##### 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, 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




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##### 



Table of Contents
 PageNo.Part I: Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of December 31, 2010 (unaudited) and March 31, 2010
    
    
    2Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31,
2010 and
2009 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Deficit for the Nine Months ended December 31,
2010 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 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
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    39Part II: Other InformationItem 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    40Item 6. Exhibits
    
    
    49Signatures
    
    
    50ExhibitsExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



Item 1.
    
    Financial Statements
  
  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 December 31,
    
    
    March 31,2010
    
    
    2010(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,796
    
    
    $
    5,444Accounts receivable, net of allowance of $1,952
and $2,623, respectively
    
    
    12,544
    
    
    
    12,290Inventories, net
    
    
    1,234
    
    
    
    917Prepaid expenses and other current assets
    
    
    1,695
    
    
    
    1,551Current assets of discontinued operations
    
    
    
    
    
    
    174Total current assets
    
    
    19,269
    
    
    
    20,376Property and equipment, net
    
    
    1,671
    
    
    
    1,738Goodwill
    
    
    2,500
    
    
    
    2,500Acquired intangible assets, net
    
    
    7,241
    
    
    
    7,670Other assets
    
    
    394
    
    
    
    412Restricted cash
    
    
    1,000
    
    
    
    500Total assets
    
    $
    32,075
    
    
    $
    33,196LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    1,531
    
    
    $
    2,859Accrued expenses:Compensation and related taxes
    
    
    2,091
    
    
    
    3,184Interest
    
    
    39
    
    
    
    82Health insurance
    
    
    588
    
    
    
    463Other
    
    
    1,650
    
    
    
    1,507Fair value of warrant liability
    
    
    1,094
    
    
    
    1,499Payable to affiliated agencies
    
    
    485
    
    
    
    1,076Long-term obligations, current portion
    
    
    189
    
    
    
    939Capital lease obligations, current portion
    
    
    31
    
    
    
    69Current liabilities of discontinued operations
    
    
    
    
    
    
    308Total current liabilities
    
    
    7,698
    
    
    
    11,986Lines of credit
    
    
    12,466
    
    
    
    7,774Long-term obligations, less current portion
    
    
    27,138
    
    
    
    25,192Capital lease obligations, less current portion
    
    
    10
    
    
    
    19Total liabilities
    
    
    47,312
    
    
    
    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; 193,094,419 shares and 177,918,044 shares
issued, respectively
    
    
    193
    
    
    
    178Additional paid-in capital
    
    
    151,160
    
    
    
    145,381Accumulated deficit
    
    
    (166,590
    )
    
    
    (157,334
    )Total stockholders deficit
    
    
    (15,237
    )
    
    
    (11,775
    )Total liabilities and stockholders deficit
    
    $
    32,075
    
    
    $
    33,196
 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
    
    
    Nine Month Period EndedDecember 31,
    
    
    December 31,(Unaudited)
    
    
    (Unaudited)2010
    
    
    2009
    
    
    2010
    
    
    2009Services
    
    $
    21,139
    
    
    $
    21,564
    
    
    $
    62,434
    
    
    $
    65,953Pharmacy
    
    
    5,033
    
    
    
    4,105
    
    
    
    14,998
    
    
    
    10,731Revenues, net
    
    
    26,172
    
    
    
    25,669
    
    
    
    77,432
    
    
    
    76,684Cost of revenues
    
    
    18,952
    
    
    
    18,374
    
    
    
    56,405
    
    
    
    54,923Gross profit
    
    
    7,220
    
    
    
    7,295
    
    
    
    21,027
    
    
    
    21,761Selling, general and administrative
    
    
    8,904
    
    
    
    9,239
    
    
    
    28,218
    
    
    
    28,569Depreciation and amortization
    
    
    334
    
    
    
    484
    
    
    
    969
    
    
    
    1,425Total operating expenses
    
    
    9,238
    
    
    
    9,723
    
    
    
    29,187
    
    
    
    29,994Operating loss
    
    
    (2,018
    )
    
    
    (2,428
    )
    
    
    (8,160
    )
    
    
    (8,233
    )Other expenses:Interest expense, net
    
    
    1,003
    
    
    
    934
    
    
    
    2,827
    
    
    
    2,618Change in fair value of warrant liability
    
    
    (541
    )
    
    
    (367
    )
    
    
    (678
    )
    
    
    (368
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Total other expenses
    
    
    462
    
    
    
    567
    
    
    
    2,149
    
    
    
    2,280Loss from continuing operations before income taxes
    
    
    (2,480
    )
    
    
    (2,995
    )
    
    
    (10,309
    )
    
    
    (10,513
    )Income tax expense
    
    
    30
    
    
    
    16
    
    
    
    102
    
    
    
    116Loss from continuing operations
    
    
    (2,510
    )
    
    
    (3,011
    )
    
