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, 1998

                         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: (732) 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 ___

                                   82,189,883
      Number of shares of Common Stock outstanding as of September 14,1998

                  Transitional Small Business Disclosure Format

                                 Yes _X_ No ___


                          This is Page 1 of 14 Pages.

<PAGE>

                               CAREADVANTAGE, INC
                           CONSOLIDATED BALANCE SHEETS

ASSETS                                                July 31,      October 31,
                                                       1998            1997*
                                                     Unaudited 
                                                    -----------     -----------
Current assets:
Cash and cash equivalents                          $  3,586,122    $  1,038,190
Accounts receivable-stockholder                       1,048,973       1,047,171
Accounts receivable-other                               792,575         408,348
Other current assets                                    296,106         254,688

Total current assets                                  5,723,776       2,748,397

Property and equipment, at cost less
Accumulated depreciation                              1,789,435       1,502,712
Intangible assets (net)                               1,342,108       1,649,126
Other assets                                             92,439          80,984
                                                   ------------    ------------

Total assets                                       $  8,947,758    $  5,981,219
                                                   ============    ============

LIABILITIES AND CAPITAL SURPLUS/(DEFICIENCY)

Current liabilities:
Current portion of long-term debt                  $    571,707    $    574,778
Note payable-stockholder                                      0       2,000,000
Accounts payable-trade                                  531,145         350,893
Due to stockholder                                      887,050          88,705
Accrued salaries and employee benefits                  747,676         562,994
Accrued expenses and other current
liabilities (Note E)                                    488,231         871,844
Deferred revenue, current (Note F)                    2,924,031         786,007
                                                   ------------    ------------

Total current liabilities                             6,149,840       5,235,221

Capital lease obligations, less current portion               0         421,813
Due to stockholder, less current portion                975,773       1,774,118
Deferred revenue and other long-term liabilities        219,690         525,979
                                                   ------------    ------------

Total liabilities                                     7,345,303       7,957,131
                                                   ------------    ------------

Capital surplus/(deficiency):
Preferred stock-par value $.10 per share;
authorized 10,000,000 Shares; none
issued and outstanding 
Common stock-par value $.01 per share;
authorized 90,000,000 Shares; issued
and outstanding 82,189,883 and 74,389,886                82,190          74,390
Additional capital                                   21,899,453      19,640,091

Accumulated deficit                                 (20,379,188)    (21,690,393)
                                                   ------------    ------------

Total capital surplus/(deficiency)                    1,602,455      (1,975,912)
                                                   ------------    ------------

Total liabilities and capital
surplus/(deficiency)                               $  8,947,758    $  5,981,219
                                                   ============    ============

           *Reclassified to conform to current period classification.

        The accompanying notes are an integral part of these statements.


                                       2
<PAGE>

                               CAREADVANTAGE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Three Months Ended             Nine Months Ended
                                                        July 31,                       July 31,
                                                  1998           1997*           1998           1997*
                                                  ----           ----            ----           ---- 
<S>                                           <C>            <C>            <C>            <C>         
Net revenues                                  $  4,680,443   $  4,088,791   $ 12,877,512   $ 10,424,189

Costs of services                                2,031,637      2,041,175      6,220,463      6,080,539
                                              ------------   ------------   ------------   ------------


Gross margin                                     2,648,806      2,047,616      6,657,049      4,343,650
                                              ------------   ------------   ------------   ------------
Operating expenses:

Selling, general and administration              1,931,535      1,277,863      4,984,742      4,017,060
Depreciation and amortization                       60,604         75,421        173,990        235,960
                                              ------------   ------------   ------------   ------------

Total operating expenses                         1,992,139      1,353,284      5,158,732      4,253,020
                                              ------------   ------------   ------------   ------------

Operating income                                   656,667        694,332      1,498,317
                                                                                                 90,630

Interest                                            50,362        101,190        187,112        243,122
                                              ------------   ------------   ------------   ------------

