##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2008
 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 000-32935
 ARCADIA RESOURCES, INC.
  NEVADA
(State or other jurisdiction of Incorporation)
    
    88-0331369
(I.R.S. Employer Identification Number)9229 DELEGATES ROW, SUITE 260INDIANAPOLIS, INDIANA
    
    46240(Address of principal executive offices)
    
    (Zip Code)
  þ o
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
 o þ




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##### 



Table of Contents
 PageNo.Part I: Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and March 31, 2008
    
    
    2Condensed Consolidated Statements of Operations for the Three and Six Months ended September
30, 2008 and 2007 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Equity for the Six Months ended September
30, 2008 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2008 and
2007 (unaudited)
    
    
    5Notes to the Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II: Other InformationItem 1. Legal ProceedingsItem 1A. Risk Factors
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    3434ExhibitsSignatures
    
    
    34Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-3.2EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
   
  (IN THOUSANDS, EXCEPT SHARE DATA)
 September 30,
    
    March 31,2008
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,294
    
    
    $
    6,351Accounts receivable, net of allowance of $3,543 and $5,449, respectively
    
    
    26,021
    
    
    
    24,723Inventories, net
    
    
    1,546
    
    
    
    1,867Prepaid expenses and other current assets
    
    
    2,058
    
    
    
    3,101Total current assets
    
    
    31,919
    
    
    
    36,042Property and equipment, net
    
    
    5,017
    
    
    
    5,991Goodwill
    
    
    33,386
    
    
    
    32,836Acquired intangible assets, net
    
    
    23,765
    
    
    
    24,371Other assets
    
    
    267
    
    
    
    175Total assets
    
    $
    94,354
    
    
    $
    99,415LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Lines of credit, current portion
    
    $
    375
    
    
    $
    250Accounts payable
    
    
    3,414
    
    
    
    2,567Accrued expenses:Compensation and related taxes
    
    
    4,148
    
    
    
    3,676Interest
    
    
    60
    
    
    
    97Other
    
    
    2,082
    
    
    
    1,643Payable to affiliated agencies
    
    
    2,789
    
    
    
    2,255Long-term obligations, current portion
    
    
    462
    
    
    
    545Capital lease obligations, current portion
    
    
    84
    
    
    
    105Deferred revenue
    
    
    10
    
    
    
    29Total current liabilities
    
    
    13,424
    
    
    
    11,167Lines of credit, less current portion
    
    
    19,665
    
    
    
    22,492Long-term obligations, less current portion
    
    
    16,880
    
    
    
    15,851Capital lease obligations, less current portion
    
    
    75
    
    
    
    108Total liabilities
    
    
    50,044
    
    
    
    49,618Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.001 par value, 200,000,000 shares authorized; 134,985,500 shares and 133,113,440 shares issued, respectively
    
    
    135
    
    
    
    133Additional paid-in capital
    
    
    130,474
    
    
    
    129,442Accumulated deficit
    
    
    (86,299
    )
    
    
    (79,778
    )Total stockholders equity
    
    
    44,310
    
    
    
    49,797Total liabilities and stockholders equity
    
    $
    94,354
    
    
    $
    99,415
 See accompanying notes to these condensed consolidated financial statements.
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##### Table of Contents



(IN THOUSANDS, EXCEPT PER SHARE DATA)
 Three-Month Period Ended
    
    Six-Month Period EndedSeptember 30,
    
    September 30,(Unaudited)
    
    (Unaudited)2008
    
    2007
    
    2008
    
    2007Revenues, net
    
    $
    36,923
    
    
    $
    37,984
    
    
    $
    74,308
    
    
    $
    75,993Cost of revenues
    
    
    23,938
    
    
    
    25,992
    
    
    
    48,399
    
    
    
    51,900Gross profit
    
    
    12,985
    
    
    
    11,992
    
    
    
    25,909
    
    
    
    24,093Selling, general and administrative
    
    
    13,871
    
    
    
    14,342
    
    
    
    27,913
    
    
    
    28,079Depreciation and amortization
    
    
    1,053
    
    
    
    936
    
    
    
    1,810
    
    
    
    1,784Total operating expenses
    
    
    14,924
    
    
    
    15,278
    
    
    
    29,723
    
    
    
    29,863Operating loss
    
    
    (1,939
    )
    
    
    (3,286
    )
    
    
    (3,814
    )
    
    
    (5,770
    )Other expenses:Interest expense, net
    
    
    1,054
    
    
    
    949
    
    
    
    2,010
    
    
    
    2,108Other
    
    
    44
    
    
    
    14
    
    
    
    303
    
    
    
    14Total other expenses
    
    
    1,098
    
    
    
    963
    
    
    
    2,313
    
    
    
    2,122Loss from continuing operations before income taxes
    
    
    (3,037
    )
    
    
    (4,249
    )
    
    
    (6,127
    )
    
    
    (7,892
    )Current income tax expense
    
    
    198
    
    
    
    7
    
    
    
    394
    
    
    
    23Loss from continuing operations
    
    
    (3,235
    )
    
    
    (4,256
    )
    
    
    (6,521
    )
    
    
    (7,915
    )Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    (2,758
    )
    
    
    
    
    
    
    (6,527
    )Net loss on disposal
    
    
    
    
    
    
    (2,160
    )
    
    
    
    
    
    
    (2,160
    )
    
    
    
    (4,918
    )
    