    
    (10,411
    )
    
    
    (10,629
    )Discontinued operations:Loss from discontinued operations
    
    
    (36
    )
    
    
    (157
    )
    
    
    (118
    )
    
    
    (1,637
    )Net gain on disposal
    
    
    228
    
    
    
    15
    
    
    
    1,274
    
    
    
    394192
    
    
    
    (142
    )
    
    
    1,156
    
    
    
    (1,243
    )NET LOSS
    
    $
    (2,318
    )
    
    $
    (3,153
    )
    
    $
    (9,255
    )
    
    $
    (11,872
    )Weighted average number of common shares outstanding
    
    
    187,309
    
    
    
    168,788
    
    
    
    180,627
    
    
    
    163,412Basic and diluted net loss per share:Loss from continuing operations
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.07
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss per share
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.07
    )
 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
    
    
    DeficitBalance, April 1, 2010
    
    
    177,918,044
    
    
    $
    178
    
    
    $
    145,381
    
    
    $
    (157,334
    )
    
    $
    (11,775
    )Stock-based compensation expense
    
    
    159,375
    
    
    
    
    
    
    
    1,056
    
    
    
    
    
    
    
    1,056Issuance of warrants in conjunction with
debt financing
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    260Sale of common stock, net of $536 in fees
    
    
    15,606,250
    
    
    
    16
    
    
    
    4,460
    
    
    
    
    
    
    
    4,476Exercise of stock options
    
    
    10,750
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Cancellation of shares held in escrow
    
    
    (600,000
    )
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,255
    )
    
    
    (9,255
    )Balance, December 31, 2010
    
    
    193,094,419
    
    
    $
    193
    
    
    $
    151,160
    
    
    $
    (166,590
    )
    
    $
    (15,237
    )
 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)2010
    
    
    2009Operating activitiesNet loss for the period
    
    $
    (9,255
    )
    
    $
    (11,872
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for doubtful accounts
    
    
    534
    
    
    
    1,432Depreciation of property and equipment
    
    
    540
    
    
    
    1,241Amortization of intangible assets
    
    
    429
    
    
    
    564Gain on business disposals
    
    
    (1,274
    )
    
    
    (394
    )Non-cash interest expense
    
    
    2,141
    
    
    
    1,789Amortization of deferred financing costs and debt discounts
    
    
    291
    
    
    
    280Stock-based compensation expense
    
    
    1,056
    
    
    
    923Change in fair value of warrant liability
    
    
    (678
    )
    
    
    (368
    )Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (711
    )
    
    
    3,088Inventories
    
    
    (315
    )
    
    
    648Other assets
    
    
    (116
    )
    
    
    266Accounts payable
    
    
    (1,677
    )
    
    
    (1,251
    )Accrued expenses
    
    
    (896
    )
    
    
    (1,477
    )Due to affiliated agencies
    
    
    (569
    )
    
    
    (373
    )Net cash used in operating activities
    
    
    (10,500
    )
    
    
    (5,504
    )Investing activitiesBusiness acquisitions, net of cash acquired
    
    
    (139
    )
    
    
    (253
    )Proceeds from business disposal
    
    
    1,342
    
    
    
    9,335Increase in restricted cash
    
    
    (500
    )
    
    
    (500
    )Purchases of property and equipment
    
    
    (473
    )
    
    
    (329
    )Net cash provided by investing activities
    
    
    229
    
    
    
    8,253Financing activitiesLines of credit, net activity
    
    
    4,947
    
    
    
    (113
    )Proceeds from equity financing, net of fees paid in cash of $536 and $839,
respectively
    
    
    4,476
    
    
    
    10,260Proceeds from note payable, net of fees
    
    
    
    
    
    
    2,142Payments on notes payable and capital lease obligations
    
    
    (802
    )
    
    
    (9,252
    )Proceeds from exercise of stock options
    
    
    2
    
    
    
    Net cash provided by financing activities
    
    
    8,623
    
    
    
    3,037Net change in cash and cash equivalents
    
    
    (1,648
    )
    
    
    5,786Cash and cash equivalents, beginning of period
    
    
    5,444
    
    
    
    1,522Cash and cash equivalents, end of period
    
    $
    3,796
    
    
    $
    7,308Supplementary information:Cash paid during the period for:Interest
    
    $
    395
    
    
    $
    549Income taxes
    
    
    102
    
    
    
    67Accounts payable converted to notes payable
    
    
    
    
    
    
    750Accrued interest converted to notes payable
    
    
    2,141
    
    
    
