##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended December 31, 2008
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition period fromto
 Commission
file number 001-32935
 ARCADIA RESOURCES, INC.
  NEVADA
    
    88-0331369(State or other jurisdiction of Incorporation)
    
    (I.R.S. Employer IdentificationNumber)9229 DELEGATES ROW, SUITE 260INDIANAPOLIS, INDIANA
    
    46240(Address of principal executive offices)
    
    (Zip Code)
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



Table of Contents
 PageNo.Part I: Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of December 31, 2008 (unaudited) and March 31, 2008
    
    
    2Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2008
and 2007 (unaudited)
    
    
    3Consolidated Statement of Stockholders Equity for the Nine Months ended December 31, 2008
(unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2008 and 2007
(unaudited)
    
    
    5Notes to the Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    37Part II: Other InformationItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    42Exhibits
    
    
    42SignaturesCertification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
   
  (IN THOUSANDS, EXCEPT SHARE DATA)
 December 31,
    
    March 31,2008
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    302
    
    
    $
    6,351Accounts receivable, net of allowance of $3,097 and $5,449, respectively
    
    
    23,970
    
    
    
    24,723Inventories, net
    
    
    1,253
    
    
    
    1,867Prepaid expenses and other current assets
    
    
    2,168
    
    
    
    3,101Total current assets
    
    
    27,693
    
    
    
    36,042Property and equipment, net
    
    
    4,880
    
    
    
    5,991Goodwill
    
    
    33,392
    
    
    
    32,836Acquired intangible assets, net
    
    
    23,304
    
    
    
    24,371Other assets
    
    
    211
    
    
    
    175Total assets
    
    $
    89,480
    
    
    $
    99,415LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit, current portion
    
    $
    17,029
    
    
    $
    250Accounts payable
    
    
    2,475
    
    
    
    2,567Accrued expenses:Compensation and related taxes
    
    
    3,212
    
    
    
    3,676Interest
    
    
    61
    
    
    
    97Other
    
    
    2,077
    
    
    
    1,643Payable to affiliated agencies
    
    
    2,684
    
    
    
    2,255Long-term obligations, current portion
    
    
    17,771
    
    
    
    545Capital lease obligations, current portion
    
    
    71
    
    
    
    105Deferred revenue
    
    
    
    
    
    
    29Total current liabilities
    
    
    45,380
    
    
    
    11,167Lines of credit, less current portion
    
    
    1,888
    
    
    
    22,492Long-term obligations, less current portion
    
    
    90
    
    
    
    15,851Capital lease obligations, less current portion
    
    
    64
    
    
    
    108Total liabilities
    
    
    47,422
    
    
    
    49,618Commitments and contingencies
    
    
    
    
    
    
    STOCKHOLDERS EQUITYPreferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 200,000,000 shares authorized; 136,885,740
shares and 133,113,440 shares issued, respectively
    
    
    137
    
    
    
    133Additional paid-in capital
    
    
    131,458
    
    
    
    129,442Accumulated deficit
    
    
    (89,537
    )
    
    
    (79,778
    )Total stockholders equity
    
    
    42,058
    
    
    
    49,797Total liabilities and stockholders equity
    
    $
    89,480
    
    
    $
    99,415
 See accompanying notes to these consolidated financial statements.
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##### Table of Contents



(IN THOUSANDS, EXCEPT PER SHARE DATA)
 Three-Month Period Ended
    
    Nine-Month Period EndedDecember 31,
    
    December 31,(Unaudited)
    
    (Unaudited)2008
    
    2007
    
    2008
    
    2007Revenues, net
    
    $
    35,218
    
    
    $
    37,190
    
    
    $
    108,877
    
    
    $
    112,188Cost of revenues
    
    
    23,196
    
    
    
    25,100
    
    
    
    71,477
    
    
    
    76,631Gross profit
    
    
    12,022
    
    
    
    12,090
    
    
    
    37,400
    
    
    
    35,557Selling, general and administrative
    
    
    13,113
    
    
    
    12,560
    
    
    
    40,700
    
    
    
    40,056Depreciation and amortization
    
    
    780
    
    
    
    860
    
    
    
    2,552
    
    
    
    2,725Total operating expenses
    
    
    13,893
    
    
    
    13,420
    
    
    
    43,252
    
    
    
    42,781Operating loss
    
    
    (1,871
    )
    
    
    (1,330
    )
    
    
    (5,852
    )
    
    
    (7,224
    )Other expenses:Interest expense, net
    
    
    1,031
    
    
    
    924
    
    
    
    3,041
    
    
    
    3,032Other
    
    
    (2
    )
    
    
    135
    
    
    
    301
    
    
    
    149Total other expenses
    
    
    1,029
    
    
    
    1,059
    
    
    
    3,342
    
    
    
    3,181Loss from continuing operations before
income taxes
    
    
    (2,900
    )
    
    
    (2,389
    )
    
    
    (9,194
    )
    
    
    (10,405
    )Current income tax (benefit) expense
    
    
    (274
    )
    
    
    33
    
    
    
    120
    
    
    
    56Loss from continuing operations
    
    
    (2,626
    )
    
    
    (2,422
    )
    
    
    (9,314
    )
    
    
    (10,461
    )Discontinued operations:Income (loss) from discontinued operations
    
    
    84
    
    
    
    (1,037
    )
    
    
    251
    
    
    
    (7,440
    )Net loss on disposal
    
    
    (696
    )
    
    
    (244
    )
    
    
    (696
    )
    
    
    (2,404
    )(612
    )
    
    
    (1,281
    )
    
    
    (445
    )
    
    
    (9,844
    )NET LOSS
    
    $
    (3,238
    )
    
    $
    (3,703
    )
    
    $
    (9,759
    )
    
    $
    (20,305
    )Weighted average number of common
shares outstanding
    
    
    135,949,000
    
    
    
    124,961,000
    
    
    
    133,559,000
    
    
    
    121,160,000Basic and diluted net loss per share:Loss from continuing operations
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.07
    )
    
    
    (0.09
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.08
    )Net loss per share
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.17
    )
 See accompanying notes to these consolidated financial statements.
 3




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(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
  Additional
    
    
    
    
    
    TotalCommon Stock

    
    Paid-In
    
    Accumulated
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    EquityBalance, April 1, 2008
    
