##### 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, 2007
 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(I.R.S. Employer Identification(State or other jurisdiction of Incorporation)
    
    Number)9229 DELEGATES ROW, SUITE 260INDIANAPOLIS, INDIANA
    
    46240(Address of principal executive offices)
    
    (Zip Code)
  þ o
  Large accelerated filer   o
    
    Accelerated filer   þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting companyo
 o þ




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##### 



Table of Contents
 PageNo.Part I: Financial InformationItem 1. Unaudited Consolidated Financial Statements
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    38Item 4. Controls and Procedures
    
    39Part II: Other InformationItem 1. Legal Proceedings
    
    40Item 1A. Risk Factors
    
    40Item 6. Exhibits
    
    49Signatures
    
    50Exhibit
Index
    
    51Employment Agreement, dated February 1, 2008Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)Certification of the Principal Accounting and Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350Principal Accounting and Financial Officer Certification Pursuant to 18 U.S.C. Section 1350
  i




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##### Table of Contents



(IN THOUSANDS, EXPCEPT PER SHARE AMOUNTS)
 December 31,
    
    
    March 31,2007
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,541
    
    
    $
    2,994Accounts receivable, net of allowance of $7,506 and $8,310 respectively
    
    
    26,139
    
    
    
    33,427Inventories, net
    
    
    1,420
    
    
    
    2,733Prepaid expenses and other current assets
    
    
    5,231
    
    
    
    2,768Total current assets
    
    
    34,331
    
    
    
    41,922Property and equipment, net
    
    
    6,682
    
    
    
    12,607Goodwill
    
    
    34,314
    
    
    
    33,336Acquired intangible assets, net
    
    
    24,842
    
    
    
    28,983Other assets
    
    
    102
    
    
    
    380Total assets
    
    $
    100,271
    
    
    $
    117,228LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit, current portion
    
    $
    
    
    
    $
    2,613Accounts payable
    
    
    4,703
    
    
    
    6,861Accrued expenses:Compensation and related taxes
    
    
    4,216
    
    
    
    4,463Commissions
    
    
    413
    
    
    
    359Accrued interest
    
    
    914
    
    
    
    819Other
    
    
    728
    
    
    
    1,049Payable to affiliated agencies, current portion
    
    
    1,751
    
    
    
    1,549Long-term obligations, current portion
    
    
    992
    
    
    
    21,320Capital lease obligations, current portion
    
    
    60
    
    
    
    1,020Deferred revenue
    
    
    151
    
    
    
    659Total current liabilities
    
    
    13,928
    
    
    
    40,712Other liabilities
    
    
    457
    
    
    
    457Lines of credit, less current portion
    
    
    17,455
    
    
    
    20,343Payable to affiliated agencies, less current portion
    
    
    
    
    
    
    38Long-term obligations, less current portion
    
    
    15,914
    
    
    
    897Capital lease obligations, less current portion
    
    
    147
    
    
    
    697Total liabilities
    
    
    47,901
    
    
    
    63,144Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 200,000,000 shares authorized; 126,771,365
shares and 121,059,177 shares issued and outstanding, respectively
    
    
    127
    
    
    
    121Additional paid-in capital
    
    
    128,928
    
    
    
    110,343Accumulated deficit
    
    
    (76,685
    )
    
    
    (56,380
    )Total stockholders equity
    
    
    52,370
    
    
    
    54,084Total liabilities and stockholders equity
    
    $
    100,271
    
    
    $
    117,228
 See accompanying notes to these condensed consolidated financial statements.
 2




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##### Table of Contents



(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 Three Month Period Ended December 31,
    
    
    Nine Month Period EndedDecember 31,(Unaudited)
    
    

(Unaudited)2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues, net
    
    $
    37,542
    
    
    $
    36,417
    
    
    $
    113,535
    
    
    $
    108,977Cost of revenues
    
    
    25,163
    
    
    
    24,417
    
    
    
    77,063
    
    
    
    73,264Gross profit
    
    
    12,379
    
    
    
    12,000
    
    
    
    36,472
    
    
    
    35,713Selling, general and administrative
    
    
    12,680
    
    
    
    12,487
    
    
    
    40,759
    
    
    
    35,370Depreciation and amortization
    
    
    884
    
    
    
    636
    
    
    
    2,668
    
    
    
    1,691Total operating expenses
    
    
    13,564
    
    
    
    13,123
    
    
    
    43,427
    
    
    
    37,061Operating loss
    
    
    (1,185
    )
    
    
    (1,123
    )
    
    
    (6,955
    )
    
    
    (1,348
    )Other income (expenses):Interest expense, net
    
    
    924
    
    
    
    1,100
    
    
    
    3,032
    
    
    
    2,418Other
    
    
    135
    
    
    
    
    
    
    
    149
    
    
    
    (2
    )Total other expenses
    
    
    1,059
    
    
    
    1,100
    
    
    
    3,181
    
    
    
    2,416Loss from
continuing operations before income taxes
    
    
    (2,244
    )
    
    
    (2,223
    )
    
    
    (10,136
    )
    
    
    (3,764
    )Current income tax expense
    
    
    33
    
    
    
    53
    
    
    
    56
    
    
    
    137Loss from continuing operations
    
    
    (2,277
    )
    
    
    (2,276
    )
    
    
    (10,192
    )
    
    
    (3,901
    )Discontinued operations:Loss from discontinued operations
    
    
    (1,182
    )
    
    
    (1,437
    )
    
    
    (7,709
    )
    