    1,789
  5




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##### Table of Contents



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




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##### Table of Contents



Note 2  Discontinued Operations
 Catalog Operations
  HHE Operations
   7




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##### Table of Contents



Pharmacy Operations
  Industrial Staffing Operations
    8




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##### Table of Contents



March 31, 2010AssetsAccounts receivable, net of allowance of $4
    
    $
    76Inventory
    
    
    17Prepaid expenses and other current assets
    
    
    81Total current assets of discontinued operations
    
    $
    174LiabilitiesAccounts payable
    
    $
    301Accrued compensation and related taxes
    
    
    6Accrued other
    
    
    1Total current liabilities of discontinued operations
    
    $
    308
   Three Month Period Ended
    
    
    Nine Month Period EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net:Services  Industrial Staffing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,223Catalog
    
    
    
    
    
    
    437
    
    
    
    660
    
    
    
    1,813Home Health Equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,423Pharmacy  Software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348$
    
    
    
    $
    437
    
    
    $
    660
    
    
    $
    4,807Loss from operations:Services  Industrial Staffing
    
    $
    (7
    )
    
    $
    (3
    )
    
    $
    (7
    )
    
    $
    (47
    )Catalog
    
    
    (28
    )
    
    
    (10
    )
    
    
    (111
    )
    
    
    (42
    )Home Health Equipment
    
    
    (1
    )
    
    
    (124
    )
    
    
    
    
    
    
    (1,374
    )Pharmacy  Software
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (174
    )$
    (36
    )
    
    $
    (157
    )
    
    $
    (118
    )
    
    $
    (1,637
    )Gain (loss) on disposal:Services  Industrial Staffing
    
    $
    292
    
    
    $
    15
    
    
    $
    683
    
    
    $
    144Catalog
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )Home Health Equipment
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    279Pharmacy  Software
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )$
    228
    
    
    $
    15
    
    
    $
    1,274
    
    
    $
    394Earnings (loss) from
discontinued operations:Services  Industrial Staffing
    
    $
    285
    
    
    $
    12
    
    
    $
    676
    
    
    $
    97Catalog
    
    
    (92
    )
    
    
    (10
    )
    
    
    (175
    )
    
    
    (42
    )Home Health Equipment
    
    
    (1
    )
    
    
    (124
    )
    
    
    655
    
    
    
    (1,095
    )Pharmacy  Software
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (203
    )$
    192
    
    
    $
    (142
    )
    
    $
    1,156
    
    
    $
    (1,243
    )
  9




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##### Table of Contents



Note 3  Fair Value
   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
    
    
    (678
    )Balance at December 31, 2010
    
    $
    1,094
 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 December 31 and March 31, 2010
    
    $
    
    
    
    $
    2,500
    
    
    $
    2,500
  Impairment Expense
   10




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##### Table of Contents



December 31, 2010
    
    
    March 31, 2010Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationTrade name
    
    $
    6,664
    
    
    $
    974
    
    
    $
    6,664
    
    
    $
    847Customer relationships
    
    
    4,720
    
    
    
    3,169
    
    
    
    4,720
    
    
    
    2,86711,384
    
    
    $
    4,143
    
    
    
    11,384
    
    
    $
    3,714Less accumulated amortization
    
    
    (4,143
    )
    
    
    
    
    
    
    (3,714
    )Net acquired intangible assets
    
    $
    7,241
    
    
    
    
    
    
    $
    7,670
   Remainder of fiscal 2011
    
    $
    143Fiscal 2012
    
    
    518Fiscal 2013
    
    
    476Fiscal 2014
    
    
    382Fiscal 2015
    
    
    350Thereafter
    
    
    5,372Total
    
    $
    7,241
 Note 5  Lines of Credit
  At December 31, 2010MaximumAvailable
    
    
    
    
    
    
    March 31,Lending Institution
    
    Maturity date
    
    
    Borrowing
    
    
    Balance
    
    
    2010
    
    
    Interest rateComerica Bank
    
    April 1, 2012
    
    $
    8,830
    
    
    $
    8,221
    
    
    $
    7,774
    
    
    Prime plus 2.75%H.D. Smith
    
    April 23, 2013
    
    
    4,695
    
    
    
    4,695
    
    
    
    
    
    
    
    7
    %Total lines of credit obligations
    
    
    
    
    
    $
    13,525
    
    
    
    12,916
    
    
    
    7,774H.D. Smith debt discount
    
    
    
    
    
    
    
    
    
    
    (450
    )
    
    
    $
    12,466
    
    
    $
    7,774
  11




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##### Table of Contents



Comerica Bank
    H.D. Smith Wholesale Drug Co.
    12




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##### Table of Contents



Note 6  Long-Term Obligations
  December 31,
    
    
    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.
    
    $
    18,939
    
    
    $
    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.
    
    
    7,008
    
    
    
    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.
    