    
    133,113,440
    
    
    $
    133
    
    
    $
    129,442
    
    
    $
    (79,778
    )
    
    $
    49,797Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    248Stock-based compensation expense
    
    
    455,407
    
    
    
    
    
    
    
    1,076
    
    
    
    
    
    
    
    1,076Contingent consideration
    
    
    3,316,893
    
    
    
    4
    
    
    
    692
    
    
    
    
    
    
    
    696Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,759
    )
    
    
    (9,759
    )Balance, December 31, 2008
    
    
    136,885,740
    
    
    $
    137
    
    
    $
    131,458
    
    
    $
    (89,537
    )
    
    $
    42,058
 See accompanying notes to these consolidated financial statements.
 4




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##### Table of Contents



Nine-Month Period EndedDecember 31,(Unaudited)2008
    
    2007Operating activitiesNet loss for the period
    
    $
    (9,759
    )
    
    $
    (20,305
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Provision for doubtful accounts
    
    
    2,598
    
    
    
    2,181Depreciation of property and equipment
    
    
    3,353
    
    
    
    3,689Amortization of intangible assets
    
    
    1,403
    
    
    
    2,017Impairment of long-lived assets
    
    
    
    
    
    
    1,900Loss on sale of property and equipment
    
    
    35
    
    
    
    Loss on sale of business disposal
    
    
    696
    
    
    
    2,553(Gain)/loss on extinguishment of debt
    
    
    248
    
    
    
    (121
    )Amortization of deferred financing costs and debt discounts
    
    
    738
    
    
    
    Non-cash interest expense
    
    
    1,677
    
    
    
    Reduction in expense due to return of common stock previously issued
    
    
    
    
    
    
    (252
    )Stock-based compensation expense
    
    
    1,030
    
    
    
    2,492Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (1,845
    )
    
    
    5,899Inventories
    
    
    (788
    )
    
    
    (508
    )Other assets
    
    
    590
    
    
    
    (2,554
    )Accounts payable
    
    
    (30
    )
    
    
    (2,201
    )Accrued expenses
    
    
    (140
    )
    
    
    (1,488
    )Due to affiliated agencies
    
    
    261
    
    
    
    165Deferred revenue
    
    
    (29
    )
    
    
    (610
    )Net cash provided by (used in) operating activities
    
    
    38
    
    
    
    (7,143
    )Investing activitiesBusiness acquisitions, net of cash acquired
    
    
    (653
    )
    
    
    (384
    )Proceeds from prior year business disposal
    
    
    356
    
    
    
    5,781Proceeds from disposals of property and equipment
    
    
    20
    
    
    
    Purchases of property and equipment
    
    
    (892
    )
    
    
    (1,256
    )Net cash provided by (used in) investing activities
    
    
    (1,169
    )
    
    
    4,141Financing activitiesProceeds from issuance of common stock, net of fees
    
    
    
    
    
    
    12,442Net payments on lines of credit
    
    
    (4,211
    )
    
    
    (5,500
    )Payments on notes payable and capital lease obligations
    
    
    (707
    )
    
    
    (5,393
    )Net cash provided by (used in) financing activities
    
    
    (4,918
    )
    
    
    1,549Net change in cash and cash equivalents
    
    
    (6,049
    )
    
    
    (1,453
    )Cash and cash equivalents, beginning of period
    
    
    6,351
    
    
    
    2,994Cash and cash equivalents, end of period
    
    $
    302
    
    
    $
    1,541Supplementary information:Cash paid during the period for:Interest
    
    $
    673
    
    
    $
    2,937Income taxes
    
    
    104
    
    
    
    Non-cash investing / financing activities:Payments on note payable with issuance of common stock
    
    
    
    
    
    
    1,281Common stock issued in conjunction with JASCORP, LLC acquisition
    
    
    
    
    
    
    1,800HHE cost of disposal paid in common stock
    
    
    
    
    
    
    876Stock price guarantee relating to prior year acquisition settled
with issuance of notes payable
    
    
    
    
    
    
    715Prior period liability satisfied with equity
    
    
    45
    
    
    
    
 See accompanying notes to these consolidated financial statements.
 5




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##### Table of Contents



Note 1  Description of Company and Significant Accounting Policies
 Description of Company
  Unaudited Interim Financial Information
  Principles of Consolidation
  Use of Estimates
  6




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Affiliated Agencies
   Allowance for Doubtful Accounts and Contractual Allowances
    Property and Equipment
  7




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##### Table of Contents



Goodwill and Acquired Intangible Assets
   Trade name
    
    30 yearsCustomers and referral source relationships (depending on
the type of business purchased)
    
    3 and 25 yearsAcquired technology
    
    2 and 3 yearsNon-competition agreements (length of agreement)
    
    5 years
 Revenue Recognition and Concentration of Credit Risk
    Business Combinations and Valuation of Intangible Assets
  Earnings (Loss) Per Share
  8




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##### Table of Contents



Stock-Based Compensation
   Reclassifications
  Recent Accounting Pronouncements
 Fair
Value Measurements
 Fair Value Hierarchy.
    The Fair Value Option for Financial Assets and
Financial Liabilities
 , Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 9




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Note 2  Managements Plan
      10




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##### Table of Contents



Note 3  Discontinued Operations
    Business
    
    Divesture Date
    
    SegmentSears Retail HHE Operations
    
    July 31, 2007
    
    HHEFlorida HHE Operations (Beacon Respiratory Services, Inc.)
    
    September 10, 2007
    
    HHEColorado HHE Operations (Beacon Respiratory Services of Colorado, Inc.)
    
    September 10, 2007
    
    HHECare Clinic, Inc.
    