    
    (704
    )Net loss on disposal
    
    
    (244
    )
    
    
    
    
    
    
    (2,404
    )
    
    
    (1,426
    )
    
    
    (1,437
    )
    
    
    (10,113
    )
    
    
    (704
    )NET LOSS
    
    $
    (3,703
    )
    
    $
    (3,713
    )
    
    $
    (20,305
    )
    
    $
    (4,605
    )Weighted average number of common shares outstanding
    
    
    124,961,000
    
    
    
    88,681,000
    
    
    
    121,160,000
    
    
    
    87,769,000Basic and diluted net loss per share:Loss from continuing operations
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.09
    )
    
    $
    (0.04
    )Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.08
    )
    
    
    (0.01
    )$
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.17
    )
    
    $
    (0.05
    )
 See accompanying notes to these condensed consolidated financial statements.
 3




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##### Table of Contents



(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance, March 31, 2007
    
    
    121,059,177
    
    
    $
    121
    
    
    $
    110,343
    
    
    $
    (56,380
    )
    
    $
    54,084Sale of common stock, net of $670,000 in fees
    
    
    11,018,905
    
    
    
    11
    
    
    
    12,431
    
    
    
    
    
    
    
    12,442Stock issued for current year acquisition
    
    
    1,814,883
    
    
    
    2
    
    
    
    1,798
    
    
    
    
    
    
    
    1,800Fees for services related to disposal of business
    
    
    
    
    
    
    
    
    
    
    876
    
    
    
    
    
    
    
    876Return of stock as consideration
    
    
    (200,000
    )
    
    
    
    
    
    
    (252
    )
    
    
    
    
    
    
    (252
    )Payment of debt with common stock
    
    
    1,129,555
    
    
    
    1
    
    
    
    1,232
    
    
    
    
    
    
    
    1,233Stock-based compensation expense
    
    
    991,040
    
    
    
    1
    
    
    
    2,491
    
    
    
    
    
    
    
    2,492Escrowed shares cancelled
    
    
    (9,600,000
    )
    
    
    (10
    )
    
    
    10
    
    
    
    
    
    
    
    Cashless exercise of stock options
    
    
    557,805
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,305
    )
    
    
    (20,305
    )Balance, December 31, 2007
    
    
    126,771,365
    
    
    $
    127
    
    
    $
    128,928
    
    
    $
    (76,685
    )
    
    $
    52,370
 See accompanying notes to these condensed consolidated financial statements.
 4




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##### Table of Contents



(IN THOUSANDS)
 Nine-Month Period EndedDecember 31,(Unaudited)2007
    
    
    2006Operating activitiesNet loss for the period
    
    $
    (20,305
    )
    
    $
    (4,605
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for doubtful accounts
    
    
    2,181
    
    
    
    1,540Depreciation of property and equipment
    
    
    3,689
    
    
    
    2,633Impairment of long-lived assets
    
    
    1,900
    
    
    
    (Gain) loss on early retirement of debt and amortization of debt discount
    
    
    (121
    )
    
    
    118Loss on business disposals
    
    
    2,553
    
    
    
    Amortization of intangible assets
    
    
    2,017
    
    
    
    1,228Reduction in expense due to return of common stock previously issued
    
    
    (252
    )
    
    
    Stock-based compensation expense
    
    
    2,492
    
    
    
    735Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    5,899
    
    
    
    (10,341
    )Inventories
    
    
    (508
    )
    
    
    (1,885
    )Other assets
    
    
    (2,554
    )
    
    
    (2,122
    )Accounts payable
    
    
    (2,201
    )
    
    
    2,158Accrued expenses
    
    
    (1,488
    )
    
    
    210Due to affiliated agencies
    
    
    165
    
    
    
    (314
    )Deferred revenue
    
    
    (610
    )
    
    
    Net cash used in operating activities
    
    
    (7,143
    )
    
    
    (10,645
    )Investing activitiesBusiness acquisitions, net of cash acquired
    
    
    (384
    )
    
    
    (9,695
    )Proceeds from business disposals
    
    
    5,781
    
    
    
    Purchases of property and equipment
    
    
    (1,256
    )
    
    
    (2,879
    )Net cash provided by (used in) investing activities
    
    
    4,141
    
    
    
    (12,574
    )Financing activitiesProceeds from issuance of note payable
    
    
    
    
    
    
    21,000Proceeds from issuance of common stock, net of fees
    
    
    12,442
    
    
    
    10,000Proceeds from exercise of stock options/warrants
    
    
    
    
    
    
    343Net advances (payments) on line of credit
    
    
    (5,500
    )
    
    
    4,240Payments on acquisition debt
    
    
    
    
    
    
    (837
    )Proceeds from sale of common stock of subsidiary
    
    
    
    
    
    
    14Payments on capital lease obligations
    
    
    (632
    )
    
    
    0Payments on notes payable and capital lease obligations
    
    
    (4,761
    )
    
    
    (1,032
    )Net cash provided by financing activities
    
    
    1,549
    
    
    
    33,728Net change in cash and cash equivalents
    
    
    (1,453
    )
    
    
    10,509Cash and cash equivalents, beginning of period
    
    
    2,994
    
    
    
    530Cash and cash equivalents, end of period
    
    $
    1,541
    
    
    $
    11,039Supplementary information:Cash paid during the period for:Interest
    
    $
    2,937
    
    
    $
    1,029Non-cash investing / financing activities:Payments on note payable with issuance of common stock
    
    
    1,281
    
    
    
    151Common stock issued in conjunction with purchase of businesses
    
    
    1,800
    
    
    
