SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

COMMISSION FILE NUMBER 0-26168

CAREADVANTAGE, INC.

(Exact name of small business issuer as specified in its charter)

DELAWARE		22-3326528
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification Number)

485-A Route 1 South, Iselin, New Jersey		08830
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

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 October 22, 2010 is 145,250,442

INDEX

Part I - Financial Information		2

Item 1. Financial Statements		2

· Condensed Consolidated Balance Sheets -September 30, 2010 (Unaudited) and December 31, 2009		2

· Condensed Consolidated Statements of Operations (Unaudited) -Three and nine months ended September 30, 2010 and September 30, 2009		3

· Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2010 and September 30, 2009		4

· Notes to Unaudited Condensed Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		8

Item 3. Quantitative and Qualitative Disclosures About Market Risk		12

Item 4. Controls and Procedures		12

Part II – Other Information		13

Item 1. Legal Proceedings		13

Item 1A. Risk Factors		13

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		13

Item 3. Defaults Upon Senior Securities		13

Item 4. [REMOVED AND RESERVED]		13

Item 5. Other Information		13

Item 6. Exhibits		13

Signature		14

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

CAREADVANTAGE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	408,000		$	510,000
Accounts receivable		62,000			143,000
Prepaid expenses and other current assets		75,000			108,000
Security deposits		-			167,000
Total current assets		545,000			928,000

Property and equipment, at cost net of accumulated depreciation		62,000			108,000
Intangible assets, net of accumulated depreciation		-			2,000
Total Assets	$	607,000		$	1,038,000

LIABILITIES AND STOCKHOLDERS'(DEFICIT)/EQUITY

Current liabilities:
Accounts payable	$	120,000		$	82,000
Accrued compensation and related benefits		94,000			81,000
Accrued professional fees		58,000			65,000
Other current liabilities		1,000			1,000
Deferred revenue		26,000			231,000
Capital lease obligation – current		36,000			51,000
Total current liabilities		335,000			511,000

Long term liabilities:
Capital lease obligation - long term		-			23,000
Deferred rent		320,000			340,000
Total long term liabilities		320,000			363,000
Total Liabilities		655,000			874,000

Stockholders' (deficit)/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; 145,250,442 shares issued and outstanding at September 30, 2010 and 142,554,442 shares issued and outstanding at December 31, 2009		145,000			143,000
Additional capital		24,446,000			24,420,000
Accumulated deficit		(24,639,000	)		(24,399,000	)
Total Stockholders' (Deficit)/Equity		(48,000	)		164,000
Total Liabilities and Stockholders' (Deficit))/Equity	$	607,000		$	1,038,000

See Notes to Unaudited Condensed Consolidated Financial Statements.

CAREADVANTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009
License fees and service revenue	$	792,000		$	927,000	$	2,768,000		$	2,847,000

Costs of services		255,000			343,000		926,000			1,040,000

Gross profit		537,000			584,000		1,842,000			1,807,000

Operating expenses:

Selling, general and administrative		517,000			403,000		1,795,000			1,848,000
Depreciation and amortization		16,000			16,000		48,000			49,000
Total operating expenses		533,000			419,000		1,843,000			1,897,000

Operating income/(loss)		4,000			165,000		(1,000	)		(90,000	)

Interest expense		5,000			5,000		15,000			15,000

Loss on building lease		-			-		224,000			-

Net income/(loss)	$	(1,000	)	$	160,000	$	(240,000	)	$	(105,000	)

Net income/(loss) per share of common stock	$	.00		$	.00	$	.00		$	.00

Weighted average number of common shares outstanding - Basic and diluted		145,250,000			81,685,000		144,656,000			68,855,000

See Notes to Unaudited Condensed Consolidated Financial Statements.

CAREADVANTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2010			2009
Cash flows from operating activities:

Net loss	$	(240,000	)	$	(105,000	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		48,000			49,000
Stock based compensation		5,000			9,000
Deferred revenue		(205,000	)		238,000
Deferred rent		(77,000	)		(111,000	)
Loss on building lease – security deposit		167,000			-
Loss on building lease – deferred rent		57,000			-
Loss on sublease		-			90,000
Gain on settlement of accounts payable		-			(120,000)

Changes in:

Accounts receivable		81,000			(75,000	)
Prepaid expenses and other current assets		33,000			4,000
Accounts payable		38,000			(197,000	)
Accrued expenses and other current liabilities		6,000			55,000

Net cash used in operating activities		(87,000	)		(163,000	)

Cash flows from financing activity:

Proceeds from sale of common stock		-			352,000
Proceeds from exercise of stock options, net of costs		23,000			2,000
Repayment of capital leases		(38,000	)		(45,000	)

Net cash (used in)/provided by financing activities		(15,000	)		309,000

Net (decrease)/increase in cash and cash equivalents		(102,000	)		146,000

Cash and cash equivalents - beginning of period		510,000			88,000

Cash and cash equivalents - end of period	$	408,000		$	234,000

See Notes to Unaudited Condensed Consolidated Financial Statements.

CAREADVANTAGE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A—Business:

[1] Business:

CareAdvantage, Inc. (the “Company”) and its direct and indirect subsidiaries, CareAdvantage Health Systems, Inc. and Contemporary HealthCare Management, Inc., are in the business of providing healthcare consulting services, data warehousing and analytic services designed to enable integrated health care delivery systems, healthcare plans, employee benefit consultants, other care management organizations, self insured employers and unions to reduce the costs, while improving the quality, of medical services provided to the healthcare participants. The services include care management program enhancement services, executive and clinical management services, training programs, risk stratification and predictive modeling. The Company operates in one business segment.

[2] Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim information. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes hereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

The unaudited condensed consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of results of operations, financial position and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The results for the interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

The unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. 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 September 30, 2010 and a forecast prepared by management, which takes into account executed contracts, a pipeline of prospective clients that management believes is robust, and cost reductions, management expects the Company to be able to meet its obligations as they become due during the next twelve months. However, there can be no assurances that management’s plans, including projected revenue, will be attained. For the three and nine months ended September 30, 2010, the Company had a net loss of $1,000 and $240,000, respectively. Additionally, at September 30, 2010, the Company has an accumulated deficit of $24,639,000, stockholders’ deficit of $48,000 and cash and cash equivalents of $408,000. These factors, combined with the notice of termination of the BCBSTX Agreement discussed in Note [A][3] below, raise doubt regarding the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has reclassified certain 2009 balances to conform to the current period presentation.

[3] Notice of Termination of Blue Cross and Blue Shield of Texas Agreement:

As previously reported by the Company on the Form 8-K filed on September 3, 2010, the Company received a letter dated August 30, 2010, from Blue Cross and Blue Shield of Texas (“BCBSTX”), a division of Health Care Service Corporation (“HCSC”) stating that the letter served as ninety (90) days prior written notice of BCBSTX’s intent to terminate the Service and License Agreement between the Company and BCBSTX (the “BCBSTX Agreement”) effective November 30, 2010. The Company also reported in the Form 8-K that Dennis Mouras, the Company’s President and Chief Executive Officer, met with three officers of HCSC and/or BCBSTX (the “Officers”) on August 25, 2010, and at that meeting, these Officers informed Mr. Mouras that BCBS would likely terminate the BCBSTX Agreement, but because of BCBSTX’s favorable experiences with RPNavigator, the Officers indicated to Mr. Mouras that BCBSTX desired to continue to be able to receive ad hoc reports generated by RPNavigator and to maintain a positive relationship with the Company. Further, the Officers and Mr. Mouras discussed in general terms potential uses of RPNavigator for purposes other than health care management, including its potential use (a) in managing BCBSTX’s provider networks, (b) in analyzing and presenting its data as a result of certain Texas regulatory developments, and (c) in measuring the effectiveness of its disease management programs. The Officers invited Mr. Mouras to submit to them a proposal for such other purposes, and the Company reported that it anticipated submitting such proposal in September 2010. The Company has not yet submitted the proposal, because prior to providing this proposal, the Company wanted to speak again with Carolyn Dawson (one of the Officers present at the August 25, 2010 meeting), who is DSVP Enterprise Health Care Management for HCSC, to better learn the areas of interest of HCSC and BCBSTX and then make a formal proposal in person accompanied by 3M’s personnel. The Company has since spoken with Ms. Dawson, who indicated that they are most interested in assistance with Accountable Care Organizations and “Medical Home” (wherein the health plan uses the physician’s office to manage care). Also, Ms. Dawson indicated that assistance would be required HCSC-wide and would not be limited to BCBSTX. As of the date of this filing, no meeting date has been scheduled to present a proposal, however, the Company anticipates, without offering any assurances, that a meeting will be held in the next several weeks. The Company recognized approximately $1,991,000 and $ 2,043,000 revenues in each of 2009 and 2008 from BCBSTX.

