##### 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 September 30, 2010
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition period from  to
 Commission file number 001-32935
 ARCADIA RESOURCES, INC.
  NEVADA
    
    88-0331369(State or other jurisdiction of Incorporation)
    
    (I.R.S. Employer Identification
Number)9320 PRIORITY WAY WEST DRIVEINDIANAPOLIS, INDIANA
    
    46240(Address of principal executive offices)
    
    (Zip Code)
  þ o
 o o
  Large Accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o
 o þ




---



##### 



Table of Contents
 PageNo.Part I: Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and March 31, 2010
    
    
    2Condensed Consolidated Statements of Operations for the Three and Six Months ended September
30, 2010 and
2009 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Deficit for the Six Months ended September
30, 2010 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2010 and
2009 (unaudited)
    
    
    5Notes to the Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    41Part II: Other InformationItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 6. Exhibits
    
    
    51Signatures
    
    
    52EXHIBIT INDEX
    
    
    53EX-10.1 (AMENDMENT DATED OCTOBER 31, 2010 TO THE AMENDED AND RESTATED CREDIT AGREEMENT BY AND AMONG ARCADIA SERVICES, INC., ARCADIA HEALTH SERVICES, INC., GRAYROSE, INC., ARCADIA HEALTH SERVICES OFEX-10.2 (AMENDMENT DATED OCTOBER 31, 2010 TO THE COMERICA REVOLVING CREDIT NOTE DATED JULY 13, 2009)EX-31.1 (CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.)EX-31.2 (CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.)EX-32.1 (CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350)EX-32.2 (CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350)
   1




---



##### Table of Contents



(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 September 30,
    
    
    March 31,2010
    
    
    2010(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,704
    
    
    $
    5,444Accounts receivable, net of allowance of $2,309 and $2,623, respectively
    
    
    12,184
    
    
    
    12,290Inventories, net
    
    
    1,357
    
    
    
    917Prepaid expenses and other current assets
    
    
    1,995
    
    
    
    1,551Current assets of discontinued operations
    
    
    155
    
    
    
    174Total current assets
    
    
    17,395
    
    
    
    20,376Property and equipment, net
    
    
    1,801
    
    
    
    1,738Goodwill
    
    
    2,500
    
    
    
    2,500Acquired intangible assets, net
    
    
    7,384
    
    
    
    7,670Other assets
    
    
    426
    
    
    
    412Restricted cash
    
    
    500
    
    
    
    500Total assets
    
    $
    30,006
    
    
    $
    33,196LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    1,836
    
    
    $
    2,859Accrued expenses:Compensation and related taxes
    
    
    2,629
    
    
    
    3,184Interest
    
    
    38
    
    
    
    82Health insurance
    
    
    507
    
    
    
    463Other
    
    
    1,539
    
    
    
    1,507Fair value of warrant liability
    
    
    1,635
    
    
    
    1,499Payable to affiliated agencies
    
    
    502
    
    
    
    1,076Long-term obligations, current portion
    
    
    189
    
    
    
    939Capital lease obligations, current portion
    
    
    43
    
    
    
    69Current liabilities of discontinued operations
    
    
    117
    
    
    
    308Total current liabilities
    
    
    9,035
    
    
    
    11,986Lines of credit
    
    
    12,186
    
    
    
    7,774Long-term obligations, less current portion
    
    
    26,471
    
    
    
    25,192Capital lease obligations, less current portion
    
    
    12
    
    
    
    19Total liabilities
    
    
    47,704
    
    
    
    44,971Commitments and contingenciesSTOCKHOLDERS DEFICITPreferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 300,000,000 shares authorized; 177,428,044
shares and 177,918,044 shares issued, respectively
    
    
    177
    
    
    
    178Additional paid-in capital
    
    
    146,396
    
    
    
    145,381Accumulated deficit
    
    
    (164,271
    )
    
    
    (157,334
    )Total stockholders deficit
    
    
    (17,698
    )
    
    
    (11,775
    )Total liabilities and stockholders deficit
    
    $
    30,006
    
    
    $
    33,196
 See accompanying notes to these consolidated financial statements.
  2




---



##### Table of Contents



(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 Three Month Period Ended
    
    
    Six Month Period EndedSeptember 30,
    
    
    September 30,(Unaudited)
    
    
    (Unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Services
    
    $
    20,931
    
    
    $
    21,709
    
    
    $
    41,295
    
    
    $
    44,389Pharmacy
    
    
    4,911
    
    
    
    3,408
    
    
    
    9,965
    
    
    
    6,625Revenues, net
    
    
    25,842
    
    
    
    25,117
    
    
    
    51,260
    
    
    
    51,014Cost of revenues
    
    
    18,797
    
    
    
    17,923
    
    
    
    37,453
    
    
    
    36,549Gross profit
    
    
    7,045
    
    
    
    7,194
    
    
    
    13,807
    
    
    
    14,465Selling, general and administrative
    
    
    9,581
    
    
    
    9,878
    
    
    
    19,315
    
    
    
    19,329Depreciation and amortization
    
    
    326
    
    
    
    531
    
    
    
    634
    
    
    
    942Total operating expenses
    
    
    9,907
    
    
    
    10,409
    
    
    
    19,949
    
    
    
    20,271Operating loss
    
    
    (2,862
    )
    
    
    (3,215
    )
    
    
    (6,142
    )
    
    
    (5,806
    )Other expenses:Interest expense, net
    
    
    980
    
    
    
    846
    
    
    
    1,823
    
    
    
    1,684Change in fair value of warrant liability
    
    
    (779
    )
    
    
    
    
    
    
    (137
    )
    
    
    Other
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    30Total other expenses
    
    
    201
    
    
    
    840
    
    
    
    1,686
    
    
    
    1,714Loss from continuing operations before income taxes
    
    
    (3,063
    )
    
    
    (4,055
    )
    
    
    (7,828
    )
    
    
    (7,520
    )Income tax expense
    
    
    40
    
    
    
    7
    
    
    
    73
    
    
    
    100Loss from continuing operations
    
    
    (3,103
    )
    