Net income (loss)                             $    606,305   $    593,142   $  1,311,205   ($   152,492)
                                              ============   ============   ============   ============


Pro forma net income (loss)
per share of common stock-basic and diluted   $        .01   $        .01   $        .02   ($       .00)
                                              ============   ============   ============   ============

Pro forma weighted average number
of common shares outstanding                    76,989,885     74,389,886     75,256,552     74,389,886
                                              ============   ============   ============   ============
</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
                                   (UNAUDITED)

                                                          Nine Months Ended
                                                               July 31,
                                                               --------
                                                        1998           1997*
                                                        ----           -----

Cash flows from operating activities:

Net profit (loss)                                   $ 1,311,205     $  (152,492)

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

Depreciation and amortization                           835,065         768,939

Change in assets and liabilities:

Due to/from customers/stockholders                     (386,029)     (1,370,125)
Other assets                                            (52,873)        (99,000)
Accounts payable                                        180,252         161,722
Accrued expenses and other liabilities                  (72,616)      1,323,271
Deferred revenue                                      1,972,582               0
                                                    -----------     -----------

Net cash provided from (used by)
operating activities                                  3,787,586         632,315
                                                    -----------     -----------

Cash flows from investing activities:

Capital expenditures                                   (814,770)       (532,906)
                                                    -----------     -----------
Net cash provided from (used by) investing
activities                                             (814,770)       (532,906)
                                                    -----------     -----------

Cash flows from financing activities:

Principal payments under long-term debt                (424,884)       (489,728)
                                                    -----------     -----------
Net cash provided from (used by) financing
Activities                                             (424,884)       (489,728)
                                                    -----------     -----------

Net increase (decrease) in cash                       2,547,932        (390,319)

Cash - beginning of fiscal year                       1,038,190       1,167,147
                                                    -----------     -----------

Cash - end of period                                $ 3,586,122     $   776,828
                                                    ===========     ===========

Non-cash financing activities:

Effective June 30, 1998, the $2,000,000  principal  amount 8% exchangeable  note
(plus $267,163  accrued  interest)  issued by the Company to CW Ventures II L.P.
was automatically converted and cancelled into 7,799,997 shares of the Company's
common stock.

           *Reclassified to conform to current period classification.

        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 the Blue Cross/Blue Shield health service organizations operating in
all or a portion of the following  states:  Rhode Island,  Maine,  Vermont,  New
Jersey, and New York (a division of New York Care Plus Insurance Company, Inc).

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
July 31, 1998 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, 1997 Annual Report on Form 10-KSB filed
with the Securities and Exchange  Commission on January 29, 1998. The results of
operations for the period ended July 31, 1998 are not necessarily  indicative of
operating results to be expected for the full year.

Note B--Per share data:

Net income  (loss) per share has been  computed  based on the  weighted  average
number of shares  outstanding  during the periods.  Additional  shares issued to
Horizon Blue Cross Blue shield of New Jersey,  formerly  known as Blue Cross and
Blue Shield of New Jersey,  Inc. ("Horizon BCBSNJ") in February 1997 pursuant to
the terms of the promissory note by CAHS in favor of Horizon BCBSNJ (as assignee
of Enterprise  Holding Co.,  Inc.) dated February 22, 1996 have been included as
if  outstanding  from November 1, 1996.  The  operations of the business of CHCM
purchased by the Company from Horizon BCBSNJ have been included in the Company's
financial  statements  since  April 30,  1995.  Additional  shares  issued to CW
Ventures II, L.P. ("CW  Ventures")  in February 1997 pursuant to the  promissory
note by CAHS in favor of CW Ventures,  dated  February 22, 1996 (the "CW Note"),
have been included as if  outstanding  since  February 22, 1996,  the date of CW
Ventures'  investment  in the  Company.  7,799,997  additional  shares of common
stock, which were issued to CW Ventures upon exchange and cancellation of the CW
Note as of June 30,  1998,  have been  included  from the date of the  exchange.
Common stock equivalents have not been included since they are not dilutive.

