##### 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, 2005
 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 00031249
 ARCADIA RESOURCES, INC.
  NEVADA
    
    880331369(State or other jurisdiction of
Incorporation or organization)
    
    (I.R.S. Employer I.D. Number)26777 CENTRAL PARK BLVD., SUITE 200
SOUTHFIELD, MI
    
    48076(Address of principal executive offices)
    
    Zip Code
  þ o
  o o þ
 o þ




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##### 



Table of Contents
 Page No.Part I: Financial InformationItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II: Other InformationItem 2: Unregistered Sales of Equity Securities and Use of ProceedsItem 5: Other InformationItem 6. ExhibitsSignaturesPrivate Stock Purchase Agreement SICAV One dated November 28, 2005Private Stock Purchase Agreement SICAV Two dated November 28, 2005Haifley Employment Agreement dated December 7, 2005Haifley Non-Qualified Stock Option Agreement dated December 7, 2005Haifley Restricted Stock Grant Agreement dated December 7, 2005Certification of the Chief Executive Officer Pursuant to Section 302Certification of Principal Accounting and Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Principal Accounting and Financial Officer Pursuant to Section 906
  2




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PART I: Financial Information
 
 Item 1. Financial Statements
    3




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Arcadia Resources, Inc.
 Consolidated Balance Sheets
 December 31,
    
    
    March 31,2005
    
    
    2005(Unaudited)
    
    
    (Audited)Assets (Note 7)Current AssetsCash
    
    $
    2,496,547
    
    
    $
    1,412,268Accounts receivable, net of allowance of $1,843,000 and $1,692,000, respectively
    
    
    26,585,230
    
    
    
    21,453,424Inventory, net of allowance of $80,000
    
    
    884,861
    
    
    
    664,269Prepaid expenses and other current assets
    
    
    4,457,925
    
    
    
    876,523Income taxes receivable (Note 11)
    
    
    101,602
    
    
    
    130,000Total Current Assets
    
    
    34,526,165
    
    
    
    24,536,484Fixed AssetsEquipment
    
    
    4,337,726
    
    
    
    2,033,919Software
    
    
    267,160
    
    
    
    251,446Furniture and fixtures
    
    
    1,244,567
    
    
    
    376,095Vehicles
    
    
    492,460
    
    
    
    205,080Leasehold improvements
    
    
    360,997
    
    
    
    196,3376,702,910
    
    
    
    3,062,877Accumulated depreciation and amortization
    
    
    (1,653,783
    )
    
    
    (787,899
    )Net Fixed Assets
    
    
    5,049,127
    
    
    
    2,274,978Other Assets (Note 4)Goodwill
    
    
    26,431,386
    
    
    
    15,704,743Trade name, net of accumulated amortization of $444,000 and $244,000
    
    
    7,555,556
    
    
    
    7,755,556Customer relationships, net of accumulated amortization of $701,000 and $306,000
    
    
    5,384,243
    
    
    
    4,694,444Technology, net of accumulated amortization of $422,000 and $232,000
    
    
    337,778
    
    
    
    527,778Non-competition agreements, net of accumulated amortization of $26,000 and $0
    
    
    157,970
    
    
    
    Deferred financing costs, net of accumulated amortization of $68,000 and $231,000
    
    
    27,034
    
    
    
    99,099Total Other Assets
    
    
    39,893,967
    
    
    
    28,781,620$
    79,469,259
    
    
    $
    55,593,082Liabilities and Stockholders EquityCurrent LiabilitiesLine of credit, current portion (Note 7)
    
    $
    448,870
    
    
    $
    1,150,186Accounts payable and checks issued against future deposits
    
    
    1,862,808
    
    
    
    1,649,551Accrued expenses
    
    
    3,684,360
    
    
    
    3,367,812Payable to affiliated agencies, current portion (Note 5)
    
    
    2,782,690
    
    
    
    1,612,715Long-term debt, current portion (Note 6)
    
    
    1,534,024
    
    
    
    6,723,830Total Current Liabilities
    
    
    10,312,752
    
    
    
    14,504,094Payable to affiliate, less current portion (Note 5)
    
    
    318,094
    
    
    
    615,544Long-term debt, less current portion (Note 6)
    
    
    960,488
    
    
    
