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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, 2004 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31249 ARCADIA RESOURCES, INC.  NEVADA
(State or other jurisdiction of
incorporation or organization)
    
    880331369
(I.R.S. Employer I.D. Number)26777 CENTRAL PARK BLVD., SUITE 200
SOUTHFIELD, MI
(Address of principal executive offices)
    
    48076
Zip Code
 Registrants telephone no.: 2483527530 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b2 of the Exchange Act). o Yes þ No As of February 14, 2005, 89,196,786 shares of common stock, $0.001 par value, of the
Registrant were outstanding.




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Table of Contents Page No.Part I: Financial InformationItem 1. Financial Statements.
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    28Item 4. Controls and Procedures.
    
    28Part II: Other InformationItem 1. Legal Proceedings.
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    29Item 3. Defaults Upon Senior Securities.
    
    30Item 4. Submission of Matters to a Vote of Security Holders.
    
    30Item 5. Other Information.
    
    30Item 6. Exhibits
    
    30Signatures.
    
    31Certification of Chief Executive OfficerCertification of Principal Accounting & Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Principal Accounting Officer & Financial Officer
  2




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PART I: Financial Information 
 Item 1. Financial Statements The financial statements of the Registrant included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain
information normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America has been condensed or omitted, the
Registrant believes that the disclosures are adequate to make the information presented not
misleading. Readers are urged to carefully review and consider the various disclosures made by us
in this quarterly report on Form 10Q, the quarterly report on Form 10-Q for the period ended
September 31, 2004, the quarterly report on Form 10Q for the period ended June 30, 2004, our
Current Reports on Form 8K filed on November 10, 2004, December 23, 2004, December 28, 2004,
January 6, 2005, and our transition report filed on November 16, 2004, January 26, 2005 and
February 8, 2005, our annual report on Form 10KSB filed on February 18, 2004, and our other
filings with the Securities and Exchange Commission. These reports and filings attempt to advise
interested parties of the risks and factors that may affect our business, financial condition and
results of operation and prospects. The unaudited consolidated financial statements included herein reflect all adjustments, consisting
only of normal recurring items, which, in the opinion of management, are necessary to present a
fair statement of the results for the interim periods presented. The results for interim periods are not necessarily indicative of trends or results to be expected
for a full year. 3




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Arcadia Resources, Inc.
Consolidated Balance Sheet
(Unaudited) Successor
    
    
    PredecessorDecember 31,
    
    
    March 31,2004
    
    
    2004AssetsCurrent AssetsCash
    
    $
    633,108
    
    
    $
    Accounts receivable, net of allowance of
$1,782,000 and $848,000, respectively
    
    
    20,838,431
    
    
    
    13,478,381Inventory
    
    
    583,122
    
    
    
    Prepaid expenses and other current assets
    
    
    539,898
    
    
    
    133,547Prepaid workers compensation insurance
    
    
    2,041,273
    
    
    
    Deferred income tax
    
    
    683,000
    
    
    
    Total Current Assets
    
    
    25,318,832
    
    
    
    13,611,928Fixed AssetsEquipment
    
    
    1,167,108
    
    
    
    Software
    
    
    56,212
    
    
    
    61,619Furniture and fixtures
    
    
    254,960
    
    
    
    6,251Leasehold improvements
    
    
    146,131
    
    
    
    7,2081,624,411
    
    
    
    75,078Accumulated depreciation and amortization
    
    
    (559,641
    )
    
    
    (73,067
    )Net Fixed Assets
    
    
    1,064,770
    
    
    
    2,011Other AssetsGoodwill
    
    
    28,003,763
    
    
    
    3,589,191Deferred income tax
    
    
    90,000
    
    
    
    Deferred financing costs, net of accumulated
amortization of $17,000
    
    
    53,591
    
    
    
    Total Other Assets
    
    
    28,147,354
    
    
    
    3,589,191$
    54,530,956
    
    
    $
    17,203,130
 4




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##### Table of Contents



Successor
    
    
    PredecessorDecember 31,
    
    
    March 31,2004
    
    
    2004Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and checks issued against future deposits
    
    $
    1,362,026
    
    
    $
    1,116,143Accrued expenses:Compensation and related taxes
    
    
    2,345,130
    
    
    
    1,573,267Commissions
    
    
    540,587
    
    
    
    470,326Other
    
    
    870,037
    
    
    
    239,489Accrued interest
    
    
    175,068
    
    
    
    Long-term debt, current portion
    
    
    7,784,327
    
    
    
    Line of credit, current portion
    
    
    1,200,000
    
    
    
    Payable to affiliated agencies, current portion
    
    
    1,291,262
    
    
    
    1,143,804Total Current Liabilities
    
    
    15,568,437
    
    
    
    4,543,029Long-term debt, less current portion
    
    
    783,560
    
    
    
    Line of credit, less current portion
    
    
    14,434,304
    
    
    
    Payable to affiliated agencies, less current portion
    
    
    543,334
    
    
    
    429,829Total Liabilities
    
    
    31,329,635
    
    
    
    4,972,858Commitments and ContingenciesShareholders EquityCommon stock $.001 par value, 150,000,000 shares authorized,
81,127,130 and 947,636 shares issued and outstanding,
respectively
    
