Careadvantage (CADV) 10QSB 2007 Q2 Quarterly report (small business)

UNITED STATES

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 June 30, 2007

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)	(Zip Code)

Issuer's telephone number, including area code: (732) 362-5000

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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o  No x

The number of shares of Common Stock outstanding as of July 27, 2007 is 56,775,554

Transitional Small Business Disclosure Format

Yes o  No x

INDEX

Part I - Financial Information
Item 1. Financial Statements
·   Condensed Consolidated Balance Sheets -June 30, 2007 (Unaudited) and December 31, 2006	2
·   Condensed Consolidated Statements of Operations -Three and six months ended June 30, 2007 and June 30, 2006 (Unaudited)	3
·   Condensed Consolidated Statements of Cash Flows -Six months ended June 30, 2007 and June 30, 2006 (Unaudited)	4
·   Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Item 3. Controls and Procedures	10
Part II - Other Information
Item 1. Legal Proceedings	10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3. Defaults Upon Senior Securities	11
Item 4. Submission of Matters to a Vote of Security Holders	11
Item 5. Other Information	11
Item 6. Exhibits	11
Signature	12

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

CAREADVANTAGE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2007			2006
	Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	338,000		$	371,000
Accounts receivable		368,000			529,000
Other current assets		170,000			92,000
Total current assets		876,000			992,000
Property and equipment, at cost less accumulated depreciation		198,000			232,000
Intangible assets, net of accumulated depreciation		-			1,000
Other assets		167,000			167,000
Total Assets	$	1,241,000		$	1,392,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	107,000		$	146,000
Accrued compensation and related benefits		106,000			110,000
Accrued expenses and other current liabilities		106,000			127,000
Deferred revenue		37,000			74,000
Capital lease obligation - current		40,000			40,000
Total current liabilities		396,000			497,000
Long term liabilities:
Capital lease obligation - long term		121,000			143,000
Deferred rent		390,000			352,000
Total Liabilities	$	907,000		$	992,000
Stockholders' equity:
Preferred stock-par value $.10 per share;
authorized 10,000,000 shares; none issued
Common stock-par value $.001 per share;
authorized 200,000,000 shares; issued 110,170,374
shares and outstanding 56,775,554 shares		110,000			110,000
Additional capital		24,039,000			24,007,000
Accumulated deficit		(23,553,000	)		(23,455,000	)
Treasury stock at cost, 53,394,820 shares		(262,000	)		(262,000	)
Total Stockholders' Equity		334,000			400,000
Total Liabilities and Stockholders' Equity	$	1,241,000		$	1,392,000

See Notes to Unaudited Condensed Consolidated Financial Statements.

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CAREADVANTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
License fees and service revenue	$	1,085,000		$	1,095,000		$	2,135,000		$	2,040,000
Costs of services		429,000			416,000			858,000			858,000
Gross profit		656,000			679,000			1,277,000			1,182,000
Operating expenses:
Selling, general and administrative		714,000			720,000			1,397,000			1,426,000
Operating (loss)		(58,000	)		(41,000	)		(120,000	)		(244,000	)
Interest (expense)/income, net		(4,000	)		-			(9,000	)		-
Gain on sale of assets		32,000			-			32,000			-
Provision for income taxes		1,000			-			1,000			1,000
Net (loss)	$	(31,000	)	$	(41,000	)	$	(98,000	)	$	(245,000	)
Net (loss) per share of common stock	$	.00		$	.00		$	.00		$	.00
Weighted average number of common shares outstanding -
Basic and diluted		56,775,000			55,862,000			56,775,000			54,646,000

See Notes to Unaudited Condensed Consolidated Financial Statements.

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CAREADVANTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(98,000	)	$	(245,000	)
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:
Depreciation and amortization		35,000			60,000
Stock based compensation		32,000			50,000
Deferred revenue		(37,000	)		26,000
Gain on sale of assets		(32,000	)		-
Change in:
Accounts receivable		161,000			99,000
Other assets		(78,000	)		46,000
Accounts payable		(39,000	)		(25,000	)
Deferred rent		38,000			88,000
Accrued expenses and other liabilities		(25,000	)		(5,000	)
Net cash (used in)/provided by operating activities		(43,000	)		94,000
Cash flows from investing activity:
Proceeds from sale of assets		32,000			-
Cash flows from financing activity:
Repayment of capital leases		(22,000	)		-
Proceeds from issuance of common stock		-			13,000
Net cash (used in)/provided by financing activities		(22,000	)		13,000
Net (decrease)/increase in cash and cash equivalents		(33,000	)		107,000
Cash and cash equivalents - beginning of period		371,000			114,000
Cash and cash equivalents - end of period	$	338,000		$	221,000