    546,572Line of credit, less current portion (Note 7)
    
    
    10,300,527
    
    
    
    14,404,404Total Liabilities
    
    
    21,891,861
    
    
    
    30,070,614Commitments and Contingencies (Notes 6, 7 and 14)Stockholders Equity (Note 8)Common stock $.001 par value, 150,000,000 shares authorized, 96,319,625
and 90,413,662 shares issued and outstanding, respectively
    
    
    96,320
    
    
    
    90,414Additional paid-in capital
    
    
    74,317,954
    
    
    
    33,516,506Treasury stock, 199,110 and 112,109 shares, respectively
    
    
    (396,725
    )
    
    
    (187,375
    )Stock subscription receivable
    
    
    (5,000,000
    )
    
    
    Accumulated deficit
    
    
    (11,440,151
    )
    
    
    (7,897,077
    )Total Stockholders Equity
    
    
    57,577,398
    
    
    
    25,522,468$
    79,469,259
    
    
    $
    55,593,082
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Arcadia Resources, Inc.
 Consolidated Statements of Operations
(Unaudited)
 SuccessorQuarter
    
    QuarterEnded
    
    EndedDecember 31, 2005
    
    December 31, 2004Net Sales (Note 15)
    
    $
    33,298,557
    
    
    $
    28,090,534Cost of Sales
    
    
    21,985,099
    
    
    
    19,413,068Gross Profit
    
    
    11,313,458
    
    
    
    8,677,466General and Administrative Expenses
    
    
    11,290,948
    
    
    
    8,342,918Depreciation and Amortization
    
    
    650,685
    
    
    
    133,883Operating Income (Loss)
    
    
    (628,175
    )
    
    
    200,665Other Expenses:Interest expense, net
    
    
    168,330
    
    
    
    298,642Amortization of debt discount (Note 6)
    
    
    
    
    
    
    525,141Total Other Expenses
    
    
    168,330
    
    
    
    823,783Net Loss Before Income Tax Expense
    
    
    (796,505
    )
    
    
    (623,118
    )Income Tax Expense (Note 11)
    
    
    16,778
    
    
    
    95,114Net Loss
    
    $
    (813,283
    )
    
    $
    (718,232
    )Loss Per Share (Note 8):Basic
    
    $
    (0.01
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )Weighted average number of shares (in thousands):Basic
    
    
    84,240
    
    
    
    68,494Diluted
    
    
    84,240
    
    
    
    68,494
 5




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Arcadia Resources, Inc.
 Consolidated Statements of Operations
(Unaudited)
 Successor
    
    PredecessorThree Quarters
    
    Period From
    
    Period FromEnded
    
    May 10, 2004 to
    
    April 1, 2004 toDecember 31, 2005
    
    December 31, 2004
    
    May 9, 2004Net Sales (Note 15)
    
    $
    96,702,889
    
    
    $
    67,223,593
    
    
    $
    9,486,601Cost of Sales
    
    
    64,792,459
    
    
    
    47,302,269
    
    
    
    6,905,998Gross Profit
    
    
    31,910,430
    
    
    
    19,921,324
    
    
    
    2,580,603General and Administrative Expenses
    
    
    31,423,622
    
    
    
    19,214,686
    
    
    
    2,101,381Depreciation and Amortization
    
    
    1,781,815
    
    
    
    221,328
    
    
    
    Operating Income (Loss)
    
    
    (1,295,007
    )
    
    
    485,310
    
    
    
    479,222Other ExpensesImpairment of Goodwill
    
    
    
    
    
    
    
    
    
    
    16,055Interest expense, net
    
    
    1,198,103
    
    
    
    695,654
    
    
    
    Amortization of debt discount (Note 6)
    
    
    933,185
    
    
    
    682,593
    
    
    
    Total Other Expenses
    
    
    2,131,288
    
    
    
    1,378,247
    
    
    
    16,055Net Income (Loss) Before Income Tax Expense
    
    
    (3,426,295
    )
    
    
    (892,937
    )
    
    
    463,167Income Tax Expense (Note 11)
    
    
    116,778
    
    
    
    102,253
    
    
    
    Net Income (Loss)
    
    $
    (3,543,073
    )
    
    $
    (995,190
    )
    