[4] Recent Accounting Pronouncements:

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, “Multiple Deliverable Revenue Arrangements” (ASU 2009-13). ASU 2009-13 replaces EITF 00-21, and clarifies the criteria for separating revenue between multiple deliverables. This statement is effective for new revenue arrangements or materially modified arrangements in periods subsequent to adoption. The accounting guidance is effective for fiscal years beginning on or after June 15, 2010, but early adoption is allowed. We anticipate the adoption of this pronouncement will not have any impact on the Company’s financial position and results of operations.

Note B—Per share data:

Basic loss per share is computed based on the weighted average number of outstanding shares of common stock. Potentially dilutive securities where the exercise prices were greater than the average market price of the common stock during the period were excluded from the computation of diluted income or loss because they had an anti-dilutive impact are as follows:

	Three and Nine Months Ended September 30,
	2010		2009
Total Potential Dilutive shares		9,472,000		12,287,000

Note C—Stock-Based Compensation:

The Company recognizes stock-based compensation for all equity-based payments, including grants of stock options, in the statement of operations as a compensation expense, based on their fair value at the date of the grant. 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; all outstanding stock options are fully exercisable.

For the nine months ended September 30, 2010, the Company included approximately $5,000 of equity-based compensation in its operating expenses (selling, general and administrative) in the Company’s condensed consolidated statement of operations. This represents a one-time charge for a stock grant of 599,000 shares of the Company’s common stock to an employee in connection with the employee’s termination of employment. For the three and nine months ended September 30, 2009, the Company included approximately $0 and $9,000, respectively, of equity-based compensation in its operating expenses (selling, general and administrative) in the Company’s condensed consolidated statement of operations.

Cash flows resulting from the tax benefits of tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are to be classified as financing cash flows. The Company did not realize any tax benefits from stock options during the three and nine months ended September 30, 2010 and 2009.

As of September 30, 2010, there was no unrecognized compensation cost related to non-vested equity-based compensation arrangements granted under existing stock option plans.

During the nine months ended September 30, 2010, the exercise of certain stock options resulted in the issuance of 2,097,000 shares of common stock for proceeds of approximately $23,000. Proceeds of approximately $12,000 from one exercise that were collected during the three month period ended June 30, 2010 were related to the issuance of 1,250,000 shares during the three month period ended March 31, 2010. The intrinsic value of the options exercised for the nine months ended September 30, 2010 was $0.

Note D—Contingencies:

Alan Fontes v. CareAdvantage, Inc., pending in Superior Court of New Jersey, Chancery Division, Monmouth County, 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 being tried before a chancery judge.

Note E—Concentration of Credit Risk/Fair Value of Financial Instruments:

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents balances in financial institutions. At times, the amount of cash maintained in a given financial institution may exceed the federally insured limits.

The fair values of the following instruments approximate their carrying values due to the short-term nature of such instruments: cash and cash equivalents; accounts receivable; accounts payable; and accrued liabilities.

Note F—Leased Space:

On January 10, 2005, the Company, through CAHS, entered into a Second Amendment to Lease Agreement commencing January 1, 2005 to provide for the reduction in base rent and the waiver of escalations based on increases in real estate taxes and operating expenses, and to provide the landlord with the option to recapture up to 50% of the leased premises at any time. (The landlord was granted the recapture option because when the Company ceased providing services to Horizon BCBSNJ, the Company no longer needed this space.) The expiration date of the lease, March 31, 2011, remained unchanged by this Second Amendment.