    
    (4,062
    )
    
    
    (7,901
    )
    
    
    (7,620
    )Discontinued operations:Loss from discontinued operations
    
    
    (52
    )
    
    
    (248
    )
    
    
    (82
    )
    
    
    (1,477
    )Net gain on disposal
    
    
    259
    
    
    
    163
    
    
    
    1,046
    
    
    
    379207
    
    
    
    (85
    )
    
    
    964
    
    
    
    (1,098
    )NET LOSS
    
    $
    (2,896
    )
    
    $
    (4,147
    )
    
    $
    (6,937
    )
    
    $
    (8,718
    )Weighted average number of common shares outstanding
    
    
    177,295
    
    
    
    161,201
    
    
    
    177,267
    
    
    
    160,709Basic and diluted net loss per share:Loss from continuing operations
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss per share
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )
 See accompanying notes to these condensed consolidated financial statements.
  3




---



##### Table of Contents



(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
  Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    DeficitBalance, April 1, 2010
    
    
    177,918,044
    
    
    $
    178
    
    
    $
    145,381
    
    
    $
    (157,334
    )
    
    $
    (11,775
    )Stock-based compensation expense
    
    
    106,250
    
    
    
    
    
    
    
    753
    
    
    
    
    
    
    
    753Issuance of warrants in conjunction with debt financing
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    260Exercise of stock options
    
    
    3,750
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Cancellation of shares held in escrow
    
    
    (600,000
    )
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,937
    )
    
    
    (6,937
    )Balance, September 30, 2010
    
    
    177,428,044
    
    
    $
    177
    
    
    $
    146,396
    
    
    $
    (164,271
    )
    
    $
    (17,698
    )
 See accompanying notes to these condensed consolidated financial statements.
  4




---



##### Table of Contents



(IN THOUSANDS)
 Six-Month Period EndedSeptember 30,(Unaudited)2010
    
    
    2009Operating activitiesNet loss for the period
    
    $
    (6,937
    )
    
    $
    (8,718
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for doubtful accounts
    
    
    351
    
    
    
    1,155Depreciation of property and equipment
    
    
    348
    
    
    
    912Amortization of intangible assets
    
    
    286
    
    
    
    405Gain on business disposals
    
    
    (1,046
    )
    
    
    (379
    )Non-cash interest expense
    
    
    1,392
    
    
    
    1,224Amortization of deferred financing costs and debt discounts
    
    
    190
    
    
    
    121Stock-based compensation expense
    
    
    753
    
    
    
    551Change in fair value of warrant liability
    
    
    (137
    )
    
    
    Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (260
    )
    
    
    2,440Inventories
    
    
    (437
    )
    
    
    904Other assets
    
    
    (413
    )
    
    
    821Accounts payable
    
    
    (1,274
    )
    
    
    (1,449
    )Accrued expenses
    
    
    (536
    )
    
    
    (957
    )Due to affiliated agencies
    
    
    (564
    )
    
    
    (277
    )Net cash used in operating activities
    
    
    (8,284
    )
    
    
    (3,247
    )Investing activitiesBusiness acquisitions, net of cash acquired
    
    
    (106
    )
    
    
    (196
    )Proceeds from business disposal
    
    
    1,046
    
    
    
    9,320Increase in restricted cash
    
    
    
    
    
    
    (500
    )Purchases of property and equipment
    
    
    (411
    )
    
    
    (96
    )Net cash provided by investing activities
    
    
    529
    
    
    
    8,528Financing activitiesLines of credit, net activity
    
    
    4,798
    
    
    
    (4,610
    )Proceeds from note payable, net of fees
    
    
    
    
    
    
    2,141Payments on notes payable and capital lease obligations
    
    
    (784
    )
    
    
    (4,334
    )Proceeds from exercise of stock options
    
    
    1
    
    
    
    Net cash provided by (used in) financing activities
    
    
    4,015
    
    
    
    (6,803
    )Net change in cash and cash equivalents
    
    
    (3,740
    )
    
    
    (1,522
    )Cash and cash equivalents, beginning of period
    
    
    5,444
    
    
    
    1,522Cash and cash equivalents, end of period
    
    $
    1,704
    
    
    $
    Supplementary information:Cash paid during the period for:Interest
    
    $
    247
    
    
    $
    322Income taxes
    
    
    73
    
    
    
    100Non-cash investing / financing activities:Capital lease
    
    
    
    
    
    
    70Accounts payable converted to notes payable
    
    
    
    
    
    
    750Accrued interest converted to notes payable
    
    
    1,392
    
    
    
    1,224
 See accompanying notes to these consolidated financial statements.
  5




---



##### Table of Contents



Note 1  Description of Company and Significant Accounting Policies
 Description of Company
  Unaudited Interim Financial Information
  Reclassifications
  Recent Accounting Pronouncements
     6




---



##### Table of Contents



Note 2  Discontinued Operations
 Catalog Operations
  HHE Operations
    Pharmacy Operations
  Industrial Staffing Operations
   7




---



##### Table of Contents



September 30, 2010
    
    
    March 31, 2010AssetsAccounts receivable, net of allowance of $4
    
    $
    90
    
    
    $
    76Inventory
    
    
    15
    
    
    
    17Prepaid expenses and other current assets
    
    
    50
    
    
    
    81Total current assets of discontinued operations
    
    $
    155
    
    
    $
    174LiabilitiesAccounts payable
    
    $
    99
    
    
    $
    301Accrued compensation and related taxes
    
    
    17
    
    
    
    6Accrued other
    
    
    1
    
    
    
    1Total current liabilities of discontinued operations
    
    $
    117
    
    
    $
    308
  8




---



##### Table of Contents



Three Month Period Ended
    
    
    Six Month Period EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net:Services  Industrial Staffing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,223Catalog
    
    
    324
    
    
    
    499
    
    
    
    660
    
    
    
    1,009Home Health Equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,423Pharmacy  Software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348$
    324
    
    
    $
    499
    
    
    $
    660
    
    
    $
    4,003Loss from operations:Services  Industrial Staffing
    
    $
    
    
    
    $
    (8
    )
    