    
    
    
    
    
    (8,687
    )NET LOSS
    
    $
    (3,235
    )
    
    $
    (9,174
    )
    
    $
    (6,521
    )
    
    $
    (16,602
    )Weighted average number of common shares outstanding
    
    
    133,019,000
    
    
    
    123,456,000
    
    
    
    132,357,000
    
    
    
    119,250,000Basic and diluted net loss per share:Loss from continuing operations
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.05
    )
    
    
    (0.07
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.04
    )
    
    
    
    
    
    
    (0.07
    )Net loss per share
    
    $
    (0.02
    )
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.14
    )
 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, April 1, 2008
    
    
    133,113,440
    
    
    $
    133
    
    
    $
    129,442
    
    
    $
    (79,778
    )
    
    $
    49,797Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    248Stock-based compensation expense
    
    
    359,657
    
    
    
    
    
    
    
    786
    
    
    
    
    
    
    
    786Contingent consideration relating to prior year acquisition


    
    1,512,403
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,521
    )
    
    
    (6,521
    )Balance, September 30, 2008
    
    
    134,985,500
    
    
    $
    135
    
    
    $
    130,474
    
    
    $
    (86,299
    )
    
    $
    44,310
 See accompanying notes to these condensed consolidated financial statements.
 4




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##### Table of Contents



(IN THOUSANDS)
 Six-Month Period EndedSeptember 30,(Unaudited)2008
    
    2007Operating activitiesNet loss for the period
    
    $
    (6,521
    )
    
    $
    (16,602
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Provision for doubtful accounts
    
    
    1,654
    
    
    
    1,272Depreciation of property and equipment
    
    
    2,297
    
    
    
    2,733Amortization of intangible assets
    
    
    943
    
    
    
    1,485Impairment of long-lived assets
    
    
    
    
    
    
    1,900Loss on sale of property and equipment
    
    
    55
    
    
    
    Loss on sale of business disposal
    
    
    
    
    
    
    2,160(Gain)/loss on extinguishment of debt
    
    
    248
    
    
    
    (121
    )Amortization of deferred financing costs and debt discounts
    
    
    492
    
    
    
    Non-cash interest expense
    
    
    1,102
    
    
    
    Reduction in expense due to return of common stock previously issued
    
    
    
    
    
    
    (246
    )Stock-based compensation expense
    
    
    741
    
    
    
    2,132Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (2,952
    )
    
    
    1,096Inventories
    
    
    (611
    )
    
    
    (362
    )Other assets
    
    
    689
    
    
    
    (43
    )Accounts payable
    
    
    908
    
    
    
    (3,703
    )Accrued expenses
    
    
    781
    
    
    
    399Due to affiliated agencies
    
    
    166
    
    
    
    328Deferred revenue
    
    
    (19
    )
    
    
    (438
    )Net cash used in operating activities
    
    
    (27
    )
    
    
    (8,010
    )Investing activitiesBusiness acquisitions, net of cash acquired
    
    
    (429
    )
    
    
    (384
    )Proceeds from prior year business disposal
    
    
    356
    
    
    
    Proceeds from disposals of property and equipment
    
    
    19
    
    
    
    5,751Purchases of property and equipment
    
    
    (462
    )
    
    
    (1,079
    )Net cash provided by (used in) investing activities
    
    
    (516
    )
    
    
    4,288Financing activitiesProceeds from issuance of common stock, net of fees
    
    
    
    
    
    
    12,442Net payments on lines of credit
    
    
    (2,956
    )
    
    
    (4,878
    )Payments on notes payable and capital lease obligations
    
    
    (558
    )
    
    
    (5,088
    )Net cash provided by (used in) financing activities
    
    
    (3,514
    )
    
    
    2,476Net change in cash and cash equivalents
    
    
    (4,057
    )
    
    
    (1,246
    )Cash and cash equivalents, beginning of period
    
    
    6,351
    
    
    
    2,994Cash and cash equivalents, end of period
    
    $
    2,294
    
    
    $
    1,748Supplementary information:Cash paid during the period for:Interest
    
    $
    485
    
    
    $
    2,282Income taxes
    
    
    97
    
    
    
    24Non-cash investing / financing activities:Payments on note payable with issuance of common stock
    
    
    
    
    
    
    1,281Common stock issued in conjunction with JASCORP, LLC acquisition
    
    
    
    
    
    
    1,800HHE cost of disposal paid in common stock
    
    
    
    
    
    
    876Stock price guarantee relating to prior year acquisition settled with issuance of notes payable
    
    
    
    
    
    
    715Prior period liability satisfied with equity
    
    
    45
    
    
    
    Accrued interest converted to notes payable
    
    
    1,102
    
    
    
    
 See accompanying notes to these condensed consolidated financial statements.
 5




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##### Table of Contents



Note 1  Description of Company and Significant Accounting Policies
 Description of Company
  Unaudited Interim Financial Information
  Principles of Consolidation
  Use of Estimates
  Allowance for Doubtful Accounts and Contractual Allowances
   6




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##### Table of Contents



Property and Equipment
  Goodwill and Acquired Intangible Assets
   Trade name
    
    30 yearsCustomers and referral source relationships (depending on
the type of business purchased)
    
    3 and 25 yearsAcquired technology
    
    2 and 3 yearsNon-competition agreements (length of agreement)
    
    5 years
 Payables to Affiliated Agencies
   7




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##### Table of Contents



Revenue Recognition and Concentration of Credit Risk
    Business Combinations and Valuation of Intangible Assets
  Earnings (Loss) Per Share
  Stock-Based Compensation
   8




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##### Table of Contents



Reclassifications
  Recent Accounting Pronouncements
 Fair
Value Measurements
 Fair Value Hierarchy.
    The Fair Value Option for Financial Assets and
Financial Liabilities
 , Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 Note 2  Managements Plan
  Keeping People at Home and
Healthier Longer,
     Note 3  Discontinued Operations
  9




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##### Table of Contents



Business
    
    Divesture Date
    
    SegmentSears Retail HHE Operations
    
    July 31, 2007
    
    HHEFlorida HHE Operations (Beacon Respiratory Services, Inc.)
    