The  Company  adopted  SFAS No. 128  "Earnings  Per  Share" in the period  ended
December  31, 1997 and has  retroactively  applied  the effects  thereof for all
periods  presented.  Accordingly,  the  presentation  of per  share  information
includes  calculations of basic and diluted income (loss) per share.  The impact
on the per share amounts previously reported was not significant.

Note C--Contingencies:

1. On or about January 16, 1998, an action entitled Mary DeStefano v. CAI, Carol
Manzella,  and  Thomas P. Riley (the  "DeStefano  Action")  was filed in the Law
Division of the Superior Court of New Jersey in Middlesex County.  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 Jersey  Wiretapping
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


                                       5
<PAGE>

                               CAREADVANTAGE, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

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.

2. 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.


                                       6
<PAGE>

                               CAREADVANTAGE, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

3. The Company has been named as a party in an action  entitled Robert T. Caruso
v.  CareAdvantage,  Inc.,  John J. Petillo,  Vincent M.  Achillare,  Lawrence A.
Whipple,  BCBSNJ et al.,  which was filed in Superior  Court of New Jersey,  Law
Division, Morris County Docket no. MRS-L-2487-98.  Mssrs. Petillo, Achillare and
Whipple were officers of the Company and may have claims for indemnification for
expenses and for any judgments  against them. 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
Company is unable, at this early stage of the proceeding, to evaluate the merits
of this action, but has notified its insurance  carrier of such claim and awaits
the carrier's  determination of coverage.  The Company is unaware of any written
claims for indemnification by John J. Petillo, Vincent M. Achillare, or Lawrence
A. Whipple.

Note D: --Supplemental Cash Flow Information

Below is supplemental  cash flow  information  related to the nine- months ended
July 31, 1998 and 1997:

                                                            July 31,
                                                     1998             1997
                                                     ----             ----

Income Taxes Paid                                  13,000                0

Interest Paid, IBM capital lease obligations       71,000          117,000

Note E--Accrued expenses and other current liabilities:

Accrued expenses and other current  liabilities consist of the following at July
31, 1998 and October 31, 1997:

                                              July 31, 1998     October 31, 1997
                                              -------------     ----------------
                                                                
                                                                
Accrued Interest                                    249,426              329,626
                                                                
Accrued Professional Fees                           119,098              125,000
                                                                
Other accrued expenses                              119,707              417,218
                                                     ------              -------
                                                                
Total                                               488,231              871,844
                                                    =======              =======

Note F-- Deferred Revenue:

As of July 31, 1998 revenue  received in connection with the  re-negotiation  of
two of the Company's  contracts during the fiscal year ended October 31,1997 has
been  deferred  over the term of the  respective  contracts.  Additionally,  the
Company  has  deferred a portion of fees  advanced  in  connection  with a joint
service   agreement  (see  Note  G).  The  agreement   provides  for  additional
compensation based on exceeding a certain level of performance. The Company will
recognize these fees when earned.

Note G-- Subsequent Events:

Effective August 27, 1998 the Company received notice from one of its customers,
Horizon  Healthcare  of New Jersey,  Inc.,  formerly  known as  Medigroup of New
Jersey,  Inc.  (d/b/a  HMO Blue) that HMO Blue has  decided  to resume  internal
network  management  that it has been  outsourcing to Allied Health Group,  Inc.
("Allied") via an Administrative  Service Agreement dated as of January 2, 1997.
The term of the Administrative  Service Agreement will end effective on December
24, 1998 or such earlier date as the parties may agree. Accordingly,  the letter
agreement  dated March 1, 1997 which was  attached  as Exhibit No.  10(e) to the
Company's Form 10QSB for the quarter ended April 30, 1997 and is incorporated by
reference  herein,  by and among the Company,  HMO Blue and Allied,  pursuant to
which the Company provides certain network management services to Allied and HMO
Blue, will end with the  termination of the  Administrative  Service  Agreement.
Revenues  for the Company from this  contract  were  approximately  $370,000 and
$962,000  for the  three-month  and  nine-month  periods  ended  July 31,  1998,
respectively.  Management of the Company estimates that if this letter agreement
had terminated prior to the nine month period ended July 31, 1998, the Company's
net income for that period would have been reduced by approximately $344,000 and
$934,000 for the three and nine month periods, respectively.