    
    1,191
    
    
    
    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
    
    
    27,327
    
    
    
    26,131Less current portion of long-term obligations
    
    
    (189
    )
    
    
    (939
    )Long-term obligations, less current portion
    
    $
    27,138
    
    
    $
    25,192
   Remainder of fiscal 2011
    
    $
    189Fiscal 2012
    
    
    Fiscal 2013
    
    
    27,138Total
    
    $
    27,327
   13




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##### Table of Contents



Note 7  Stockholders Deficit
 General
  Warrants
  December 31,
    
    
    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
    
    
    
    
    
    
    44,44411,551,083
    
    
    
    11,095,527
  
   Weighted-average
    
    December 31, 2010
    
    
    November 17, 2009Expected volatility
    
    
    93
    %
    
    
    86
    %Expected dividend yields
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    4.4
    
    
    
    5.5Risk-free interest rate
    
    
    1.80
    %
    
    
    2.19
    %
   14




---



##### Table of Contents



Escrow Shares
  Note 8  Contingencies
    15




---



##### Table of Contents



Note 9  Stock-Based Compensation
     Three-Month Period
    
    
    Nine-Month PeriodEnded December 31,
    
    
    Ended December 31,Weighted-average
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Expected volatility
    
    
    84
    %
    
    
    90
    %
    
    
    84
    %
    
    
    78
    %Expected dividend yields
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    7
    
    
    
    5
    
    
    
    7
    
    
    
    5Risk-free interest rate
    
    
    2
    %
    
    
    1.68
    %
    
    
    1.83
    %
    
    
    1.69
    %
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueOptions
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    (thousands)Outstanding at April 1, 2010
    
    
    8,336,184
    
    
    
    0.65Granted
    
    
    1,097,465
    
    
    
    0.38Exercised
    
    
    (10,750
    )
    
    
    0.25Forfeited or expired
    
    
    (209,312
    )
    
    
    0.51Outstanding at December 31, 2010
    
    
    9,213,587
    
    
    $
    0.62
    
    
    
    5.1
    
    
    $
    22Exercisable at December 31, 2010
    
    
    6,837,821
    
    
    $
    0.65
    
    
    
    4.9
    
    
    $
    22
  16




---



##### 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
    
    
    4,317,359
    
    
    
    5.9
    
    
    $
    0.38
    
    
    
    3,080,760
    
    
    $
    0.38$0.43 - $0.72
    
    
    3,558,501
    
    
    
    4.6
    
    
    $
    0.72
    
    
    
    2,428,709
    
    
    $
    0.72$0.73 - $1.07
    
    
    769,147
    
    
    
    5
    
    
    $
    0.79
    
    
    
    759,772
    
    
    $
    0.79$1.01 - $1.50
    
    
    450,967
    
    
    
    2.7
    
    
    $
    1.34
    
    
    
    450,967
    
    
    $
    1.34$1.51 - $2.25
    
    
    43,000
    
    
    
    2.3
    
    
    $
    2.22
    
    
    
    43,000
    
    
    $
    2.22$2.92
    
    
    74,613
    
    
    
    2.6
    
    
    $
    2.92
    
    
    
    74,613
    
    
    $
    2.92Outstanding at December
31, 2010
    
    
    9,213,587
    
    
    
    
    
    
    $
    0.62
    
    
    
    6,837,821
    
    
    $
    0.65
     Restricted Stock
   Weighted-AverageGrant DateFair ValueShares
    
    
    per ShareUnvested at April 1, 2010
    
    
    332,967
    
    
    $
    1.10Vested
    
    
    (159,375
    )
    
    
    1.50Unvested at December 31, 2010
    
    
    173,592
    
    
    $
    0.91
    17




---



##### Table of Contents



Note 10  Income Taxes
   Note 11  Related Party Transactions
   
 Note 12  Segment Information
    18




---



##### Table of Contents



Three-Month Period
    
    
    Nine-Month PeriodEnded December 31,
    
    

Ended December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue, net:Services
    
    $
    21,139
    
    
    $
    21,564
    
    
    $
    62,434
    
    
    $
    65,953Pharmacy
    
    
    5,033
    
    
    
    4,105
    
    
    
    14,998
    
    
    
    10,731Total revenue
    
    $
    26,172
    
    
    $
    25,669
    
    
    $
    77,432
    
    
    $
    76,684Operating income (loss):Services
    
    $
    1,119
    
    
    $
    896
    
    
    $
    3,241
    
    
    $
    3,140Pharmacy
    
    
    (1,443
    )
    
    
    (1,437
    )
    
    
    (4,845
    )
    
    
    (4,314
    )Unallocated corporate overhead
    
    
    (1,694
    )
    
    
    (1,888
    )
    
    
    (6,556
    )
    
    
    (7,059
    )Total operating loss
    
    
    (2,018
    )
    
    
    (2,428
    )
    
    
    (8,160
    )
    
    
    (8,233
    )Other expenses:Interest expense, net
    
    
    1,003
    
    
    
    934
    
    
    
    2,827
    
    
    
    2,618Change in fair value of warrant liability
    
    
    (541
    )
    