    $
    
    
    
    $
    (44
    )Catalog
    
    
    (52
    )
    
    
    7
    
    
    
    (82
    )
    
    
    (31
    )Home Health Equipment
    
    
    
    
    
    
    (189
    )
    
    
    
    
    
    
    (1,228
    )Pharmacy  Software
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (174
    )$
    (52
    )
    
    $
    (248
    )
    
    $
    (82
    )
    
    $
    (1,477
    )Gain (loss) on disposal:Services  Industrial Staffing
    
    $
    259
    
    
    $
    3
    
    
    $
    391
    
    
    $
    129Home Health Equipment
    
    
    
    
    
    
    160
    
    
    
    655
    
    
    
    280Pharmacy  Software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )$
    259
    
    
    $
    163
    
    
    $
    1,046
    
    
    $
    379Earnings (loss) from discontinued operations:Services  Industrial Staffing
    
    $
    259
    
    
    $
    (5
    )
    
    $
    391
    
    
    $
    85Catalog
    
    
    (52
    )
    
    
    7
    
    
    
    (82
    )
    
    
    (31
    )Home Health Equipment
    
    
    
    
    
    
    (29
    )
    
    
    655
    
    
    
    (948
    )Pharmacy  Software
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (204
    )$
    207
    
    
    $
    (85
    )
    
    $
    964
    
    
    $
    (1,098
    )
 Note 3  Fair Value
   9




---



##### Table of Contents



Fair ValueMeasurementsUsing SignificantUnobservableInputs (Level 3)Warrant LiabilityBalance at April 1, 2009
    
    $
    Warrants issued
    
    
    2,478Decrease in market value
    
    
    (979
    )Balance at March 31, 2010
    
    
    1,499Warrants issued
    
    
    273Decrease in market value
    
    
    (137
    )Balance at September 30, 2010
    
    $
    1,635
 Note 4  Goodwill and Acquired Intangible Assets
  Services
    
    
    Pharmacy
    
    
    TotalGoodwill at March 31, 2009
    
    $
    14,553
    
    
    $
    2,500
    
    
    $
    17,053Acquisitions during the year
    
    
    46
    
    
    
    
    
    
    
    46Impairment expense
    
    
    (14,599
    )
    
    
    
    
    
    
    (14,599
    )Goodwill at September 30 and March 31, 2010
    
    $
    
    
    
    $
    2,500
    
    
    $
    2,500
  Impairment Expense
   10




---



##### Table of Contents



September 30, 2010
    
    
    March 31, 2010Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationTrade name
    
    $
    6,664
    
    
    $
    931
    
    
    $
    6,664
    
    
    $
    847Customer relationships
    
    
    4,720
    
    
    
    3,069
    
    
    
    4,720
    
    
    
    2,86711,384
    
    
    $
    4,000
    
    
    
    11,384
    
    
    $
    3,714Less accumulated amortization
    
    
    (4,000
    )
    
    
    
    
    
    
    (3,714
    )Net acquired intangible assets
    
    $
    7,384
    
    
    
    
    
    
    $
    7,670
  11




---



##### Table of Contents



Remainder of fiscal 2011
    
    $
    286Fiscal 2012
    
    
    518Fiscal 2013
    
    
    476Fiscal 2014
    
    
    382Fiscal 2015
    
    
    350Thereafter
    
    
    5,372Total
    
    $
    7,384
 Note 5  Lines of Credit
  At September 30, 2010MaximumAvailable
    
    
    
    
    
    
    March 31,Lending Institution
    
    Maturity date
    
    
    Borrowing
    
    
    Balance
    
    
    2010
    
    
    Interest rateComerica Bank
    
    April 1, 2012
    
    $
    8,881
    
    
    $
    8,072
    
    
    $
    7,774
    
    
    Prime plus 2.75%H.D. Smith
    
    April 23, 2013
    
    
    4,613
    
    
    
    4,613
    
    
    
    
    
    
    
    7
    %Total lines of credit obligations
    
    
    
    
    
    $
    13,494
    
    
    
    12,685
    
    
    
    7,774H.D. Smith debt discount
    
    
    
    
    
    
    
    
    
    
    (499
    )
    
    
    $
    12,186
    
    
    $
    7,774
 Comerica Bank
   12




---



##### Table of Contents



H.D. Smith Wholesale Drug Co.
    13




---



##### Table of Contents



Note 6  Long-Term Obligations
  September 30,
    
    
    March 31,2010
    
    
    2010Note payable to JANA Master Fund, Ltd.
(JANA) in the original amount of $18.0
million, dated March 25, 2009 bearing an
effective interest rate of 10% with unpaid
accrued interest and principal due in full on
April 1, 2012. Cash interest that would
otherwise be payable on such quarterly
interest payment dates may be added to the
principal balance of the note payable at the
Companys option. The note payable is
unsecured.
    
    $
    18,473
    
    
    $
    17,581Note payable to Vicis Capital Master Fund
(Vicis) in the original amount of $7.8
million, dated March 25, 2009 bearing an
effective interest rate of 10% with unpaid
accrued interest and principal due in full on
April 1, 2012. Cash interest that would
otherwise be payable on such quarterly
interest payment dates may be added to the
principal balance of the note payable at the
Companys option. The note payable is
unsecured.
    
    
    6,836
    
    
    
    6,505Note payable to LSP Partners, LP (LSP) in
the amount of $1.0 million, dated March 25,
2009 bearing an effective interest rate of
10% with unpaid accrued interest and
principal due in full on April 1, 2012. Cash
interest that would otherwise be payable on
such quarterly interest payment dates may be
added to the principal balance of the note
payable at the Companys option. The note
payable is unsecured.
    
    
    1,162
    
    
    
    1,106Payable due to AmerisourceBergen Drug
Corporation consistent with the terms of an
amendment to a line of credit agreement dated
June 10, 2009 bearing an effective interest
rate of 8.0%. The unpaid accrued interest
and principal was paid in full in April 2010.
The debt was secured by the assets of the
Pharmacy segment.
    