    2,704Issuance of note payable and purchase price payable on acquisition
    
    
    
    
    
    
    3,400Issuance of common stock as finders fee
    
    
    
    
    
    
    150Fee for service related to disposal of business paid in common stock
    
    
    876
    
    
    
    Contingent consideration relating to prior year acquisition settled with
issuance of notes payable
    
    
    715
    
    
    
    Assumption of line of credit in purchase of business
    
    
    
    
    
    
    40
 See accompanying notes to these condensed consolidated financial statements.
 5




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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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##### Table of Contents



Cash and Cash Equivalents
  Allowance for Doubtful Accounts
  Inventories
  Property and Equipment
  Goodwill and Acquired Intangible Assets
   Trade name
    
    30 yearsCustomers and referral source relationships (depending on
the type of business purchased)
    
    5 and 20 yearsAcquired technology
    
    3 to 5 yearsNon-competition agreements (length of agreement)
    
    5 years
 Impairment of Long-Lived Assets
  Payables to Affiliated Agencies
  7




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##### Table of Contents



Income Taxes
  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
  Fair Value of Financial Instruments
  Advertising Expense
  Reclassifications
  Recent Accounting Pronouncements
    Note 2  Managements Plan
  9




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##### Table of Contents



Note 3  Discontinued Operations
 Durable Medical Equipment Operations
 Florida Durable Medical Equipment Operations (Beacon Respiratory Services, Inc.)
   10




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##### Table of Contents



Colorado Durable Medical Equipment Operations (Beacon Respiratory Services of Colorado, Inc.)
  Retail Operations
 Sears
 Wal-Mart
 Care Clinic, Inc.
    Pharmacy Operations
   11




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##### Table of Contents



Three Month Period Ended
    
    Nine Month Period EndedDecember 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Revenues, net:Retail operations
    
    $
    29
    
    
    $
    274
    
    
    $
    377
    
    
    $
    568Care Clinic, Inc.
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    Pharmacy  Florida
    
    
    100
    
    
    
    1,759
    
    
    
    1,658
    
    
    
    3,481Durable Medical Equipment
    
    
    56
    
    
    
    2,579
    
    
    
    4,223
    
    
    
    6,972185
    
    
    
    4,612
    
    
    
    6,460
    
    
    
    11,021Earnings (loss) from operations:Retail operations
    
    
    (146
    )
    
    
    (359
    )
    
    
    (585
    )
    
    
    (994
    )Care Clinic, Inc.
    
    
    5
    
    
    
    (1,294
    )
    
    
    (5,639
    )
    
    
    (1,464
    )Pharmacy  Florida
    
    
    (1,002
    )
    
    
    (109
    )
    
    
    (1,223
    )
    
    
    (147
    )Durable Medical Equipment
    
    
    (39
    )
    
    
    325
    
    
    
    (262
    )
    
    
    1,901(1,182
    )
    
    
    (1,437
    )
    
    
    (7,709
    )
    
    
    (704
    )Loss on disposal:Retail operations
    
    
    (163
    )
    
    
    
    
    
    
    (176
    )
    
    
    Care Clinic, Inc.
    
    
    
    
    
    
    
    
    
    
    (770
    )
    
    
    Pharmacy  Florida
    
    
    (64
    )
    
    
    
    
    
    
    (65
    )
    
    
    Durable Medical Equipment
    
    
    (17
    )
    
    
    
    
    
    
    (1,393
    )
    
    
    (244
    )
    
    
    
    
    
    
    (2,404
    )
    
    
    Earnings (loss) from discontinued operations:Retail operations
    
    
    (309
    )
    
    
    (359
    )
    
    
    (761
    )
    
    
    (994
    )Care Clinic, Inc.
    
    
    5
    
    
    
    (1,294
    )
    
    
    (6,409
    )
    
    
    (1,464
    )Pharmacy  Florida
    
    
    (1,066
    )
    
    
    (109
    )
    
    
    (1,288
    )
    
    
    (147
    )Durable Medical Equipment
    
    
    (56
    )
    
    
    325
    
    
    
    (1,655
    )
    
    
    1,901$
    (1,426
    )
    
    $
    (1,437
    )
    
    $
    (10,113
    )
    
    $
    (704
    )
 Note 4  Business Acquisition
  12




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Share consideration
    
    $
    1,800Cash consideration
    
    
    384Acquisition costs
    
    
    41Total purchase price
    
    $
    2,225Current assets
    
    $
    501Fixed assets
    
    
    228Liabilities
    
    
    (237
    )Intangible assets:Customer relationships
    
    
    720Acquired technology
    
    
    90Goodwill
    
    
    923Total net
identifiable assets
    
    $
    2,225
 Note 5  Goodwill and Acquired Intangible Assets
  DurableMedicalServices
    
    Equipment
    
    Pharmacy
    
    TotalGoodwill at March 31, 2007
    
    $
    13,922
    
    
    $
    2,772
    
    
    $
    16,642
    
    
    $
    33,336Acquisitions during the period
    
    
    
    
    
    
    
    
    
    
    923
    
    
    
    923Disposals during the period
    
    
    
    
    
    
    (703
    )
    
    
    
    
    
    
    (703
    )Contingent consideration
    
    
    
    
    
    
    
    
    
    
    715
    
    
    
    715Purchase price allocation adjustments
    
    
    126
    
    
    
    (54
    )
    
    
    (29
    )
    