    
    81,127
    
    
    
    948Additional paid  in capital
    
    
    24,115,384
    
    
    
    7,627,047Retained earnings (accumulated deficit)
    
    
    (995,190
    )
    
    
    4,602,277Total Shareholders Equity
    
    
    23,201,321
    
    
    
    12,230,272$
    54,530,956
    
    
    $
    17,203,130
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Arcadia Resources, Inc.
Consolidated Statements of Operations
(Unaudited) Successor
    
    
    PredecessorThree Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2004
    
    
    December 31, 2003Net Sales
    
    $
    28,090,534
    
    
    $
    19,869,947Cost of Sales
    
    
    23,048,896
    
    
    
    16,848,818Gross Profit
    
    
    5,041,638
    
    
    
    3,021,129General and Administrative Expenses
    
    
    4,707,090
    
    
    
    2,061,420Depreciation and Amortization
    
    
    133,883
    
    
    
    5,655Operating Income
    
    
    200,665
    
    
    
    954,054Other Expenses (Income)Other Expense (Income)
    
    
    (16,625
    )
    
    
    Interest Expense, Net
    
    
    315,267
    
    
    
    Amortization of Debt Discount
    
    
    525,141
    
    
    
    Total Other Expenses
    
    
    823,783
    
    
    
    Net Income (Loss) Before Income Taxes
    
    
    (623,118
    )
    
    
    954,054Income Tax Expense
    
    
    95,114
    
    
    
    Net Income (Loss)
    
    $
    (718,232
    )
    
    $
    954,054Unaudited pro forma amounts to reflect pro forma income
taxes from tax change status
    
    
    
    
    
    
    324,378Pro Forma Income After income tax
from tax status change
    
    
    
    
    
    $
    629,676Income (Loss) Per Share:Basic
    
    $
    (0.01
    )
    
    $
    1.01Diluted
    
    $
    (0.01
    )
    
    $
    1.01Pro Forma Income Per Share:Basic
    
    
    
    
    
    $
    0.66Diluted
    
    
    
    
    
    $
    0.66Weighted average number of shares (in thousands):Basic
    
    
    68,494
    
    
    
    948Diluted
    
    
    68,494
    
    
    
    948
 6




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Arcadia Resources, Inc.
Consolidated Statements of Operations
(Unaudited) Successor
    
    
    PredecessorPeriod from
    
    
    Period FromMay 10, 2004
    
    
    April 1, 2004
    
    
    Nine monthsTo
    
    
    To
    
    
    EndedDecember 31, 2004
    
    
    May 9, 2004
    
    
    December 31, 2003Net Sales
    
    $
    67,223,593
    
    
    $
    9,486,601
    
    
    $
    57,633,769Cost of Sales
    
    
    56,196,566
    
    
    
    8,120,463
    
    
    
    48,935,269Gross Profit
    
    
    11,027,027
    
    
    
    1,366,138
    
    
    
    8,698,500General and AdministrativeExpenses
    
    
    10,320,389
    
    
    
    886,916
    
    
    
    5,942,404Depreciation and Amortization
    
    
    221,328
    
    
    
    
    
    
    
    17,100Operating Income
    
    
    485,310
    
    
    
    479,222
    
    
    
    2,738,996Other ExpensesImpairment of Goodwill
    
    
    
    
    
    
    16,055
    
    
    
    Other Income
    
    
    (16,625
    )
    
    
    
    
    
    
    Interest Expense, Net
    
    
    712,279
    
    
    
    
    
    
    
    Amortization of DebtDiscount
    
    
    682,593
    
    
    
    
    
    
    
    Total Other Expenses
    
    
    1,378,247
    
    
    
    16,055
    
    
    
    Net Income (Loss) Before
Income Tax Expense (Benefit)
    
    
    (892,937
    )
    
    
    463,167
    
    
    
    2,738,996Income Tax Expense
    
    
    102,253
    
    
    
    
    
    
    
    Net Income (Loss)
    
    $
    (995,190
    )
    
    $
    463,167
    
    
    $
    2,738,996Unaudited pro forma amounts
to
reflect pro formaIncome Taxes from tax status
change
    
    
    
    
    
    
    158,000
    
    
    
    931,259Pro Forma Income After income
tax from tax status change
    
    
    
    
    
    $
    305,167
    
    
    $
    1,807,737Income (Loss) Per Share:Basic
    
    $
    (0.01
    )
    
    $
    0.49
    
    
    $
    2.89Diluted
    
    $
    (0.01
    )
    
    $
    0.49
    
    
    $
    2.89Pro Forma Income Per Share:Basic
    
    
    
    
    
    $
    0.32
    
    
    $
    1.91Diluted
    
    
    
    
    
    $
    0.32
    
    
    $
    1.91Weighted average number of
shares (in thousands):Basic
    
    
    68,460
    
    
    
    948
    
    
    
    948Diluted
    
    
    68,460
    
    
    
    948
    
    
    
    948
 7




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Arcadia Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited) Successor
    