    October 2007
    
    Care ClinicWalmart Retail HHE Operations
    
    December 31, 2007
    
    HHEHollywood, Florida Pharmacy
    
    December 31, 2007
    
    Pharmacy
  11




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##### Table of Contents



Three-Month Period Ended
    
    Nine-Month Period EndedDecember 31,
    
    December 31,2008
    
    2007
    
    2008
    
    2007Revenues, net:Retail operations
    
    $
    
    
    
    $
    29
    
    
    $
    
    
    
    $
    377Care Clinic, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202Pharmacy  Florida
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    1,658Home Health Equipment
    
    
    298
    
    
    
    407
    
    
    
    946
    
    
    
    5,570$
    298
    
    
    $
    536
    
    
    $
    946
    
    
    $
    7,807Income (loss) from operations:Retail operations
    
    $
    
    
    
    $
    (146
    )
    
    $
    
    
    
    $
    (585
    )Care Clinic, Inc.
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (5,639
    )Pharmacy  Florida
    
    
    
    
    
    
    (1,002
    )
    
    
    
    
    
    
    (1,223
    )Home Health Equipment
    
    
    84
    
    
    
    106
    
    
    
    251
    
    
    
    7$
    84
    
    
    $
    (1,037
    )
    
    $
    251
    
    
    $
    (7,440
    )Loss on disposal:Retail operations
    
    $
    
    
    
    $
    (163
    )
    
    $
    
    
    
    $
    (176
    )Care Clinic, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (770
    )Pharmacy  Florida
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    (65
    )Home Health Equipment
    
    
    (696
    )
    
    
    (17
    )
    
    
    (696
    )
    
    
    (1,393
    )$
    (696
    )
    
    $
    (244
    )
    
    $
    (696
    )
    
    $
    (2,404
    )Loss from discontinued operations:Retail operations
    
    $
    
    
    
    $
    (309
    )
    
    $
    
    
    
    $
    (761
    )Care Clinic, Inc.
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (6,409
    )Pharmacy  Florida
    
    
    
    
    
    
    (1,066
    )
    
    
    
    
    
    
    (1,288
    )Home Health Equipment
    
    
    (612
    )
    
    
    89
    
    
    
    (445
    )
    
    
    (1,386
    )$
    (612
    )
    
    $
    (1,281
    )
    
    $
    (445
    )
    
    $
    (9,844
    )
 Note 4  Goodwill and Acquired Intangible Assets
  Services
    
    
    HHE
    
    
    Pharmacy
    
    
    TotalGoodwill at April 1, 2008
    
    $
    14,180
    
    
    $
    2,015
    
    
    $
    16,641
    
    
    $
    32,836Acquisitions during the period
    
    
    556
    
    
    
    
    
    
    
    
    
    
    
    556Goodwill at December 31, 2008
    
    $
    14,736
    
    
    $
    2,015
    
    
    $
    16,641
    
    
    $
    33,392
  12




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December 31, 2008
    
    
    March 31, 2008Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationTrade name
    
    $
    8,000
    
    
    $
    772
    
    
    $
    8,000
    
    
    $
    628Customer relationships
    
    
    21,987
    
    
    
    6,129
    
    
    
    21,652
    
    
    
    5,003Non-competition agreements
    
    
    660
    
    
    
    466
    
    
    
    674
    
    
    
    381Acquired technology
    
    
    90
    
    
    
    66
    
    
    
    850
    
    
    
    79330,737
    
    
    $
    7,433
    
    
    
    31,176
    
    
    $
    6,805Less accumulated amortization
    
    
    (7,433
    )
    
    
    
    
    
    
    (6,805
    )Net acquired intangible assets
    
    $
    23,304
    
    
    
    
    
    
    $
    24,371
   Remainder of fiscal 2009
    
    $
    456Fiscal 2010
    
    
    1,918Fiscal 2011
    
    
    1,688Fiscal 2012
    
    
    1,496Fiscal 2013
    
    
    1,373Thereafter
    
    
    16,373Total
    
    $
    23,304
 Note 5  Lines of Credit
  At December 31, 2008MaximumAvailable
    
    
    
    
    
    
    March 31,Lending Institution
    
    Maturity date
    
    
    Borrowing
    
    
    Balance
    
    
    2008
    
    
    Interest rateComerica Bank
    
    October 1, 2009
    
    $
    14,015
    
    
    $
    11,231
    
    
    $
    15,292
    
    
    Prime+1%AmerisourceBergen Drug Corporation
    
    September 30, 2010
    
    
    2,300
    
    
    
    2,300
    
    
    
    2,450
    
    
    
    10
    %Jana Master Fund, Ltd.
    
    October 1, 2009
    
    
    5,386
    
    
    
    5,386
    
    
    
    5,000
    
    
    
    10
    %Total lines of credit obligations
    
    
    
    
    
    $
    21,701
    
    
    
    18,917
    
    
    
    22,742Less current portion
    
    
    
    
    
    
    
    
    
    
    (17,029
    )
    
    
    (250
    )Long-term portion
    
    
    
    
    
    
    
    
    
    $
    1,888
    
    
    $
    22,492
 Comerica Bank
    13




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##### Table of Contents



AmerisourceBergen Drug Corporation (ABDC)
  Jana Master Fund, Ltd. (JANA)
   14




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Note 6  Long-Term Obligations
  December 31,
    
    March 31,2008
    
    2008Note payable to Jana Master Fund, Ltd.
amended on March 31, 2008 with principal due
in full on October 1, 2009 bearing an
effective interest rate of 10% on December
31, 2008. A total of approximately $878,000
of unpaid cash interest was added to the
note during fiscal 2009 as of December 31,
2008 and approximately $719,000 for the year
ended March 31, 2008 under this agreement.
The unsecured note payable includes various
loan covenants, all of which the Company was
in compliance as of December 31, 2008.
    
    $
    12,244
    
    
    $
    11,365Note payable to Vicis Capital Master Fund
(Vicis) dated March 31, 2008 bearing an
effective interest rate of 10% on December
31, 2008 with the principal due in full on
December 31, 2009.  A total of approximately
$412,000 of unpaid cash interest was added
to the note during fiscal 2009 as of
December 31, 2008 under this agreement. The
amounts reported are net of unamortized debt
discount of $601,000 and $1.2 million on
December 31, 2008 and March 31, 2008,
respectively.
    
    
    5,149
    
    
    
    4,136Purchase price payable to Remedy
Therapeutics, Inc., unsecured, dated January
27, 2006, bearing simple interest of 8% per
year payable in equal quarterly payments of
principal and interest with the final
payment paid on January 27, 2009.
    
    
    74
    
    
    
    288Notes payable, unsecured, to two executives
dated September 10, 2007 bearing interest at
4% per year. The notes payable were paid in
full on April 10, 2008.
    
    
    
    
    
    
    99Other long-term obligations with interest
charged at various rates ranging from 4% to
8.75% to be paid over time based on
respective terms, due dates ranging from
April 2009 to March 2012, secured by certain
equipment.
    