    $
    463,167Unaudited pro forma amounts to reflect
pro forma Income Taxes from tax status change
    
    
    
    
    
    
    
    
    
    
    158,000Pro Forma Income After Income Tax from tax status change
    
    
    
    
    
    
    
    
    
    $
    305,167Income (Loss) Per Share (Note 8):Basic
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    0.49Diluted
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    0.49Proforma Income Per Share:Basic
    
    
    
    
    
    
    
    
    
    $
    0.32Diluted
    
    
    
    
    
    
    
    
    
    $
    0.32Weighted average number of shares (in thousands):Basic
    
    
    83,506
    
    
    
    68,460
    
    
    
    948Diluted
    
    
    83,506
    
    
    
    68,460
    
    
    
    948
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Arcadia Resources, Inc.
 Consolidated Statements of Cash Flows
(Unaudited)
 Three Quarters
    
    Period from
    
    Period fromEnded
    
    May 10, 2004 to
    
    April 1, 2004 toDecember 31, 2005
    
    December 31, 2004
    
    May 9, 2004CASH FLOWS FROM OPERATING ACTIVITIESNet Income (Loss)
    
    $
    (3,543,073
    )
    
    $
    (995,190
    )
    
    $
    463,167Adjustments to reconcile net income (loss) to net cash provided by
operating activities net of impact of acquisitions:Provision for bad debts
    
    
    572,576
    
    
    
    459,595
    
    
    
    42,192Depreciation and amortization
    
    
    1,245,473
    
    
    
    221,328
    
    
    
    77Amortization of debt discount and deferred financing costs
    
    
    1,370,250
    
    
    
    682,593
    
    
    
    Issuance of stock for services
    
    
    74,965
    
    
    
    
    
    
    
    Accrual of stock option expense
    
    
    87,612
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    811,764
    
    
    
    
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    16,055Loss on disposition of asset
    
    
    
    
    
    
    89,810
    
    
    
    Recording of expected release of stock from escrow
    
    
    410,000
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,437,166
    )
    
    
    (3,675,988
    )
    
    
    (692,193
    )Inventory
    
    
    (87,791
    )
    
    
    (175,769
    )
    
    
    Prepaid expenses and other current assets
    
    
    (3,557,239
    )
    
    
    (2,202,874
    )
    
    
    27,903Income taxes receivable
    
    
    68,398
    
    
    
    
    
    
    
    Checks issued against future deposits
    
    
    
    
    
    
    (850,125
    )
    
    
    (314,025
    )Accounts payable
    
    
    (145,797
    )
    
    
    193,352
    
    
    
    42,823Accrued expenses and other current liabilities
    
    
    (746,311
    )
    
    
    166,523
    
    
    
    (301,999
    )Due to affiliated agencies
    
    
    (363,455
    )
    
    
    (377,952
    )
    
    
    170,915NET CASH (USED IN) OPERATING ACTIVITIES
    
    
    (8,239,794
    )
    
    
    (6,464,697
    )
    
    
    (545,085
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of businesses
    
    
    (5,469,919
    )
    
    
    (3,745,697
    )
    
    
    (157,500
    )Purchases of property and equipment
    
    
    (2,422,394
    )
    
    
    (104,182
    )
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    1,779
    
    
    
    NET CASH (USED IN) INVESTING ACTIVITIES
    
    
    (7,892,313
    )
    
    
    (3,848,100
    )
    
    
    (157,500
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from sale of common stock warrants
    
    
    31,040,065
    
    
    
    5,192,859
    
    
    
    Proceeds from issuance of convertible note payable
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    Proceeds from exercise of stock options/warrants
    
    
    166,782
    
    
    
    
    
    
    
    Net (payments) drawn on line of credit
    
    
    (6,741,356
    )
    
    
    4,503,480
    
    
    
    Payments on acquisition debt
    
    
    (1,611,323
    )
    
    
    (5,657,109
    )
    
    
    Payments on notes payable
    
    
    (5,637,782
    )
    
    
    (629,505
    )
    
    
    Cash acquired with reverse merger
    
    
    
    
    
    
    7,536,180
    
    
    
    Advances from stockholder
    
    
    
    
    
    
    
    
    
    
    702,585NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    17,216,386
    
    
    