                                       7
<PAGE>

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

Forward Looking Statements:

Certain   statements  in  this  Form  10QSB  may   constitute   "forward-looking
statements" within the meaning of 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,  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  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  cause  actual  results  and  outcomes to differ
materially from those expressed herein.

For fiscal years prior to 1997, the Company  experienced  significant  operating
losses on a  consolidated  basis.  At July 31,  1998,  the Company had a working
capital deficit of  approximately  $426,000,  a capital surplus of approximately
$1,602,000 and an accumulated  deficit of  approximately  $20,379,000  since its
inception.  By continuing to provide high quality care cost containment services
to its existing customer base of five Horizon BCBSNJ plans,  management believes
it can  continue  to market its  reputation  to other  similar  customers.  This
strategy is particularly  significant  given the current health care environment
where  large  third-party  payers  are  merging  in an effort to  protect  their
respective  franchises  and expand their market reach.  The various BCBSNJ 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  


                                       8
<PAGE>

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

internal  products and service  development  efforts by entering into  strategic
alliances and joint ventures as well as through acquisitions.

      Net revenues:

                                                 Nine Months Ended
                                                 -----------------
                                        July 31, 1998          July 31, 1997*
                                        -------------          --------------
                                      Amount    Percent      Amount     Percent
                                      ------    -------      ------     -------
      Revenues from fixed fee
         arrangements              $11,902,652    93%      $ 9,538,650    92%
                                                         
      Revenues from performance-                         
         based arrangements            958,765     7%          861,540     8%
                                                         
      Other revenues                    16,095     0%           23,299     0%
                                   -----------   ---       -----------   ---
                                                         
      Total revenues               $12,877,512   100%      $10,424,189   100%
                                   ===========   ===       ===========   ===

           *Reclassified to conform to current period classification.

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.  Management  believes  its  estimated
performance-based  revenues  contained in reported  revenues for the nine months
ended July 31, 1998 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  revenue  for the three and nine  month  periods  ended  July 31,  1998 were
approximately $4,680,000 and $12,878,000, respectively, compared to net revenues
in  the  corresponding  periods  of  the  prior  fiscal  year  of  approximately
$4,089,000 and $10,424,000.  This represents increases of approximately $591,000
and  $2,454,000  for the three  and nine  month  periods  ended  July 31,  1998,
respectively.  This increase is due largely to increased revenue from one of the
Company's major  customer-stockholders  as a result of its re-negotiation of the
contract  on terms  more  favorable  to the  Company. 

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 and nine month  periods  ended July 31, 1998 were
approximately $2,032,000 and $6,220,000, respectively, compared to approximately
$2,041,000 and $6,081,000 in the corresponding periods of the prior fiscal year.
This represents an  decrease/(increase)  of approximately  $9,000 and ($139,000)
for the three and nine month  periods  ended July 31, 1998,  respectively.  This
increase in the cost of services  for nine month  period ended July 31, 1998 was
due  to  personnel  costs  of  approximately  $134,000  and  computer  costs  of
approximately  $84,000, which were partially offset by decreases in professional
and consulting costs of approximately $10,000,


                                       9
<PAGE>

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

information and  communication  costs of approximately  $3,000,  travel costs of
approximately   $45,000,  and  depreciation  and  amortization   allocations  of
approximately $21,000.

