for the full year.

Note B--Per share data:

Basic net  income  per share has been  computed  based on the  weighted  average
number of shares outstanding during the periods reflected.  In fiscal year 1999,
the dilutive  effect of stock options is included in the  calculation of diluted
earnings  per share using the treasury  stock  method.  For fiscal 1998,  common
stock equivalents were not included since they were not dilutive.

The Company  adopted  SFAS No. 128  "Earnings  Per Share" and has  retroactively
applied  the  effects  thereof  for  all  periods  presented.  Accordingly,  the
presentation of per share information includes calculations of basic and diluted
net income per share.  The impact on the per share amounts  previously  reported
was not significant.

Note C--Contingencies:

[1]   Potential uninsured exposure to litigation:

a)    The  Company  has been  named as a party in an action  entitled  Robert T.
      Caruso v. Care  Advantage,  Inc.,  John J. Petillo,  Vincent M. Achillare,
      Lawrence A.  Whipple,  and  Horizon  Blue Cross Blue Shield of New Jersey,
      Inc. et al., which was filed in Superior Court of New Jersey on August 12,
      1998. Messrs. Petillo,  Achillare and Whipple were officers of the Company
      and may have claims for indemnification for expenses and for any judgments
      against them in this case. Mr. Caruso was a consultant to the Company. The
      complaint  alleges  breach  of  contract,  fraud,  conspiracy,  promissory
      estoppel and negligent  misrepresentation  in connection with, among other
      things,  the termination of Mr. Caruso's  consulting  arrangement with the
      Company.  The  complaint  seeks  compensation   allegedly  due  under  the
      consulting  arrangement  and other  general  and,  in one  count,  treble,
      damages.  The Company  received notice from two of its insurance  carriers
      denying  coverage  on this  matter,  but the Company  plans to  vigorously
      contest these coverage decisions. The Company received a written claim for
      indemnification  from defendants Petillo,  Achillare and, subject to their
      having acted in good faith,  the Company has agreed to indemnify  them and
      to pay their  reasonable  defense  costs.  The Company is unable,  at this
      stage of the proceeding, to evaluate the merits of this action.

[2]   Termination of employment:

      On or about  January 16, 1998, an action  entitled Mary  DeStefano v. Care
      Advantage,  Inc.,  Carol  Manzella,  and Thomas P.  Riley (the  "DeStefano
      Action")  was filed in the  Superior  Court of New Jersey.  The  complaint
      alleges that (i) the plaintiff was terminated from her employment with the
      Company in retaliation for her complaints  regarding alleged violations of
      state and federal labor laws and (ii) the Company  violated the New


                                       5
<PAGE>

                               CAREADVANTAGE, INC.

                        NOTES TO THE FINANCIAL STATEMENTS

      Jersey Wire Tapping and Electronic Surveillance Control Act. The complaint
      did not demand an amount of specific monetary damages. The defendants have
      denied liability in all respects.  On July 7, 1998 the Company was advised
      by its insurance  carrier that it will provide a defense to all defendants
      named in the complaint.  However, the Company's insurance carrier has also
      advised  that it will not pay any  judgment  adverse to the insured  which
      establishes the act of deliberate dishonesty committed by the insured with
      actual  dishonest  purpose  and  intent and  material  to the cause of the
      action so adjudicated.  Under the terms of the policy,  "insured" includes
      the Company  and its  officers  and  directors.  The Company has  retained
      separate  counsel to represent it in the  litigation  for purposes of this
      exclusion.  Plaintiff  has advised that her damages are believed to exceed
      $250,000  and she has also  asserted  a claim for  punitive  damages.  The
      Company is continuing to contest this lawsuit  vigorously.  The parties to
      this litigation are currently taking discovery, and no trial date has been
      set.  Until  discovery has been  completed,  the Company has  insufficient
      information regarding its potential exposure in this matter.