    September 10, 2007
    
    HHEColorado HHE Operations (Beacon Respiratory Services of Colorado, Inc.)
    
    September 10, 2007
    
    HHECare Clinic, Inc.
    
    October 2007
    
    Care ClinicWalmart Retail HHE Operations
    
    December 31, 2007
    
    HHEHollywood, Florida Pharmacy
    
    December 31, 2007
    
    Pharmacy
   Three-Month Period
    
    Six-Month PeriodEnded
    
    EndedSeptember 30, 2007Revenues, net:Retail operations
    
    $
    117
    
    
    $
    348Care Clinic, Inc.
    
    
    64
    
    
    
    202Pharmacy  Florida
    
    
    581
    
    
    
    1,558Home Health Equipment
    
    
    1,162
    
    
    
    4,167$
    1,924
    
    
    
    6,275Loss from operations:Retail operations
    
    
    (159
    )
    
    
    (439
    )Care Clinic, Inc.
    
    
    (1,733
    )
    
    
    (5,644
    )Pharmacy  Florida
    
    
    (136
    )
    
    
    (221
    )Home Health Equipment
    
    
    (730
    )
    
    
    (223
    )(2,758
    )
    
    
    (6,527
    )Loss on disposal:Retail operations
    
    
    (13
    )
    
    
    (13
    )Care Clinic, Inc.
    
    
    (770
    )
    
    
    (770
    )Pharmacy  Florida
    
    
    (1
    )
    
    
    (1
    )Home Health Equipment
    
    
    (1,376
    )
    
    
    (1,376
    )(2,160
    )
    
    
    (2,160
    )Loss from discontinued operations:Retail operations
    
    
    (172
    )
    
    
    (452
    )Care Clinic, Inc.
    
    
    (2,503
    )
    
    
    (6,414
    )Pharmacy  Florida
    
    
    (137
    )
    
    
    (222
    )Home Health Equipment
    
    
    (2,106
    )
    
    
    (1,599
    )$
    (4,918
    )
    
    $
    (8,687
    )
 10




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##### Table of Contents



Note 4  Goodwill and Acquired Intangible Assets
  Services
    
    HHE
    
    Pharmacy
    
    TotalGoodwill at April 1, 2008
    
    $
    14,180
    
    
    $
    2,015
    
    
    $
    16,641
    
    
    $
    32,836Acquisitions during the period
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    550Goodwill at September 30, 2008
    
    $
    14,730
    
    
    $
    2,015
    
    
    $
    16,641
    
    
    $
    33,386
   September 30, 2008
    
    
    March 31, 2008Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationTrade name
    
    $
    8,000
    
    
    $
    724
    
    
    $
    8,000
    
    
    $
    628Customer relationships
    
    
    21,987
    
    
    
    5,761
    
    
    
    21,652
    
    
    
    5,003Non-competition agreements
    
    
    660
    
    
    
    433
    
    
    
    674
    
    
    
    381Acquired technology
    
    
    90
    
    
    
    54
    
    
    
    850
    
    
    
    79330,737
    
    
    $
    6,972
    
    
    
    31,176
    
    
    $
    6,805Less accumulated amortization
    
    
    (6,972
    )
    
    
    
    
    
    
    (6,805
    )Net acquired intangible assets
    
    $
    23,765
    
    
    
    
    
    
    $
    24,371
   Remainder of fiscal 2009
    
    $
    917Fiscal 2010
    
    
    1,918Fiscal 2011
    
    
    1,688Fiscal 2012
    
    
    1,496Fiscal 2013
    
    
    1,373Thereafter
    
    
    16,373Total
    
    $
    23,765
 11




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##### Table of Contents



Note 5  Lines of Credit
  At September 30, 2008MaximumAvailable
    
    
    
    
    
    
    March 31,Lending Institution
    
    Maturity date
    
    
    Borrowing
    
    
    Balance
    
    
    2008
    
    
    Interest rateComerica Bank
    
    October 1, 2009
    
    $
    14,254
    
    
    $
    12,436
    
    
    $
    15,292
    
    
    PrimeAmerisourceBergen Drug Corporation
    
    September 30, 2010
    
    
    2,350
    
    
    
    2,350
    
    
    
    2,450
    
    
    
    10
    %Jana Master Fund, Ltd.
    