    10,945,905
    
    
    
    702,585NET INCREASE IN CASH AND EQUIVALENTS
    
    
    1,084,279
    
    
    
    633,108
    
    
    
    CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,412,268
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    2,496,547
    
    
    $
    633,108
    
    
    $
    Supplementary information:Cash paid during the period for:Interest paid
    
    $
    1,128,832
    
    
    $
    537,211
    
    
    
    Income taxes
    
    
    43,355
    
    
    
    190,014
    
    
    
    Non cash investing activities:Issuance of common stock for the purchases of businesses
    
    $
    3,086,925
    
    
    $
    1,143,000
    
    
    
    Non cash financing activities:Debt issue discount
    
    $
    1,127,727
    
    
    $
    1,507,600
    
    
    
    Exercise of cashless warrants
    
    
    209,350
    
    
    
    554,000
    
    
    
    Payment of note payable with issuance of common stock
    
    
    119,231
    
    
    
    266,685
    
    
    
    
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Arcadia Resources, Inc. and Subsidiaries
 Summary of Accounting Policies (Unaudited)
          8




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Arcadia Resources, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements (Unaudited)
 NOTE 1  BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND DESCRIPTION OF
BUSINESS
   MERGER, RECAPITALIZATION AND CHANGE IN REGISTRANT NAME
    NOTE 2  DESCRIPTION OF BUSINESS
  10




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NOTE 3  EMPLOYEE BENEFIT PLANS
  NOTE 4  ACQUISITIONS AND RELATED INTANGIBLE
  (in thousands)Description of assets and (liabilities) purchased:Current and other assets
    
    $
    1,424Fixed assets
    
    
    1,346Intangibles and goodwill
    
    
    11,996Liabilities
    
    
    (4,337
    )Total assets and liabilities acquired
    
    $
    10,429
        11




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NOTE 5  AFFILIATED AGENCIES PAYABLE
   12




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NOTE 6  LONG-TERM DEBT
  Purchase price payable to the selling stockholders of Trinity Healthcare of
Winston-Salem, Inc. (Trinity) dated September 23, 2004, bearing simple
interest of 8% per year payable in equal quarterly payments of principal and
interest beginning January 15, 2005, due October 15, 2006. The note payable is
unsecured and interest began accruing on January 15, 2005
    
    $
    377,567Unsecured note payable to the selling stockholders of Trinity dated January 15,
2005, bearing simple interest of 8% per year with final payment due and paid on
January 15, 2006
    
    
    104,496Purchase price escrowed to the selling stockholders of Beacon Respiratory
Services, Inc. (Beacon) dated January 1, 2005, payable on January 1, 2006 (See
Notes 4 and 12) secured by 16.33% of the outstanding shares of the Beacon
companies. The obligation was paid in full in February 2006
    
    
    150,000Purchase price payable to United Health Care Services, Inc., final semi-annual
payment due on April 7, 2006 bearing simple interest of 5%
    
    
    50,000Purchase price payable (non-interest bearing) to HealthLink, payable in 12 equal
monthly installments of $6,700 plus a final payment of $80,000 due May 13, 2006
    
    
    107,200Purchase price payable (non-interest bearing) to the selling stockholders of O2
Plus, Inc. dated November 2, 2005 due May 2006
    
    
    100,000Other interest-bearing obligations to be paid over time based on respective terms
    
    
    1,605,249Less  Current portion of long-term debt
    
    
    (1,534,024
    )LONG-TERM DEBT
    
    $
    960,488
 NOTE 7  LINES OF CREDIT
     1 2
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NOTE 8  STOCKHOLDERS EQUITY
        14




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NOTE 9  OPERATING LEASES
  Year ending March 31:2006
    
    $
    810,0002007
    
    
    700,0002008
    
    
    597,0002009
    
    
    94,000Total
    
    $
    2,201,000
 NOTE 10  STOCK-BASED COMPENSATION
    15




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OPTIONS
FISCAL 2005 ACTIVITY & ROLLFORWARD
 RANGE OF
    
    
    RANGE OF3/31/2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12/31/2005
    
    
    PRICE
    
    
    EXPIRATION
    
    
    VESTINGOUTSTANDING
    
    
    GRANTS
    
    
    FORFEITURES
    
    
    EXERCISES
    
    
    OUTSTANDING
    
    
    PER SHARE
    
    
    DATES
    
    
    DATESIssued to officers
    
    
    8,299,040
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    8,299,040
    
    
    $
    0.25 to $1.45
    
    
    