Under the Second Amendment to Lease Agreement, the Company was required to meet the following conditions: (1) the Company could not assign the lease except for an assignment of the lease or a sublet provided under the original lease; (2) the Company could not be in default under any terms and conditions of the original lease. In the event the Company failed to meet these conditions, the reduction in base rent, real estate taxes and operating expenses would be nullified and entirely forfeited, and the Company would be immediately required to pay the landlord additional rent for the difference in the base rent, and additional rent for all escalations provided in the Second Amendment to Lease Agreement and the original lease as extended. As of January 1, 2005, the additional rent attributable to the difference in base rent was $1,257,000.

Effective April 19, 2007 (the “Recapture Date”), the landlord “recaptured” certain portions of the leased premises pursuant to the provisions of the Second Amendment to Lease Agreement. This recapture did not reduce or modify, in any respect, the Company’s obligations to pay to the landlord monthly rent or, in the event the Company failed to meet above conditions, additional rent. Effective as of the Recapture Date, the premises leased by the Company under the lease was deemed to be, and refer only to, 15,629 rentable square feet.

As of March 26, 2008, the Company and landlord entered into a Third Amendment of Lease which provided that the reduction in base rent and the waiver of escalations based on increases in real estate taxes and operating expenses shall be deemed to be amortized on a straight line basis over the period commencing January 1, 2005 and ending March 31, 2011.

Effective May 1, 2009 and September 1, 2009, the Company signed sublease agreements with the same subtenant (the “Subtenant”) for approximately 3,700 and 600 square feet, respectively, of its office space which called for monthly rental payments of approximately $7,000 and $1,200, respectively, to the Company from the Subtenant. The term of the subleases ran 23 and 19 months, respectively, through March 31, 2011. The sublease income did not cover the costs of the primary lease for the related space. Consequently, in accordance with the accounting guidance, during the year ended December 31, 2009, the Company recognized a combined loss of approximately $90,000, which was included in selling, general and administrative expense. The subleases were terminated in connection with the entry by the Company into a new lease with the landlord, discussed below.

On January 18, 2010, the Company received delivery of an executed new Office Lease with its current landlord for 6,189 square feet of space in Building A at Woodbridge Corporate Plaza, 485 Route One South, Iselin, New Jersey, the same office park in which the Company previously maintained its offices in Building C. The new lease (“New Lease”) was made as of December 28, 2009, and its term commenced on April 15, 2010, the date the landlord delivered the new space to the Company. The New Lease has a term of seventy-six full calendar months commencing May 1, 2010 (each a “Lease Month”), and a monthly base rent for Lease Months 1 to 12 of $22,512.49, and for Lease Months 13 to 76 of $14,441.00. (The rent for the partial calendar month of April 2010 is a prorated portion of the base rent for the first Lease Month.) In addition to the base rent, the Company is obligated to pay separately metered electric charges, and commencing January 1, 2011, a ratable portion of increases from 2010 in real estate taxes, operating expenses and certain utility charges. The New Lease provides the Company a credit of $10,057.13 against the monthly base rent for Lease Months 1, 2, 7 and 14. In addition, the New Lease provides the Company an additional credit of $8,379.67 per month for the first 12 Lease Months. The New Lease does not initially provide for a security deposit; however, the Company is required to deliver to the landlord no later than January 15, 2011, the sum of $10,000 to be held as a security deposit. Finally, the landlord performed, at its expense, certain work in readying the leased premises for the Company’s occupancy.

In connection with entering into the New Lease, the landlord and CAHS, entered into a Surrender Agreement, delivered on January 18, 2010, and made as of December 28, 2009, pursuant to which the landlord agreed to terminate the prior lease as of March 31, 2010 (or the day before the commencement date of the New Lease, if later) (the “Surrender Date”), which existing lease would have otherwise expired on March 31, 2011. As of the date the New Lease commenced, the security deposit of $167,027 under the existing lease was forfeited to the landlord.