    
    
    
    
    
    750Other
    
    
    189
    
    
    
    189Total long-term obligations
    
    
    26,660
    
    
    
    26,131Less current portion of long-term obligations
    
    
    (189
    )
    
    
    (939
    )Long-term obligations, less current portion
    
    $
    26,471
    
    
    $
    25,192
   Remainder of fiscal 2011
    
    $
    189Fiscal 2012
    
    
    Fiscal 2013
    
    
    26,471Total
    
    $
    26,660
   14




---



##### Table of Contents



Note 7  Stockholders Deficit
 General
  Warrants
  September 30,
    
    
    March 31,Exercise Price
    
    
    Granted
    
    Expiration
    
    2010
    
    
    2010$
    0.40
    
    
    April 2010
    
    April 2015
    
    
    500,000
    
    
    
    $
    0.41
    
    
    April 2009
    
    April 2014
    
    
    52,800
    
    
    
    52,800$
    0.50
    
    
    various
    
    May 2011
    
    
    2,301,774
    
    
    
    2,301,774$
    0.50
    
    
    May 2004
    
    March 2014
    
    
    1,070,796
    
    
    
    1,070,796$
    0.75
    
    
    June 2008
    
    June 2015
    
    
    490,000
    
    
    
    490,000$
    0.95
    
    
    November 2009
    
    May 2015
    
    
    7,135,713
    
    
    
    7,135,713$
    2.25
    
    
    September 2005
    
    September 2010
    
    
    44,444
    
    
    
    44,44411,595,527
    
    
    
    11,095,527
  
   Weighted-average
    
    November 17, 2009
    
    
    September 30, 2010Expected volatility
    
    
    86
    %
    
    
    90
    %Expected dividend yields
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    5.5
    
    
    
    4.6Risk-free interest rate
    
    
    2.19
    %
    
    
    1.27
    %
   15




---



##### Table of Contents



Escrow Shares
  Note 8  Contingencies
    16




---



##### Table of Contents



Note 9  Stock-Based Compensation
     Three-Month Period
    
    
    Six-Month PeriodEnded September 30,
    
    
    Ended September 30,Weighted-average
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Expected volatility
    
    
    N/A
    
    
    
    85
    %
    
    
    96
    %
    
    
    78
    %Expected dividend yields
    
    
    N/A
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    N/A
    
    
    
    4
    
    
    
    4
    
    
    
    4Risk-free interest rate
    
    
    N/A
    
    
    
    2.59
    %
    
    
    2.15
    %
    
    
    2.64
    %
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueOptions
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    (thousands)Outstanding at April 1, 2010
    
    
    8,336,184
    
    
    
    0.65Granted
    
    
    45,000
    
    
    
    0.42Exercised
    
    
    (3,750
    )
    
    
    0.38Forfeited or expired
    
    
    (98,479
    )
    
    
    0.45Outstanding at September 30, 2010
    
    
    8,278,955
    
    
    $
    0.65
    
    
    
    5.2
    
    
    $
    102Exercisable at September 30, 2010
    
    
    6,624,163
    
    
    $
    0.66
    
    
    
    5.0
    
    
    $
    101
  17




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.18 - $0.42
    
    
    3,329,394
    
    
    
    6.0
    
    
    $
    0.38
    
    
    
    2,815,644
    
    
    $
    0.38$0.43 - $0.72
    
    
    3,599,334
    
    
    
    4.9
    
    
    $
    0.72
    
    
    
    2,483,292
    
    
    $
    0.72$0.73 - $1.07
    
    
    781,647
    
    
    
    5.2
    
    
    $
    0.79
    
    
    
    756,647
    
    
    $
    0.79$1.01 - $1.50
    
    
    450,967
    
    
    
    2.9
    
    
    $
    1.34
    
    
    
    450,967
    
    
    $
    1.34$1.51 - $2.25
    
    
    43,000
    
    
    
    2.6
    
    
    $
    2.22
    
    
    
    43,000
    
    
    $
    2.22$2.92
    
    
    74,613
    
    
    
    2.8
    
    
    $
    2.92
    
    
    
    74,613
    
    
    $
    2.92Outstanding at September 30, 2010
    
    
    8,278,955
    
    
    
    
    
    
    $
    0.65
    
    
    
    6,624,163
    
    
    $
    0.66
     Restricted Stock
   Weighted-AverageGrant DateFair ValueShares
    
    
    per ShareUnvested at April 1, 2010
    
    
    332,967
    
    
    $
    1.10Vested
    
    
    (106,250
    )
    
    
    1.50Unvested at September 30, 2010
    
    
    226,717
    
    
    $
    0.91
     18




---



##### Table of Contents



Note 10  Income Taxes
   Note 11  Related Party Transactions
    Note 12  Segment Information
     19




---



##### Table of Contents



Three-Month Period Ended
    
    
    Six-Month Period EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue, net:Services
    
    $
    20,931
    
    
    $
    21,709
    
    
    $
    41,295
    
    
    $
    44,389Pharmacy
    
    
    4,911
    
    
    
    3,408
    
    
    
    9,965
    
    
    
    6,625Total revenue
    
    $
    25,842
    
    
    $
    25,117
    
    
    $
    51,260
    
    
    $
    51,014Operating income (loss):Services
    
    $
    1,222
    
    
    $
    1,035
    
    
    $
    2,121
    
    
    $
    2,242Pharmacy
    
    
    (1,599
    )
    
    
    (1,564
    )
    
    
    (3,401
    )
    
    
    (2,877
    )Unallocated corporate overhead
    
    
    (2,485
    )
    
    
    (2,686
    )
    
    
    (4,862
    )
    
    
    (5,171
    )Total operating loss
    
    
    (2,862
    )
    
    
    (3,215
    )
    
    
    (6,142
    )
    
    
    (5,806
    )Other expenses:Interest expense, net
    
    
    980
    
    
    
    846
    
    
    
    1,823
    
    
    
    1,684Change in fair value of warrant liability
    
    
    (779
    )
    
    
    
    
    
    
    (137
    )
    
    
    Other
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    30Net loss before income tax expense
    
    
    (3,063
    )
    