[3]   Contractual dispute:

      By a letter dated  November 9, 1998, the Company  received  written notice
      (the "Notice") from Allied Health Group, Inc. ("Allied") pursuant to which
      Allied purportedly  terminated without cause,  effective December 9, 1998,
      that  certain  Joint  Services  Agreement  dated May 29,  1997 (the "Joint
      Services Agreement") between Allied and the Company, which was attached as
      Exhibit 10(c) to the Company's Form 10-QSB for the quarter ended April 30,
      1997 and is incorporated by reference  herein.  By a response letter dated
      November 16, 1998, counsel for the Company informed Allied that the Notice
      was  null  and  void  and of no legal  effect  since  the  Joint  Services
      Agreement did not provide for  termination  without cause prior to the end
      of the  term of the  Joint  Services  Agreement.  The  Company  instituted
      arbitration proceedings against Allied seeking declaratory relief that the
      Joint  Services  Agreement is still in effect.  On February 17, 1999,  the
      Company was advised by Allied's  counsel  that Allied was  rescinding  the
      Notice and requesting the termination of the arbitration  proceeding since
      there was no  longer a  dispute.  The  Company,  however,  is  seeking  to
      continue the  arbitration  to recover its loss of benefits under the Joint
      Services Agreement during the period of Allied's putative termination.

Note D - Supplemental Cash Flow Information:

Below is supplemental  cash flow information  related to the three-months  ended
January 31, 1999 and 1998:

                                                                January 31,
                                                                -----------
                                                              1999         1998
                                                            -------      -------

Income Taxes Paid                                           $84,000      $     0

Interest Paid, IBM capital lease obligations                 10,000       27,000

Interest Paid, Horizon BCBS-NJ Note                          19,000            0

Note E--Accrued expenses and other current liabilities:

Accrued  expenses  and other  current  liabilities  consist of the  following at
January 31, 1999 and October 31, 1998:

                                              January 31, 1999  October 31, 1998
                                              ----------------  ----------------
Accrued Interest                                      $165,000          $173,000

Accrued Professional Fees                              133,000           144,000

Other accrued expenses                                 110,000           138,000
                                                      --------          --------
Total                                                 $408,000          $455,000
                                                      ========          ========


                                       6
<PAGE>

                               CAREADVANTAGE, INC.

                        NOTES TO THE FINANCIAL STATEMENTS

Note F - Stock Option Grant and 1996 Stock Option Plan Amendment

On January 8, 1999,  the Board of  Directors  of the Company  ("Board")  granted
stock  options  for  3,600,000  shares of Common  Stock of the  Company to David
Noone,  its  new  Chief  Executive  Officer,  in  connection  with  Mr.  Noone's
employment  agreement.  All of the options  have an  exercise  price of $.03 per
share  and a term  of 10  years.  Options  for  1,800,000  shares  shall  become
exercisable as follows:  (a) 1/3 on December 31, 1999; and (b) the remaining 2/3
of such shares shall become exercisable in equal monthly amounts over the period
January 1, 2000,  to December  31,  2001.  Options for the  remaining  1,800,000
shares originally were to become exercisable over a period of 3 years commencing
January 8, 2000 if certain performance  criteria were met. On February 24, 1999,
the  Board  approved  an  amendment  to these  options.  Under the terms of this
amendment  the  options  for  the  remaining   1,800,000   shares  shall  become
exercisable in three equal annual  installments  on the fourth,  fifth and sixth
anniversary of the date of grant,  subject to acceleration  upon  achievement of
certain performance targets. The Company will realize compensation costs related
to this amendment of approximately $252,000 and will amortize this cost over six
years. In connection with this grant, and subject to stockholder  approval,  the
Board  amended  the  Company's  1996 Stock  Option Plan (now known as the "Stock
Option  Plan") to provide  the Board (or a  committee  thereof)  with  increased
discretion in the terms and conditions of stock options it may award.

On January 26, 1999,  the Board granted stock  options,  subject to  shareholder
approval,  constituting an aggregate of 10,556,000 shares of Common Stock of the
Company, to various employees,  a director and a former employee of the Company.
The  options  have an  exercise  price of $.08 per  share and a term of 10 years
subject to earlier  termination  upon certain  events.  A portion of the options
vest  immediately  and the remainder vest over 3 years. In connection with these
grants, and subject to stockholder approval,  the Board amended the Stock Option
Plan to increase the number of shares authorized for issuance from 10% to 18% of
the  Company's  authorized  Common  Stock,  and it amended  the  Company's  1996
Directors' Stock Option Plan to provide the Board (or a committee  thereof) with
increased  discretion in the terms and conditions of stock options it may award.
In addition,  subject to stockholder  approval,  the Board amended the Company's
Certificate of  Incorporation  to increase the number of shares of the Company's
Common Stock for issuance from 90,000,000 shares to 103,600,000 shares.