Pursuant to the Surrender Agreement, (i) CAHS released the landlord from all claims arising out of the prior lease, and (ii) upon CAHS’s delivery of the premises (excluding the subleased space) to the landlord in accordance with the Surrender Agreement, and CAHS’s timely payment of rent and other expenses owed to the Landlord under the prior lease through the Surrender Date, the landlord released CAHS of all claims arising out of the prior lease. Pursuant to the Surrender Agreement, the sublease agreements with the Subtenant were terminated effective as of the Surrender Date, and the Subtenant is currently leasing the subleased space directly from the landlord.

As a result of the New Lease, during three and nine months ended September 30, 2010, the Company recorded a loss of approximately $0 and $224,000, respectively, which included the forfeiture of the security deposit under the existing lease as described above.

At September 30, 2010, the Company had deferred rent of approximately $320,000, representing the difference between the negotiated lease obligation and the fair market rent expense on a straight-line basis over the term of the lease.

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

Forward-Looking Information:

Portions of this Quarterly Report of CareAdvantage, Inc. (the “Company”) on Form 10-Q contain “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, including statements that include the words “anticipate”, “estimate”, “should”, “expect”, “believe”, “intend”, and similar expressions, are expressions about management’s confidence, policies, and strategies, the adequacy of capital levels, and liquidity and are not guarantees of future performance. Such forward-looking statements involve certain risks and uncertainties, including economic conditions, competition in the geographic and business areas in which the Company operates, inflation, fluctuations in interest rates, legislation, and governmental regulation. These risks and uncertainties are described in detail in the section of the periodic reports that the Company files with the Securities and Exchange Commission (the “SEC”) entitled “Risk Factors” (see Item 1A of Part II of this report). Actual results may differ materially from such forward-looking statements, and the Company assumes no obligation to update forward-looking statements at any time except as required by law.

GENERAL OVERVIEW:

The Company is in the business of providing healthcare consulting services, data warehousing and analytic services designed to enable integrated health care delivery systems, healthcare plans, employee benefit consultants, other care management organizations, self-insured employers and unions to reduce the costs, while improving the quality of medical services provided to the healthcare participants. The services include care management program enhancement services, executive and clinical management services, training programs, risk stratification and predictive modeling. The Company operates in one business segment.

As part of offering its healthcare consulting services, the Company has developed RightPath® Navigator (“RPNavigator”), a proprietary tool to help its customers 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. 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. RPNavigator, offers customers:

•

actionable financial and utilization data analytics;

•

clinical analyses of health status and medical cost trends;

•

identification of key management and quality opportunities;

•

enhanced group-/segment-specific reporting;

•

transparent methodology;

•

measurement of performance of internal and external vendors; and

•

reduced dependence on internal resources to develop and produce required reports to accomplish these tasks.

With respect to RPNavigator license fees, most of the Company's customers that license 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 or annual 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 .

Management believes that the Company must continue refining its current product offerings in order to continue adding value to existing and potential customers. Management intends to continue to evaluate its product offerings in light of anticipated changes in the health care industry, as well as the availability and timeliness of competent resources. To further expand its product offerings, the Company may pursue alternatives to its internal product and service development efforts by entering into strategic alliances and joint ventures.

As previously reported by the Company on the Form 8-K filed on September 3, 2010, the Company received a letter dated August 30, 2010, from Blue Cross and Blue Shield of Texas (“BCBSTX”), a division of Health Care Service Corporation (“HCSC”) stating that the letter served as ninety (90) days prior written notice of BCBSTX’s intent to terminate the Service and License Agreement between the Company and BCBSTX (the “BCBSTX Agreement”) effective November 30, 2010. The Company also reported in the Form 8-K that Dennis Mouras, the Company’s President and Chief Executive Officer, met with three officers of HCSC and/or BCBSTX (the “Officers”) on August 25, 2010, and at that meeting, these Officers informed Mr. Mouras that BCBS would likely terminate the BCBSTX Agreement, but because of BCBSTX’s favorable experiences with RPNavigator, the Officers indicated to Mr. Mouras that BCBSTX desired to continue to be able to receive ad hoc reports generated by RPNavigator and to maintain a positive relationship with the Company. Further, the Officers and Mr. Mouras discussed in general terms potential uses of RPNavigator for purposes other than health care management, including its potential use (a) in managing BCBSTX’s provider networks, (b) in analyzing and presenting its data as a result of certain Texas regulatory developments, and (c) in measuring the effectiveness of its disease management programs. The Officers invited Mr. Mouras to submit to them a proposal for such other purposes, and the Company reported that it anticipated submitting such proposal in September 2010. The Company has not yet submitted the proposal, because prior to providing this proposal, the Company wanted to speak again with Carolyn Dawson (one of the Officers present at the August 25, 2010 meeting), who is DSVP Enterprise Health Care Management for HCSC, to better learn the areas of interest of HCSC and BCBSTX and then make a formal proposal in person accompanied by 3M’s personnel. The Company has since spoken with Ms. Dawson, who indicated that they are most interested in assistance with Accountable Care Organizations and “Medical Home” (wherein the health plan uses the physician’s office to manage care). Also, Ms. Dawson indicated that assistance would be required HCSC-wide and would not be limited to BCBSTX. As of the date of this filing, no meeting date has been scheduled to present a proposal, however, the Company anticipates, without offering any assurances, that a meeting will be held in the next several weeks. See “Liquidity, Financial Condition and Capital Resources—Significant Development” in this report for a discussion of the Company’s prospective business in light of the foregoing disclosures.