    2009
    
    
    
    2005-2008Issued to other
management
    
    
    700,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    700,000
    
    
    
    \$1.45
    
    
    
    2011
    
    
    
    2005From prior entity
    
    
    537,500
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    537,500
    
    
    $
    0.25 to $1.00
    
    
    
    2011
    
    
    
    N/ATotal
    
    
    9,536,540
    
    
    
    0
    
    
    
    4
    
    
    
    0
    
    
    
    9,536,540
 As of March 31,
    
    2005
    
    2006
    
    2007
    
    2008Cumulative
Vested Options
    
    
    1,386,540
    
    
    
    3,536,540
    
    
    
    5,536,540
    
    
    
    9,536,540
  Weighted Average GrantShares
    
    Date Fair ValueNon-vested at March 31, 2005
    
    
    8,150,000
    
    
    
    0Granted
    
    
    0
    
    
    
    0Vested
    
    
    150,000
    
    
    $
    81,000Forfeited
    
    
    0
    
    
    
    0Non-vested at December 31, 2005
    
    
    8,000,000
    
    
    
    0
  16




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NOTE 11  INCOME TAXES
    NOTE 12  RELATED PARTY TRANSACTIONS
    NOTE 13  SUBSEQUENT EVENTS
   17




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NOTE 14  CONTINGENCIES
      Quarter ended
    
    
    Quarter ended(in thousands)
    
    December 31, 2005
    
    
    December 31, 2004Net Revenues:Services
    
    $
    27,867
    
    
    $
    25,181Products
    
    
    5,432
    
    
    
    2,910Total Revenues
    
    $
    33,299
    
    
    $
    28,091Operating Income (Loss) and Net Loss:Services
    
    $
    1,272
    
    
    $
    1,177Products
    
    
    (1,202
    )
    
    
    (212
    )Unallocated Corporate Overhead
    
    
    (698
    )
    
    
    (764
    )Total Operating Income (Loss)
    
    
    (628
    )
    
    
    201Interest Expense
    
    
    168
    
    
    
    299Amortization of Debt Discount
    
    
    
    
    
    
    525Net Loss before Income Tax Expense
    
    
    (796
    )
    
    
    (623
    )Income Tax Expense
    
    
    17
    
    
    
    95Net Loss
    
    $
    (813
    )
    
    $
    (718
    )
 Three Quarters
    
    
    Three QuartersEnded
    
    
    EndedDecember 31,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Net Revenues:Services
    
    $
    82,467
    
    
    $
    71,913Products
    
    
    14,236
    
    
    
    4,797Total Revenues
    
    $
    96,703
    
    
    $
    76,710Operating Income (Loss) and Net Income (Loss):Services
    
    $
    3,578
    
    
    $
    3,645Products
    
    
    (1,114
    )
    
    
    (1,120
    )
 18




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Three Quarters
    
    
    Three QuartersEnded
    
    
    EndedDecember 31,
    
    
    December 31,(in thousands)
    
    2005
    
    
    2004Unallocated Corporate Overhead
    
    
    (3,759
    )
    
    
    (1,576
    )Total Operating Income (Loss)
    
    
    (1,295
    )
    
    
    949Interest Expense
    
    
    1,198
    
    
    
    696Amortization of Debt Discount
    
    
    933
    
    
    
    683Net Income (Loss) before Income Tax Expense
    
    
    (3,426
    )
    
    
    (430
    )Income Tax Expense
    
    
    117
    
    
    
    102Net Income (Loss)
    
    $
    (3,543
    )
    
    $
    (532
    )
 (in thousands)Assets:
    
    
    12/31/05
    
    
    
    3/31/05Services
    
    $
    47,348
    
    
    $
    43,159Products
    
    
    23,968
    
    
    
    10,467Unallocated Corporate Assets
    
    
    8,153
    
    
    