                                       7
<PAGE>

                               CAREADVANTAGE, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION OR PLAN OF OPERATION

Forward-looking statements:

Certain   statements  in  this  Form  10-QSB  may  constitute   "forward-looking
statements"  contemplated under the Private Securities  Litigation Reform Act of
1995, including those concerning management's plans, intentions and expectations
with respect to future  financial  performance and future events and the outcome
of pending litigation,  particularly relating to revenues from performance-based
services and re-negotiations 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,  and which  could  cause
actual results and outcomes to differ  materially from those  expressed  herein.
Although  the  Company  believes  that its plans,  intentions  and  expectations
reflected in such  forward-looking  statements  are  reasonable,  it can give no
assurance that such plans, intentions or expectations will be achieved.  Certain
risk factors exist, such as the ability to generate new business,  the Company's
inability  to prevent its  customers  from  terminating  existing  contracts  by
invoking standard  termination  clauses,  as well as other inherent  contractual
risks,  which are  beyond  the  control  of the  Company,  could have a material
adverse  impact on the Company or prevent the Company from  achieving the growth
or obtaining the results discussed.  For a more complete discussion of these and
other  risk  factors,  please  see  "Cautionary  Statements"  in  Item  6 of the
Company's  Form 10-KSB for the fiscal year ended October 31, 1998 filed with the
Securities and Exchange Commission on January 29, 1999.

Current Development of Business:

New Contract with HealthNow New York Inc.

Effective  January  1,  1999  the  Company  entered  into a  six-month  services
agreement with  HealthNow New York Inc.  ("HNNY"),  which  provides  health care
coverage to New York residents through its Blue Cross and Blue Shield of Western
New York and Blue Shield of Northeastern New York divisions.  Under the terms of
this agreement, which was attached as Exhibit 10.35 in the Company's Form 10-KSB
filed on January 29, 1999 and is incorporated herein by reference,  the Company,
through one or more of its  subsidiaries,  will provide both medical  management
performance  support and specialty care management  performance support services
to HNNY  for its  approximately  650,000  indemnity  and  HMO  subscribers.  The
services agreement,  which expires on June 30, 1999, provides for the payment of
fixed  compensation.  This contract  replaces a previous  agreement  between the
Company and New York Care Plus Insurance  Company,  Inc.  executed on January 1,
1998,  which was attached as Exhibit 10.20 to the Company's Form 10-KSB filed on
January 29, 1998.

Certain Transactions:

Stock Options

On January 8, 1999,  the Board of  Directors  of the Company  ("Board")  granted
stock  options  for  3,600,000  shares of Common  Stock of the  Company to David
Noone,  its  new  Chief  Executive  Officer,  in  connection  with  Mr.  Noone's
employment  agreement.  All of the options  have an  exercise  price of $.03 per
share  and a term  of 10  years.  Options  for  1,800,000  shares  shall  become
exercisable as follows:  (a) 1/3 on December 31, 1999; and (b) the remaining 2/3
of such shares shall become exercisable in equal monthly amounts over the period
January 1, 2000,  to December  31,  2001.  Options for the  remaining  1,800,000
shares originally were to become exercisable over a period of 3 years commencing
January 8, 2000 if certain performance  criteria were met. On February 24, 1999,
the  Board  approved  an  amendment  to these  options.  Under the terms of this
amendment  the  options  for  the  remaining   1,800,000   shares  shall  become
exercisable in three equal annual  installments  on the fourth,  fifth and sixth
anniversary of the date of grant,  subject to acceleration  upon  achievement of
certain performance targets. The Company will realize compensation costs related
to this  amendment of $252,000 and will  amortize  this cost over six years.  In
connection  with this grant,  and  subject to  stockholder  approval,  the Board
amended the  Company's  1996 Stock  Option Plan (now known as the "Stock  Option
Plan") to provide the Board (or a committee  thereof) with increased  discretion
in the terms and conditions of stock options it may award.