    
    394
    
    
    
    508Total long-term obligations
    
    
    17,861
    
    
    
    16,396Less current portion of long-term obligations
    
    
    (17,771
    )
    
    
    (545
    )Long-term obligations, less current portion
    
    $
    90
    
    
    $
    15,851
  Remainder of fiscal 2009
    
    $
    113Fiscal 2010
    
    
    18,275Fiscal 2011
    
    
    55Fiscal 2012
    
    
    1918,462Less  unamortized debt discount
    
    
    (601
    )Total
    
    $
    17,861
  15




---



##### Table of Contents



Note 7  Stockholders Equity
 Stock Price Guarantees
    Warrants
  December 31,
    
    March 31,Description
    Exercise Price
    Granted
    
    Expiration
    
    2008
    
    2008Class A
    
    $
    0.50
    
    
    May 2004
    
    May 2011
    
    
    5,749,036
    
    
    
    5,749,036Class B-1
    
    $
    0.001
    
    
    September 2005
    
    September 2009
    
    
    8,990,277
    
    
    
    8,990,277Class B-2
    
    $
    1.20
    
    
    September 2005
    
    May 2014
    
    
    3,111,111
    
    
    
    3,111,111Class B-2
    
    $
    2.25
    
    
    September 2005
    
    September 2009
    
    
    1,599,999
    
    
    
    1,599,999May 2007 Private Placement
    
    $
    1.75
    
    
    May 2007
    
    May 2014
    
    
    2,754,726
    
    
    
    2,754,726ABDC issuance
    
    $
    0.75
    
    
    June 2008
    
    June 2015
    
    
    490,000
    
    
    
    Total Warrants Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,695,149
    
    
    
    22,205,149
    16




---



##### Table of Contents



Note 8  Contingencies
   Note 9  Stock-Based Compensation
   Stock Options
   17




---



##### Table of Contents



Three-Month Period Ended
    
    Nine-Month Period EndedDecember 31,
    
    December 31,Weighted-average
    
    2008
    
    2007
    
    2008
    
    2007Expected volatility
    
    
    84
    %
    
    
    69
    %
    
    
    76
    %
    
    
    68
    %Expected dividend yields
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    5
    
    
    
    7
    
    
    
    4
    
    
    
    7Risk-free interest rate
    
    
    1.74
    %
    
    
    4.26
    %
    
    
    2.90
    %
    
    
    4.28
    %
  Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicExercise
    
    Contractual
    
    ValueOptions
    
    Shares
    
    Price
    
    Term (Years)
    
    (thousands)Outstanding at April 1, 2008
    
    
    1,872,989
    
    
    $
    1.09Granted
    
    
    2,217,236
    
    
    
    0.63Forfeited or expired
    
    
    (384,250
    )
    
    
    1.41Outstanding at December 31, 2008
    
    
    3,705,975
    
    
    $
    0.79
    
    
    
    4.7
    
    
    $
    76Exercisable at December 31, 2008
    
    
    2,759,169
    
    
    $
    0.86
    
    
    
    5.2
    
    
    $
    63
   Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.18 -$0.25
    
    
    539,000
    
    
    6.4 years
    
    $
    0.24
    
    
    
    504,250
    
    
    $
    0.25$0.26 - $1.00
    
    
    2,398,395
    
    
    6.4 years
    
    $
    0.66
    
    
    
    1,486,339
    
    
    $
    0.70$1.01 - $1.50
    
    
    650,967
    
    
    4.1 years
    
    $
    1.37
    
    
    
    650,967
    
    
    $
    1.37$1.51 - $2.25
    
    
    43,000
    
    
    4.3 years
    
    $
    2.22
    
    
    
    43,000
    
    
    $
    2.22$2.92
    
    
    74,613
    
    
    4.6 years
    
    $
    2.92
    
    
    
    74,613
    
    
    $
    2.92Outstanding at December 31,
2008
    
    
    3,705,975
    
    
    
    
    
    
    $
    0.79
    
    
    
    2,759,169
    
    
    $
    0.86
 18




---



##### Table of Contents



Restricted Stock  Arcadia Resources, Inc.
   Weighted-AverageGrant DateFair ValueShares
    
    per ShareUnvested at April 1, 2008
    
    
    961,801
    
    
    $
    1.47Granted
    
    
    31,750
    
    
    
    0.60Vested
    
    
    (301,709
    )
    
    
    1.54Forfeited
    
    
    (35,750
    )
    
    
    1.19Unvested at December 31, 2008
    
    
    656,092
    
    
    $
    1.41
    Note 10  Income Taxes
  19




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes
  Note 11  Related Party Transactions
    20




---



##### Table of Contents



Note 12  Segment Information
      21




---



##### Table of Contents



Three-Month Period Ended
    
    Nine-Month Period EndedDecember 31,
    
    December 31,2008
    
    2007
    
    2008
    
    2007Revenue, net:Services
    
    $
    28,211
    
    
    $
    30,190
    
    
    $
    88,081
    
    
    $
    92,568Home Health Equipment
    
    
    4,958
    
    
    
    5,232
    
    
    
    15,343
    
    
    
    14,663Pharmacy
    
    
    2,049
    
    
    
    1,768
    
    
    
    5,453
    
    
    
    4,957Total revenue
    
    
    35,218
    
    
    
    37,190
    
    
    
    108,877
    
    
    
    112,188Operating loss:Services
    
    $
    1,127
    
    
    $
    1,186
    
    
    $
    4,234
    
    
    $
    3,098Home Health Equipment
    
    
    (91
    )
    
    
    (533
    )
    
    
    58
    
    
    
    (2,346
    )Pharmacy
    
    
    (1,269
    )
    
    
    (391
    )
    
    
    (3,101
    )
    
    
    (1,018
    )Unallocated corporate overhead
    
    
    (1,638
    )
    
    
    (1,592
    )
    
    
    (7,043
    )
    
    
    (6,958
    )Total operating loss
    
    
    (1,871
    )
    
    
    (1,330
    )
    
    
    (5,852
    )
    
    
    (7,224
    )Other expenses:Interest expense, net
    
    
    1,031
    
    
    
    924
    
    
    
    3,041
    
    
    
    3,032Other
    
    
    (2
    )
    