    
    (4,055
    )
    
    
    (7,828
    )
    
    
    (7,520
    )Income tax expense
    
    
    40
    
    
    
    7
    
    
    
    73
    
    
    
    100Net loss from continuing operations
    
    $
    (3,103
    )
    
    $
    (4,062
    )
    
    $
    (7,901
    )
    
    $
    (7,620
    )Depreciation and amortization:Services
    
    $
    165
    
    
    $
    191
    
    
    $
    330
    
    
    $
    385Pharmacy
    
    
    74
    
    
    
    206
    
    
    
    135
    
    
    
    293Corporate
    
    
    87
    
    
    
    134
    
    
    
    169
    
    
    
    264Total depreciation and amortization
    
    $
    326
    
    
    $
    531
    
    
    $
    634
    
    
    $
    942
 2010
    
    
    2009
    
    
    2010
    
    
    2009Capital expenditures:Services
    
    $
    8
    
    
    $
    8
    
    
    $
    48
    
    
    $
    26Pharmacy
    
    
    156
    
    
    
    8
    
    
    
    240
    
    
    
    61Corporate
    
    
    15
    
    
    
    6
    
    
    
    123
    
    
    
    9Total capital expenditures
    
    $
    179
    
    
    $
    22
    
    
    $
    411
    
    
    $
    96
 September 30,
    
    
    March 31,2010
    
    
    2010Assets:Services
    
    $
    20,530
    
    
    $
    25,007Pharmacy
    
    
    7,298
    
    
    
    6,107Unallocated coporate assets
    
    
    2,023
    
    
    
    1,908Assets of discontinued operations
    
    
    155
    
    
    
    174Total assets
    
    $
    30,006
    
    
    $
    33,196
  20




---



##### Table of Contents



Note 13  Subsequent Event
   21




---



##### Table of Contents



ITEM 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations
  Cautionary Statement Concerning Forward-Looking Statements
      22




---



##### Table of Contents



Overview
  Critical Accounting Policies
  Three-Month Period Ended September 30, 2010 Compared to the Three-Month Period Ended September 30,
2009
 Results of Continuing Operations (in thousands, except per share amounts)
 Three-Month PeriodEnded September 30,2010
    
    
    2009Revenues, net
    
    $
    25,842
    
    
    $
    25,117Cost of revenues
    
    
    18,797
    
    
    
    17,923Gross profit
    
    
    7,045
    
    
    
    7,194Selling, general and administrative
    
    
    9,581
    
    
    
    9,878Depreciation and amortization
    
    
    326
    
    
    
    531Total operating expenses
    
    
    9,907
    
    
    
    10,409Operating loss
    
    
    (2,862
    )
    
    
    (3,215
    )Other expenses:Interest expense, net
    
    
    980
    
    
    
    846Change in fair value of warrant liability
    
    
    (779
    )
    
    
    Other expenses:
    
    
    
    
    
    
    (6
    )Total other expenses
    
    
    201
    
    
    
    840Net loss before income tax expense
    
    
    (3,063
    )
    
    
    (4,055
    )Income tax expense
    
    
    40
    
    
    
    7Net loss from continuing operations
    
    $
    (3,103
    )
    
    $
    (4,062
    )Weighted average number of shares  basic and diluted
    
    
    177,295
    
    
    
    161,201Net loss from continuing operations per share  basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.03
    )
  23




---



##### Table of Contents



Revenues, Cost of Revenues and Gross Profits
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Revenues, net:Services
    
    $
    20,931
    
    
    
    81.0
    %
    
    $
    21,709
    
    
    
    86.5
    %
    
    $
    (778
    )
    
    
    -3.6
    %Pharmacy
    
    
    4,911
    
    
    
    19.0
    %
    
    
    3,408
    
    
    
    13.6
    %
    
    
    1,503
    
    
    
    44.1
    %25,842
    
    
    
    100.0
    %
    
    
    25,117
    
    
    
    100.0
    %
    
    
    725
    
    
    
    2.9
    %Cost of revenues:Services
    
    
    14,650
    
    
    
    
    
    
    
    15,028
    
    
    
    
    
    
    
    (378
    )
    
    
    -2.5
    %Pharmacy
    
    
    4,147
    
    
    
    
    
    
    
    2,895
    
    
    
    
    
    
    
    1,252
    
    
    
    43.2
    %18,797
    
    
    
    
    
    
    
    17,923
    
    
    
    
    
    
    
    874
    
    
    
    4.9
    %Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    6,281
    
    
    
    30.0
    %
    
    
    6,681
    
    
    
    30.8
    %
    
    
    (400
    )
    
    
    -6.0
    %Pharmacy
    
    
    764
    
    
    
    15.6
    %
    
    
    513
    
    
    
    15.1
    %
    
    
    251
    
    
    
    48.9
    %$
    7,045
    
    
    
    27.3
    %
    
    $
    7,194
    
    
    
    28.6
    %
    
    $
    (149
    )
    
    
    -2.1
    %
 Services Segment
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Home care
    
    $
    16,791
    
    
    
    80.2
    %
    
    $
    17,255
    
    
    
    79.5
    %
    
    $
    (464
    )
    
    
    -2.7
    %Per diem medical staffing
    
    
    2,713
    
    
    
    13.0
    %
    
    
    3,127
    
    
    
    14.4
    %
    
    
    (414
    )
    
    
    -13.2
    %Travel staffing
    
    
    1,427
    
    
    
    6.8
    %
    
    
    1,327
    
    
    
    6.0
    %
    
    
    100
    
    
    
    7.5
    %Total Services
    
    $
    20,931
    
    
    
    100.0
    %
    
    $
    21,709
    
    
    
    100.0
    %
    
    $
    (778
    )
    
    
    -3.6
    %
   24




---



##### Table of Contents



Pharmacy Segment
    25




---



##### Table of Contents



Selling, General and Administrative
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    SG&A
    
    
    2009
    
    
    SG&A
    
    
    (Decrease)
    
    
    (Decrease)Services
    
    $
    4,894
    
    
    
    51.1
    %
    
    $
    5,453
    
    
    