    
    (367
    )
    
    
    (678
    )
    
    
    (368
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Net loss before income tax expense
    
    
    (2,480
    )
    
    
    (2,995
    )
    
    
    (10,309
    )
    
    
    (10,513
    )Income tax expense
    
    
    30
    
    
    
    16
    
    
    
    102
    
    
    
    116Net loss from continuing operations
    
    $
    (2,510
    )
    
    $
    (3,011
    )
    
    $
    (10,411
    )
    
    $
    (10,629
    )Depreciation and amortization:Services
    
    $
    166
    
    
    $
    189
    
    
    $
    495
    
    
    $
    574Pharmacy
    
    
    80
    
    
    
    212
    
    
    
    216
    
    
    
    504Corporate
    
    
    88
    
    
    
    83
    
    
    
    257
    
    
    
    347Total depreciation and amortization
    
    $
    334
    
    
    $
    484
    
    
    $
    969
    
    
    $
    1,425
 2010
    
    
    2009Capital expenditures:Services
    
    $
    60
    
    
    $
    44Pharmacy
    
    
    277
    
    
    
    266Corporate
    
    
    136
    
    
    
    19Total capital expenditures
    
    $
    473
    
    
    $
    329
 December 31,
    
    
    March 31,2010
    
    
    2010Assets:Services
    
    $
    20,758
    
    
    $
    25,007Pharmacy
    
    
    7,234
    
    
    
    6,107Unallocated coporate assets
    
    
    4,083
    
    
    
    1,908Assets of discontinued operations
    
    
    
    
    
    
    174Total assets
    
    $
    32,075
    
    
    $
    33,196
  19




---



##### Table of Contents



ITEM 2.
    
    Managements Discussion And Analysis Of Financial Condition And Results Of Operations
  Cautionary Statement Concerning Forward-Looking Statements
      20




---



##### Table of Contents



Overview
  Critical Accounting Policies
  Three-Month Period Ended December 31, 2010 Compared to the Three-Month Period Ended December 31,
2009
 Results of Continuing Operations (in thousands, except per share amounts)
 Three-Month PeriodEnded December 31,2010
    
    
    2009Revenues, net
    
    $
    26,172
    
    
    $
    25,669Cost of revenues
    
    
    18,952
    
    
    
    18,374Gross profit
    
    
    7,220
    
    
    
    7,295Selling, general and administrative
    
    
    8,904
    
    
    
    9,239Depreciation and amortization
    
    
    334
    
    
    
    484Total operating expenses
    
    
    9,238
    
    
    
    9,723Operating loss
    
    
    (2,018
    )
    
    
    (2,428
    )Other expenses:Interest expense, net
    
    
    1,003
    
    
    
    934Change in fair value of warrant liability
    
    
    (541
    )
    
    
    (367
    )Total other expenses
    
    
    462
    
    
    
    567Net loss before income tax expense
    
    
    (2,480
    )
    
    
    (2,995
    )Income tax expense
    
    
    30
    
    
    
    16Net loss from continuing operations
    
    $
    (2,510
    )
    
    $
    (3,011
    )Weighted average number of shares  basic and diluted
    
    
    187,309
    
    
    
    168,788Net loss from continuing operations per share 
basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
  21




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##### 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
    
    $
    21,139
    
    
    
    80.8
    %
    
    $
    21,564
    
    
    
    84.0
    %
    
    $
    (425
    )
    
    
    -2.0
    %Pharmacy
    
    
    5,033
    
    
    
    19.2
    %
    
    
    4,105
    
    
    
    16.0
    %
    
    
    928
    
    
    
    22.6
    %26,172
    
    
    
    100.0
    %
    
    
    25,669
    
    
    
    100.0
    %
    
    
    503
    
    
    
    2.0
    %Cost of revenues:Services
    
    
    14,733
    
    
    
    
    
    
    
    14,980
    
    
    
    
    
    
    
    (247
    )
    
    
    -1.6
    %Pharmacy
    
    
    4,219
    
    
    
    
    
    
    
    3,394
    
    
    
    
    
    
    
    825
    
    
    
    24.3
    %18,952
    
    
    
    
    
    
    
    18,374
    
    
    
    
    
    
    
    578
    
    
    
    3.1
    %Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    6,406
    
    
    
    30.3
    %
    
    
    6,584
    
    
    
    30.5
    %
    
    
    (178
    )
    
    
    -2.7
    %Pharmacy
    
    
    814
    
    
    
    16.2
    %
    
    
    711
    
    
    
    17.3
    %
    
    
    103
    
    
    
    14.5
    %$
    7,220
    
    
    
    27.6
    %
    
    $
    7,295
    
    
    
    28.4
    %
    
    $
    (75
    )
    
    
    -1.0
    %
 Services Segment
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Home care
    
    $
    16,971
    
    
    