    October 1, 2009
    
    
    5,254
    
    
    
    5,254
    
    
    
    5,000
    
    
    
    10
    %Total lines of credit obligations
    
    
    
    
    
    $
    21,858
    
    
    
    20,040
    
    
    
    22,742Less current portion
    
    
    
    
    
    
    
    
    
    
    (375
    )
    
    
    (250
    )Long-term portion
    
    
    
    
    
    
    
    
    
    $
    19,665
    
    
    $
    22,492
 Comerica Bank
    AmerisourceBergen Drug Corporation (ABDC)
  Jana Master Fund, Ltd. (JANA)
   12




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##### Table of Contents



Note 6  Long-Term Obligations
  September 30,
    
    March 31,2008
    
    2008Note payable to Jana Master Fund, Ltd.
amended on March 31, 2008 with principal due
in full on October 1, 2009 bearing an
effective interest rate of 10% on September
30, 2008. A total of approximately $577,000
of unpaid cash interest was added to the
note during fiscal 2009 as of September 30,
2008 and approximately $719,000 for the year
ended March 31, 2008 under this agreement.
The unsecured note payable includes various
loan covenants, all of which the Company was
in compliance as of September 30, 2008.
    
    $
    11,942
    
    
    $
    11,365Note payable to Vicis Capital Master Fund
(Vicis) dated March 31, 2008 bearing an
effective interest rate of 10% on September
30, 2008 with the principal due in full on
December 31, 2009. A total of approximately
$271,000 of unpaid cash interest was added
to the note during fiscal 2009 as of
September 30, 2008 under this agreement.
The amounts reported are net of unamortized
debt discount of $801,000 and $1.2 million
on September 30, 2008 and March 31, 2008,
respectively.
    
    
    4,808
    
    
    
    4,136Notes payable, unsecured, to two executives
dated September 10, 2007 bearing interest at
4% per year. The notes payable were paid in
full on April 10, 2008.
    
    
    
    
    
    
    99Purchase price payable to Remedy
Therapeutics, Inc., unsecured, dated January
27, 2006, bearing simple interest of 8% per
year payable in equal quarterly payments of
principal and interest with the final
payment due on January 27, 2009.
    
    
    147
    
    
    
    288Other long-term obligations with interest
charged at various rates ranging from 4% to
8.75% to be paid over time based on
respective terms, due dates ranging from
April 2009 to March 2012, secured by certain
equipment.
    
    
    445
    
    
    
    508Total long-term obligations
    
    
    17,342
    
    
    
    16,396Less current portion of long-term obligations
    
    
    (462
    )
    
    
    (545
    )Long-term obligations, less current portion
    
    $
    16,880
    
    
    $
    15,851
  Remainder of fiscal 2009
    
    $
    419Fiscal 2010
    
    
    17,639Fiscal 2011
    
    
    59Fiscal 2012
    
    
    2618,143Less  unamortized debt discount
    
    
    (801
    )Total
    
    $
    17,342
  13




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##### Table of Contents



Note 7  Stockholders Equity
 Stock Price Guarantees
    Warrants
  September 30,
    
    March 31,Description
    
    Exercise Price
    
    Granted
    
    Expiration
    
    2008
    
    2008Class A
    
    $
    0.50
    
    
    May 2004
    
    May 2011
    
    
    5,749,036
    
    
    
    5,749,036Class B-1
    
    $
    0.001
    
    
    September 2005
    
    September 2009
    
    
    8,990,277
    
    
    
    8,990,277Class B-2
    
    $
    1.20
    
    
    September 2005
    
    May 2014
    
    
    3,111,111
    
    
    
    3,111,111Class B-2
    
    $
    2.25
    
    
    September 2005
    
    September 2009
    
    
    1,599,999
    
    
    
    1,599,999May 2007 Private Placement
    
    $
    1.75
    
    
    May 2007
    
    May 2014
    
    
    2,754,726
    
    
    
    2,754,726ABDC issuance
    
    $
    0.75
    
    
    June 2008
    
    June 2015
    
    
    490,000
    
    
    
    Total Warrants Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,695,149
    
    
    
    22,205,149
   Note 8  Contingencies
   Note 9  Stock-Based Compensation
  14




---



##### Table of Contents



Stock Options
    Three-Month Period Ended
    
    Six-Month period EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Weighted-average expected volatility
    
    
    N/A
    
    
    
    64
    %
    
    
    74
    %
    
    
    64
    %Expected dividend yields
    
    
    N/A
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected terms (in years)
    
    
    N/A
    
    
    
    7
    
    
    
    4
    
    
    
    7Risk-free interest rate
    
    
    N/A
    
    
    
    4.67
    %
    
    
    3.23
    %
    
    
    4.67
    %
  Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicExercise
    
    Contractual
    
    ValueOptions
    
    Shares
    
    Price
    
    Term (Years)
    
    (thousands)Outstanding at April 1, 2008
    
    
    1,872,989
    
    
    $
    1.09Granted
    
    
    1,737,467
    
    
    
    0.72Forfeited or expired
    
    
    (384,250
    )
    
    
    1.41Outstanding at September 30, 2008
    
    
    3,226,206
    
    
    $
    0.85
    
    
    
    5.6
    
    
    
    Exercisable at September 30, 2008
    
    
    2,266,397
    
    
    $
    0.91
    
    
    
    5.2
    
    
    
    
 15




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.25
    
    
    500,000
    
    
    5.4 years
    
    $
    0.25
    
    
    
    500,000
    
    
    $
    0.25$0.26 - $1.00
    
    
    1,957,626
    
    
    6.4 years
    
    $
    0.73
    
    
    