    
    43Goodwill at December 31, 2007
    
    $
    14,048
    
    
    $
    2,015
    
    
    $
    18,251
    
    
    $
    34,314
    December 31, 2007
    
    March 31, 2007Accumulated
    
    
    
    
    
    AccumulatedCost
    
    Amortization
    
    Cost
    
    AmortizationTrade name
    
    $
    8,000
    
    
    $
    583
    
    
    $
    8,000
    
    
    $
    446Customer relationships
    
    
    23,151
    
    
    
    6,121
    
    
    
    27,941
    
    
    
    7,099Non-competition agreements
    
    
    674
    
    
    
    347
    
    
    
    874
    
    
    
    308Acquired technology
    
    
    850
    
    
    
    782
    
    
    
    760
    
    
    
    73932,675
    
    
    
    7,833
    
    
    
    37,575
    
    
    
    8,592Less accumulated amortization
    
    
    (7,833
    )
    
    
    
    
    
    
    (8,592
    )Net acquired intangible assets
    
    $
    24,842
    
    
    
    
    
    
    $
    28,983
 13




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##### Table of Contents



Remainder of fiscal 2008
    
    $
    426Fiscal 2009
    
    
    1,777Fiscal 2010
    
    
    1,853Fiscal 2011
    
    
    1,623Fiscal 2012
    
    
    1,433Thereafter
    
    
    17,730Total
    
    $
    24,842
 Note 6  Impairment of Long-Lived Assets
  Note 7  Lines of Credit
  At December 31, 2007MaximumAvailable
    
    
    
    
    
    March 31,Lending Institution
    
    Maturity date
    
    Borrowing
    
    Balance
    
    2007
    
    Interest rate(1)Comerica Bank
    
    October 1, 2009
    
    $
    15,532
    
    
    $
    15,005
    
    
    $
    17,893
    
    
    Prime(2)Amerisource Bergen
Drug Corporation
    
    September 30, 2010
    
    
    2,450
    
    
    
    2,450
    
    
    
    2,450
    
    
    Prime + 2.0%(1)Presidential
Healthcare Credit
Corporation
    
    September 26, 2010
    
    
    849
    
    
    
    
    
    
    
    
    
    
    Prime + 1.75%(1)Comerica Bank
    
    Closed October 2007
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    Prime + 0.5%(2)Fifth Third Bank
    
    Closed October 2007
    
    
    
    
    
    
    
    
    
    
    613
    
    
    Prime + 2.5%$
    18,831
    
    
    $
    17,455
    
    
    $
    22,956
 
 (1) Revolving credit facility  (2) Line of credit
 Comerica Bank
  14




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Amerisource Bergen Drug Corporation
  Presidential Healthcare Credit Corporation
    15




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##### Table of Contents



Note 8  Long-Term Obligations
  December 31,
    
    March 31,2007
    
    2007Note payable to Jana Master Fund, Ltd.
originally dated November 30, 2006 and amended
on June 25, 2007 and January 25, 2008 with
unpaid accrued interest and the principal due
in full on October 1, 2009. 50% of the
accrued unpaid interest is payable on the last
day of each calendar year quarter. On July 1,
2007, the interest rate changed to the
one-year LIBOR rate plus 8%. On April 1,
2008, the interest rate changes to a fixed
rate of 10%. At December 31, 2007, the
effective interest rate was 12.22%. The note
payable includes various loan covenants, all
of which the Company was in compliance as of
December 31, 2007.
    
    $
    15,646
    
    
    $
    17,000Notes payable to two executives dated
September 10, 2007 bearing interest at 4% per
year payable in monthly payments of principal
and interest with the final payments due on
April 10, 2008.
    
    
    366
    
    
    
    Note payable to Jana Master Fund, Ltd. dated
March 20, 2007 bearing interest at the one-
year LIBOR rate plus 7.5%. The note payable
was paid in full in April 2007.
    
    
    
    
    
    
    2,564Purchase price payable to the selling
shareholder of Alliance Oxygen & Medical
Equipment, Inc., dated July 12, 2006, bearing
simple interest of 8% per year payable in
equal quarterly payments of principal and
interest. The final payment was made in July
2007.
    
    
    
    
    
    
    1,020Purchase price payable to Remedy Therapeutics,
Inc. dated January 27, 2006, bearing simple
interest of 8% per year payable in equal
quarterly payments of principal and interest
with the final payment due on January 27,
2009.
    
    
    328
    
    
    
    617Other
purchase price payables to be paid over time to the selling shareholders or selling
entities of various acquired entities, due
dates ranging from September 2007 to March
2008.
    
    
    20
    
    
    
    188Other 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 October 2007 to
November 2011.
    
    
    546
    
    
    
    828Total long-term obligations
    
    
    16,906
    
    
    
    22,217Less current portion of long-term obligations
    
    
    (992
    )
    
    
    (21,320
    )Long-term obligations, less current portion
    
    $
    15,914
    
    
    $
    897
  Remainder of fiscal 2008:
    
    $
    613Fiscal 2009:
    
    
    494Fiscal 2010:
    
    
    15,732Fiscal 2011:
    
    
    41Fiscal 2012:
    
    
    26Total
    
    $
    16,906
  Note 9  Stockholders Equity
 General
   16




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Escrow Shares
  Common Stock Transactions
       17




---



##### Table of Contents



Stock Price Guarantees
  Warrants
  December 31,
    
    March 31,Description
    
    Exercise Price
    
    Granted
    
    Expiration
    
    2007
    
    2007Class 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
    
    $
    2.25
    
    
    September 2005
    
    September 2009
    
    
    4,711,110
    
    
    