On January 26, 1999,  the Board granted stock  options,  subject to  shareholder
approval,  constituting an aggregate of 10,556,000 shares of Common Stock of the
Company, to various employees,  a director and a former employee of the Company.
The  options  have an  exercise  price of $.08 per  share and a term of 10 years
subject to earlier  


                                       8
<PAGE>

                               CAREADVANTAGE, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION OR PLAN OF OPERATION

termination  upon certain events.  A portion of the options vest immediately and
the remainder vest over 3 years. In connection with these grants, and subject to
stockholder  approval,  the Board  amended the Stock Option Plan to increase the
number  of  shares  authorized  for  issuance  from 10% to 18% of the  Company's
authorized  Common Stock,  and it amended the Company's  Directors' Stock Option
Plan to provide the Board (or a committee thereof) with increased  discretion in
the terms and conditions of stock options it may award.

Proposed Amendment of Certificate of Incorporation

Subject to stockholder  approval,  as of January 26, 1999, the Board amended the
Company's  Certificate of Incorporation,  as amended,  to increase the number of
authorized  shares of the  Company's  Common  Stock  from  90,000,000  shares to
103,600,000 shares.

General Overview

At January 31, 1999, the Company had a working capital surplus of  approximately
$1,145,000,  stockholders equity of approximately  $3,737,000 and an accumulated
deficit of approximately  $18,365,000 since inception.  By continuing to provide
high quality care cost  containment  services to its existing  customer  base of
four BCBS plans,  management  believes it can continue to market its products to
other BCBS plans.  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 will 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  products  and  service  development  efforts  by
entering  into  strategic  alliances  and  joint  ventures  as well  as  through
acquisitions.

Three Months Ended January 31, 1999 Compared With Three Months Ended January 31,
1998

 Net revenues:                                  Three Months Ended
                                                ------------------
                                       January 31, 1999       January 31, 1998
                                       ----------------       ----------------
                                       Amount    Percent     Amount     Percent
                                       ------    -------     ------     -------
Revenues from fixed fee
   arrangements                      $3,992,000     98%    $3,803,000     95%

Revenues from performance-
   based arrangements                    62,000      2%       196,000      5%

Other revenues                            2,000      0%         3,000      0%
                                     ----------    ---     ----------    --- 
Total revenues                       $4,056,000    100%    $4,002,000    100%
                                     ==========    ===     ==========    ===


                                       9
<PAGE>

                               CAREADVANTAGE, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION OR PLAN OF OPERATION

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 behind 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.  Management  believes  its  estimated
performance-based  revenues  contained in reported revenues for the three months
ended January 31, 1999 are accurate based upon the data available to management.
However,  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  periods  ended January 31, 1999 and 1998 were
approximately $4,056,000 and $4,002,000, respectively,  representing an increase
of approximately $54,000. This increase is largely due to increased revenue from
the  Company's  major  customers  as a  result  of the  re-negotiation  of their
contracts.

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.  Revenues
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  periods  ended  January 31, 1999 and 1998
were  approximately  $2,009,000  and  $2,027,000,  respectively,  representing a
decrease of approximately $18,000. This decrease in the cost of services was due
to decreases of  approximately  $76,000 in professional  costs,  travel costs of
approximately  $10,000,  and  other  costs of  approximately  $7,000  offset  by
increases in personnel costs of approximately $75,000.

Operating expenses:

Selling, general and administrative:

Selling,  general and  administrative  costs for the  three-month  period  ended
January  31,  1999  and  1998  were  approximately  $1,626,000  and  $1,536,000,
respectively.  The  increase in selling,  general  and  administrative  costs of
approximately  $90,000  is  largely  due to  increases  in  personnel  costs  of
approximately  $30,000,  facility costs of approximately $6,000, travel costs of
approximately  $4,000,  information  and  communication  costs of  approximately
$10,000  and  promotional  and  advertising  costs  of  approximately  $101,000,
primarily   offset  by  decreases  in  professional   and  consulting  costs  of
approximately  $61,000.  The Company  experienced  increased marketing and sales
costs during the period ended January 31, 1999. This increase is attributable to
the  Company's  increased  marketing  and sales  efforts,  as well as  increased
emphasis on new product development.