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 the Company’s 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, management is periodically faced with uncertainties, the outcomes of which are not within the Company’s control and will not be known for prolonged periods of time. Actual results may differ from these estimates under different assumptions or conditions.

Certain accounting policies have a significant impact on amounts reported in financial statements. The Company’s most critical accounting policies are discussed in Note B to the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and relate to revenue recognition and equity-based compensation. Management continuously monitors the Company’s application of these policies to its operations and makes changes as necessary.

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 meet that definition:

Revenue recognition

With respect to RPNavigator license fees, most of the Company’s customers that license 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 or annual fee, a per member per month fee, or a combination of both. The Company recognizes revenue from licensing RPNavigator and consulting services ratably as such services are performed. 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

The Company accounts for stock-based compensation in accordance with ASC Topic 718 , “Share Based Payment”, which requires that all equity-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 ASC Topic 718, 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 ASC Topic 718, the Company has computed the fair values of all equity-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 ASC Topic 718, 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.

Recent Accounting Pronouncements

RESULTS OF OPERATIONS:

The following discussion compares the Company’s results of operations for the three and nine months ended September 30, 2010, with those for the three and nine months ended September 30, 2009. The discussion should be read in conjunction with the unaudited consolidated financial statements and related notes presented in this report, as well as the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Three Months Ended September 30, 2010, Compared to Three Months Ended September 30, 2009

Revenues:

The Company's total operating revenues for the three-month periods ended September 30, 2010 and September 30, 2009 were approximately $792,000 and $927,000, respectively. The revenue was generated primarily from license and consulting fees earned during these periods. The decrease in revenue for the three months ended September 30, 2010 over the same period last year was primarily attributable to termination of certain care management services for one customer of approximately $190,000, offset by an increase of approximately $55,000 in current customer business.

Cost of services:

The Company’s total direct cost of services for the three-month periods ended September 30, 2010 and September 30, 2009 was approximately $255,000 and $343,000, respectively. The Company’s direct costs of services represented approximately 32% and 37% of revenues for the three-month periods ended September 30, 2010 and September 30, 2009, respectively. The decrease in the cost of services for the three-month period ended September 30, 2010 when compared to the same period last year was primarily due to decreases in personnel costs largely due to employee terminations arising out Blue Cross Blue Shield of Vermont's assuming for itself the performance of certain consulting functions that had previously been performed by the Company as more fully described in Part II, Item 9B of our Annual Report on Form 10-K for the year ended December 31, 2009.

Selling, general and administrative expenses:

The Company’s total selling, general and administrative costs for the three-month periods ended September 30, 2010 and September 30, 2009 were approximately $517,000 and $403,000, respectively. The increase for the three-month period ended September 30, 2010 when compared to the same period last year is primarily due to increases in professional costs of approximately $155,000, which is due to timing of a settlement during the three month period ended September 30, 2009 related to a claim for previously expensed legal fees, increases of approximately $10,000 in personnel costs largely due to employee seminars and an increase of approximately $5,000 in travel and communication costs, offset by decreases in facility costs of approximately $38,000 largely relating to a new lease, other general and administrative costs of approximately $7,000 and a decrease of approximately $11,000 relating to a loss on the sublease effective September 1, 2009.