    
    135
    
    
    
    301
    
    
    
    149Net loss before income tax expense
    
    
    (2,900
    )
    
    
    (2,389
    )
    
    
    (9,194
    )
    
    
    (10,405
    )Income tax (benefit) expense
    
    
    (274
    )
    
    
    33
    
    
    
    120
    
    
    
    56Net loss from continuing operations
    
    $
    (2,626
    )
    
    $
    (2,422
    )
    
    $
    (9,314
    )
    
    $
    (10,461
    )Depreciation and amortization (continuing operations):Services
    
    $
    284
    
    
    $
    312
    
    
    $
    852
    
    
    $
    952Home Health Equipment  cost of revenue
    
    
    683
    
    
    
    489
    
    
    
    2,031
    
    
    
    1,579Home Health Equipment  operating expense
    
    
    183
    
    
    
    317
    
    
    
    836
    
    
    
    958Pharmacy
    
    
    185
    
    
    
    84
    
    
    
    619
    
    
    
    353Corporate
    
    
    128
    
    
    
    147
    
    
    
    245
    
    
    
    462Total depreciation and amortization
    
    $
    1,463
    
    
    $
    1,349
    
    
    $
    4,583
    
    
    $
    4,304
 Nine-Month Period EndedDecember 31,2008
    
    2007Capital expenditures:Services
    
    $
    73
    
    
    $
    59Home Health Equipment
    
    
    114
    
    
    
    589Pharmacy
    
    
    573
    
    
    
    9Care Clinics, Inc. (discontinued in fiscal year 2008)
    
    
    
    
    
    
    557Corporate
    
    
    132
    
    
    
    42Total capital expenditures
    
    $
    892
    
    
    $
    1,256
 December 31, 2008
    
    March 31, 2008Assets:Services
    
    $
    46,609
    
    
    $
    48,383Home Health Equipment
    
    
    11,368
    
    
    
    16,219Pharmacy
    
    
    29,638
    
    
    
    29,867Unallocated corporate assets
    
    
    1,865
    
    
    
    4,946Total assets
    
    $
    89,480
    
    
    $
    99,415
 22




---



##### Table of Contents



ITEM 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations
  Cautionary Statement Concerning Forward-Looking Statements
     Overview
  23




---



##### Table of Contents



Critical Accounting Policies
  Three-Month Period Ended December 31, 2008 Compared to the Three-Month Period Ended December 31,
2007
 Results of Continuing Operations, (in thousands, except share amounts)
 Three-Month PeriodEnded December 31,2008
    
    2007Revenues, net
    
    $
    35,218
    
    
    $
    37,190Cost of revenues
    
    
    23,196
    
    
    
    25,100Gross profit
    
    
    12,022
    
    
    
    12,090Selling, general and administrative expenses
    
    
    13,113
    
    
    
    12,560Depreciation and amortization
    
    
    780
    
    
    
    860Total operating expenses
    
    
    13,893
    
    
    
    13,420Operating loss
    
    
    (1,871
    )
    
    
    (1,330
    )Other expenses
    
    
    1,029
    
    
    
    1,059Net loss before income tax expense
    
    
    (2,900
    )
    
    
    (2,389
    )Income (benefit) tax expense
    
    
    (274
    )
    
    
    33Net loss from continuing operations
    
    $
    (2,626
    )
    
    $
    (2,422
    )Weighted average number of shares  basic
and diluted
    
    
    135,949,000
    
    
    
    124,961,000Net loss from continuing operations per
share  basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )
 24




---



##### Table of Contents



Revenues, Cost of Revenues and Gross Profits
  % of Total
    
    
    
    
    
    % of Total
    
    $ Increase/
    
    % Increase/2008
    
    Revenue
    
    2007
    
    Revenue
    
    (Decrease)
    
    (Decrease)Revenues, net:Home Care/Medical Staffing
    
    $
    24,488
    
    
    
    69.5
    %
    
    $
    23,008
    
    
    
    61.9
    %
    
    $
    1,480
    
    
    
    6.4
    %Non-Medical Staffing
    
    
    3,723
    
    
    
    10.6
    %
    
    
    7,182
    
    
    
    19.3
    %
    
    
    (3,459
    )
    
    
    -48.2
    %Total Services
    
    
    28,211
    
    
    
    80.1
    %
    
    
    30,190
    
    
    
    81.2
    %
    
    
    (1,979
    )
    
    
    -6.6
    %Home Health Equipment
    
    
    4,958
    
    
    
    14.1
    %
    
    
    5,232
    
    
    
    14.1
    %
    
    
    (274
    )
    
    
    -5.2
    %Pharmacy
    
    
    2,049
    
    
    
    5.8
    %
    
    
    1,768
    
    
    
    4.8
    %
    
    
    281
    
    
    
    15.9
    %35,218
    
    
    
    100.0
    %
    
    
    37,190
    
    
    
    100.0
    %
    
    
    (1,972
    )
    
    
    -5.3
    %Cost of revenues:Home Care/Medical Staffing
    
    
    17,069
    
    
    
    
    
    
    
    16,184
    
    
    
    
    
    
    
    885
    
    
    
    5.5
    %Non-Medical Staffing
    
    
    2,933
    
    
    
    
    
    
    
    5,962
    
    
    
    
    
    
    
    (3,029
    )
    
    
    -50.8
    %Total Services
    
    
    20,002
    
    
    
    
    
    
    
    22,146
    
    
    
    
    
    
    
    (2,144
    )
    
    
    -9.7
    %Home Health Equipment
    
    
    1,814
    
    
    
    
    
    
    
    1,864
    
    
    
    
    
    
    
    (50
    )
    
    
    -2.7
    %Pharmacy
    
    
    1,380
    
    
    
    
    
    
    
    1,090
    
    
    
    
    
    
    
    290
    
    
    
    26.6
    %23,196
    
    
    
    
    
    
    
    25,100
    
    
    
    
    
    
    
    (1,904
    )
    
    
    -7.6
    %
 Gross
    
    GrossMargin%
    
    Margin%Gross margins:Home Care/Medical Staffing
    
    
    7,419
    
    
    
    30.3
    %
    
    
    6,824
    
    
    
    29.7
    %
    
    
    595
    
    
    
    8.7
    %Non-Medical Staffing
    
    
    790
    
    
    