    55.2
    %
    
    $
    (559
    )
    
    
    -10.3
    %Pharmacy
    
    
    2,289
    
    
    
    23.9
    %
    
    
    1,873
    
    
    
    18.9
    %
    
    
    416
    
    
    
    22.2
    %Corporate
    
    
    2,398
    
    
    
    24.9
    %
    
    
    2,552
    
    
    
    25.8
    %
    
    
    (154
    )
    
    
    -6.0
    %$
    9,581
    
    
    
    100.0
    %
    
    $
    9,878
    
    
    
    100.0
    %
    
    $
    (297
    )
    
    
    -(3.0
    %)SG&A as a % of net revenue
    
    
    37.1
    %
    
    
    
    
    
    
    39.3
    %
 Services Segment
  Pharmacy Segment
     26




---



##### Table of Contents



Corporate
  Depreciation and Amortization
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Depreciation and amortization of property and equipment
    
    $
    183
    
    
    $
    372
    
    
    
    (189
    )
    
    
    -50.8
    %Amortization of acquired intangible assets
    
    
    143
    
    
    
    159
    
    
    
    (16
    )
    
    
    -10.1
    %Depreciation and amortization
    
    $
    326
    
    
    $
    531
    
    
    $
    (205
    )
    
    
    -38.6
    %
   Interest Expense and Income
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Interest expense
    
    $
    982
    
    
    $
    850
    
    
    $
    132
    
    
    
    15.5
    %Interest income
    
    
    (2
    )
    
    
    (4
    )
    
    
    2
    
    
    
    -50.0
    %$
    980
    
    
    $
    846
    
    
    $
    134
    
    
    
    15.8
    %
    27




---



##### Table of Contents



Change in Fair Value of Warrant Liability
  Income Taxes
    28




---



##### Table of Contents



Earnings (Loss) from Discontinued Operations
  Three Month Period EndedSeptember 30,2010
    
    
    2009Revenues, net:Catalog
    
    $
    324
    
    
    $
    499$
    324
    
    
    $
    499Loss from operations:Services  Industrial Staffing
    
    $
    
    
    
    $
    (8
    )Catalog
    
    
    (52
    )
    
    
    7Home Health Equipment
    
    
    
    
    
    
    (189
    )Pharmacy  Software
    
    
    
    
    
    
    (58
    )$
    (52
    )
    
    $
    (248
    )Gain (loss) on disposal:Services  Industrial Staffing
    
    $
    259
    
    
    $
    3Home Health Equipment
    
    
    
    
    
    
    160$
    259
    
    
    $
    163Earnings (loss) from discontinued operations:Services  Industrial Staffing
    
    $
    259
    
    
    $
    (5
    )Catalog
    
    
    (52
    )
    
    
    7Home Health Equipment
    
    
    
    
    
    
    (29
    )Pharmacy  Software
    
    
    
    
    
    
    (58
    )$
    207
    
    
    $
    (85
    )
 Catalog Operations
  HHE Operations
   29




---



##### Table of Contents



Pharmacy Operations
  Industrial Staffing Operations
   30




---



##### Table of Contents



Six-Month Period Ended September 30, 2010 Compared to the Six-Month Period Ended September 30,
2009
 Results of Continuing Operations, (in thousands, except share amounts)
 Six-Month PeriodEnded September 30,2010
    
    
    2009Revenues, net
    
    $
    51,260
    
    
    $
    51,014Cost of revenues
    
    
    37,453
    
    
    
    36,549Gross profit
    
    
    13,807
    
    
    
    14,465Selling, general and administrative
    
    
    19,315
    
    
    
    19,329Depreciation and amortization
    
    
    634
    
    
    
    942Total operating expenses
    
    
    19,949
    
    
    
    20,271Operating loss
    
    
    (6,142
    )
    
    
    (5,806
    )Other expenses:Interest expense, net
    
    
    1,823
    
    
    
    1,684Change in fair value of warrant liability
    
    
    (137
    )
    
    
    Other
    
    
    
    
    
    
    30Total other expenses
    
    
    1,686
    
    
    
    1,714Net loss before income tax expense
    
    
    (7,828
    )
    
    
    (7,520
    )Income tax expense
    
    
    73
    
    
    
    100Net loss from continuing operations
    
    $
    (7,901
    )
    
    $
    (7,620
    )Weighted average number of shares  basic and diluted
    
    
    177,267
    
    
    
    160,709Net loss from continuing operations per share  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.05
    )
  31




---



##### Table of Contents



Revenues, Cost of Revenues and Gross Profits
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Revenues, net:Services
    
    $
    41,295
    
    
    
    80.6
    %
    
    $
    44,389
    
    
    
    87.1
    %
    
    $
    (3,094
    )
    
    
    -7.0
    %Pharmacy
    
    
    9,965
    
    
    
    19.4
    %
    
    
    6,625
    
    
    
    13.0
    %
    
    
    3,340
    
    
    
    50.4
    %51,260
    
    
    
    100.0
    %
    
    
    51,014
    
    
    
    100.0
    %
    
    
    246
    
    
    
    0.5
    %Cost of revenues:Services
    
    
    28,913
    
    
    
    
    
    
    
    30,792
    
    
    
    
    
    
    
    (1,879
    )
    
    
    -6.1
    %Pharmacy
    
    
    8,540
    
    
    
    
    
    
    
    5,757
    
    
    
    
    
    
    
    2,783
    
    
    
    48.3
    %37,453
    
    
    
    
    
    
    
    36,549
    
    
    
    
    
    
    
    904
    
    
    
    2.5
    %Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    12,382
    
    
    
    30.0
    %
    
    
    13,597
    
    
    
    30.6
    %
    
    
    (1,215
    )
    
    
    -8.9
    %Pharmacy
    
    
    1,425
    
    
    
    14.3
    %
    
    
    868
    
    
    
    13.1
    %
    
    
    557
    
    
    
    64.2
    %$
    13,807
    
    
    
    26.9
    %
    
    $
    14,465
    
    
    
    28.4
    %
    
    $
    (658
    )
    