    997,817
    
    
    $
    0.73$1.01 - $1.50
    
    
    650,967
    
    
    4.4 years
    
    $
    1.37
    
    
    
    650,967
    
    
    $
    1.37$1.51 - $2.25
    
    
    43,000
    
    
    4.6 years
    
    $
    2.22
    
    
    
    43,000
    
    
    $
    2.22$2.92
    
    
    74,613
    
    
    4.8 years
    
    $
    2.92
    
    
    
    74,613
    
    
    $
    2.92Outstanding
at September 30, 2008
    
    
    3,226,206
    
    
    
    
    
    
    $
    1.09
    
    
    
    2,266,397
    
    
    $
    1.11
     Restricted Stock  Arcadia Resources, Inc.
   Weighted-AverageGrant DateFair ValueShares
    
    
    per ShareUnvested at April 1, 2008
    
    
    961,801
    
    
    $
    1.47Granted
    
    
    31,750
    
    
    
    0.60Vested
    
    
    (205,959
    )
    
    
    1.54Forfeited
    
    
    (18,250
    )
    
    
    1.79Unvested at September 30, 2008
    
    
    769,342
    
    
    $
    1.39
   16




---



##### Table of Contents



Note 10  Income Taxes
   Accounting for Uncertainty in Income Taxes
  Note 11  Related Party Transactions
   17




---



##### Table of Contents



Note 12  Segment Information
      18




---



##### Table of Contents



Three-Month Period Ended
    
    Six-Month PeriodSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Revenue, net:Services
    
    $
    29,645
    
    
    $
    31,164
    
    
    $
    59,870
    
    
    $
    62,378Home Health Equipment
    
    
    5,536
    
    
    
    5,082
    
    
    
    11,034
    
    
    
    10,426Pharmacy
    
    
    1,742
    
    
    
    1,738
    
    
    
    3,404
    
    
    
    3,189Total revenue
    
    
    36,923
    
    
    
    37,984
    
    
    
    74,308
    
    
    
    75,993Operating loss:Services
    
    $
    1,528
    
    
    $
    844
    
    
    $
    3,107
    
    
    $
    1,912Home Health Equipment
    
    
    115
    
    
    
    (1,006
    )
    
    
    315
    
    
    
    (1,689
    )Pharmacy
    
    
    (1,033
    )
    
    
    (336
    )
    
    
    (1,831
    )
    
    
    (627
    )Unallocated corporate overhead
    
    
    (2,549
    )
    
    
    (2,788
    )
    
    
    (5,405
    )
    
    
    (5,366
    )Total operating loss
    
    
    (1,939
    )
    
    
    (3,286
    )
    
    
    (3,814
    )
    
    
    (5,770
    )Other expenses:Interest expense, net
    
    
    1,054
    
    
    
    949
    
    
    
    2,010
    
    
    
    2,108Other
    
    
    44
    
    
    
    14
    
    
    
    303
    
    
    
    14Net loss before income tax expense
    
    
    (3,037
    )
    
    
    (4,249
    )
    
    
    (6,127
    )
    
    
    (7,892
    )Income tax expense
    
    
    198
    
    
    
    7
    
    
    
    394
    
    
    
    23Net loss from continuing operations
    
    $
    (3,235
    )
    
    $
    (4,256
    )
    
    $
    (6,521
    )
    
    $
    (7,915
    )Depreciation and amortization (continuing
operations):Services
    
    $
    282
    
    
    $
    307
    
    
    $
    568
    
    
    $
    640Home Health Equipment  cost of revenue
    
    
    719
    
    
    
    584
    
    
    
    1,430
    
    
    
    1,190Home Health Equipment  operating expense
    
    
    415
    
    
    
    356
    
    
    
    690
    
    
    
    689Pharmacy
    
    
    272
    
    
    
    37
    
    
    
    434
    
    
    
    140Corporate
    
    
    84
    
    
    
    236
    
    
    
    118
    
    
    
    315Total depreciation and amortization
    
    $
    1,772
    
    
    $
    1,520
    
    
    $
    3,240
    
    
    $
    2,974
 September 30,2008
    
    2007Capital expenditures:Services
    
    $
    66
    
    
    $
    44Home Health Equipment
    
    
    85
    
    
    
    440Pharmacy
    
    
    196
    
    
    
    7Care Clinics, Inc. (discontinued in fiscal year 2008)
    
    
    
    
    
    
    557Corporate
    
    
    115
    
    
    
    31Total assets
    
    $
    462
    
    
    $
    1,079September 30, 2008
    
    March 31, 2008Assets:Services
    
    $
    48,953
    
    
    $
    48,383Home Health Equipment
    
    
    12,962
    
    
    
    16,219Pharmacy
    
    
    29,481
    
    
    
    29,867Unallocated corporate assets
    
    
    2,958
    
    
    
    4,946Total assets
    
    $
    94,354
    
    
    $
    99,415
 19




---



##### Table of Contents



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




---



##### Table of Contents



Critical Accounting Policies
  Three-Month Period Ended September 30, 2008 Compared to the Three-Month Period Ended September 30,
2007
 Results of Continuing Operations, (in thousands, except share amounts)
 Three-Month PeriodEnded September 30,2008
    
    2007Revenues, net
    
    $
    36,923
    
    
    $
    37,984Cost of revenues
    
    
    23,938
    
    
    
    25,992Gross profit
    
    
    12,985
    
    
    