Nine Months Ended September 30, 2010, Compared to Nine Months Ended September 30, 2009

Revenues:

The Company's total operating revenues for the nine-month periods ended September 30, 2010 and September 30, 2009 were approximately $2,768,000 and $2,847,000, respectively. The revenue was generated primarily from license and consulting fees earned during these periods. The decrease in revenue for the nine months ended September 30, 2010 over the same last year was primarily attributable to termination of certain care management services for one customer of approximately $580,000 and one-time engagements of approximately $36,000 that did not reoccur in 2010, offset by an increase of approximately $54,000 due to a one-time engagements and $483,000 in current customer business. The increase in current customer business is largely due to the recognition of deferred revenue for one customer of approximately $198,000 and fluctuations in membership for certain customers.

Cost of services:

The Company’s total direct cost of services for the nine-month periods ended September 30, 2010 and September 30, 2009 was approximately $926,000 and $1,040,000, respectively. The Company’s direct costs of services represented approximately 33% and 37% of revenues for the three-month periods ended September 30, 2010 and September 30, 2009, respectively. The decrease in the cost of services for the nine-month period ended September 30, 2010 when compared to the same period last year is primarily due to decreases in personnel costs largely due to employee terminations arising out Blue Cross Blue Shield of Vermont's assuming for itself the performance of certain consulting functions that had previously been performed by the Company as more fully described in Part II, Item 9B of our Annual Report on Form 10-K for the year ended December 31, 2009 and decreases in professional costs of approximately $19,000 relating to termination of certain care management services for one customer.

Selling, general and administrative expenses:

The Company’s total selling, general, and administrative costs for the nine-month periods ended September 30, 2010 and September 30, 2009 were approximately $1,795,000 and $1,848,000, respectively. The decrease for the nine-month period ended September 30, 2010 when compared to the same period last year is primarily due to a loss of approximately $90,000 on certain subleases that occurred during the nine-month period ended September 30, 2009, decreases in facility costs of approximately $109,000 largely due to a new lease, decreases in personnel costs of approximately $2,000, offset with increases of approximately $144,000 in professional costs, largely due to timing of a settlement during the third quarter of 2009 related to a claim for previously expensed legal fees, and increases in travel and communication costs of approximately $4,000.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES:

General overview:

At September 30, 2010, the Company had working capital of approximately $210,000, stockholders’ deficit of approximately $48,000 and an accumulated deficit of approximately $24,639,000.

Financial condition:

Significant Development:

As stated above, in August 2010, BCBSTX notified the Company of its intent to terminate the existing services agreement with the Company, effective November 30, 2010. The Company recognized approximately $1,991,000 and $ 2,043,000 revenues in each of 2009 and 2008 from BCBSTX. The termination of this services arrangement may have a significant impact on the Company's business. As discussed above, management is currently in discussions with HCSC for other uses of RPNavigator and expects to have another meeting with representatives of HCSC in the next several weeks. The Company is optimistic that it will be able to enter into an arrangement with HCSC; however no meeting with HCSC has been scheduled as of the date of this filing, and the Company cannot make any assurances that it will enter into a new relationship with HCSC and its subsidiaries. If the Company does not replace the revenue that will be lost upon the termination of the BCBSTX Agreement by establishing a new relationship with HCSC and its subsidiaries and/or obtaining other business from its pipeline of other prospective clients, the Company will be required to significantly reduce its operations to match its remaining revenues. Management believes that the Company must continue refining its current product offerings in order to continue adding value to existing and potential customers. Management intends to continue to evaluate its product offerings in light of anticipated changes in the health care industry, as well as the availability and timeliness of competent resources. To further expand its product offerings, the Company may pursue alternatives to its internal product and service development efforts by entering into strategic alliances and joint ventures. If the Company cannot expand its product offerings and otherwise mitigate the effect of the loss of the BCBSTX Agreement the Company may need to pursue other alternatives to enable it to fund continuing operations, including, but not limited to, exploring strategic arrangements, which may include a merger, asset sale, joint venture or another comparable transaction, loans, salary deferrals, staff reductions or other cost cutting mechanisms, or raising additional capital by private placements of equity or debt securities or through the establishment of other funding facilities. None of these potential alternatives may be available to the Company, or may only be available on unfavorable terms. The Company does not currently have in place a credit facility with a bank or other financial institution.