    21.2
    %
    
    
    1,220
    
    
    
    17.0
    %
    
    
    (430
    )
    
    
    -35.2
    %Total Services
    
    
    8,209
    
    
    
    29.1
    %
    
    
    8,044
    
    
    
    26.6
    %
    
    
    165
    
    
    
    2.1
    %Home Health Equipment
    
    
    3,144
    
    
    
    63.4
    %
    
    
    3,368
    
    
    
    64.4
    %
    
    
    (224
    )
    
    
    -6.7
    %Pharmacy
    
    
    669
    
    
    
    32.7
    %
    
    
    678
    
    
    
    38.3
    %
    
    
    (9
    )
    
    
    -1.3
    %$
    12,022
    
    
    
    34.1
    %
    
    $
    12,090
    
    
    
    32.5
    %
    
    $
    (68
    )
    
    
    -0.6
    %
  % of Total
    
    
    
    
    
    % of Total
    
    $ Increase/
    
    % Increase/2008
    
    Revenue
    
    2007
    
    Revenue
    
    (Decrease)
    
    (Decrease)Home Care
    
    
    17,484
    
    
    
    62.0
    %
    
    
    15,365
    
    
    
    50.9
    %
    
    
    2,119
    
    
    
    13.8
    %Medical Staffing
    
    
    7,004
    
    
    
    24.8
    %
    
    
    7,643
    
    
    
    25.3
    %
    
    
    (639
    )
    
    
    -8.4
    %Non-Medical Staffing
    
    
    3,723
    
    
    
    13.2
    %
    
    
    7,182
    
    
    
    23.8
    %
    
    
    (3,459
    )
    
    
    -48.2
    %Total Services
    
    
    28,211
    
    
    
    100.0
    %
    
    
    30,190
    
    
    
    100.0
    %
    
    
    (1,979
    )
    
    
    -6.6
    %
  25




---



##### Table of Contents



26




---



##### Table of Contents



Selling, General and Administrative
  % of
    
    
    
    
    
    %% of Total
    
    
    
    
    
    Total
    
    $ Increase/
    
    Increase/2008
    
    SG&A
    
    2007
    
    SG&A
    
    (Decrease)
    
    (Decrease)Services
    
    $
    6,798
    
    
    
    51.8
    %
    
    $
    6,547
    
    
    
    52.1
    %
    
    $
    251
    
    
    
    3.8
    %Home Health Equipment
    
    
    3,051
    
    
    
    23.3
    %
    
    
    3,583
    
    
    
    28.5
    %
    
    
    (532
    )
    
    
    -14.8
    %Pharmacy
    
    
    1,754
    
    
    
    13.4
    %
    
    
    986
    
    
    
    7.9
    %
    
    
    768
    
    
    
    77.9
    %Corporate
    
    
    1,510
    
    
    
    11.5
    %
    
    
    1,444
    
    
    
    11.5
    %
    
    
    66
    
    
    
    4.6
    %$
    13,113
    
    
    
    100.0
    %
    
    $
    12,560
    
    
    
    100.0
    %
    
    $
    553
    
    
    
    4.4
    %SG&A as % of Net Revenues
    
    
    37.2
    %
    
    
    
    
    
    
    33.8
    %
    
    
    The Company continues to invest in the infrastructure and additional employees that
will be necessary to support the growth in the Pharmacy segment revenues.
    
    During the three-month period ended December 31, 2008, the Company consolidated its
Paducah, Kentucky pharmacy operations into its new Indianapolis, Indiana pharmacy. During
the transition period, both pharmacies were open for approximately two months.
Additionally, the Company incurred severance costs associated with the closing of the
Paducah location.
  27




---



##### Table of Contents



Depreciation and Amortization
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Depreciation  cost of revenues
    
    $
    683
    
    
    $
    489
    
    
    $
    194
    
    
    
    39.7
    %Depreciation and amortization of property and equipment
    
    $
    334
    
    
    $
    349
    
    
    $
    (15
    )
    
    
    -4.3
    %Amortization of acquired intangible assets
    
    
    446
    
    
    
    511
    
    
    
    (65
    )
    
    
    -12.7
    %Depreciation and amortization  operating expense
    
    $
    780
    
    
    $
    860
    
    
    $
    (80
    )
    
    
    -9.3
    %
   Interest Expense and Income
  $ Increase/
    
    % Increase/2008
    
    2007

    
    (Decrease)
    
    (Decrease)Interest expense
    
    $
    1,047
    
    
    $
    928
    
    
    $
    119
    
    
    
    12.8
    %Interest income
    
    
    (16
    )
    
    
    (4
    )
    
    
    12
    
    
    
    300.0
    %$
    1,031
    
    
    $
    924
    
    
    $
    107
    
    
    
    11.6
    %
  Income Taxes
  28




---



##### Table of Contents



Loss from Discontinued Operations
  Nine-month Period Ended December 31, 2008 Compared to the Nine-month Period Ended December 31, 2007
 Results of Continuing Operations, (in thousands, except share amounts)
 Nine-Month PeriodEnded December 31,2008
    
    2007Revenues, net
    
    $
    108,877
    
    
    $
    112,188Cost of revenues
    
    
    71,477
    
    
    
    76,631Gross profit
    
    
    37,400
    
    
    
    35,557Selling, general and administrative expenses
    
    
    40,700
    
    
    
    40,056Depreciation and amortization
    
    
    2,552
    
    
    
    2,725Total operating expenses
    
    
    43,252
    
    
    
    42,781Operating loss
    
    
    (5,852
    )
    
    
    (7,224
    )Other expenses
    
    
    3,342
    
    
    
    3,181Net loss before income tax expense
    
    
    (9,194
    )
    
    
    (10,405
    )Income tax expense
    
    
    120
    
    
    
    56Net loss from continuing operations
    
    $
    (9,314
    )
    
    $
    (10,461
    )Weighted average number of shares  basic and diluted
    
    
    133,559,000
    
    
    
    121,160,000Net loss from continuing operations per share  basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.09
    )
 29




---



##### Table of Contents



Revenues, Cost of Revenues and Gross Profits
  %% of Total
    

    

    
    
    
    % of Total
    
    $ Increase/
    
    Increase/2008
    
    Revenue
    
    2007
    
    Revenue
    
    (Decrease)
    