    
    -4.6
    %
 Services Segment
  % of Total
    
    
    
    
    
    
    % of Total

    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Home care
    
    $
    33,221
    
    
    
    80.4
    %
    
    $
    34,943
    
    
    
    78.7
    %
    
    $
    (1,722
    )
    
    
    -4.9
    %Per diem medical staffing
    
    
    5,308
    
    
    
    12.9
    %
    
    
    6,702
    
    
    
    15.1
    %
    
    
    (1,394
    )
    
    
    -20.8
    %Travel staffing
    
    
    2,766
    
    
    
    6.7
    %
    
    
    2,744
    
    
    
    6.1
    %
    
    
    22
    
    
    
    0.8
    %Total Services
    
    $
    41,295
    
    
    
    100.0
    %
    
    $
    44,389
    
    
    
    100.0
    %
    
    $
    (3,094
    )
    
    
    -7.0
    %
    32




---



##### Table of Contents



Pharmacy Segment
    33




---



##### Table of Contents



Selling, General and Administrative
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    SG&A
    
    
    2009
    
    
    SG&A
    
    
    (Decrease)
    
    
    (Decrease)Services
    
    $
    9,930
    
    
    
    51.4
    %
    
    $
    10,969
    
    
    
    56.7
    %
    
    $
    (1,039
    )
    
    
    -9.5
    %Pharmacy
    
    
    4,691
    
    
    
    24.3
    %
    
    
    3,454
    
    
    
    17.8
    %
    
    
    1,237
    
    
    
    35.8
    %Corporate
    
    
    4,694
    
    
    
    24.2
    %
    
    
    4,906
    
    
    
    25.4
    %
    
    
    (212
    )
    
    
    -4.3
    %$
    19,315
    
    
    
    100.0
    %
    
    $
    19,329
    
    
    
    100.0
    %
    
    $
    (14
    )
    
    
    -(0.1
    %)SG&A as a % of net revenue
    
    
    37.7
    %
    
    
    
    
    
    
    37.9
    %
 Services Segment
  Pharmacy Segment
     34




---



##### Table of Contents



Corporate
  Depreciation and Amortization
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Depreciation and amortization of property and equipment
    
    $
    348
    
    
    $
    624
    
    
    
    (276
    )
    
    
    -44.3
    %Amortization of acquired intangible assets
    
    
    286
    
    
    
    317
    
    
    
    (31
    )
    
    
    -9.9
    %Depreciation and amortization
    
    $
    634
    
    
    $
    942
    
    
    $
    (308
    )
    
    
    -32.7
    %
   Interest Expense and Income
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Interest expense
    
    $
    1,829
    
    
    $
    1,695
    
    
    $
    134
    
    
    
    7.9
    %Interest income
    
    
    (5
    )
    
    
    (11
    )
    
    
    6
    
    
    
    -50.9
    %$
    1,823
    
    
    $
    1,684
    
    
    $
    139
    
    
    
    8.3
    %
    35




---



##### Table of Contents



Change in Fair Value of Warrant Liability
  Income Taxes
    36




---



##### Table of Contents



Earnings (Loss) from Discontinued Operations
  Six Month Period EndedSeptember 30,2010
    
    
    2009Revenues, net:Services  Industrial Staffing
    
    $
    
    
    
    $
    1,223Catalog
    
    
    660
    
    
    
    1,009Home Health Equipment
    
    
    
    
    
    
    1,423Pharmacy  Software
    
    
    
    
    
    
    348$
    660
    
    
    $
    4,003Loss from operations:Services  Industrial Staffing
    
    $
    
    
    
    $
    (44
    )Catalog
    
    
    (82
    )
    
    
    (31
    )Home Health Equipment
    
    
    
    
    
    
    (1,228
    )Pharmacy  Software
    
    
    
    
    
    
    (174
    )$
    (82
    )
    
    $
    (1,477
    )Gain (loss) on disposal:Services  Industrial Staffing
    
    $
    391
    
    
    $
    129Home Health Equipment
    
    
    655
    
    
    
    280Pharmacy  Software
    
    
    
    
    
    
    (30
    )$
    1,046
    
    
    $
    379Earnings (loss) from discontinued operations:Services  Industrial Staffing
    
    $
    391
    
    
    $
    85Catalog
    
    
    (82
    )
    
    
    (31
    )Home Health Equipment
    
    
    655
    
    
    
    (948
    )Pharmacy  Software
    
    
    
    
    
    
    (204
    )$
    964
    
    
    $
    (1,098
    )
 Catalog Operations
  HHE Operations
   37




---



##### Table of Contents



Pharmacy Operations
  Industrial Staffing Operations
   38




---



##### Table of Contents



Liquidity and Capital Resources
  2010
    
    
    2009Net cash used in operating activities
    
    $
    (8,284
    )
    
    $
    (3,247
    )Net cash provided by investing activities
    
    
    529
    
    
    
    8,528Net cash provided by (used in) financing activities
    
    
    4,015
    
    
    
    (6,803
    )Net change in cash and cash equivalents
    
    
    (3,740
    )
    
    
    (1,522
    )Cash and cash equivalents, end of period
    
    
    1,704
    
    
    
    Availability under line of credit agreements
    
    $
    809
    
    
    $
    3,442
       39




---



##### Table of Contents



Medicare
    
    
    0
    %Medicaid/other government
    
    
    30
    %Commercial insurance
    
    
    20
    %Institution/facilities
    
    
    28
    %Private pay
    
    
    22
    %
 Recent Accounting Pronouncements
   40




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
    
  
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
 We have a history of operating losses and negative cash flow that may continue into the
foreseeable future.
   41




---



##### Table of Contents



Our indebtedness could adversely affect our financial condition and operations, prevent us from
fulfilling our debt service obligations and adversely affect our ability to operate our business.
  
    
    We may be unable to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate or other purposes.
 
    
    We may be unable to plan for, or react to, changes in our business and general market
conditions.
 
    
    We may be more vulnerable in a volatile market and at a competitive disadvantage to less
leveraged competitors.
 
    
    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.
 
    
    We are subject to the risks that interest rates and our interest expense will increase.
 