While  management  has  taken and  intends  to take  additional  steps to reduce
general and administrative costs, any future 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  significant
amount.

Depreciation and amortization:

Depreciation  and amortization  costs for the three-month  periods ended January
31, 1999 and 1998 were  approximately  $324,000  and $263,000  respectively,  of
which  approximately  $135,000 and $135,000  were  included in costs of services
respectively.


                                       10
<PAGE>

                               CAREADVANTAGE, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION OR PLAN OF OPERATION

Interest expense:

Net interest  (income)/expense  for the three months ended  January 31, 1999 and
1998 was  approximately  ($10,000)  and $73,000,  respectively,  representing  a
decrease of  approximately  $83,000.  The  decrease in net  interest  expense is
largely due to decreased  interest  costs under the Master Lease  Agreement (the
"Master Lease Agreement") with IBM Credit  Corporation  ("IBM") of approximately
$17,000,  decreased  interest costs related to the 8%  Exchangeable  Note in the
original principal amount of $2,000,000, maturing on June 30, 1998 issued by the
Company to CW Ventures II, L.P. (the "CW Note") of  approximately  $40,000,  and
decreased  interest  costs under the  Horizon  Blue Cross and Blue Shield of New
Jersey,  Inc.  Note (the  "Horizon  BCBSNJ Note") of  approximately  $3,000.  In
addition,  the  Company  realized  increased  interest  income of  approximately
$23,000 from the Company's short-term investments.

Liquidity and capital resources:

At January 31,  1999,  the Company had cash of  approximately  $2,924,000  and a
working capital surplus of  approximately  $1,145,000.  At October 31, 1998, the
Company had cash of  approximately  $3,745,000 and a working  capital surplus of
approximately   $1,077,000.   The  increase  in  working   capital   surplus  of
approximately  $68,000 is largely due to increased  operating  income  generated
during the three-month period ended January 31, 1999.

Net cash  provided/(used)  from operating  activities  amounted to approximately
($212,000) and $772,000 for the  three-month  periods ended January 31, 1999 and
1998, respectively. This cash usage for 1999 operating activities is largely due
to an accounts payable decrease of approximately $118,000, a decrease in accrued
expenses and other liabilities of $584,000 and decrease of approximately $44,000
in  deferred  revenue,  an increase in other  assets of  approximately  $293,000
largely due to clinical software license  purchases and prepaid  recruiting fees
offset by an increase in customer  receivables  of  approximately  $265,000  and
noncash charges of approximately $320,000.

Net cash used in investing  activities  amounted to approximately  ($79,000) and
($361,000)  for the  three-month  periods  ended  January  31,  1999  and  1998,
respectively.  The decrease in cash used of  approximately  ($282,000) is due to
decreased  capital outlays for  computer-related  equipment  incurred during the
three-month period ended January 31, 1999.

Net cash used in financing  activities amounted to approximately  ($530,000) and
($138,000)  for the  three-month  periods  ended  January  31,  1999  and  1998,
respectively. The increase in cash (used) of approximately ($392,000) is largely
due to increased  principal payments to stockholder of approximately  ($376,000)
and increased  principal payments related to the Master Lease Agreement with IBM
of approximately ($16,000).

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 its credit facility with Summit Bank (see  discussion  below at Financing)
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, 1999.


                                       11
<PAGE>

                               CAREADVANTAGE, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION OR PLAN OF OPERATION

The Company is in the process of modifying its computer  systems to  accommodate
the Year 2000. The Company expects to complete this modification sufficiently in
advance of the Year 2000 to avoid adverse impacts on its operations. The Company
is expensing the costs incurred to make these  modifications.  If the Company is
unable to complete its Year 2000  modifications  in a timely  manner or if other
companies  with which the Company does  business fail to timely  complete  their
Year 2000  modifications,  the Company's  results of  operations  and cash flows
could be adversely affected.