    4,711,110May 2007 Private
Placement
    
    $
    1.75
    
    
    May 2007
    
    May 2014
    
    
    2,754,726
    
    
    
    Total Warrants
Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,205,149
    
    
    
    19,450,423
    Note 10  Contingencies
   Note 11  Stock-Based Compensation
   Stock Options
  18




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##### Table of Contents



Three Month Period Ended
    
    Nine Month Period EndedDecember 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Weighted-average expected volatility
    
    
    69
    %
    
    
    N/A
    
    
    
    68
    %
    
    
    20
    %Expected dividend yields
    
    
    0
    %
    
    
    N/A
    
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    7
    
    
    
    N/A
    
    
    
    7
    
    
    
    7Risk-free interest rate
    
    
    4.26
    %
    
    
    N/A
    
    
    
    4.28
    %
    
    
    5.11
    %
  Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicExercise
    
    Contractual
    
    ValueOptions
    
    Shares
    
    Price
    
    Term (Years)
    
    (thousands)Outstanding at March 31, 2007
    
    
    7,431,653
    
    
    $
    0.42Granted
    
    
    441,336
    
    
    
    1.01Exercised
    
    
    (750,000
    )
    
    
    0.25Forfeited or expired
    
    
    (1,000,000
    )
    
    
    0.25Outstanding at period end
    
    
    6,122,989
    
    
    $
    0.51
    
    
    
    1.7
    
    
    $
    3,715Exercisable at period end
    
    
    5,809,443
    
    
    $
    0.48
    
    
    
    1.4
    
    
    $
    3,672
     19




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##### Table of Contents



Restricted Stock  Arcadia Resources, Inc.
   Weighted-AverageGrant DateFair ValueShares
    
    per ShareUnvested at March 31, 2007
    
    
    2,732,542
    
    
    $
    2.75Granted
    
    
    844,795
    
    
    
    1.02Vested
    
    
    (957,298
    )
    
    
    2.50Forfeited
    
    
    (1,243,999
    )
    
    
    2.89Unvested at December, 2007
    
    
    1,376,040
    
    
    $
    1.74
    Note 12  Income Taxes
    20




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Note 13  Related Party Transactions
      21




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##### Table of Contents



22




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Note 14  Segment Information
      23




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##### Table of Contents



Three Month Period Ended
    
    Nine Month Period EndedDecember 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Revenue, net:Services
    
    $
    30,190
    
    
    $
    30,048
    
    
    $
    92,568
    
    
    $
    90,681Durable Medical Equipment
    
    
    5,584
    
    
    
    5,738
    
    
    
    16,010
    
    
    
    16,347Pharmacy
    
    
    1,768
    
    
    
    631
    
    
    
    4,957
    
    
    
    1,949Total revenue
    
    
    37,542
    
    
    
    36,417
    
    
    
    113,535
    
    
    
    108,977Operating loss:Services
    
    $
    1,186
    
    
    $
    1,195
    
    
    $
    3,098
    
    
    $
    3,588Durable Medical Equipment
    
    
    (388
    )
    
    
    (691
    )
    
    
    (2,077
    )
    
    
    (934
    )Pharmacy
    
    
    (391
    )
    
    
    (85
    )
    
    
    (1,018
    )
    
    
    (5
    )Unallocated corporate overhead
    
    
    (1,592
    )
    
    
    (1,542
    )
    
    
    (6,958
    )
    
    
    (3,997
    )Total operating loss
    
    
    (1,185
    )
    
    
    (1,123
    )
    
    
    (6,955
    )
    
    
    (1,348
    )Other income (expenses):Interest expense, net
    
    
    924
    
    
    
    1,100
    
    
    
    3,032
    
    
    
    2,418Other
    
    
    135
    
    
    
    
    
    
    
    149
    
    
    
    (2
    )Net loss before income tax expense
    
    
    (2,244
    )
    
    
    (2,223
    )
    
    
    (10,136
    )
    
    
    (3,764
    )Income tax expense
    
    
    33
    
    
    
    53
    
    
    
    56
    
    
    
    137Net loss from continuing operations
    
    $
    (2,277
    )
    
    $
    (2,276
    )
    
    $
    (10,192
    )
    
    $
    (3,901
    )Depreciation and amortization
(continuing operations):Services
    
    $
    312
    
    
    $
    300
    
    
    $
    952
    
    
    $
    883Durable
Medical Equipment  cost of revenue
    
    
    532
    
    
    
    594
    
    
    
    1,878
    
    
    
    1,446Durable
Medical Equipment  operating expense
    
    
    341
    
    
    
    249
    
    
    
    1,030
    
    
    
    633Pharmacy
    
    
    84
    
    
    
    14
    
    
    
    224
    
    
    
    35Corporate
    
    
    147
    
    
    
    73
    
    
    
    462
    
    
    
    140Total depreciation and amortization
    
    $
    1,416
    
    
    $
    1,230
    
    
    $
    4,546
    
    
    $
    3,137
 December 31, 2007
    
    March 31, 2007Assets:Services
    
    $
    49,677
    
    
    $
    51,068Durable Medical Equipment
    
    
    17,853
    
    
    
    30,377Pharmacy
    
    
    32,575
    
    
    
    33,218Unallocated corporate assets
    
    
    166
    
    
    
    2,565Total assets
    
    $
    100,271
    
    
    $
    117,228
 24




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Cautionary Statement Concerning Forward-Looking Statements
    Overview
  25




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Critical Accounting Policies
   Revenue Recognition
  