    
    PredecessorPeriod From
    
    
    Period from
    
    
    PredecessorMay 10, 2004
    
    
    April 1,2004
    
    
    Nine monthsTo
    
    
    To
    
    
    EndedDecember 31, 2004
    
    
    May 9, 2004
    
    
    December 31, 2003CASH FLOWS FROM OPERATING
ACTIVITIESNet Income (Loss)
    
    $
    (995,190
    )
    
    $
    463,167
    
    
    $
    2,738,996Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:Provision for bad
debts
    
    
    459,595
    
    
    
    42,192
    
    
    
    410,000Loss on disposition
of asset
    
    
    89,810
    
    
    
    
    
    
    
    Depreciation and
amortization
    
    
    221,328
    
    
    
    77
    
    
    
    16,627Amortization of debt
discount and
deferred
financing costs
    
    
    682,593
    
    
    
    
    
    
    
    Investments write
off
    
    
    
    
    
    
    16,055
    
    
    
    Changes in operating assets and
liabilities:Accounts receivable
    
    
    (3,675,988
    )
    
    
    (692,193
    )
    
    
    (2,301,461
    )Inventory
    
    
    (175,769
    )
    
    
    
    
    
    
    Prepaid expenses and
other current assets
    
    
    (2,202,874
    )
    
    
    27,903
    
    
    
    17,477Checks issued against
future deposits
    
    
    (850,125
    )
    
    
    (314,025
    )
    
    
    94,160Accounts payable
    
    
    193,352
    
    
    
    42,823
    
    
    
    (94,871
    )Accrued expenses and
other current liabilities
    
    
    166,523
    
    
    
    (301,999
    )
    
    
    3,922,187Due to affiliated agencies
    
    
    (377,952
    )
    
    
    170,915
    
    
    
    (58,492
    )NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
    
    
    (6,464,697
    )
    
    
    (545,085
    )
    
    
    4,744,623
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Successor
    
    
    PredecessorPeriod From
    
    
    Period from
    
    
    PredecessorMay 10, 2004
    
    
    April 1, 2004
    
    
    Nine monthsTo
    
    
    To
    
    
    EndedDecember 31, 2004
    
    
    May 9, 2004
    
    
    December 31, 2003CASH FLOWS FROM INVESTING
ACTIVITIESPurchases of businesses
    
    
    (3,745,697
    )
    
    
    (157,500
    )
    
    
    (363,584
    )Purchases of property and
equipment
    
    
    (104,182
    )
    
    
    
    
    
    
    Proceeds from sale of asset
    
    
    1,779
    
    
    
    
    
    
    
    NET CASH USED IN INVESTING
ACTIVITIES
    
    
    (3,848,100
    )
    
    
    (157,500
    )
    
    
    (363,584
    )CASH FLOWS FROM FINANCING
ACTIVITIESProceeds from issuance of
common stock
    
    
    6,455,359
    
    
    
    
    
    
    
    Net draws on line of credit
    
    
    4,261,616
    
    
    
    
    
    
    
    Payment of long-term debt
    
    
    (629,505
    )
    
    
    
    
    
    
    Advances (dividends) from
shareholder
    
    
    
    
    
    
    702,585
    
    
    
    (4,381,039
    )NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
    
    
    10,087,470
    
    
    
    702,585
    
    
    
    (4,381,039
    )NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    $
    (225,327
    )
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    858,435
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, END
OF PERIOD
    
    $
    633,108
    
    
    
    
    
    
    
    Supplementary information:Cash paid during the period for:Interest
    
    $
    537,211
    
    
    
    
    
    
    
    Taxes
    
    $
    190,014
    
    
    
    
    
    
    
    Non-cash investing
activities:Issuance of common
stock for the
purchase of Trinity
Healthcare of
Winston-Salem, Inc.
and American
Oxygen, Inc.
    
    $
    1,143,000
    
    
    
    
    
    
    
    Non-cash financing
activities:Debt issue discount
    
    $
    1,507,600
    
    
    
    
    
    
    
    Forgiveness of note
payable
    
    $
    554,000
    
    
    
    
    
    
    
    Payment of note installment
with common stock
    
    $
    266,685
    
    
    
    
    
    
    