Financing:

Amounts payable pursuant to long-term  financing  arrangements as of January 31,
1999 were  approximately  $268,000,  consisting  of  capital  lease  obligations
pursuant  to the Master  Lease  Agreement  for the  financing  of  computer  and
telephone  equipment,  installation,  software  and related  system  integration
expenses.  The term of the Master  Lease is four  years;  it expires in 1999 and
bears  interest at 11.39% per annum.  Horizon  Blue Cross and Blue Shield of New
Jersey,  formerly  known as Blue  Cross  and Blue  Shield  of New  Jersey,  Inc.
("Horizon BCBSNJ")  guarantees the Company's  obligations under the Master Lease
Agreement.

Pursuant to the Horizon  BCBSNJ  Note,  the Company owes  $1,654,000,  including
approximately  $167,000 of accrued interest, to Horizon BCBSNJ as of January 31,
1999. The Horizon  BCBSNJ Note provides for equal monthly  payments of principal
and interest commencing on October 1, 1998 and ending on June 30, 2000, at which
time the  principal of the note is payable and due in full.  The Horizon  BCBSNJ
Note bears  interest at a five-year U.S.  treasury  yield,  adjusted  quarterly.
While  there  can  be no  assurances  that  future  operating  results  will  be
sufficient  to fund this  obligation  of the  Company,  management  expects such
amounts to be funded through operations.

Effective  June 30,  1998,  the CW Note (plus  $377,000  accrued  interest)  was
automatically  converted into 7,799,997  shares of the Company's Common Stock in
accordance with the terms of the CW Note, and the CW Note was then canceled.

The Company has a credit  facility  with Summit Bank (the "Bank") that  provides
for a $1,500,000 working capital revolver to be used for general working capital
needs,  which has been extended through September 3, 1999. In September of 1998,
the Bank issued an  irrevocable  letter of credit in the amount of $250,000  for
the account of the Company in favor of a vendor as  security  for the  Company's
obligation  under a  non-cancelable  operating  lease.  This letter of credit is
issued under the Company's  credit facility and the availability is thus reduced
by the face amount of the letter of credit. The remainder of the credit facility
is available to the Company.

Future financing needs:

In connection  with  management's  decision to more  effectively  streamline its
operations, 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  leasehold  improvement,
software and  computer  hardware  costs  during the first and second  quarter of
fiscal  year 1999 of  approximately  $300,000.  Such  costs are  expected  to be
financed with the  Company's  current cash  reserves and future  operating  cash
flows.


                                       12
<PAGE>

                               CAREADVANTAGE, INC.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION OR PLAN OF OPERATION

PART II--OTHER INFORMATION

Item 1. Legal Proceedings

      By a letter dated  November 9, 1998, the Company  received  written notice
      (the "Notice") from Allied Health Group, Inc. ("Allied") pursuant to which
      Allied purportedly  terminated without cause,  effective December 9, 1998,
      that  certain  Joint  Services  Agreement  dated May 29,  1997 (the "Joint
      Services Agreement") between Allied and the Company, which was attached as
      Exhibit 10(c) to the Company's Form 10-QSB for the quarter ended April 30,
      1997 and is incorporated by reference  herein.  By a response letter dated
      November 16, 1998, counsel for the Company informed Allied that the Notice
      was  null  and  void  and of no legal  effect  since  the  Joint  Services
      Agreement did not provide for  termination  without cause prior to the end
      of the  term of the  Joint  Services  Agreement.  The  Company  instituted
      arbitration proceedings against Allied seeking declaratory relief that the
      Joint  Services  Agreement is still in effect.  On February 17, 1999,  the
      Company was advised by Allied's  counsel  that Allied was  rescinding  the
      Notice and requesting the termination of the arbitration  proceeding since
      there was no  longer a  dispute.  The  Company,  however,  is  seeking  to
      continue the  arbitration  to recover its loss of benefits under the Joint
      Services Agreement during the period of Allied's putative termination.

      For a description of other legal proceedings,  see Note C to the Financial
      Statements.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibit 27--Financial Data Schedule

(b) Reports on Form 8-K--None


                                       13
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                       CareAdvantage, Inc.

March 12, 1999                         /s/ David G. Noone
                                       ----------------------------------
                                       David G. Noone
                                       Chief Executive Officer

March 12, 1999                         /s/ David G. DeBoskey
                                       ----------------------------------
                                       David G. DeBoskey
                                       Principal Financial and Accounting 
                                        Officer


                                       14