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Note A—Basis of presentation:

[1]Business:

CareAdvantage, Inc. (“CAI” or the “Company”) and its direct and indirect subsidiaries, CareAdvantage Health Systems, Inc. (“CAHS”) and Contemporary HealthCare Management, Inc. (“CHCM”), are in the business of providing management and consulting services designed to enable integrated health care delivery systems, health insurers, other care management organizations, employers and unions to reduce the costs, while improving the quality, of medical services provided to their members. The management and consulting services include care management program enhancement services, executive and clinical management services, and training programs. The Company operates in one business segment.

As part of offering its management and consulting services, the Company has developed RightPath® Navigator (RPNavigator), a proprietary tool to help managed care plans, employers and unions better understand and forecast resource consumption, risk, and costs associated with their respective populations. In providing its services, the Company licenses RPNavigator to its customers and provides consulting services in connection with that licensing.

[2]Basis of presentation:

The condensed consolidated financial statements as of June 30, 2007 and for the three-month and six-month periods ended June 30, 2007 and 2006 have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information with the instructions to Form 10-QSB. 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. All amounts contained in the financial statements, except per share data, have been rounded to the nearest thousand. Certain information and footnote disclosures required to be included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included with the Company's December 31, 2006 Annual Report on Form 10-KSB. The results of operations for the period ended June 30, 2007 are not necessarily indicative of operating results to be expected for the full year.

For the six month periods ended June 30, 2007 and 2006, the Company has incurred net losses of ($98,000) and ($245,000), respectively and has an accumulated deficit of ($23,553,000) as of June 30, 2007. Additionally, the Company has $338,000 of cash and cash equivalents at June 30, 2007. The Company generates most of its revenue from the licensing of RPNavigator and providing consulting services in connection with that licensing. Based on cash on hand at June 30, 2007 and a forecast prepared by management based on executed contracts, management expects the Company to be able to meet its obligations as they become due during 2007. However, there can be no assurances that management’s plans, including projected revenue, will be attained.

[3] Reclassification:

Certain amounts in prior periods have been reclassified to conform to current period presentation.

Note B—Per share data:

Basic and diluted net loss per share has been computed based on the weighted average number of outstanding shares of common stock. Potentially dilutive securities which were excluded from the computation of basic loss per share because they had an anti-dilutive impact, are as follows:

	June 30,
	2007		2006
Options		19,852,000		20,110,000
Total Potential Dilutive shares		19,852,000		20,110,000

Note C—Stock-Based Compensation:

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123R, “Share Based Payment” (FAS123R), which requires that all share-based payments, including grants of stock options, to be recognized in the income statement as a compensation expense, based on their fair values at the date of grant. Under the provisions of FAS 123R, the estimated fair value of options granted under the Company’s Employee Stock Option Plan and Director Stock Option Plan are recognized as compensation expense over the option-vesting period.

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For the three and six months ended June 30, 2007, the Company included approximately $15,000 and $32,000, respectively, of share-based compensation in the Company’s statement of operations. For the three and six month ended June 30, 2006, the Company included approximately $12,000 and $50,000, respectively, of share-based compensation in the Company’s statement of operations. Included in share-based compensation for the six months ended June 30, 2006 is $30,000 related to a restrictive stock grant.

Prior to the adoption of FAS 123R, the Company presented cash flows resulting from the tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the statement of cash flows. FAS 123R requires cash flows resulting from the tax benefits of tax deductions in excess of compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The Company did not realize any tax benefits from stock options during the three and six months ended June 30, 2007.

As of June 30, 2007, there was approximately $75,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under existing stock option plans. This cost is expected to be recognized over the remaining vesting period.

Note D—Contingencies:

Alan Fontes v. CareAdvantage, Inc., pending in Superior Court of New Jersey, was commenced in June 2004 by a former employee of the Company seeking compensation under various legal theories. In October 2005, the court dismissed the claim under all theories except express contract. The Company believes that Mr. Fontes’s claim is without merit and is contesting the matter vigorously. Moreover, the Company filed a counterclaim for damages against Mr. Fontes claiming Mr. Fontes induced another employee to quit his employment with the Company and in October 2005, pursuant to court order, amended its counterclaim to seek equitable relief and damages against Mr. Fontes and Integrated eCare Solutions, LLC, claiming Mr. Fontes misappropriated and used certain Company property. This matter is presently scheduled to be tried in October 2007.