    11,992Selling, general and administrative expenses
    
    
    13,871
    
    
    
    14,342Depreciation and amortization
    
    
    1,053
    
    
    
    936Total operating expenses
    
    
    14,924
    
    
    
    15,278Operating loss
    
    
    (1,939
    )
    
    
    (3,286
    )Other expenses
    
    
    1,098
    
    
    
    963Net loss before income tax expense
    
    
    (3,037
    )
    
    
    (4,249
    )Income tax expense
    
    
    198
    
    
    
    7Net loss from continuing operations
    
    $
    (3,235
    )
    
    $
    (4,256
    )Weighted average number of shares  basic
and diluted
    
    
    133,019,000
    
    
    
    123,456,000Net loss
from continuing operations per share
 basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.03
    )
 21




---



##### Table of Contents



Revenues, Cost of Revenues and Gross Profits
  %% of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    Increase/2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Revenues, net:Services
    
    $
    29,645
    
    
    
    80.3
    %
    
    $
    31,164
    
    
    
    82.0
    %
    
    $
    (1,519
    )
    
    
    -4.9
    %Home Health Equipment
    
    
    5,536
    
    
    
    15.0
    %
    
    
    5,082
    
    
    
    13.4
    %
    
    
    454
    
    
    
    8.9
    %Pharmacy
    
    
    1,742
    
    
    
    4.7
    %
    
    
    1,738
    
    
    
    4.6
    %
    
    
    4
    
    
    
    0.2
    %36,923
    
    
    
    100.0
    %
    
    
    37,984
    
    
    
    100.0
    %
    
    
    (1,061
    )
    
    
    -2.8
    %Cost of revenues:Services
    
    $
    20,954
    
    
    
    
    
    
    $
    23,063
    
    
    
    
    
    
    $
    (2,109
    )
    
    
    -9.1
    %Home Health Equipment
    
    
    1,868
    
    
    
    
    
    
    
    1,801
    
    
    
    
    
    
    
    67
    
    
    
    3.7
    %Pharmacy
    
    
    1,116
    
    
    
    
    
    
    
    1,128
    
    
    
    
    
    
    
    (12
    )
    
    
    -1.1
    %23,938
    
    
    
    
    
    
    
    25,992
    
    
    
    
    
    
    
    (2,054
    )
    
    
    -7.9
    %
 Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    8,691
    
    
    
    29.3
    %
    
    
    8,101
    
    
    
    26.0
    %
    
    
    590
    
    
    
    7.3
    %Home Health Equipment
    
    
    3,668
    
    
    
    66.3
    %
    
    
    3,281
    
    
    
    64.6
    %
    
    
    387
    
    
    
    11.8
    %Pharmacy
    
    
    626
    
    
    
    35.9
    %
    
    
    610
    
    
    
    35.1
    %
    
    
    16
    
    
    
    2.6
    %$
    12,985
    
    
    
    35.2
    %
    
    $
    11,992
    
    
    
    31.6
    %
    
    $
    993
    
    
    
    8.3
    %
     22




---



##### Table of Contents



Selling, General and Administrative
  % of
    
    
    
    
    
    % of
    
    
    
    
    
    %Total
    
    
    
    
    
    Total
    
    $ Increase/
    
    Increase/2008
    
    SG&A
    
    2007
    
    SG&A
    
    (Decrease)
    
    (Decrease)Services
    
    $
    6,881
    
    
    
    49.6
    %
    
    $
    6,950
    
    
    
    48.5
    %
    
    $
    (69
    )
    
    
    -1.0
    %Home Health Equipment
    
    
    3,137
    
    
    
    22.6
    %
    
    
    3,916
    
    
    
    27.3
    %
    
    
    (779
    )
    
    
    -19.9
    %Pharmacy
    
    
    1,388
    
    
    
    10.0
    %
    
    
    737
    
    
    
    5.1
    %
    
    
    651
    
    
    
    88.3
    %Corporate
    
    
    2,465
    
    
    
    17.8
    %
    
    
    2,739
    
    
    
    19.1
    %
    
    
    (274
    )
    
    
    -10.0
    %$
    13,871
    
    
    
    100.0
    %
    
    $
    14,342
    
    
    
    100.0
    %
    
    $
    (471
    )
    
    
    -3.3
    %SG&A as % of Net Revenues
    
    
    37.6
    %
    
    
    
    
    
    
    37.8
    %
  23




---



##### Table of Contents




    
    During fiscal 2008, the Company hired an in-house legal counsel, and since this hiring,
the Companys legal fees have decreased significantly; and
    
    The reduction of equity compensation expense. During the three-month period ended
September 30, 2007, the Company recognized approximately $700,000 relating to the vesting
of certain stock options consistent with the former CEOs separation agreement executed in
July 2007.
  Depreciation and Amortization
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Depreciation  cost of revenues
    
    $
    719
    
    
    $
    584
    
    
    $
    135
    
    
    
    23.1
    %Depreciation and amortization of property and equipment
    
    $
    566
    
    
    $
    322
    
    
    $
    244
    
    
    
    75.8
    %Amortization of acquired intangible assets
    
    
    487
    
    
    
    614
    
    
    
    (127
    )
    
    
    -20.7
    %Depreciation and amortization  operating expense
    
    $
    1,053
    
    
    $
    936
    
    
    $
    117
    
    
    