    
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) NOTE 1  BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements as of and for the periods ended
December 31, 2004 and 2003, have been prepared by the Company in accordance with accounting
principles generally accepted in the United States of America. These interim financial statements
include all adjustments which management considers necessary to make the financial statements not
misleading. The results of operations for the three months ended December 31, 2004 and for the
period May 10, 2004 through December 31, 2004 are not necessarily indicative of results that may be
expected for any other interim period or for the remainder of the year. The unaudited consolidated financial statements as of December 31, 2004 and for the three
months ended December 31, 2004 and for the period from May 10, 2004 to December 31, 2004, include
the accounts of Arcadia Resources, Inc. and its wholly owned subsidiaries (collectively referred to
as Arcadia or the Company). The balance sheet as of March 31, 2004 and the statements of
income for the period from April 1, 2004 to May 9, 2004, and for the three months and the nine
months ended December 31, 2003, include the accounts of Arcadia Services, Inc. (Arcadia Services
or Predecessor) and subsidiaries prior to the effect of the acquisition and merger described in
Note 4. All significant intercompany balances and transactions have been eliminated in
consolidation. MERGER, RECAPITALIZATION AND CHANGE IN REGISTRANT NAME Effective May 10, 2004, CHC Sub, Inc., a wholly-owned subsidiary of the Company, merged with
and into RKDA, Inc. (RKDA), a recently formed Michigan corporation, (the RKDA Merger). RKDAs
assets consist of all of the capital stock of Arcadia Services and the membership interest of SSAC,
LLC d/b/a Arcadia Rx. RKDA acquired Arcadia Services on May 7, 2004 pursuant to a Stock Purchase
Agreement by and among RKDA, Arcadia Services, Addus HealthCare, Inc. (Addus), and the principal
stockholder of Addus (the Arcadia Services Acquisition). For descriptions of the terms of the
RKDA Merger and the Arcadia Services Acquisition, please refer to the Form 8-K filed with the
Securities and Exchange Commission (the Commission) on May 24, 2004, as amended by Form 8-K/A
filed with the Commission on July 23, 2004. The transaction between RKDA and Arcadia was
considered a reverse merger, and RKDA will be considered the acquirer of the Company for accounting
purposes. 10




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Effective November 16, 2004, Critical Home Care, Inc. changed its name to Arcadia Resources,
Inc. and its stock symbol to OTC Bulletin Board: ACDI. The name change has been reflected herein
as all references to Critical Home Care, Inc. are now indicated as Arcadia Resources, Inc., Arcadia
or the Company. The change presents a new identity for the Company and encompasses the Companys
expanded lines of business and broadened strategic focus. References to Arcadia Services are to
the Companys wholly-owned subsidiary, Arcadia Services, Inc. This report should be read in conjunction with Consolidated Financial Statements of Arcadia
Services, Inc. and Subsidiaries for the Years Ended March 31, 2004 and 2003, included in the Form
8-K/A filed with the Commission on July 23, 2004 as Critical Home Care, Inc. NOTE 2  DESCRIPTION OF BUSINESS Arcadia is incorporated in Nevada and based in Southfield, Michigan. The Company is a national
provider of staffing and home care services, durable medical equipment and mail-order
pharmaceuticals. The Company provides staffing for by both medically-trained personnel and
non-medical personnel. The Companys medical staffing service includes registered nurses, travel
nurses, licensed practical nurses, certified nursing assistants, respiratory therapists and medical
assistants. The non-medical staffing service includes light industrial, clerical, and technical
personnel. The home care services include personal care aides, home care aides, homemakers,
companions, physical therapists, occupational therapists, speech pathologists and medical social
workers. The Company markets and sells surgical supplies, orthotic and prosthetic products and
durable medical equipment, such as wheelchairs and hospital beds and also provides oxygen and other
respiratory therapy services and equipment. The Company provides staffing to institutions and
facilities as well as providing staffing and other services and products to patients directly in
the home. These services are contractually agreed upon with institutional and facilities clients
and billed directly to the respective entity or other payor sources as determined and verified
prior to the provision of the services. When providing services and products to patients in the
home, the arrangements are determined case by case in advance of delivery, generally on a month to
month basis, and are paid for by the clients directly or by their insurers, including commercial
insurance companies, Medicare and state-based Medicaid programs. NOTE 3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation  The unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation. Use of Estimates  The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the financial statements, and revenue and
expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition  Revenues for services are recorded in the period the services are
rendered at rates established contractually or by other agreement made with the institution or
patient prior to the services being delivered. Revenues for products are recorded in the period
delivered based on rental or sales prices established with the client or their insurer prior to
delivery. Insurance entities generally determine their pricing schedules based on the regional
usual and customary charges or based on contractual arrangements with their insureds.
Federally-based Medicare and state-based Medicaid programs publish their pricing schedules
periodically for covered products and services. Revenues are recorded based on the expected
amount to be realized by the Company. 11