    1,967Total Assets
    
    $
    79,469
    
    
    $
    55,593
 19




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 General
     Overview
  20




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##### Table of Contents



Results of Operations
 Quarter Ended December 31, 2005 Compared to Quarter Ended December 31, 2004
  Quarter
    
    QuarterEnded
    
    EndedDecember 31, 2005
    
    December 31, 2004(in thousands)Consolidated Statements of OperationsNet Sales
    
    $
    33,299
    
    
    $
    28,091Cost of Sales
    
    
    21,985
    
    
    
    19,413Gross Profit
    
    
    11,314
    
    
    
    8,678General and Administrative Expenses
    
    
    11,291
    
    
    
    8,343Depreciation and Amortization
    
    
    651
    
    
    
    134Operating Income (Loss)
    
    
    (628
    )
    
    
    201Other ExpensesInterest Expense, Net
    
    
    168
    
    
    
    299Amortization of Debt Discount
    
    
    
    
    
    
    525Total Other Expenses
    
    
    168
    
    
    
    824Net Loss Before Income Tax Expense
    
    
    (796
    )
    
    
    (623
    )Income Tax Expense
    
    
    17
    
    
    
    95Net Loss
    
    $
    (813
    )
    
    $
    (718
    )
  Increase from prior
    
    Increase from sameNet sales by quarter:
    
    (in millions)
    
    Quarter
    
    quarter prior yearFirst quarter ended June 30, 2004*
    
    $
    23.1
    
    
    
    11.5
    %
    
    
    26.9
    %Second quarter ended September 30, 2004
    
    
    25.5
    
    
    
    10.4
    %
    
    
    30.5
    %Third quarter ended December 31, 2004
    
    
    28.1
    
    
    
    10.2
    %
    
    
    41.4
    %Fourth quarter ended March 31, 2005
    
    
    28.6
    
    
    
    1.8
    %
    
    
    38.1
    %First quarter ended June 30, 2005
    
    
    30.7
    
    
    
    7.4
    %
    
    
    33.0
    %Second quarter ended September 30, 2005
    
    
    32.7
    
    
    
    6.5
    %
    
    
    28.2
    %Third quarter ended December 31, 2005
    
    
    33.3
    
    
    
    1.8
    %
    
    
    18.5
    %
 
 *
    
    Includes results from the predecessor entity  21




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##### Table of Contents



Quarter Ended
    
    
    Quarter Ended(in thousands)
    
    December 31, 2005
    
    
    December 31, 2004Operating Income (Loss)
    
    $
    (628
    )
    
    $
    201Depreciation and Amortization
    
    
    801
    
    
    
    134EBITDA
    
    $
    173
    
    
    $
    335
   22




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23




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##### Table of Contents



Results of Operations
 Three Quarters Ended December 31, 2005 Compared to Three Quarters Ended December 31, 2004
  Successor
    
    
    Successor
    
    
    PredecessorThree Quarters
    
    
    Period From
    
    
    Period FromEnded
    
    
    May 10, 2004 to
    
    
    April 1, 2004 toDecember 31, 2005
    
    
    December 31, 2004
    
    
    May 9, 2004Consolidated Statements of Operations (in thousands)Net Sales
    
    $
    96,703
    
    
    $
    67,223
    
    
    $
    9,487Cost of Sales
    
    
    64,792
    
    
    
    47,302
    
    
    
    6,906Gross Profit
    
    
    31,911
    
    
    
    19,921
    
    
    
    2,581General and Administrative Expenses
    
    
    31,424
    
    
    
    19,215
    
    
    
    2,102Depreciation and Amortization
    
    
    1,782
    
    
    
    221
    
    
    
    Operating Income (Loss)
    
    
    (1,295
    )
    
    
    485
    
    
    
    479Other Expenses:Impairment of Goodwill
    
    
    
    
    
    
    
    
    
    
    16Interest Expense, Net
    
    
    1,198
    
    
    
    696
    
    
    
    Amortization of Debt Discount
    
    
    933
    
    
    
    682
    
    
    
    Total Other Expenses
    
    
    2,131
    
    
    
    1,378
    
    
    
    16Net Income (Loss) Before Income Tax Expense
    
    
    (3,426
    )
    
    
    (893
    )
    
    
    463Income Tax Expense
    
    
    117
    
    
    
    102
    
    
    
    Net Income (Loss)
    