Note E—Concentration of Credit Risk:

Financial instruments that potentially subject the Company to credit risk consist of cash and accounts receivable. The Company maintains its cash balances in high quality financial institutions. At June 30, 2007, the Company had deposits of approximately $338,000 in one commercial bank.

Note F—Income Taxes:

In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- An interpretation of FASB Statement No. 109”, or FIN 48. FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attributable for financial disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the three and six months ended June 30, 2007.

Note G—Leased Space:

On March 15, 2007, the Landlord notified the Company that pursuant to the provisions of the lease amendment dated January 10, 2005, effective April 19, 2007 (the “Recapture Date”), the Landlord would be “recapturing” certain portions of the leased premises. This recapture did not reduce or modify, in any respect, the Company’s obligation or contingent obligation to pay the Landlord monthly rent. In conjunction with this recapture, the landlord purchased fixed assets that were previously written off for $31,500 and the Company recognized a gain of $31,500.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements:

Statements in this Form 10-QSB may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), including statements concerning management's plans, intentions and expectations with respect to future financial performance and future events, particularly relating to revenues from performance-based services and re-negotiations of existing and new contracts with customers. Many of these statements involve known and unknown risks, uncertainties and contingencies, many of which are beyond our control, which could cause actual results and outcomes to differ materially from those expressed in this 10-QSB. For a more complete discussion of these risk factors, please see “Cautionary Statements” in Item 6 of the Company’s Form 10-KSB for the fiscal year ended December 31, 2006. Although we believe that our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we can give no assurance that our plans, intentions or expectations will be achieved.

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GENERAL OVERVIEW:

The Company and its direct and indirect subsidiaries, CAHS and CHCM are in the business of providing management and consulting services designed to enable integrated health care delivery systems, health insurers, other care management organizations, employers and unions to reduce the costs, while improving the quality, of medical services provided to their members. The management and consulting services include care management program enhancement services, executive and clinical management services, and training programs. The Company operates in one business segment.

As part of the Company’s offering of its management and consulting services, the Company has developed RPNavigator, a proprietary tool to help managed care plans, employers and unions better understand and forecast resource consumption, risk, and costs associated with their respective populations. In providing its consulting services, the Company licenses RPNavigator to its customers. The tool uses 3M’s Clinical Risk Group (CRGs), a classification methodology that groups members according to risk related to the individual’s clinical history and demographic information. Using RPNavigator, the Company enables its customers to:

· track population and member-related disease progression changes over time;

· compare health plan sub-populations on a valid and reliable basis;

· profile providers using case mix and severity-adjusted techniques;

· select and prioritize members to optimize the allocation and assess the impact of care management resources, direct interventions and initiatives; and

· reduce client dependence on internal information technology resources.

The Company recognizes revenue as services are performed or ratably under contract terms. For a further discussion of considerations relating to this business, see “Liquidity, Financial Condition and Capital Resources - General Overview”.

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

RESULTS OF OPERATIONS:

The following discussion compares the Company’s results of operations for the three and six months ended June 30, 2007, with those for the three and six months ended June 30, 2006. The Company’s condensed consolidated financial statements and notes thereto included elsewhere in this report contain detailed information that should be referred to in conjunction with the following discussion.

Three Months Ended June 30, 2007, Compared to Three Months Ended June 30, 2006

Revenues:

The Company's total operating revenues for the three-month periods ended June 30, 2007 and June 30, 2006 were approximately $1,085,000 and $1,095,000, respectively. The revenue was generated primarily from consulting fees earned during these periods. The current revenue amount represents a decrease of approximately $10,000 for the three-month period ended June 30, 2007 from the corresponding period of the prior year. The slight decrease for the three months ended June 30, 2007 was primarily attributable to a decrease of approximately $262,000 related to terminated contracts in 2006, offset by increased revenue of approximately $182,000 in current customer business due to increased services provided to existing customers and related consulting business and increased revenue of approximately $70,000 in new business. The Company is currently focusing its efforts to produce revenue by providing services in connection with its RPNavigator product (see “Liquidity, Financial Condition and Capital Resources”).