    
    Our ability to use operating cash flow in other areas of our business may be limited
because we must dedicate a substantial portion of these funds to make principal and
interest payments on our indebtedness.
 
    
    Our ability to make investments or take other actions or borrow additional funds may be
limited based on the financial and other restrictive covenants in our indebtedness.
 
    
    The amount we are permitted to draw on our revolving credit facilities may be limited
and we may be unable to fund our early-stage pharmacy product and patient care services and
home care staffing business strategies.
 
    
    We may be forced to implement cost reductions, which could impact our product and
service offerings.
 
    
    We may be unable to successfully implement our growth strategy and spread our cost
structure over a larger revenue base and ultimately become profitable.
 Due to our debt level, our history of operating losses and negative cash flows, and the current
conditions in the credit markets, we may not be able to increase the amount we can draw on our
revolving credit facility with Comerica Bank, or to obtain credit from other sources, to fund our
future needs for working capital, funding early-stage strategies and ongoing business operations,
or acquisitions.
  We may not be able to meet the financial covenants contained in our credit facilities, and we may
not be able to obtain waivers for any violations of those covenants should they occur.
   42




---



##### Table of Contents



The terms of our credit agreements with various lenders subject us to the risk of foreclosure on
certain property.
  In order to fund operations, repay our debt obligations, or pursue our growth strategies, we may
seek additional equity financing, which could result in dilution to our security holders and
adversely affect our stock price.
  As part of a recapitalization or restructuring plan necessary to address the Companys
significant amount of outstanding debt, current and future shareholders could be substantially
diluted.
   43




---



##### Table of Contents



To the extent we are unable to generate sufficient cash from operations or raise adequate funds
from the equity or debt markets, we would need to sell assets or modify or abandon our growth
strategy.
  Due to our operating losses during recent fiscal years, our stock could be at risk of being
delisted by the NYSE Amex Equities Exchange.
  Changes in federal and state laws that govern our financial relationships with physicians and
other health care providers may impact potential or current referral sources.
  We are required to comply with laws governing the transmission of privacy of health information.
   44




---



##### Table of Contents



Because we depend on key management, the loss of the services or advice of any of these persons
could have a material adverse effect on our business and prospects.
  We do not have long-term agreements or exclusive guaranteed order contracts with our home care,
hospital and healthcare facility clients.
  Sales and profitability in our Pharmacy segment depends on continued demonstration of the
effectiveness of our DailyMed business model, which is in its early stages of a broad market
roll-out.
     
 Our Pharmacy segment revenue is highly dependent upon our relationships with key state Medicaid
programs, managed care organizations, health plans and other payers.
 
 Our operations subject us to risk of litigation.
   45




---



##### Table of Contents



A significant decline in sales in our home care and staffing businesses would adversely impact
our revenue, operating income and cash flow and our ability to repay indebtedness and invest in
new products and services.
  Sales of certain of our services and products are largely dependent upon payments from
governmental programs and private insurance, and cost containment initiatives by these payers may
reduce our revenues, thereby harming our performance.
  The markets in which we operate are highly competitive and we may be unable to compete
successfully against competitors with greater resources.
   46




---



##### Table of Contents



We cannot predict the impact that registration of shares may have on the price of our common
stock.
  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 common
stock.
  Resale of our securities by any holder may be limited and affected by state blue-sky laws, which
could adversely affect the price of our securities and the holders investment in our Company.
  The issuance of our preferred stock could materially impact the market price of our common stock
and the rights of holders of our common stock.
  The exercise of common stock warrants and stock options may depress our stock price and may
result in dilution to our common security holders.
   47




---



##### Table of Contents



We depend on our affiliated agencies and our internal sales force to sell our services and
products, the loss of which could adversely affect our business.
  Declines in prescription volumes may negatively affect our net revenues and profitability.
  The success of our business depends on maintaining a well-secured pharmacy operation and
technology infrastructure and failure to do so could adversely impact our business.
  Any additional impairment of goodwill and other intangible assets could negatively impact our
results of operations.
   48




---



##### Table of Contents



Negative publicity or changes in public perception of our services may adversely affect our
ability to receive referrals, obtain new agreements and renew existing agreements.
  Several anti-takeover measures under Nevada law could delay or prevent a change of control,
despite such change of control being in the best interest of the holders of our common stock.
  Delays in reimbursement due to state budget deficits or otherwise have decreased, and may in the
future further decrease, our liquidity.
  We are subject to extensive government regulation. Changes to the laws and regulations governing
our business could negatively impact our profitability and any failure to comply with these
regulations could adversely affect our business.
  
    
    Licensure and certification;
 
    
    Adequacy and quality of health care services;
 
    
    qualifications and training of health care and support personnel;
 
    
    confidentiality, maintenance and security issues associated with medical records and claims processing;
 
    
    relationships with physicians and other referral sources;
  49




---



##### Table of Contents




    
    Operating policies and procedures;
 
    
    addition of facilities and services; and
 
    
    billing for services.
    We are subject to reviews, compliance audits and investigations that could result in adverse
findings that negatively affect our net service revenues and profitability.
   We are exposed to certain risks related to the frequency and rate of the introduction of generic
drugs and brand-name prescription products.
   50




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 6. Exhibits.
   51




---



##### Table of Contents



SIGNATURES
  November 9, 2010
    By:
    /s/ Marvin R. RichardsonMarvin R. RichardsonChief Executive Officer
(Principal Executive Officer) and DirectorNovember 9, 2010
    By:
    /s/ Matthew R. MiddendorfMatthew R. MiddendorfTreasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)  52




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit Description10.1
    
    
    Amendment dated October 31, 2010 to the Amended and Restated Credit Agreement by and
among Arcadia Services, Inc., Arcadia Health Services, Inc., Grayrose, Inc., Arcadia
Health Services of Michigan, Inc., Arcadia Employee Services, Inc. and Comerica Bank
dated July 13, 200910.2
    
    
    Amendment dated October 31, 2010 to the Comerica Revolving Credit Note dated July 13, 200931.1
    
    
    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.
  53