    80.3
    %
    
    $
    17,095
    
    
    
    79.4
    %
    
    $
    (124
    )
    
    
    -0.7
    %Per diem medical staffing
    
    
    2,831
    
    
    
    13.4
    %
    
    
    2,941
    
    
    
    13.6
    %
    
    
    (110
    )
    
    
    -3.8
    %Travel staffing
    
    
    1,337
    
    
    
    6.3
    %
    
    
    1,527
    
    
    
    7.0
    %
    
    
    (190
    )
    
    
    -12.5
    %Total Services
    
    $
    21,139
    
    
    
    100.0
    %
    
    $
    21,564
    
    
    
    100.0
    %
    
    $
    (425
    )
    
    
    -2.0
    %
    22




---



##### Table of Contents



Pharmacy Segment
    23




---



##### Table of Contents



Selling, General and Administrative
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    SG&A
    
    
    2009
    
    
    SG&A
    
    
    (Decrease)
    
    
    (Decrease)Services
    
    $
    5,121
    
    
    
    57.6
    %
    
    $
    5,496
    
    
    
    59.6
    %
    
    $
    (375
    )
    
    
    -6.8
    %Pharmacy
    
    
    2,177
    
    
    
    24.5
    %
    
    
    1,938
    
    
    
    20.9
    %
    
    
    239
    
    
    
    12.3
    %Corporate
    
    
    1,606
    
    
    
    17.9
    %
    
    
    1,805
    
    
    
    19.5
    %
    
    
    (199
    )
    
    
    -11.0
    %$
    8,904
    
    
    
    100.0
    %
    
    $
    9,239
    
    
    
    100.0
    %
    
    $
    (335
    )
    
    
    -(3.6
    %)SG&A as a % of net revenue
    
    
    34.5
    %
    
    
    
    
    
    
    36.8
    %
 Services Segment
  Pharmacy Segment
    24




---



##### Table of Contents



Corporate
  Depreciation and Amortization
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Depreciation and amortization of
property and equipment
    
    $
    191
    
    
    $
    325
    
    
    
    (134
    )
    
    
    -41.2
    %Amortization of acquired intangible assets
    
    
    143
    
    
    
    159
    
    
    
    (16
    )
    
    
    -10.1
    %Depreciation and amortization
    
    $
    334
    
    
    $
    484
    
    
    $
    (150
    )
    
    
    -31.0
    %
   Interest Expense and Income
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Interest expense
    
    $
    1,006
    
    
    $
    940
    
    
    $
    66
    
    
    
    7.0
    %Interest income
    
    
    (3
    )
    
    
    (6
    )
    
    
    3
    
    
    
    -50.0
    %$
    1,003
    
    
    $
    934
    
    
    $
    69
    
    
    
    7.4
    %
    25




---



##### Table of Contents



Change in Fair Value of Warrant Liability
  Income Taxes
    26




---



##### Table of Contents



Earnings (Loss) from Discontinued Operations
  Three Month PeriodEnded December 31,2010
    
    
    2009Revenues, net:Catalog
    
    $
    
    
    
    $
    437$
    
    
    
    $
    437Loss from operations:Services  Industrial Staffing
    
    $
    (7
    )
    
    $
    (3
    )Catalog
    
    
    (28
    )
    
    
    (10
    )Home Health Equipment
    
    
    (1
    )
    
    
    (124
    )Pharmacy  Software
    
    
    
    
    
    
    (20
    )$
    (36
    )
    
    $
    (157
    )Gain (loss) on disposal:Services  Industrial Staffing
    
    $
    292
    
    
    $
    15Catalog
    
    $
    (64
    )
    
    $
    $
    228
    
    
    $
    15Earnings (loss) from discontinued operations:Services  Industrial Staffing
    
    $
    285
    
    
    $
    12Catalog
    
    
    (92
    )
    
    
    (10
    )Home Health Equipment
    
    
    (1
    )
    
    
    (124
    )Pharmacy  Software
    
    
    
    
    
    
    (20
    )$
    192
    
    
    $
    (142
    )
 Catalog Operations
  HHE Operations
   27




---



##### Table of Contents



Pharmacy Operations
  Industrial Staffing Operations
   28




---



##### Table of Contents



Nine-Month Period Ended December 31, 2010 Compared to the Nine-Month Period Ended December 31,
2009
 Results of Continuing Operations, (in thousands, except share amounts)
 Nine-Month PeriodEnded December 31,2010
    
    
    2009Revenues, net
    
    $
    77,432
    
    
    $
    76,684Cost of revenues
    
    
    56,405
    
    
    
    54,923Gross profit
    
    
    21,027
    
    
    
    21,761Selling, general and administrative
    
    
    28,218
    
    
    
    28,569Depreciation and amortization
    
    
    969
    
    
    
    1,425Total operating expenses
    
    
    29,187
    
    
    