    (Decrease)Revenues, net:Home Care/Medical Staffing
    
    $
    74,054
    
    
    
    68.0
    %
    
    $
    72,153
    
    
    
    64.3
    %
    
    $
    1,901
    
    
    
    2.6
    %Non-Medical Staffing
    
    
    14,027
    
    
    
    12.9
    %
    
    
    20,415
    
    
    
    18.2
    %
    
    
    (6,388
    )
    
    
    -31.3
    %Total Services
    
    
    88,081
    
    
    
    80.9
    %
    
    
    92,568
    
    
    
    82.5
    %
    
    
    (4,487
    )
    
    
    -4.8
    %Home Health Equipment
    
    
    15,343
    
    
    
    14.1
    %
    
    
    14,663
    
    
    
    13.1
    %
    
    
    680
    
    
    
    4.6
    %Pharmacy
    
    
    5,453
    
    
    
    5.0
    %
    
    
    4,957
    
    
    
    4.4
    %
    
    
    496
    
    
    
    10.0
    %108,877
    
    
    
    100.0
    %
    
    
    112,188
    
    
    
    100.0
    %
    
    
    (3,311
    )
    
    
    -3.0
    %Cost of revenues:Home Care/Medical Staffing
    
    
    51,582
    
    
    
    
    
    
    
    51,266
    
    
    
    
    
    
    
    316
    
    
    
    0.6
    %Non-Medical Staffing
    
    
    10,969
    
    
    
    
    
    
    
    16,735
    
    
    
    
    
    
    
    (5,766
    )
    
    
    -34.5
    %Total Services
    
    
    62,551
    

    
    
    
    
    
    
    68,001
    
    
    
    
    
    
    
    (5,450
    )
    
    
    -8.0
    %Home Health Equipment
    
    
    5,404
    
    
    
    
    
    
    
    5,327
    
    
    
    
    
    
    
    77
    
    
    
    1.4
    %Pharmacy
    
    
    3,522
    
    
    
    
    
    
    
    3,303
    
    
    
    
    
    
    
    219
    
    
    
    6.6
    %71,477
    
    
    
    
    
    
    
    76,631
    
    
    
    
    
    
    
    (5,154
    )
    
    
    -6.7
    %
 Gross
    
    
    
    
    
    GrossMargin%
    
    
    
    
    
    Margin%Gross margins:Home Care/Medical Staffing
    
    
    22,472
    
    
    
    30.3
    %
    
    
    20,887
    
    
    
    28.9
    %
    
    
    1,585
    
    
    
    7.6
    %Non-Medical Staffing
    
    
    3,058
    
    
    
    21.8
    %
    
    
    3,680
    
    
    
    18.0
    %
    
    
    (622
    )
    
    
    -16.9
    %Total Services
    
    
    25,530
    
    
    
    29.0
    %
    
    
    24,567
    
    
    
    26.5
    %
    
    
    963
    
    
    
    3.9
    %Home Health Equipment
    
    
    9,939
    
    
    
    64.8
    %
    
    
    9,336
    
    
    
    63.7
    %
    
    
    603
    
    
    
    6.5
    %Pharmacy
    
    
    1,931
    
    
    
    35.4
    %
    
    
    1,654
    
    
    
    33.4
    %
    
    
    277
    
    
    
    16.7
    %$
    37,400
    
    
    
    34.4
    %
    
    $
    35,557
    
    
    
    31.7
    %
    
    $
    1,843
    
    
    
    5.2
    %
  % of Total
    
    
    
    
    
    % of Total
    
    $ Increase/
    
    % Increase/2008
    
    Revenue
    
    2007
    
    Revenue
    
    (Decrease)
    
    (Decrease)Home Care
    
    
    51,798
    
    
    
    58.8
    %
    
    
    46,252
    
    
    
    50.0
    %
    
    
    5,546
    
    
    
    12.0
    %Medical Staffing
    
    
    22,256
    
    
    
    25.3
    %
    
    
    25,901
    
    
    
    28.0
    %
    
    
    (3,645
    )
    
    
    -14.1
    %Non-Medical Staffing
    
    
    14,027
    
    
    
    15.9
    %
    
    
    20,415
    
    
    
    22.1
    %
    
    
    (6,388
    )
    
    
    -31.3
    %Total Services
    
    
    88,081
    
    
    
    100.0
    %
    
    
    92,568
    
    
    
    100.0
    %
    
    
    (4,487
    )
    
    
    -4.8
    %
  30




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31




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##### Table of Contents



Selling, General and Administrative
  % of
    
    
    
    
    
    % of
    
    
    
    
    
    %Total
    
    
    
    
    
    Total
    
    $ Increase/
    
    Increase/2008
    
    SG&A
    
    2007
    
    SG&A
    
    (Decrease)
    
    (Decrease)Services
    
    $
    20,443
    
    
    
    50.2
    %
    
    $
    20,515
    
    
    
    51.2
    %
    
    $
    (72
    )
    
    
    -0.4
    %Home Health Equipment
    
    
    9,046
    
    
    
    22.2
    %
    
    
    10,725
    
    
    
    26.8
    %
    
    
    (1,679
    )
    
    
    -15.7
    %Pharmacy
    
    
    4,413
    
    
    
    10.8
    %
    
    
    2,317
    
    
    
    5.8
    %
    
    
    2,096
    
    
    
    90.5
    %Corporate
    
    
    6,798
    
    
    
    16.7
    %
    
    
    6,499
    
    
    
    16.2
    %
    
    
    299
    
    
    
    4.6
    %$
    40,700
    
    
    
    100.0
    %
    
    $
    40,056
    
    
    
    100.0
    %
    
    $
    644
    
    
    
    1.6
    %SG&A as % of Net Revenues
    
    
    37.4
    %
    
    
    
    
    
    
    35.7
    %
   
    
    The closure of the Orlando, Florida administrative support office in November 2007.
The Orlando office housed the HHE accounting, IT and compliance functions. The Company
consolidated these HHE support functions with the Services support function located in
Southfield, Michigan beginning in the third quarter of fiscal 2008. This consolidation
resulted in decreased employee, contractor and location costs in the HHE segment.
    