    $
    (3,543
    )
    
    $
    (995
    )
    
    $
    463
    24




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##### Table of Contents



Three Quarters Ended
    
    
    Three Quarters EndedDecember 31, 2005
    
    
    December 31, 2004Operating Income (Loss)
    
    $
    (1,295
    )
    
    $
    965Depreciation and Amortization
    
    
    2,192
    
    
    
    221EBITDA
    
    $
    897
    
    
    $
    1,186
     25




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##### Table of Contents



Liquidity and Capital Resources
  Successor
    
    Successor
    
    PredecessorThree Quarters
    
    Period from
    
    Period fromSUMMARY CONSOLIDATED
    
    ended
    
    May 10, 2004 to
    
    April 1, 2004 toSTATEMENTS OF CASH FLOWS (in millions)
    
    December 31, 2005
    
December 31, 2004
    

May 9, 2004Net income (loss)
    
    $
    (3.5
    )
    
    $
    (1.0
    )
    
    $
    0.5Net cash (used in) operating activities
    
    $
    (8.2
    )
    
    $
    (6.5
    )
    
    $
    (0.5
    )Net cash (used in) investing activities
    
    $
    (7.9
    )
    
    $
    (3.8
    )
    
    $
    (0.2
    )Net cash provided by financing activities
    
    $
    17.2
    
    
    $
    10.9
    
    
    $
    0.7Net increase in cash and cash equivalents
    
    $
    1.1
    
    
    $
    0.6
    
    
    $
    Cash and cash equivalents at the end of the period
    
    $
    2.5
    
    
    $
    0.6
    
    
    $
    
       26




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##### Table of Contents



Government-funded
    
    
    28
    %Institutions
    
    
    43
    %Commercial Insurance
    
    
    12
    %Private Pay
    
    
    17
    %
        27




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments due by March 31,Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Operating Leases
    
    $
    2,201,121
    
    
    $
    809,915
    
    
    $
    700,177
    
    
    $
    597,146
    
    
    $
    93,883
    
    
    $
    Debt Maturities
    
    
    5,032,776
    
    
    
    781,800
    
    
    
    4,174,131
    
    
    
    47,616
    
    
    
    20,514
    
    
    
    8,715Employment Agreements
    
    
    995,834
    
    
    
    516,667
    
    
    
    414,167
    
    
    
    65,000
    
    
    
    
    
    
    
    Interest Expense
    
    
    444,792
    
    
    
    394,765
    
    
    
    42,342
    
    
    
    4,762
    
    
    
    2,051
    
    
    
    872Total
    
    $
    8,674,523
    
    
    $
    2,503,147
    
    
    $
    5,330,817
    
    
    $
    714,524
    
    
    $
    116,448
    
    
    $
    9,587
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures.
 Changes in Internal Controls .
 28




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##### Table of Contents



Part II: Other Information
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
   
 Item 5. Other Information.
  
 Item 6. Exhibits.
  29




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##### Table of Contents



SIGNATURES
  February 14, 2006
    
    By:
    
    /s/ John E. Elliott, IIJohn E. Elliott, IIChairman and Chief Executive Officer(Principal Executive Officer)February 14, 2006
    
    By:
    
    /s/ Rebecca R. IrishRebecca R. IrishSecretary, Treasurer and Chief Financial Officer(Principal Financial and Accounting Officer)
 30




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit Description4.1
    
    
    Private Stock Purchase Agreement SICAV One dated November 28, 2005.*4.2
    
    
    Private Stock Purchase Agreement SICAV Two dated November 28, 2005.*10.1
    
    
    Haifley Employment Agreement dated December 7, 2005.**10.2
    
    
    Haifley Non-Qualified Stock Option Agreement dated December 7, 2005.**10.3
    
    
    Haifley Restricted Stock Grant Agreement dated December 7, 2005. **31.1
    
    
    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 §206 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 §206 of the Sarbanes  Oxley Act of 2002.
 
 *
    
    Previously reported with the Securities and Exchange Commission in the Current Report on
Form 8-K filed on December 1, 2005 (File No. 000-31249).**
    
    Previously reported with the Securities and Exchange Commission in the Current Report on
Form 8-K filed on December 13, 2005 (File No. 000-31249).