    
    Evidence of an arrangement exists;
    
    Services have been provided or goods have been delivered;
    
    The price is fix or determinable; and
    
    Collection is reasonably assured.
   Allowance for Doubtful Accounts
  Goodwill and Intangible Assets
   26




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.
   Income Taxes
    27




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##### Table of Contents



Three-Month Period Ended December 31, 2007 Compared to Three-Month Period Ended December 31, 2006
 Results of Operations  Continuing Operations, (in thousands, except share amounts)
 Three-Month PeriodEnded December 31,2007
    
    2006Revenues, net
    
    $
    37,542
    
    
    $
    36,417Cost of revenues
    
    
    25,163
    
    
    
    24,417Gross profit
    
    
    12,379
    
    
    
    12,000Selling, general and administrative expenses
    
    
    12,680
    
    
    
    12,487Depreciation and amortization
    
    
    884
    
    
    
    636Total operating expenses
    
    
    13,564
    
    
    
    13,123Operating loss
    
    
    (1,185
    )
    
    
    (1,123
    )Other expenses
    
    
    1,059
    
    
    
    1,100Net loss before income tax expense
    
    
    (2,244
    )
    
    
    (2,223
    )Income tax expense
    
    
    33
    
    
    
    53Net loss from continuing operations
    
    $
    (2,277
    )
    
    $
    (2,276
    )Weighted average number of shares  basic and diluted
    
    
    124,961,000
    
    
    
    88,681,000Net loss from continuing operations per share 
basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.03
    )
 Revenues, Cost of Revenues and Gross Profits
  2007
    
    
    % of Total
    
    
    2006
    
    
    % of TotalRevenue
    
    
    
    
    
    
    RevenueRevenues, net:Services
    
    $
    30,190
    
    
    
    80.4
    %
    
    $
    30,048
    
    
    
    82.5
    %Durable Medical Equipment
    
    
    5,584
    
    
    
    14.9
    %
    
    
    5,738
    
    
    
    15.8
    %Pharmacy
    
    
    1,768
    
    
    
    4.7
    %
    
    
    631
    
    
    
    1.7
    %37,542
    
    
    
    100.0
    %
    
    
    36,417
    
    
    
    100.0
    %Cost of revenues:Services
    
    $
    22,146
    
    
    
    
    
    
    $
    22,025Durable Medical Equipment
    
    
    1,927
    
    
    
    
    
    
    
    1,832Pharmacy
    
    
    1,090
    
    
    
    
    
    
    
    56025,163
    
    
    
    
    
    
    
    24,417
 Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    8,044
    
    
    
    26.6
    %
    
    
    8,023
    
    
    
    26.7
    %Durable Medical Equipment
    
    
    3,657
    
    
    
    65.5
    %
    
    
    3,906
    
    
    
    68.1
    %Pharmacy
    
    
    678
    
    
    
    38.3
    %
    
    
    71
    
    
    
    11.3
    %$
    12,379
    
    
    
    33.0
    %
    
    $
    12,000
    
    
    
    33.0
    %
 28




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29




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Selling, General and Administrative
  2007
    
    % of Total
    
    2006
    
    % of TotalSG&A
    
    
    
    
    
    SG&AServices
    
    $
    6,547
    
    
    
    51.6
    %
    
    $
    6,529
    
    
    
    52.3
    %Durable Medical Equipment:
    
    
    3,703
    
    
    
    29.2
    %
    
    
    4,348
    
    
    
    34.8
    %Pharmacy
    
    
    986
    
    
    
    7.8
    %
    
    
    142
    
    
    
    1.1
    %Corporate
    
    
    1,444
    
    
    
    11.4
    %
    
    
    1,468
    
    
    
    11.8
    %$
    12,680
    
    
    
    100.0
    %
    
    $
    12,487
    
    
    
    100.0
    %
  Depreciation and Amortization
  2007
    
    2006Depreciation  cost of revenues
    
    $
    532
    
    
    $
    594Depreciation and amortization of property and equipment
    
    $
    352
    
    
    $
    214Amortization of acquired intangible assets
    
    
    532
    
    
    
    422Depreciation and amortization  operating expense
    
    $
    884
    
    
    $
    636
    30




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##### Table of Contents



Interest Expense and Income
  2007
    
    2006Interest expense
    
    $
    928
    
    
    $
    1,102Interest income
    
    
    (4
    )
    
    
    (2
    )$
    924
    
    
    $
    1,100
  Income Taxes
  Loss from Discontinued Operations
  31




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Nine-Month Period Ended December 31, 2007 Compared to Nine-Month Period Ended December 31, 2006
 Results of Operations  Continuing Operations, (in thousands, except share amounts
 Three-Month PeriodEnded December 31,2007
    
    2006Revenues, net
    
    $
    113,535
    
    
    $
    108,977Cost of revenues
    
    
    77,063
    
    
    
    73,264Gross profit
    
    
    36,472
    
    
    
    35,713Selling, general and administrative expenses
    
    
    40,759
    
    
    
    35,370Depreciation and amortization
    
    
    2,668
    
    
    
    1,691Total operating expenses
    
    
    43,427
    
    
    
    37,061Operating loss
    
    
    (6,955
    )
    
    
    (1,348
    )Other expenses
    
    
    3,181
    
    
    
    2,416Net loss before income tax expense
    
    
    (10,136
    )
    
    
    (3,764
    )Income tax expense
    
    
    56
    
    
    
    137Net loss from continuing operations
    
    $
    (10,192
    )
    