Operating expenses:

Selling, general and administrative:

Selling,  general, and administrative costs for the three and nine month periods
ended July 31, 1998 were approximately $1,932,000 and $4,985,000,  respectively,
compared to approximately $1,278,000 and $4,017,000 in the corresponding periods
of the prior fiscal year. This represents  increases of  approximately  $654,000
and  $968,000  for the  three  and nine  month  periods  ended  July  31,  1998,
respectively.  The increases for the three and nine month periods ended July 31,
1998  are due to  (increases)/decreases  in  personnel  costs  of  approximately
$311,000  and  $368,000,  facility  costs of  approximately  $24,000 and $9,000,
travel costs of approximately $16,000 and $33,000, information and communication
costs of approximately  $57,000 and $119,000,  professional and consulting costs
of approximately  $236,000 and $411,000, and general and administrative costs of
approximately $10,000 and $28,000.

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

Depreciation and amortization:

Depreciation and  amortization  costs for the three and nine month periods ended
July 31, 1998 were approximately $61,000 and $174,000 respectively,  compared to
$75,000  and  $236,000 in the  corresponding  period of the prior  fiscal  year.
Approximately  $226,000 and $661,000  and $134,000 and  $273,000,  respectively,
were included in the cost of services for such periods.

Interest expense:

Net interest  expense for the three and nine month  periods  ended July 31, 1998
was approximately  $50,000 and $187,000 compared to $101,000 and $243,000 in the
corresponding  period  of the  prior  fiscal  year.  This  decrease  is due to a
reduction in interest  related to the Company's  master lease agreement with IBM
Credit Corporation, which is offset by interest accruing under a promissory note
between a customer/stockholder and the Company.

Net income from operations:

Results of  operations in the future are  dependent on  management's  ability to
increase  revenues  and reduce  both direct  costs of  services  and general and
administrative  costs. While there can be no assurance that such efforts will be
successful,  management  believes that opportunities  exist to increase revenues
and reduce costs in areas that will not adversely  affect the  operations of the
Company.  Further, during fiscal year 1997, the Company re-negotiated two of its
key contracts as well as entered into an additional agreement with New York Care
Plus Insurance Company, Inc.

Financial condition:

Liquidity and capital resources:

At July 31, 1998, the Company had cash of approximately $3,586,000 and a working
capital deficiency of approximately  $426,000.  At October 31, 1997, the Company
had  cash of  approximately  $1,038,000  and a  working  capital  deficiency  of
approximately  $2,487,000.   The  decrease  in  working  capital  deficiency  of
approximately  $2,061,000 is due to the Company's ability to generate cash flows
from  operations and the conversion of the CW Note during the nine-month  period
ended July 31, 1998. These cash flows are offset by (i) the current portion of a
note  payable in the  approximate  amount of  $799,000,  and (ii) an increase in
deferred revenue of approximately  $2,138,000 related to a letter agreement with
a customer, whereby additional revenue is earned for meeting certain performance
targets, accordingly such performance revenue will be recognized when earned.


                                       10
<PAGE>

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

Net cash  provided/(used)  from operating  activities  amounted to approximately
$3,788,000 and $632,000 for the nine month periods ended July 31, 1998 and 1997,
respectively.  This  improvement  is  primarily  due to the  receipt of deferred
revenue and increased  operating  income  generated during the nine month period
ended July 31,1998.

Net cash used in investing  activities amounted to approximately  ($815,000) and
($533,000)   for  the  nine  month   periods  ended  July  31,  1998  and  1997,
respectively.  The increase in cash (used) of approximately ($282,000) is due to
increased  capital outlays for computer  related  equipment  incurred during the
current fiscal year.

Net cash used in financing  activities amounted to approximately  ($425,000) and
($490,000)   for  the  nine  month   periods  ended  July  31,  1998  and  1997,
respectively.  The decrease in cash (used) of approximately  ($65,000) is due to
the decreased  principal payments related to the master lease agreement with IBM
Credit Corporation of approximately ($65,000).