    12.5
    %
   24




---



##### Table of Contents



Interest Expense and Income
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Interest expense
    
    $
    1,068
    
    
    $
    978
    
    
    $
    90
    
    
    
    9.2
    %Interest income
    
    
    (14
    )
    
    
    (29
    )
    
    
    (15
    )
    
    
    -51.7
    %$
    1,054
    
    
    $
    949
    
    
    $
    105
    
    
    
    11.1
    %
  Income Taxes
  Loss from Discontinued Operations
  25




---



##### Table of Contents



Six-Month Period Ended September 30, 2008 Compared to the Six-Month Period Ended September 30, 2007
 Results of Continuing Operations, (in thousands, except share amounts)
 Six-Month PeriodEnded September 30,2008
    
    2007Revenues, net
    
    $
    74,308
    
    
    $
    75,993Cost of revenues
    
    
    48,399
    
    
    
    51,900Gross profit
    
    
    25,909
    
    
    
    24,093Selling, general and administrative expenses
    
    
    27,913
    
    
    
    28,079Depreciation and amortization
    
    
    1,810
    
    
    
    1,784Total operating expenses
    
    
    29,723
    
    
    
    29,863Operating loss
    
    
    (3,814
    )
    
    
    (5,770
    )Other expenses
    
    
    2,313
    
    
    
    2,122Net loss before income tax expense
    
    
    (6,127
    )
    
    
    (7,892
    )Income tax expense
    
    
    394
    
    
    
    23Net loss from continuing operations
    
    $
    (6,521
    )
    
    $
    (7,915
    )Weighted average number of shares  basic
and diluted
    
    
    132,357,000
    
    
    
    119,250,000Net loss
from continuing operations per share
 basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.07
    )
 Revenues, Cost of Revenues and Gross Profits
  %% of Total
    
    
    
    
    
    
    % of Total
    
    
    $ Increase/
    
    
    Increase/2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    (Decrease)
    
    
    (Decrease)Revenues, net:Services
    
    $
    59,870
    
    
    
    80.6
    %
    
    $
    62,378
    
    
    
    82.1
    %
    
    $
    (2,508
    )
    
    
    -4.0
    %Home Health Equipment
    
    
    11,034
    
    
    
    14.8
    %
    
    
    10,426
    
    
    
    13.7
    %
    
    
    608
    
    
    
    5.8
    %Pharmacy
    
    
    3,404
    
    
    
    4.6
    %
    
    
    3,189
    
    
    
    4.2
    %
    
    
    215
    
    
    
    6.7
    %74,308
    
    
    
    100.0
    %
    
    
    75,993
    
    
    
    100.0
    %
    
    
    (1,685
    )
    
    
    -2.2
    %Cost of revenues:Services
    
    $
    42,549
    
    
    
    
    
    
    $
    45,857
    
    
    
    
    
    
    $
    (3,308
    )
    
    
    -7.2
    %Home Health Equipment
    
    
    3,708
    
    
    
    
    
    
    
    3,703
    
    
    
    
    
    
    
    5
    
    
    
    0.1
    %Pharmacy
    
    
    2,142
    
    
    
    
    
    
    
    2,340
    
    
    
    
    
    
    
    (198
    )
    
    
    -8.5
    %48,399
    
    
    
    
    
    
    
    51,900
    
    
    
    
    
    
    
    (3,501
    )
    
    
    -6.7
    %
 Gross
    
    
    
    
    
    GrossMargin %
    
    
    
    
    
    Margin %Gross margins:Services
    
    
    17,321
    
    
    
    28.9
    %
    
    
    16,521
    
    
    
    26.5
    %
    
    
    800
    
    
    
    4.8
    %Home Health Equipment
    
    
    7,326
    
    
    
    66.4
    %
    
    
    6,723
    
    
    
    64.5
    %
    
    
    603
    
    
    
    9.0
    %Pharmacy
    
    
    1,262
    
    
    
    37.1
    %
    
    
    849
    
    
    
    26.6
    %
    
    
    413
    
    
    
    48.6
    %$
    25,909
    
    
    
    34.9
    %
    
    $
    24,093
    
    
    
    31.7
    %
    
    $
    1,816
    
    
    
    7.5
    %
  26




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##### Table of Contents



27




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##### Table of Contents



Selling, General and Administrative
  % of
    
    
    
    
    
    % of
    
    
    
    
    
    %Total
    
    
    
    
    
    Total
    
    $ Increase/
    
    Increase/2008
    
    SG&A
    
    2007
    
    SG&A
    
    (Decrease)
    
    (Decrease)Services
    
    $
    13,645
    
    
    
    48.9
    %
    
    $
    13,968
    
    
    
    49.7
    %
    
    $
    (323
    )
    
    
    -2.3
    %Home Health Equipment
    
    
    6,321
    
    
    
    22.6
    %
    
    
    7,725
    
    
    
    27.5
    %
    
    
    (1,404
    )
    
    
    -18.2
    %Pharmacy
    
    
    2,659
    
    
    
    9.5
    %
    
    
    1,331
    
    
    
    4.7
    %
    
    
    1,328
    
    
    
    99.8
    %Corporate
    
    
    5,288
    
    
    
    18.9
    %
    
    
    5,055
    
    
    
    18.0
    %
    
    
    233
    
    
    
    4.6
    %$
    27,913
    
    
    
    100.0
    %
    
    $
    28,079
    
    
    
    100.0
    %
    
    
    ($166
    )
    
    
    -0.6
    %SG&A as % of Net Revenues
    
    
    37.6
    %
    
    
    
    
    
    
    36.9
    %
     
    
    A full six months of expenses subsequent to the JASCORP acquisition in July 2007; and
    
    The Companys investment in the infrastructure and additional employees that will be
necessary to support the anticipated growth in the Pharmacy segment during fiscal 2009.
  