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Allowance for Doubtful Accounts  The Company reviews all accounts receivable balances and
provides for an allowance for uncollectible accounts based on historical analysis of its records.
The analysis
is based on patient and institutional client payment histories, the aging of the
accounts receivable, and specific review of patient and institutional client records. Items
greater than one year old are fully reserved. As actual collection experience changes, revisions
to the allowance may be required. Any unanticipated change in customers credit worthiness or
other matters affecting the collectibility of amounts due from such customers, could have a
material effect on the results of operations in the period in which such changes or events occur.
After all attempts to collect a receivable have failed, the receivable is written off against the
allowance. Inventories  Inventories are valued at acquisition cost utilizing the first in, first out
(FIFO) method. Inventories include products and supplies held for sale at the Companys
individual locations. The home care and pharmacy operations of the Company possess the majority
of the inventory. Inventories are evaluated at least annually for obsolescence and shrinkage. Fixed Assets and Depreciation  Fixed assets are valued at acquisition cost and depreciated or
amortized over the estimated useful lives of the assets (3-15 years) by use of the straight-line
method. The majority of the Companys fixed assets include equipment held for rental to patients
in the home. Goodwill  Goodwill represents the excess of purchase price over net assets of businesses
acquired. The Company follows Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Accordingly, goodwill is not amortized but is tested for
impairment annually in the fourth quarter, and between annual tests in certain circumstances. The
estimates associated with the goodwill impairment test are considered critical due to judgment
required in determining fair value amounts, including projected discounted future cash flows.
Changes in these estimates may result in the recognition of an impairment loss. Impairment of Long-Lived Assets  The Company reviews its long-lived assets for impairment
whenever changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. To determine if impairment exists, the Company compares the estimated future
undiscounted cash flows from the related long-lived assets to the net carrying amount of such
assets. Once it has been determined that an impairment exists, the carrying value of the asset is
adjusted to fair value. Factors considered in the determination of fair value include current
operating results, trends and the present value of estimated expected discounted future cash flows. Earnings (Loss) Per Share  Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution that could occur if
securities, or other contracts to issue common stock, were exercised or converted into shares of
common stock. Outstanding stock options and warrants to acquire shares of common stock have not
been considered in the computation of dilutive loss per share since their effect would be
antidilutive. Income Taxes  Income taxes are accounted for under the asset and liability method.
Accordingly, deferred tax assets and liabilities are recognized currently for the future tax
consequences attributable to the temporary differences between the financial statement carrying
amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or settled. A
valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more
likely than not that such assets will not be realized. 12




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The Company considers all available evidence, both positive and negative, to determine
whether, based on the weight of that evidence, a valuation allowance is needed for some portion or
all of a net deferred tax asset. Judgment is used in considering the relative impact of negative
and positive evidence. In arriving at these judgments, the weight given to the potential effect of
negative and positive evidence is commensurate with the extent to which it can be objectively
verified. The Company records a valuation allowance to reduce deferred tax assets and reviews the
amount of such allowance annually. When the
Company determines certain deferred tax assets are more
likely than not to be utilized, the Company will reduce the valuation allowance accordingly. Prior to May 10, 2004, Arcadia Services elected to be taxed as a Subchapter S corporation with
the individual shareholders reporting their respective share of income on their income tax return.
Accordingly, the Company has no deferred tax assets or liabilities recorded in prior periods. The Company has provided a valuation allowance for the deferred tax assets related to the
approximate $2,300,000 net operating loss (NOL) carryforwards of Arcadia, expiring through 2024.
Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a change in control of a
company. It has been determined that a change in control has taken place, therefore, utilization of
the Companys NOLs will be subject to limitations in future periods, which could have an effect of
eliminating substantially all the future income tax benefits of the NOLs. Tax benefits from the
utilization of NOL carryforwards will be recorded at such time and to such extent, they are more
likely than not to be realized. Stock Based Compensation The Company accounts for its stock option plan under SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure  an amendment of SFAS No. 123. As permitted under SFAS
No. 123, the Company continues to apply the Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. As required under SFAS No. 148, the following table presents pro
forma net loss and basic and diluted loss per share as if the fair value-based method had been
applied to all awards. Successor
    
    
    PredecessorFor the Three
    
    
    For the ThreeMonths Ended
    
    
    Months EndedDecember 31, 2004
    
    
    December 31, 2003Net income (loss) as reported
    
    $
    (718,232
    )
    
    $
    954,054Less: Total stock-based
employee compensation
expense determined under the fair
value
method, net of related tax effects
    
    
    3,000
    
    
    
    Pro Forma net
income (loss)
    
    $
    (721,232
    )
    
    $
    954,054Net income (loss) per share:Basic and diluted income
(loss) per share as reported
    
    $
    (0.01
    )
    
    $
    1.01Pro Forma basic and diluted
income (loss) per share
    
    $
    (0.01
    )
    
    $
    1.01
 13




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Successor
    
    
    PredecessorFor the Period
    
    
    For the NineEnded
    
    
    Months EndedDecember 31, 2004
    
    
    December 31, 2003Net income (loss) as reported
    
    $
    (995,190
    )
    
    $
    2,738,996Less: Total stock-based
employee compensation
expense determined
under the fair value
method, net of related tax
effects
    
    
    9,000
    
    
    
    Pro Forma net
income (loss)
    
    $
    (1,004,190
    )
    
    $
    2,738,996Net income (loss) per share:Basic and diluted income
(loss) per share as reported
    
    $
    (0.01
    )
    
    $
    2.89Pro Forma basic and diluted
income (loss) per share
    
    $
    (0.01
    )
    