    $
    (3,901
    )Weighted average number of shares  basic and diluted
    
    
    121,160,000
    
    
    
    87,769,000Net loss from continuing operations per share 
basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.04
    )
 Revenues, Cost of Revenues and Gross Profits
  2007
    
    
    % of Total
    
    
    2006
    
    
    % of TotalRevenue
    
    
    
    
    
    
    RevenueRevenues, net:Services
    
    $
    92,568
    
    
    
    81.5
    %
    
    $
    90,681
    
    
    
    83.2
    %Durable Medical Equipment
    
    
    16,010
    
    
    
    14.1
    %
    
    
    16,347
    
    
    
    15.0
    %Pharmacy
    
    
    4,957
    
    
    
    4.4
    %
    
    
    1,949
    
    
    
    1.8
    %113,535
    
    
    
    100.0
    %
    
    
    108,977
    
    
    
    100.0
    %Cost of revenues:Services
    
    $
    68,003
    
    
    
    
    
    
    $
    66,479Durable Medical Equipment
    
    
    5,630
    
    
    
    
    
    
    
    5,263Pharmacy
    
    
    3,430
    
    
    
    
    
    
    
    1,52277,063
    
    
    
    
    
    
    
    73,264
 Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    24,565
    
    
    
    26.5
    %
    
    
    24,202
    
    
    
    26.7
    %Durable Medical Equipment
    
    
    10,380
    
    
    
    64.8
    %
    
    
    11,084
    
    
    
    67.8
    %Pharmacy
    
    
    1,527
    
    
    
    30.8
    %
    
    
    427
    
    
    
    21.9
    %$
    36,472
    
    
    
    32.1
    %
    
    $
    35,713
    
    
    
    32.8
    %
 32




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33




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##### Table of Contents



Selling, General and Administrative
  2007
    
    % of Total
    
    2006
    
    % of TotalSG&A
    
    
    
    
    
    SG&AServices
    
    $
    20,515
    
    
    
    50.3
    %
    
    $
    19,731
    
    
    
    55.8
    %Durable Medical Equipment:
    
    
    11,428
    
    
    
    28.0
    %
    
    
    11,385
    
    
    
    32.2
    %Pharmacy
    
    
    2,317
    
    
    
    5.7
    %
    
    
    396
    
    
    
    1.1
    %Corporate
    
    
    6,499
    
    
    
    15.9
    %
    
    
    3,858
    
    
    
    10.9
    %$
    40,759
    
    
    
    100.0
    %
    
    $
    35,370
    
    
    
    100.0
    %
  
    
    The Pharmacy segment expenses increased by $1.9 million subsequent to the acquisitions
of PrairieStone in February 2007 and JASCORP in July 2007, which contributed $1.6 million
in selling, general and administrative expenses during the nine-month period ended
December 31, 2007 compared to no expenses in the same period of the prior year.
    
    Corporate expenses increased by $2.6 million during the nine-month period ended
December 31, 2007 compared to the nine-month period ended December 31, 2006. Payroll
increased $1.1 million compared to the same period in the previous year, primarily due to
equity compensation as previously discussed in Note 11 of notes to the condensed
consolidated financial statements. Most notably, the Company recognized an expense of
$707,000 upon the vesting of 2,000,000 stock options held by the former CEO in July 2007.
Additionally, professional fees increased by $1.5 million during the nine-month period
ended December 31, 2007, primarily associated with the costs of complying with the
Sarbanes-Oxley requirements.
 Depreciation and Amortization
  2007
    
    2006Depreciation  cost of revenues
    
    $
    1,878
    
    
    $
    1,446Depreciation and amortization of property and equipment
    
    $
    948
    
    
    $
    525Amortization of acquired intangible assets
    
    
    1,720
    
    
    
    1,166Depreciation and amortization  operating expense
    
    $
    2,668
    
    
    $
    1,691
   34




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Interest Expense and Income
  2007
    
    2006Interest expense
    
    $
    3,109
    
    
    $
    2,448Interest income
    
    
    (77
    )
    
    
    (30
    )$
    3,032
    
    
    $
    2,418
  Income Taxes
  Loss from Discontinued Operations
  Liquidity and Capital Resources
  35




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36




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##### Table of Contents



2007
    
    2006Net cash used in operating activities
    
    $
    (7,143
    )
    
    $
    (10,645
    )Net cash provided by (used in) investing activities
    
    
    4,141
    
    
    
    (12,574
    )Net cash provided by financing activities
    
    
    1,549
    
    
    
    33,728Net change in cash and cash equivalents
    
    
    (1,453
    )
    
    
    10,509Cash and cash equivalents, end of period
    
    $
    1,541
    
    
    $
    11,039
        37




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##### Table of Contents



Government-funded
    
    
    27
    %Institutions
    
    
    41
    %Commercial Insurance
    
    
    11
    %Private Pay
    
    
    21
    %
   Recent Accounting Pronouncements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  38




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##### Table of Contents



Item 4. Controls and Procedures.
 Disclosure Controls and Procedures.
 Design of Internal Control Over Financial Reporting
  
    
    Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of our assets;
    
    Provide reasonable assurance that our transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles;
    
    Provide reasonable assurances that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
    
    Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
 Status of Managements Remedial Action
 
    
    Management did not design and maintain effective controls relating to the month-end
closing and financial reporting process due to lack of evidence of review surrounding
various account reconciliations and properly evidenced journal entries. Additionally, the
Company had insufficient personnel resources and technical accounting and reporting
expertise within the Companys financial closing and reporting functions.
    