Cost of services:

The Company’s total direct cost of services for the three-month periods ended June 30, 2007 and June 30, 2006 was approximately $429,000 and $416,000, respectively. This represents an increase of approximately $13,000 for the three-month period ended June 30, 2007 over the corresponding period of the prior year. The increase in the cost of services for the three-month period ended June 30, 2007 was primarily due to increased personnel costs of approximately $18,000 and travel costs of approximately $4,000, offset by a decrease of approximately $9,000 in professional costs relating to medical review services.

7

Selling, general and administrative expenses:

The Company’s total selling, general, and administrative costs for the three-month periods ended June 30, 2007 and June 30, 2006 were approximately $714,000 and $720,000, respectively. This represents a decrease of approximately $6,000 for the three-month period ended June 30, 2007 over the corresponding period of the prior year. This decrease for the three-month period ended June 30, 2007 is primarily due to decreases in personnel costs of approximately $33,000, decreased information and communication costs of approximately $13,000, a decrease in travel costs of approximately $3,000, a decrease of approximately $41,000 in other general and administrative costs and a reduction in depreciation and amortization of approximately $13,000, offset by increases in facility costs of approximately $9,000 and increases of approximately $88,000 in professional costs relating to legal expenses due to the upcoming trial of Alan Fontes vs. CareAdvantage, Inc.

Net Loss:

The Company’s net loss includes a gain on the sale of fixed assets of approximately $32,000.

Six Months Ended June 30, 2007, Compared to Six Months Ended June 30, 2006

Revenues:

The Company's total operating revenues for the six-month periods ended June 30, 2007 and June 30, 2006 were approximately $2,135,000 and $2,040,000, respectively. This represents an increase of approximately $95,000 for the six-month period ended June 30, 2007 from the corresponding period of the prior year. The increase for the six months ended June 30, 2007 was primarily attributable to increased revenue of approximately $428,000 in current customer business due to increased services provided to existing customers and related consulting business and increased revenue of approximately $125,000 related to new business, offset by a decrease in revenue of approximately $458,000 related to terminated contracts in 2006.

Cost of services:

The Company’s total direct cost of services for the six-month periods ended June 30, 2007 and June 30, 2006 was approximately $858,000 and $858,000, respectively. This represents no change for the six-month period ended June 30, 2007 over the corresponding period of the prior year. Although there was no change for the six-month period ended June 30, 2007, the Company’s direct costs of services for such period reflected a decrease in professional costs of approximately $19,000 offset by an increase in personnel costs of approximately $19,000 from the corresponding period in the prior year.

Selling, general and administrative expenses:

The Company’s total selling, general, and administrative costs for the six-month periods ended June 30, 2007 and June 30, 2006 were approximately $1,397,000 and $1,426,000, respectively. This represents a decrease of approximately $29,000 for the six-month period ended June 30, 2007 over the corresponding period of the prior year. This decrease for the six-month period ended June 30, 2007 is primarily due to decreased personnel costs of approximately $59,000, information and communication costs of approximately $21,000, travel costs of approximately $8,000, other general and administrative costs of approximately $43,000 and depreciation and amortization costs of approximately $27,000, offset by increases in professional costs of approximately $117,000 and facility costs of approximately $12,000.

Net Loss:

The Company’s net loss includes a gain on the sale of fixed assets of approximately $32,000.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES:

General overview:

At June 30, 2007, the Company had working capital of approximately $480,000, stockholders equity of approximately $334,000 and an accumulated deficit of approximately $23,553,000.

Financial condition:

At June 30, 2007, the Company had cash of approximately $338,000 and working capital of approximately $480,000. At December 31, 2006, the Company had cash of approximately $371,000 and working capital of approximately $495,000.

8

Net cash used in operating activities amounted to approximately $43,000 for the six-month period ended June 30, 2007. The cash used in operating activities is largely due to changes in operating assets and liabilities relating primarily to the collection of accounts receivable and non cash charges, offset by the Company’s six-month loss of approximately $98,000.

Net cash provided from investing activities for the six-month period ended June 30, 2007 was approximately $32,000 related to proceeds from sale of assets.

Net cash used by financing activities for the six-month period ended June 30, 2007 was approximately $22,000 largely related to payments on a capital lease for equipment.