General Condition:

At September 30, 2010, the Company had cash of $408,000 as compared to $510,000 as of December 31, 2009. The decrease in cash was primarily due to net cash used in operating activities of $87,000 and net cash used in financing activities of $15,000. The net cash used in operating activities was largely due to the write off of the lease security deposit of $167,000, an adjustment to deferred rent relating to loss on building lease, non-cash charges of approximately $48,000, a decrease in deferred revenue of approximately $205,000, a decrease in deferred rent of approximately $77,000, increases in accounts payable and accrued expenses of approximately $44,000, an increase in accounts receivable of approximately $81,000 and increases in prepaid expenses and other assets of approximately $33,000, offset with a net operating loss of $240,000 for the nine months ended September 30, 2010.

The Company had working capital at September 30, 2010 of approximately $210,000 as compared to working capital of approximately $417,000 at December 31, 2009. The decrease in working capital was primarily due to the write off of the $167,000 security deposit pursuant to the new building lease agreement and loss from operations.

There were no cash flows from investing activity for the nine-month period ended September 30, 2010.

During the nine months ended September 30, 2010, the Company recorded a loss of approximately $224,000 in connection with the entry into a new building lease, which included the forfeiture of the security deposit under the prior lease as described in Note F in the Notes to Unaudited Condensed Consolidated Financial Statements included in this report.

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 September 30, 2010 and cash flow from operations based on a forecast prepared by management, which takes into account executed contracts, a pipeline of prospective clients that management believes is robust, and cost reductions, management expects the Company to be able to meet its obligations as they become due during the next twelve months, subject to the discussion above under “Significant Development.” Such executed contracts include contracts with new customers as well as expanding business with current customers. However, there can be no assurances that management’s plans, including projected revenue, will be attained. If the Company is not successful with the measures described above under “Significant Development,” it may not be able to continue its operations as a going concern. No adjustments have been made to the accompanying financial statements with respect to such uncertainty.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company and is not required to provide the information contemplated by this item.

ITEM 4. Controls and Procedures

Evaluation of Disclosure 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 Principal 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 quarter ended September 30, 2010, the Company evaluated, under the supervision and with the participation of management, including the Chief Executive Officer, who is also the acting Principal Financial Officer, 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, the Chief Executive Officer has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

In March 2010, the Company commenced an action in United States District Court, District of New Jersey, against Rosario Noto, a former employee of the Company and a member of Integrated eCareSolutions, LLC (see Part 1, Item 1, Note D), alleging Noto’s breach of his employee confidentiality agreement, breach of his implied covenant of good faith and fair dealing and unfair competition. Noto has denied liability and asserted certain affirmative defenses. This action is in the preliminary stages of discovery.

For a description of additional legal proceedings, see Note D to the unaudited condensed consolidated financial statements presented elsewhere in this report. With the exception of such proceedings and the proceeding described in this Item 1, there are no material pending legal proceedings other than ordinary routine litigation incidental to the business of the Company.

Item 1A. Risk Factors

The risks and uncertainties to which the Company’s financial condition and results of operations are subject are discussed in detail in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Management does not believe that any material changes in such risk factors have occurred since they were last disclosed.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (REMOVED AND RESERVED)

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits that are filed or furnished with this report are listed in the Exhibit Index which immediately follows the signatures to this report, which Exhibit Index is incorporated herein by reference.

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

November 15, 2010	/s/ Dennis J. Mouras
	Dennis J. Mouras
	Chief Executive Officer and
	Acting Principal Financial Officer

EXHIBIT INDEX

10.1	Letter dated August 30, 2010 from Blue Cross and Blue Shield of Texas (incorporated by reference to the Form 8-K filed by the Company on September 2, 1010)
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 (filed herewith)

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

CAREADVANTAGE INC 10-Q