    29,994Operating loss
    
    
    (8,160
    )
    
    
    (8,233
    )Other expenses:Interest expense, net
    
    
    2,827
    
    
    
    2,618Change in fair value of warrant liability
    
    
    (678
    )
    
    
    (368
    )Other
    
    
    
    
    
    
    30Total other expenses
    
    
    2,149
    
    
    
    2,280Net loss before income tax expense
    
    
    (10,309
    )
    
    
    (10,513
    )Income tax expense
    
    
    102
    
    
    
    116Net loss from continuing operations
    
    $
    (10,411
    )
    
    $
    (10,629
    )Weighted average number of shares  basic and diluted
    
    
    180,627
    
    
    
    163,412Net loss from continuing operations per share 
basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.07
    )
  29




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##### 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
    
    $
    62,434
    
    
    
    80.6
    %
    
    $
    65,953
    
    
    
    86.0
    %
    
    $
    (3,519
    )
    
    
    -5.3
    %Pharmacy
    
    
    14,998
    
    
    
    19.4
    %
    
    
    10,731
    
    
    
    14.0
    %
    
    
    4,267
    
    
    
    39.8
    %77,432
    
    
    
    100.0
    %
    
    
    76,684
    
    
    
    100.0
    %
    
    
    748
    
    
    
    1.0
    %Cost of revenues:Services
    
    
    43,646
    
    
    
    
    
    
    
    45,772
    
    
    
    
    
    
    
    (2,126
    )
    
    
    -4.6
    %Pharmacy
    
    
    12,759
    
    
    
    
    
    
    
    9,151
    
    
    
    
    
    
    
    3,608
    
    
    
    39.4
    %56,405
    
    
    
    
    
    
    
    54,923
    
    
    
    
    
    
    
    1,482
    
    
    
    2.7
    %Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    18,788
    
    
    
    30.1
    %
    
    
    20,181
    
    
    
    30.6
    %
    
    
    (1,393
    )
    
    
    -6.9
    %Pharmacy
    
    
    2,239
    
    
    
    14.9
    %
    
    
    1,580
    
    
    
    14.7
    %
    
    
    659
    
    
    
    41.7
    %$
    21,027
    
    
    
    27.2
    %
    
    $
    21,761
    
    
    
    28.4
    %
    
    $
    (734
    )
    
    
    -3.4
    %
 Services Segment
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Home care
    
    $
    50,189
    
    
    
    80.4
    %
    
    $
    52,039
    
    
    
    78.9
    %
    
    $
    (1,850
    )
    
    
    -3.6
    %Per diem medical staffing
    
    
    8,142
    
    
    
    13.0
    %
    
    
    9,642
    
    
    
    14.7
    %
    
    
    (1,500
    )
    
    
    -15.6
    %Travel staffing
    
    
    4,103
    
    
    
    6.6
    %
    
    
    4,271
    
    
    
    6.4
    %
    
    
    (168
    )
    
    
    -3.9
    %Total Services
    
    $
    62,434
    
    
    
    100.0
    %
    
    $
    65,953
    
    
    
    100.0
    %
    
    $
    (3,519
    )
    
    
    -5.3
    %
    30




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Pharmacy Segment
    31




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##### Table of Contents



Selling, General and Administrative
  % of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    % Increase/2010
    
    
    SG&A
    
    
    2009
    
    
    SG&A
    
    
    (Decrease)
    
    
    (Decrease)Services
    
    $
    15,051
    
    
    
    53.3
    %
    
    $
    16,465
    
    
    
    57.6
    %
    
    $
    (1,414
    )
    
    
    -8.6
    %Pharmacy
    
    
    6,868
    
    
    
    24.3
    %
    
    
    5,392
    
    
    
    18.8
    %
    
    
    1,476
    
    
    
    27.4
    %Corporate
    
    
    6,299
    
    
    
    22.2
    %
    
    
    6,712
    
    
    
    23.5
    %
    
    
    (413
    )
    
    
    -6.2
    %$
    28,218
    
    
    
    100.0
    %
    
    $
    28,569
    
    
    
    100.0
    %
    
    $
    (351
    )
    
    
    -1.2
    %SG&A as a % of net revenue
    
    
    55.0
    %
    
    
    
    
    
    
    56.0
    %
 Services Segment
  Pharmacy Segment
    32




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##### Table of Contents



Corporate
  Depreciation and Amortization
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Depreciation and amortization of
property and equipment
    
    $
    540
    
    
    $
    949
    
    
    
    (409
    )
    
    
    -43.1
    %Amortization of acquired intangible assets
    
    
    429
    
    
    
    476
    
    
    
    (47
    )
    
    
    -9.9
    %Depreciation and amortization
    
    $
    969
    
    
    $
    1,425
    
    
    $
    (456
    )
    