Revenue has grown from $2,040,000 in 2006 to $2,135,000 in 2007. The Company generates most of its revenue from the licensing of RPNavigator and providing consulting services in connection with that licensing. Based on cash on hand at June 30, 2007 and a forecast prepared by management, management expects the Company to be able to meet its obligations as they become due during 2007. However, there can be no assurances that management’s plans, including projected revenue, will be attained.

Critical Accounting Policies:

The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions about future events and their effects cannot be determined with certainty. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, our management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. Actual results may differ from these estimates under different assumptions or conditions.

A critical accounting policy is one that is both important to the portrayal of the Company's financial condition or results of operations and requires significant judgment or a complex estimation process. The Company believes the following fit that definition:

Revenue recognition

With respect to RPNavigator license fees, all of the Company's customers licensing RPNavigator are required, as part of their agreements with the Company, to receive consulting services from the Company. All contracts provide for licensing of RPNavigator and consulting services at a fixed monthly fee, a per member per month fee, or a combination of both. The Company earns the revenue from licensing and consulting services on a monthly basis and recognizes revenue from both services on a monthly basis at either a fixed monthly fee, a per member per month fee or a combination of both. Additionally, the Company provides separate consulting services on a fee for service basis. Revenue for these consulting services is recognized as the services are provided.

Accounting for stock-based compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123R, “Share Based Payment” (FAS123R), which requires that all share-based payments, including grants of stock options, be recognized in the statement of operations as compensation expense, based on their fair values at the date of grant. Under the provisions of FAS 123R, the estimated fair value of options granted under the Company's Employee Stock Option Plan and Director Stock Option Plan are recognized as compensation expense over the service period which is generally the same as the option-vesting period.

For the purposes of determining estimated fair value under FAS 123R, the Company has computed the fair values of all share-based compensation using the Black-Scholes option pricing model. This model requires the Company to make certain estimates and assumptions. The Company calculated expected volatility based on the Company's historical stock volatility. The computation of expected life is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Under FAS123R, forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which the actual forfeitures differ, or are expected to differ, from the previous estimate.

9

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An interpretation of FASB Statement No. 109,” or FIN 48. FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attributable for financial disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the three and six months ended June 30, 2007.

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements”, to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007. The Company is assessing the impact the adoption of SFAS No. 157 will have on the Company's financial position and results of operations.

In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” including an amendment of SFAS No. 115. SFAS No. 159 provides companies with an option to report selected financial liabilities at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159 on its financial position and results of operations.

ITEM 3. Controls and Procedures

Senior management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods provided in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer, who is also currently the acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, senior management has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and therefore has been required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-QSB, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and acting Chief Financial Officer has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

During the quarter ended June 30, 2007, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect these controls.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

CareAdvantage, Inc. v. Blue Cross & Blue Shield of Rhode Island and Coordinated Health Partners, commenced March 2002 and pending in the Superior Court of the State of Rhode Island, arises out of the defendants’ termination of an Agreement effective as of January 1, 2000, among the parties pursuant to which the Company had been providing services. The Company is seeking declaratory relief including judgment (i) that the Company’s failure to attain Performance Goals under the Agreement was as a result of the defendants’ conduct, (ii) that defendants lacked cause to terminate the Agreement based on the Company’s failure to meet the Performance Goals, and (iii) that the Company is entitled to compensation under the Agreement, including compensation for having been deemed to have met the Performance Goals. In addition, the suit seeks equitable relief and damages with respect to defendants’ hiring a physician formerly employed by the Company.

For a description of additional legal proceedings, see Note D to the Condensed Financial Statements. With the exception of the legal proceedings described above and in Note D to the Financial Statements, there are no material pending legal proceedings other than ordinary routine litigation incidental to the business of the Company.

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Item 2. Unregistered Sales of Equity Security and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company’s security holders during the quarter ended June 30, 2007.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

See Exhibit Index.

11

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
August 14, 2007		/s/ Dennis J. Mouras
		Dennis J. Mouras
		Chief Executive Officer and acting Principal Financial Officer

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EXHIBIT INDEX

Exhibit No. Description of Exhibit

2.1 Deposit Agreement dated October 31, 1994 among Midlantic Bank, N.A., PMDX and the Registrant incorporated by reference to Exhibit 2.1 filed with the Company's Registration Statement on Form S-1 (File No. 33-89176).