    Management did not maintain adequate control relating to the business acquisition
process due to lack of formalized due diligence procedures and evidentiary support of
purchase accounting review.
    
    Management did not design and maintain controls to analyze and record appropriate
adjustments to the accounts receivable reserve and properly monitor review of reductions to
accounts receivable due to ineffective controls over contract pricing and the
standardization of a contract pricing system emphasized by changes in payer mix and other
contracting licensure issues.
  Changes in Internal Controls.
 39




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##### Table of Contents



Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  We recently became a public company and have a limited operating history as a public company upon
which you can base an investment decision.
  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.
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Due to our debt level, 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 or acquisitions.
  The terms of our Credit Agreements with Comerica Bank subject us to the risk of foreclosure on
certain property.
  In order to repay our debt obligations, as well as to pursue our growth strategy, we may seek
additional equity financing, which could result in dilution to our security holders.
  The Company has completed approximately 30 acquisitions since the reverse merger in May 2004. The
licensure and credentialing process under the new ownership must be satisfied timely in order to
bill and collect for services rendered to beneficiaries of government-based health care programs
and other insurance carriers. Cash flow related to these transitions can be impaired sufficient to
require additional external financing in the form of debt or equity.
  To the extent we do not raise adequate funds from the equity markets to satisfy debt obligations,
we would need to seek debt financing or modify or abandon our growth strategy or product and
service offerings.
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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. We also
face certain risks as a result of the recent changes to our management team.
  A decline in the rate of growth of the staffing and home care industries, or negative growth, could
adversely affect us by reducing sales, thereby resulting in less cash being available for the
payment of operating expenses, debt obligations and to pursue our strategic plans.
  Sales of certain of our services and products are largely dependent upon payments from governmental
programs and private insurance, and cost containment initiatives may reduce our revenues, thereby
harming our performance.
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We could be subject to severe fines and possible exclusion from participation in federal and state
healthcare programs if we fail to comply with the laws and regulations applicable to our business
or if those laws and regulations change.
  The markets in which the Company operates are highly competitive and the Company may be unable to
compete successfully against competitors with greater resources.
  We may not be able to successfully integrate acquired businesses, which could result in our failure
to increase revenues or to avoid duplication of costs among acquired businesses, thereby adversely
affecting our financial results and profitability.
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The failure to implement the Companys business strategy may result in our inability to be
profitable and adversely impact the value of our common stock.
  We cannot predict the impact that registration of shares may have on the price of the Companys
shares of 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 Company.
  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 price of common stock and the
rights of holders of our common stock.
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The exercise of common stock warrants may depress our stock price and may result in dilution to our
common security holders.
  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.
   The Company has entered into several agreements whereby it has guaranteed the stock price at
certain times in the future. If the future stock price is below the guaranteed stock price, the
Company is obligated to true up the difference in either common stock or cash. The issuance of
common stock would result in dilution to our common stock holders, and the settlement of the
liability with cash would decrease cash available for other purpose, such as funding operations,
paying down debt or investing in growth initiatives.
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We are dependent on our affiliated agencies and our internal sales force to sell our services and
products, the loss of which could adversely affect our business.
  For the fiscal year ended March 31, 2007, we received a going concern opinion from our independent
auditors due to our recurring losses. This could negatively affect our business and results of
operation.
  In connection with our evaluation of internal controls over financial reporting as required by
Section 404 under the Sarbanes-Oxley Act of 2002, we identified certain material weaknesses, which
could impact our ability to provide reliable and accurate financial reports and prevent fraud. We
could fail to meet our financial reporting responsibilities in future reporting periods if these
weaknesses are not remediated timely, or if any future failures by us to maintain adequate internal
controls over financial reporting result in additional material weaknesses.
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We may not be able to secure the additional financing to fund operating activities through the end
of fiscal year 2008, which would raise substantial doubt about our ability to continue as a going
concern and would have a material adverse effect on our business and prospects.
  Our financial results could suffer as a result of a goodwill and/or intangible asset impairment
expense being recognized.
  Our financial results could suffer if the goodwill and other intangible assets we acquired in our
acquisition of PrairieStone become impaired, or as a result of costs associated with the
acquisition.
  We have a history of operating losses and negative cash flow that may continue into the foreseeable
future.
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We may not be able to meet the financial covenants contained in our credit facility, and we may not
be able to obtain a waiver for such violations.
   The disposition of businesses that do not fit with our evolving strategy can be highly uncertain.
  The Centers for Medicare and Medicaid Services (CMS) recently announced a competitive bidding
program related to durable medical equipment. The program will operate within the ten largest
metropolitan areas during 2008 and then be expanded to 70 additional areas in 2009. As a durable
medical equipment vendor, the competitive bidding program could result in loss of revenue due to
over-bidding by the Company and will increase the compliance costs.
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Several anti-takeover measures under Nevada law could delay or prevent a change of our control,
despite such change of control being in the best interest of the holders of our shares of Common
Stock.
  
 Item 6. Exhibits.
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SIGNATURES
  February 11, 2008
    By:
    /s/ Marvin R. RichardsonMarvin R. RichardsonChief Executive Officer

(Principal Executive Officer) and DirectorFebruary 11, 2008
    By:
    /s/ Matthew R. MiddendorfMatthew R. MiddendorfChief Financial Officer

(Principal Financial and Accounting Officer) 50




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EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit Description10.1
    
    Employment Agreement between Arcadia Resources, Inc. and Matthew R. Middendorf, dated
February 1, 200831.1
    
    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.
 51