    
    -32.0
    %
   Interest Expense and Income
  $ Increase/
    
    
    % Increase/2010
    
    
    2009
    
    
    (Decrease)
    
    
    (Decrease)Interest expense
    
    $
    2,834
    
    
    $
    2,635
    
    
    $
    199
    
    
    
    7.6
    %Interest income
    
    
    (8
    )
    
    
    (17
    )
    
    
    9
    
    
    
    -55.3
    %$
    2,827
    
    
    $
    2,618
    
    
    $
    209
    
    
    
    8.0
    %
    33




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Change in Fair Value of Warrant Liability
  Income Taxes
    34




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##### Table of Contents



Earnings (Loss) from Discontinued Operations
  Nine Month PeriodEnded December 31,2010
    
    
    2009Revenues, net:Services  Industrial Staffing
    
    $
    
    
    
    $
    1,223Catalog
    
    
    660
    
    
    
    1,813Home Health Equipment
    
    
    
    
    
    
    1,423Pharmacy  Software
    
    
    
    
    
    
    348$
    660
    
    
    $
    4,807Loss from operations:Services  Industrial Staffing
    
    $
    (7
    )
    
    $
    (47
    )Catalog
    
    
    (111
    )
    
    
    (42
    )Home Health Equipment
    
    
    
    
    
    
    (1,374
    )Pharmacy  Software
    
    
    
    
    
    
    (174
    )$
    (118
    )
    
    $
    (1,637
    )Gain (loss) on disposal:Services  Industrial Staffing
    
    $
    683
    
    
    $
    144Catalog
    
    $
    (64
    )
    
    $
    Home Health Equipment
    
    
    655
    
    
    
    279Pharmacy  Software
    
    
    
    
    
    
    (29
    )$
    1,274
    
    
    $
    394Earnings (loss) from discontinued operations:Services  Industrial Staffing
    
    $
    676
    
    
    $
    97Catalog
    
    
    (175
    )
    
    
    (42
    )Home Health Equipment
    
    
    655
    
    
    
    (1,095
    )Pharmacy  Software
    
    
    
    
    
    
    (203
    )$
    1,156
    
    
    $
    (1,243
    )
 Catalog Operations
  HHE Operations
   35




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##### Table of Contents



Pharmacy Operations
  Industrial Staffing Operations
   36




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##### Table of Contents



Liquidity and Capital Resources
  2010
    
    
    2009Net cash used in operating activities
    
    $
    (10,500
    )
    
    $
    (5,504
    )Net cash provided by investing activities
    
    
    229
    
    
    
    8,253Net cash provided by financing activities
    
    
    8,623
    
    
    
    3,037Net change in cash and cash equivalents
    
    
    (1,648
    )
    
    
    5,786Cash and cash equivalents, end of period
    
    
    3,796
    
    
    
    7,308Availability under line of credit agreements
    
    $
    609
    
    
    $
    522
       37




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##### Table of Contents



Medicare
    
    
    0
    %Medicaid/other government
    
    
    30
    %Commercial insurance
    
    
    20
    %Institution/facilities
    
    
    28
    %Private pay
    
    
    22
    %
  38




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##### Table of Contents



Recent Accounting Pronouncements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4.
    
    Controls and Procedures.
     39




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##### Table of Contents



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.
  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.
   40




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##### Table of Contents



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.
   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.
   41




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##### Table of Contents



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.
  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.
   42




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##### Table of Contents



We are required to comply with laws governing the transmission of privacy of health information.
  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.
 
  43




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##### Table of Contents



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.
  We are exposed to certain risks related to the frequency and rate of the introduction of generic
drugs and brand-name prescription products.
  Our operations subject us to risk of litigation.
    44




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##### 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.
  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.
   45




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##### Table of Contents



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.
   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.
   46




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##### Table of Contents



Any additional impairment of goodwill and other intangible assets could negatively impact our
results of operations.
  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.
   47




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##### Table of Contents



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;
    
    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.
    48




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  
 Item 6.
    
    Exhibits.
   49




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##### Table of Contents



SIGNATURES
  February 9, 2011
    By:
    /s/ Marvin R. RichardsonMarvin R. RichardsonChief Executive Officer
(Principal Executive Officer) and DirectorFebruary 9, 2011
    By:
    /s/ Matthew R. MiddendorfMatthew R. MiddendorfTreasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)  50




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit Description31.1
    
    
    Certification of the Chief Executive Officer required by rule 13a  14(a) or rule 15d 
14(a).31.2
    
    
    Certification of the Principal Accounting and Financial Officer required by rule 13a  14(a)
or rule 15d  14(a).32.1
    
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §906
of the Sarbanes  Oxley Act of 2002.32.2
    
    
    Principal Accounting and Financial Officer Certification Pursuant to 18 U.S.C. §1350, as
Adopted Pursuant to §906 of the Sarbanes  Oxley Act of 2002.
  51