    $
    2.89
 NOTE 4  MERGER TRANSACTION Effective May 10, 2004, CHC Sub, Inc., a wholly-owned subsidiary of Arcadia Resources, Inc.,
merged with and into RKDA, Inc. (RKDA), a recently-formed Michigan corporation. RKDA was
formerly owed by John E. Elliott, II and Lawrence R. Kuhnert. On May 10, 2004, pursuant to the
terms of the merger, the Company issued Messrs. Elliott and Kuhnert 21,300,000 shares of its Common
Stock and 1,000,000 Class A Warrants to purchase 1,000,000 shares of the Companys Common Stock at
$0.50 per share within seven years, in exchange for their interest in RKDA. RKDAs assets consist
of the outstanding capital stock of Arcadia Services and the membership interest of SSAC, LLC d/b/a
Arcadia Rx. RKDA acquired Arcadia Services on May 7, 2004 pursuant to a Stock Purchase Agreement
by and among RKDA, Arcadia Services, Addus Healthcare, Inc. (Addus) and Adduss principal
shareholder. The purchase price of Arcadia Services was $16,800,000, including the assumption of
accounts payable and a note payable totaling $700,000. The following unaudited pro forma statement of income has been prepared to give effect to the
reverse merger. RKDA will be considered the acquirer of the Company for accounting purposes. This
pro forma statement of income has been prepared as if the merger had been completed as of April 1,
2004. The unaudited pro forma statement of income is presented for illustrative purposes only and is
not necessarily indicative of the results of operations that would have actually been reported had
the merger occurred on April 1, 2004, nor is it necessarily indicative of the future results of
operation. The pro forma statement of operations has been prepared based on the Companys financial
information. 14




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Nine months EndedDecember 31, 2004Pro forma revenue
    
    $
    77,182,945Pro forma net (loss)
    
    $
    (811,958
    )Pro forma net (loss) per shareBasic
    
    $
    (0.01
    )Diluted
    
    $
    (0.01
    )Pro forma weighted average
common shares (in thousands)Basic
    
    
    68,460Diluted
    
    
    68,460
 NOTE 5  NOTES PAYABLES  OFFICER On May 13, 2004, David S. Bensol converted $150,000 of notes payable to officer into 600,000
shares of the Companys common stock at $0.25 per share, plus 60,000 Class A warrants identical to
those issued in connection with the Companys May 7, 2004 Offering, pursuant to a resolution of the
Board of Directors dated May 4, 2004. The remaining notes payable to officer issued from May 2003 to December 2003 totaling $554,000
were forgiven by the officer upon his resignation on December 15, 2004. This forgiveness was
recorded as an increase to paid in capital. Note 12 on Commitments further describes the
terms of the termination agreement with the officer. NOTE 6  LONG-TERM DEBT Long-term debt at December 31, 2004 is summarized in the following table. Accrued interest payable
is stated separately on the balance sheet. Note payable dated September 10, 2004
bearing interest at the rate of 6% per year.
The note is payable in full with interest
by June 21, 2005. The Company can extend the
payment date to September 21, 2005 at an
interest rate of 12 % during the extension
period. The lender also received warrants to
purchase up to 3,150,000 shares of common
stock at $0.95 per share which expire on
September 21, 2009. The $5,000,000 note
payable is shown net of debt discount of
$660,441.
    
    $
    4,339,559Subordinated convertible note payable,
dated June 12, 2004 bearing interest of 12%.
The $1,500,000 note payable is due and
payable in three installments of $250,000 on
December 31, 2004, March 31, 2005 and July
15, 2005 with the balance of $750,000 due on
October 15, 2005. If the note is repaid
before the maturity date, the Company shall
pay a 2.5% prepayment fee to the lender. The
note is convertible into shares of common
stock at $0.50 per share. The remaining
note payable of $1,250,000 is shown net of
debt discount of $199,799. The lender
converted the December 31, 2004 payment and
related accrued interest into 533,370 shares
of common stock.
    
    
    1,050,201
 15




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##### Table of Contents



Purchase price payable to the selling
shareholders of Trinity Healthcare of
Winston-Salem, Inc. (Trinity) dated
September 23, 2004, bearing simple interest
of 8% per year starting January 15, 2005.
Balance paid down to $225,000 in January
2005 with remaining payments due quarterly
beginning April 1, 2005.
    
    
    975,510Purchase price payable to the selling
shareholders of Trinity dated September 23,
2004, bearing simple interest of 8% per year
payable in quarterly payments of principal
and interest beginning January 15, 2005, due
October 15, 2006. Interest accrues starting
on January 15, 2005.
    
    
    660,740Subordinated note payable to the
selling shareholder of Arcadia Services
dated May 7, 2004, bearing simple interest
at 12% payable in one year. Accrued
interest will be waived if note is paid by
the maturity date.
    
    
    500,000Purchase price payable to the selling
shareholders of Trinity dated September 23,
2004, to be paid in shares of the Companys
common stock based on approximate fair value
at the transaction date. The Company issued
407,866 shares of common stock as repayment
in January 2005 of which 305,898 shares are
escrowed until January 15, 2006 for
purchasers recoupment rights under the
purchase agreement.
    
    
    347,500Note payable due by July 1, 2005,
bearing simple interest of 12%. Interest
payments only due monthly.
    
    
    275,000Revolving Line of Credit with US Bank
dated February 17, 2004 with a credit limit
of $250,000, bearing interest at prime +1%,
effectively 6.25%, at December 31, 2004, and
maturing on February 17, 2005.
    