    Beginning in the third quarter of fiscal 2008, the Company began to outsource certain
billing and collection functions associated with the HHE segment. The net result was an
increase in administrative expenses year-over-year. During the third quarter of fiscal
2009, management decided to bring these functions back in-house, and the remaining phases
of this transition will be completed during the fourth quarter.
  
    
    The Company acquired JASCORP in July 2007, and the current year period ended December
31, 2008 includes a full nine months of expenses subsequent to the acquisition.
    
    The Company consolidated its Paducah, Kentucky pharmacy operations into its new
Indianapolis, Indiana pharmacy during the fiscal quarter ended December 31, 2008. During
the transition period, both pharmacies were open for approximately two months.
Additionally, the Company incurred severance costs associated with the closing of the
Paducah location.
    
    The Companys investment in the infrastructure and additional employees that will be
necessary to support the continued growth in the Pharmacy segment.
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##### Table of Contents




    
    A change in the classification of certain employees who were previously included in the
Services segment to Corporate. Historically, employees in the Southfield, Michigan
location supported the Services segment almost exclusively. During fiscal 2008, the
Company centralized many of its corporate functions in Southfield, Michigan, and these
employees now support the entire organization. Beginning in fiscal 2009, the Company
began to more accurately separate and record these corporate functions from the segment
specific functions; and
    
    Severance expense relating to two former executives.
  
    
    In the third quarter of fiscal 2008, the Company hired an in-house legal counsel, and
since this hiring, the Companys legal fees have decreased significantly. Additionally,
audit fees and fees relating to Sarbanes-Oxley requirements decreased due to improved
efficiencies and general fee reduction efforts.
    
    The reduction of equity compensation expense. During the fiscal 2008 second quarter,
the Company recognized approximately $700,000 relating to the vesting of certain stock
options consistent with the former CEOs separation agreement executed in July 2007.
 Depreciation and Amortization
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Depreciation  cost of revenues
    
    $
    2,031
    
    
    $
    1,579
    
    
    $
    452
    
    
    
    28.6
    %Depreciation and amortization of property and equipment
    
    $
    1,194
    
    
    $
    1,068
    
    
    $
    126
    
    
    
    11.8
    %Amortization of acquired intangible assets
    
    
    1,358
    
    
    
    1,657
    
    
    
    (299
    )
    
    
    -18.0
    %Depreciation and amortization  operating expense
    
    $
    2,552
    
    
    $
    2,725
    
    
    $
    (173
    )
    
    
    -6.3
    %
   Interest Expense and Income
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Interest expense
    
    $
    3,089
    
    
    $
    3,109
    
    
    $
    (20
    )
    
    
    -0.6
    %Interest income
    
    
    (48
    )
    
    
    (77
    )
    
    
    (29
    )
    
    
    -37.7
    %$
    3,041
    
    
    $
    3,032
    
    
    $
    9
    
    
    
    0.3
    %
  33




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Income Taxes
   Loss from Discontinued Operations
  Liquidity and Capital Resources
    34




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##### Table of Contents



2008
    
    2007Net cash used in operating activities
    
    $
    38
    
    
    $
    (7,143
    )Net cash provided by (used in) investing activities
    
    
    (1,169
    )
    
    
    4,141Net cash provided by (used in) financing activities
    
    
    (4,918
    )
    
    
    1,549Net change in cash and cash equivalents
    
    
    (6,049
    )
    
    
    (1,453
    )Cash and cash equivalents, end of period
    
    
    302
    
    
    
    1,541Availability under line of credit agreements
    
    $
    2,784
    
    
    $
    5,048
    35




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##### Table of Contents



Medicare
    
    
    7
    %Medicaid/other government
    
    
    22
    %Commercial Insurance
    
    
    14
    %Institution/Facilities
    
    
    37
    %Private Pay
    
    
    20
    %100
    %
  Recent Accounting Pronouncements
  36




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
    37




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##### Table of Contents



Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  Due to our operating losses during recent fiscal years, our stock could be at risk of being
delisted by the NYSE Alternext.
  The price of our common stock has been, and will likely continue to be, volatile, which could
diminish the ability to recoup an investment, or to earn a return on an investment, in our Company.
  38




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##### Table of Contents



To finance acquisitions made as part of our growth strategy, the Company incurred significant debt
which must be repaid. Our debt level could adversely affect our financial health and affect our
ability to run our business.
  o
    
    We may be unable to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes.o
    
    Our ability to adapt to changing market conditions may be hampered. We may be more
vulnerable in a volatile market and at a competitive disadvantage to our competitors that
have less debt.o
    
    Our operating flexibility is more limited due to financial and other restrictive
covenants, including restrictions on incurring additional debt, creating liens on our
properties, making acquisitions and paying dividends.o
    
    We are subject to the risks that interest rates and our interest expense will increase.o
    
    Our ability to plan for, or react to, changes in our business is more limited.
  We will need to pay or refinance a significant portion our outstanding indebtedness at or prior to
its maturity in 2009.
  The adverse capital and credit market conditions could affect our liquidity.
  39




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##### Table of Contents



Changes in reimbursement for Home Health Equipment products under Medicare could negatively affect
our business and financial condition.
      40




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##### Table of Contents



We have granted stock options to certain management employees and directors as compensation, which
may depress our stock price and result in dilution to our common security holders.
    Because the Company is dependent on key management and advisors, the loss of the services or advice
of any of these persons could have a material adverse effect on our business and prospects.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
   41




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##### Table of Contents



Item 6. Exhibits.
  
 SIGNATURES
  February 9, 2009
    
    By:
    
    /s/ Marvin R. RichardsonMarvin R. RichardsonChief Executive Officer(Principal Executive Officer) and DirectorFebruary 9, 2009
    
    By:
    
    /s/ Matthew R. MiddendorfMatthew R. MiddendorfTreasurer and Chief Financial Officer(Principal Financial and Accounting Officer)
 42




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EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit Description31.1
    
    Certification of the Chief Executive Officer required by rule 13a  14(a) or rule 15d 
14(a).31.2
    
    Certification of the Principal Accounting and Financial Officer required by rule 13a 
14(a) or rule 15d  14(a).32.1
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to
§906 of the Sarbanes  Oxley Act of 2002.32.2
    
    Principal Accounting and Financial Officer Certification Pursuant to 18 U.S.C. §1350, as
Adopted Pursuant to §906 of the Sarbanes  Oxley Act of 2002.
 43