    
    A change in the classification of certain employees who were previously included in the
Services segment to Corporate. Historically, employees in the Southfield, Michigan
location supported the Services segment almost exclusively. During fiscal 2008, the
Company centralized many of its corporate functions in Southfield, Michigan, and these
employees now support the entire organization. Beginning in fiscal 2009, the Company
began to more accurately separate and record these corporate functions from the segment
specific functions; and
    
    Severance expense relating to two former executives.
  
    
    In the third quarter of fiscal 2008, the Company hired an in-house legal counsel, and
since this hiring, the Companys legal fees have decreased significantly. Additionally,
audit fees and fees relating to Sarbanes-Oxley requirements decreased due to improved
efficiencies and general fee reduction efforts.
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##### Table of Contents




    
    The reduction of equity compensation expense. During the three-month period ended
September 30, 2007, the Company recognized approximately $700,000 relating to the vesting
of certain stock options consistent with the former CEOs separation agreement executed in
July 2007.
 Depreciation and Amortization
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Depreciation  cost of revenues
    
    $
    1,430
    
    
    $
    1,190
    
    
    $
    240
    
    
    
    20.2
    %Depreciation and amortization of property and equipment
    
    $
    867
    
    
    $
    596
    
    
    $
    271
    
    
    
    45.5
    %Amortization of acquired intangible assets
    
    
    943
    
    
    
    1,188
    
    
    
    (245
    )
    
    
    -20.6
    %Depreciation and amortization  operating expense
    
    $
    1,810
    
    
    $
    1,784
    
    
    $
    26
    
    
    
    1.5
    %
   Interest Expense and Income
  $ Increase/
    
    % Increase/2008
    
    2007
    
    (Decrease)
    
    (Decrease)Interest expense
    
    $
    2,042
    
    
    $
    2,181
    
    
    $
    (139
    )
    
    
    -6.4
    %Interest income
    
    
    (32
    )
    
    
    (73
    )
    
    
    (41
    )
    
    
    -56.2
    %$
    2,010
    
    
    $
    2,108
    
    
    $
    (98
    )
    
    
    -4.6
    %
  Income Taxes
  29




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##### Table of Contents



Liquidity and Capital Resources
  Keeping People at Home and
Healthier Longer,
       2008
    
    2007Net cash used in operating activities
    
    $
    (27
    )
    
    $
    (8,010
    )Net cash provided by (used in) investing activities
    
    
    (516
    )
    
    
    4,288Net cash provided by (used in) financing activities
    
    
    (3,514
    )
    
    
    2,476Net change in cash and cash equivalents
    
    
    (4,057
    )
    
    
    (1,246
    )Cash and cash equivalents, end of period
    
    
    2,294
    
    
    
    1,748Availability under line of credit agreements
    
    $
    1,818
    
    
    $
    5,048
     30




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##### Table of Contents



Medicare
    
    
    8
    %Medicaid/other government
    
    
    16
    %Commercial Insurance
    
    
    12
    %Institution/Facilities
    
    
    40
    %Private Pay
    
    
    24
    %
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
   31




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##### Table of Contents



Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  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.
  To the extent we do not generate adequate cash flow from operations, we may need to raise
additional cash through equity or debt financing, both of which may be difficult due to the
Companys current capital structure and stock price.
  Changes in reimbursement for Home Health Equipment products under Medicare could negatively affect
our business and financial condition.
  32




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##### Table of Contents



33




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
   Percentage ofVotes Cast inFor
    
    Withheld
    
    Favor of:Joseph Mauriello
    
    
    96,303,241
    
    
    
    552,139
    
    
    
    99.4
    %Daniel Eisenstadt
    
    
    96,259,641
    
    
    
    595,739
    
    
    
    99.4
    %
 
 Item 5. Other Information.
   
 Item 6. Exhibits.
  
 SIGNATURES
  November 6, 2008
    By:
    /s/ Marvin R. RichardsonMarvin R. RichardsonChief Executive Officer
(Principal Executive Officer) and DirectorNovember 6, 2008
    By:
    /s/ Matthew R. MiddendorfMatthew R. MiddendorfTreasurer and Chief Financial Officer
(Principal Financial and Accounting Officer) 34




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.
    
    Exhibit Description3.2
    
    Amended and restated Bylaws of
Arcadia Resources, Inc. (November 5, 2008)10.1
    
    Arcadia Resources, Inc. Board of
Director Compensation for October 1, 2008 to September 30, 200931.1
    
    Certification of the Chief Executive Officer required by rule 13a  14(a) or rule 15d 
14(a).31.2
    
    Certification of the Principal Accounting and Financial Officer required by rule 13a 
14(a) or rule 15d  14(a).32.1
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to
§906 of the Sarbanes  Oxley Act of 2002.32.2
    
    Principal Accounting and Financial Officer Certification Pursuant to 18 U.S.C. §1350, as
Adopted Pursuant to §906 of the Sarbanes  Oxley Act of 2002.
 35