    
    222,476Other
    
    
    196,9018,567,887Less  Current portion of long-term debt
    
    
    7,784,327LONG-TERM DEBT
    
    $
    783,560
 NOTE 7  LINE OF CREDIT  ARCADIA SERVICES On May 7, 2004, Arcadia Services and three of its wholly owned-subsidiaries (the borrowers)
entered into a Credit Agreement with Comerica Bank. The agreement, as amended, provides the
borrowers with a revolving credit facility of up to $16,000,000 due May 7, 2006. The formula base
is 85% of the eligible accounts receivable and an overformula advance of $1,200,000. The
overformula advance is available for one year and is due $100,000 per month from January 2005
through December 2005. The 16




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##### Table of Contents



initial advance of $11,000,000 was used to fund a portion of the purchase price of the common
stock of Arcadia Services by RKDA from the seller. RKDA granted Comerica Bank a first priority
security interest in all of the issued and outstanding stock of Arcadia Services. Arcadia Services
and the subsidiaries granted security interests in all of their assets to Comerica Bank. The
selling shareholder of Arcadia Services subordinated a $500,000 note payable from Arcadia Services
to the borrowers indebtedness to Comerica Bank. RKDA and its former principals, Messrs. Elliott
and Kuhnert, each executed a personal guaranty to Comerica Bank over all indebtedness of the
borrowers. Advances under the credit facility bear interest at the primebased rate (as defined) or the
Eurodollarbased rate (as defined), at the election of borrowers. The borrowers agreed to various
financial covenant ratios; to have any person who acquires Arcadia Services common stock pledge
such stock to Comerica Bank, and along with Messrs. Elliott and Kuhnert, to customary negative
covenants. Amounts outstanding under this agreement totaled $15,634,304 at December 31, 2004, of
which $1,200,000 is classified as current and $14,434,304 is classified as longterm. NOTE 8  ACQUISITIONS On July 30, 2004 the Company purchased selected assets of the Staffing Source of St.
Petersburg, Florida. The Staffing Source, Inc. with offices in Bradenton, Clearwater and St.
Petersburg provides temporary personnel for health care facilities and other business. It reported
2003 sales of $3,300,000. The purchase price is computed per a specified formula based on the
annualized revenue, with a minimum total payment of $480,000 and a maximum total payment of
$600,000. On August 20, 2004 the Company purchased American Oxygen, Inc. of Peoria, Illinois. The
purchase price was 200,000 shares of the Company valued at $186,000. American Oxygen operates from
two locations in Illinois and sells durable medical equipment, including respiratory/oxygen. On August 30, 2004 the Company purchased selected assets of Merit Staffing Resources, Inc
(Merit). Merit provides temporary personnel for healthcare facilities and other businesses. It has
offices in Danvers, Dedham, Lakeville, Sandwich, and Weymouth, Massachusetts and reported 2003
sales of $4,700,000. The purchase price is (a) cash equal to a specified percentage of the sellers
accounts receivable under 120 days outstanding as of closing, plus $200,000, subject to a total
maximum cash payment at closing of $1,600,000 plus (b) forty eight monthly payments computed per a
specified formula based on gross margin with a minimum total payment of $864,000 and a maximum
total payment of $1,600,000. On September 23, 2004 the Company purchased Trinity Healthcare of WinstonSalem, Inc
(Trinity). The acquisition was a stock purchase and the price was $5,400,000. Trinity provides
oxygen and other respiratory services, as well as home intravenous therapy services. Trinity has
locations in WinstonSalem and Huntersville, North Carolina, and Marietta and Demorest, Georgia.
Two of Trinitys selling shareholders were paid the following portions of the purchase price at
closing on September 23, 2004: (a) payment of $2,500,000 in cash; (b) issuance of 1,075,410 shares
of the Companys common stock with an aggregate value of $916,250; and (c) delivery of a promissory
note in the aggregate principal amount of $660,740, secured by a wholly owned subsidiary under a
security agreement subordinated to their primary lender. The promissory notes term is 21 months
beginning January 15, 2005 and maturing October 15, 2006. The promissory note bears simple
interest at 8% per annum commencing January 15, 2005 and provides for equal quarterly payments of
principal and interest. Payment of the promissory note is subject to SSACs rights of
recoupment/offset and is guaranteed by the Company per an unsecured guaranty. Trinitys two other
selling shareholders will be paid the following portions of the purchase price by January 15, 2005:
(a) $975,510 payable in cash, subject to SSACs rights of recoupment/offset and the Companys
unsecured guaranty; and (b) 407,864 shares of the Companys common stock with an aggregate value of
$347,500, of which 305,898 shares with an aggregate value of $260,625 will be escrowed for one
year. The escrowed shares will be subject to SSACs rights of recoupment/offset. Subject to
recoupment/offset, the escrowed shares will be released to the two shareholders by January 15,
2006. 17