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, 1998. This projection  assumes that the Company's
operations and revenues will continue at their current  levels.  The Company has
assessed its various  information  and  technology  systems and does not believe
that it will be required to incur and significant costs to correct any year 2000
deficiencies.

Financing:

Amounts payable pursuant to long-term financing arrangements as of July 31, 1998
were approximately $572,000, 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.  Horizon Blue Cross 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  this  lease
arrangement.

In  connection  with the  re-negotiation  of the amended and  restated  services
agreement  with Horizon  BCBSNJ,  which was completed in June 1997,  the Company
issued  a  promissory  note to  Horizon  BCBSNJ  in the  approximate  amount  of
$1,863,000  with  interest  accruing  beginning in April 1997 and equal  monthly
payments  of  principal  and  interest  commencing  on October 1, 1998.  For the
nine-month  period  ended  July  31,  1998,   approximately  $887,000  has  been
classified  as a current  liability.  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.  Management  expects such
amounts be funded through operations and no outside financing is anticipated for
this obligation.

Effective June 30, 1998, the $2,000,000  principal  amount 8% exchangeable  note
(plus $267,163  accrued  interest)  issued by the Company to CW Ventures II L.P.
was automatically converted and cancelled into 7,799,997 shares of the Company's
common stock.

The Company's  credit  facility  with Summit Bank expired on June 12, 1998.  The
term loan availability under this credit agreement expired on or about March 12,
1998.  The Company is in the process of  negotiating  an extension of its credit
facility with Summit Bank.  However,  there can be no assurance that the Company
will be successful in renegotiating an extension of this credit facility. If the
Company is not  successful,  it will  attempt to obtain  financing  from another
source. Management of the Company does not believe, based on current projections
that this availability is necessary for working capital purposes.

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 of approximately $200,000 during
the fourth quarter of fiscal 1998.

Subsequent Events:

Cancellation  of  Letter  Agreement  dated  as of  March 1,  1997  with  Horizon
Healthcare of New Jersey,  Inc.,  formerly known as Medigroup Of New Jersey, Inc
(d/b/a/ HMO Blue) and Allied Health Group, Inc.

Effective August 27, 1998 the Company received notice from one of its customers,
Horizon  Healthcare  of New Jersey,  Inc.,  formerly  known as  Medigroup of New
Jersey,  Inc.  (d/b/a  HMO Blue) that HMO Blue has  decided  to resume  internal
network  management  that it has been  outsourcing to Allied Health Group,  Inc.
("Allied") via an Administrative  Service Agreement dated as of January 2, 1997.
The term of the Administrative  Service Agreement will end effective on December
24, 1998 or such earlier date as the parties may agree. Accordingly,  the letter
agreement  dated March 1, 1997 which was  attached  as Exhibit No.  10(e) to the
Company's Form 10QSB for the quarter ended April 30, 1997 and is incorporated by
reference herein, by and among the Company,  Medigroup of New Jersey, Inc (d/b/a
HMO Blue) and Allied,  pursuant to which the Company  provides  certain  network
management services to Allied and HMO Blue, will end with the termination of the
Administrative  Service  Agreement.  Revenues  for the Company from the contract
were  approximately  $370,000 and $962,000 for the  three-month  and  nine-month
periods ended July 31, 1998,  respectively.  Management of the Company estimates
that if this letter  agreement had terminated prior to the period ended July 31,
1998 the  Company's  net  income  for that  period  would  have been  reduced by
$344,000 and $934,000 for the three and nine month periods, respectively.

Previously,  the Company and CAHS had announced a Joint Services  Agreement with
Allied,  which was attached as Exhibit No. 10(c) to the Company's Form 10QSB for
the quarter ended April 30, 1997 and is  incorporated  by reference  herein,  to
deliver  health care  management  services in the form of  management of medical
specialty networks to various Horizon BCBSNJ plans throughout the United States.
This  agreement,  which  continues in effect,  provides  for a  three-year  term
through  March 29, 2000 with an  automatic  three-year  renewal  clause,  unless
either  Allied or the  Company  gives  notice to the other of its  intent not to
renew the  agreement at least 90 days before the end of any  three-year  period.
The Company has not received any revenue under this  agreement  through July 31,
1998.