2.2 Certificate of Merger of Care Advantage Health Systems (f/k/a Advantage Health Systems, Inc.), a Georgia corporation into CareAdvantage Health Systems, Inc., a Delaware corporation incorporated by reference to Exhibit 2.2 filed with the Company's Registration Statement on Form S-1 (File No. 33-89176).

3.1 Registrant's Certificate of Incorporation incorporated by reference to Exhibit 3.1 filed with the Company's Registration Statement on Form S-1 (File No. 33-89176).

3.1(a) Amended and Restated Certificate of Incorporation incorporated by reference to the Company's Information Statement dated September 1996.

3.2 Registrant's By-Laws incorporated by reference to Exhibit 3.2 filed with the Company's Registration Statement on Form S-1 (File No. 33-89176).

3.2(a) Amendment to the Company’s Bylaws incorporated by reference to Exhibit 3.2(a) filed with the Company’s Form 10-KSB for the year ended December 31, 2006.

10.1 Lease Agreement dated April 14, 1995 between the Registrant and Metropolitan Life Insurance Company incorporated by reference to Exhibit 10.13 filed with the Company's Registration Statement on Form S-1 (File No. 33-89176).

10.2 Registrant’s 1996 Stock Option Plan incorporated by reference to the Company's Information Statement dated September 1996.

10.3 Registrant’s 1996 Director Stock Option Plan incorporated by reference to the Company's Information Statement dated September 1996.

10.4 Confidentiality, Invention, and Non-Compete Agreement between the Company and David Noone, dated as of January 8, 1999, incorporated by reference to Exhibit 10.33 filed with the Company’s Form 10KSB for the year ended September 30, 1998.

10.5 Employment Agreement, effective as of April 19, 1999, between Dennis M. Mouras, and the Company, incorporated by reference to Exhibit 10.40 filed with the Company’s Form 10KSB for the year ended December 31, 1999.

10.6 Second Amendment to Lease Agreement between CareAdvantage Health Systems, Inc. and Corporate Plaza Associates, L.L.C., incorporated by reference to Exhibit 10.1 filed on the Company’s Form 8-K filed on January 11, 2005.

10.7 Services and License Agreement between the Company and Kaiser Foundation Health Plan of the Northwest ("Kaiser"), effective as of January 1, 2005, incorporated by reference to Exhibit 10.49 filed with the Company’s Form 10-KSB for the year ended December31, 2004. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

10.8 Amendment to Employment Agreement between the Company and Dennis J. Mouras, dated as of November 11, 2005, and Employment Agreement between the Company and Dennis J. Mouras, dated as of October 25,2000, incorporated by reference to Exhibit 10.50 filed with the Company’s Form 10-QSB for the quarter ended September 30, 2005.

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10.9 First Amendment to Services and License Agreement between the Company and Kaiser Foundation Health Plan of the Northwest (“Kaiser”), effective as of January 1, 2006, incorporated by reference to Exhibit 10.51 filed with the Company’s Form 10-KSB for the year ended December 31, 2005. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

10.10 Second Amendment to Services and License Agreement between the Company and Kaiser, effective as of April 1, 2006, incorporated by reference as Exhibit 10.52 filed with the Company’s Form 10-KSB for the year ended December 31, 2005. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

10.11 Services and License Agreement between the Company and Blue Cross Blue Shield of Texas (“BCBSTX”), effective as of August 18, 2003, incorporated by reference to Exhibit 10.53 filed with the Company's Form 10-QSB for the quarter ended June 30, 2006. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

10.12 Amendment to Services and License Agreement between the Company and BCBSTX, effective as of June 1, 2006, incorporated by reference to Exhibit 10.54 filed with the Company's Form 10-QSB for the quarter ended June 30, 2006. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

10.13 Letter from Kaiser Foundation Health Plan of the Northwest terminating Services and License Agreement, incorporated by reference to Exhibit 10.1 filed on the Company’s Form 8-K filed on October 3, 2006.

16.1 Letter regarding change in accountants, incorporated by reference to Exhibit 16.1 filed on the Company’s Form 8-K dated June 6, 1996.

16.2 Letter regarding change in accountants, incorporated by reference to Exhibit 16 filed on the Company’s Form 8-K dated July 31, 2001.

16.3 Letter regarding change in accountants, incorporated by reference to Exhibit 16.1 filed on the Company’s Form 8-K dated June 6, 2002.

31 Certifications pursuant to Rule 13a-14(a), promulgated under the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002*

32 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

*filed herewith

** furnished herewith

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