Part II

Item 1. Legal proceedings

(a) On or about  January 16, 1998,  an action  entitled  Mary  DeStefano v. CAI,
Carol Manzella,  and Thomas P. Riley (the  "DeStefano  Action") was filed in the
Law  Division  of the  Superior  Court of New Jersey in  Middlesex  County.  The
complaint alleges that (i) the plaintiff was terminated from her employment with
the Company in retaliation


                                       11
<PAGE>

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

for her complaints  regarding alleged violations of state and federal labor laws
and  (ii)  the  Company  violated  the New  Jersey  Wiretapping  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. Under the terms of the policy,
"insured"  includes  the Company and its officers and  directors.  However,  the
Company's  insurance carrier has also advised that it will not pay any judgement
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.  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 potential exposure
in this matter.

(b) 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.

(c) An action  entitled  Francis  X.  Bodino  v.  BCBSNJ  and CHCM (the  "Bodino
Action") is described in Item 3 of the Company's Form 10-KSB for the fiscal year
ended October 31, 1997, which is incorporated by reference herein.

On or about June 29, 1998, a Settlement and Release Agreement, which is attached
as Exhibit 10(a) hereto and is  incorporated  by reference  herein,  was entered
into among Horizon BCBSNJ, the Company,  CAHS, CHCM, Enterprise Holding Company,
Inc. ("EHC") and CW Ventures.  Under this agreement,  Horizon BCBSNJ indemnifies
the Company, CAHS and CHCM from any losses or obligations in connection with the
claims,  facts and  circumstances  which are the  subject of the  Bodino  Action
except for an amount not to exceed $50,000. In addition, Horizon BCBSNJ and EHC,
on the one hand,  and the  Company,  CAHS and CHCM,  on the other hand,  granted
mutual releases with respect to the claims,  facts and circumstances,  which are
the subject of the Bodino Action.

(d) The Company has been named as a party in an action entitled Robert T. Caruso
v.  CareAdvantage,  Inc.,  John J. Petillo,  Vincent M.  Achillare,  Lawrence A.
Whipple,  BCBSNJ et al.,  which was filed in Superior  Court of New Jersey,  Law
Division, Morris County Docket no. MRS-L-2487-98.  Mssrs. Petillo, Achillare and
Whipple were officers of the Company and may have claims for indemnification for
expenses and for any judgements against them. 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
Company is unable, at this early stage of the proceeding, to evaluate the merits
of this action but has notified its  insurance  carrier of such claim and awaits
the carrier's  determination of coverage.  The Company is unaware of any written
claims for indemnification by John J. Petillo, Vincent M, Achillare, or Lawrence
A. Whipple.


                                       12
<PAGE>

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

Item 2. Changes in Securities and Use of Proceeds

Effective June 30, 1998, the $2,000,000  principal  amount 8% exchangeable  note
(plus $267,163  accrued  interest)  issued by the Company to CW Ventures II L.P.
was automatically converted and cancelled into 7,799,997 shares of the Company's
common stock.

Item 6. Exhibits and reports on Form 8-K

Exhibit 10(a)--Settlement and Release Agreement

Exhibit 27--Financial Data Schedule

Reports on Form 8-K--None


                                       13
<PAGE>

                                   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

September 14, 1998                    /s/ Thomas P. Riley
                                      -----------------------------
                                      Thomas P. Riley

                                      President and Chief Executive Officer

September 14, 1998                    /s/ David G. DeBoskey
                                      -----------------------------
                                      David G. DeBoskey

                                      Principal Financial and Accounting Officer


                                       14