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Acquisition of BK Tool, Inc. On December 17, 2004, the Companys Grayrose, Inc. subsidiary purchased substantially all of
the assets of BK Tool, Inc., a light industrial staffing business located in Sterling Heights,
Michigan, with approximately $2,000,000 in annual revenues. The total purchase price of $468,000
included payment of $175,000 plus 85% of accounts receivables no greater than 60 days outstanding.
At closing, the seller was paid $393,000 in cash, drawn on the line of credit, and the remaining
$75,000 was paid to the seller in January 2005. NOTE 9  AFFILIATED AGENCIES PAYABLE Arcadia Services, Inc. (Arcadia Services), a wholly-owned subsidiary of the Company, operates
independently and through a network of affiliated agencies throughout the United States. These
affiliated agencies are independently-owned, owner-managed businesses, which have been contracted
by the Company to sell services under the Arcadia Services name. The arrangements with affiliated
agencies are formalized through a standard contractual agreement. The affiliated agencies operate
in particular regions and are responsible for recruiting and training field service employees and
marketing their services to potential customers within the region. The field service employees are
employees of Arcadia Services. Arcadia Services provides sales and marketing support to the
affiliated agencies and develops and maintains operating manuals that provide suggested standard
operating procedures. The contractual agreements require a specific, timed, calculable flow of funds and expenses
between the affiliated agencies and Arcadia Services. The amounts due to the affiliated agencies
in excess of one year are considered long-term. The net amounts due to affiliated agencies under
these agreements include short-term liabilities of $1,291,262 and long-term liabilities of $543,334
as of December 31, 2004. NOTE 10  SHAREHOLDERS EQUITY On May 10, 2004, CHC Sub, Inc., a whollyowned subsidiary of Arcadia, consummated an Agreement
and Plan of Merger under which CHC Sub, Inc., merged with and into RKDA. The purchase price paid
was 21,300,000 shares of Arcadia common stock and 1,000,000 sevenyear Class A warrants to purchase
1,000,000 shares of common stock at $0.50 per share. The Company retired 1,300,000 shares of its
common stock as part of this transaction. RKDAs assets consist of all of the capital stock of
Arcadia Services and the membership interests of SSAC, LLC d/b/a Arcadia Rx. RKDA acquired
Arcadia Services through a stock purchase on May 7, 2004. The Company raised $8,245,000 through a
Regulation D private placement of 32,980,000 common shares at a price of $0.25 per share which was
completed and terminated on May 27, 2004. The offering also included 3,298,000 Class A Warrants to
purchase 3,298,000 common shares of stock over seven years at an exercise price of $0.50 per share.
The Placement Agent received a 10% sales commission and reimbursement for outofpocket expenses
totaling $887,000 along with seven-year Class A warrants to purchase 2,298,000 shares of the
Companys common stock exercisable on a cashless basis at $0.50 per share which were recorded as a
reduction to paid in capital. The post-transaction costs of registering securities issued in the offering are considered an
expense for accounting purposes. Due to the complex nature of the business combination and the
time schedule required, those costs have been significant to the Company for the periods presented.
Such related costs include primarily external professional fees for legal, accounting and auditing
services along with internal costs of preparing and filing the required documents with the
Securities and Exchange Commission. The Company estimates its external costs as $200,000 and
$450,000 for the three months and nine months ended December 31, 2004, respectively. Additional
costs will be incurred until the registration is completed. Three officers of the Company escrowed 6,000,000, 4,000,000 and 2,000,000 shares of the
Companys common stock, respectively, pursuant to Escrow Agreements dated as of May 7, 2004
(collectively, the Escrow Shares). Fifty (50%) percent of the Escrow Shares will be released from
escrow 18




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##### Table of Contents



in fiscal 2007 and fiscal 2008, if RKDA, in the case of Messrs. Elliott and Kuhnert, and the
Company, in the case of Mr. Bensol, meets the following milestones: for the 12 month period ending
March 31, 2006, an Adjusted EBITDA (as defined) of $9,700,000 and for the 12 month period ending
March 31, 2007, an Adjusted EBITDA of $12,500,000. Alternatively, the Escrow Shares shall be
released in fiscal 2008 if RKDA, in the case of Messrs. Elliott and Kuhnert, and the Company, in
the case of Mr. Bensol, obtains an Adjusted EBITDA for the 24 month period ending March 31, 2007 of
at least $22,000,000. In addition, for any of the Escrow Shares to be released pursuant to the
foregoing thresholds, the Companys, in the case of Mr. Bensol, and RKDAs, in the case of Messrs.
Elliott and Kuhnert, Debt to Adjusted EBITDA ratio must be 2.0 or less. Nevertheless, twenty (20%)
percent of the Escrow Shares (2,400,000 shares) will be released if the Companys Common Stock
remains at least $1.00 per share for 30 consecutive trading days or the average closing price for
any 45 day period is at least at $1.00 per share, even if the EBITDA thresholds are not met. Upon
release of any Escrow Shares, the Company will recognize expense equal to the fair value of the
shares at the release date to the extent required by generally accepted accounting principles. Twenty (20%) percent of the Escrow Shares (2,400,000 shares) were released from escrow as of
February 3, 2005, due to the average closing price of the Companys Common Stock being at least
$1.00 for the 45 day period ended January 4, 2005. In the fourth quarter, the Company will
recognize expense equal to the fair value of these 2,400,000 shares at the release date to the
extent required by accounting principles generally accepted in the United States of America. On May 25, 2004, the Company entered into separate agreements with certain managerial
employees of Arcadia Services, Inc., that allowed the employees to purchase 840,000 shares of the
Companys common stock at $0.25 per share. On December 2, 2004, the Company issued a total of 144,999 shares of its common stock upon the
exercise of stock options by three former employees of the Company. The aggregate consideration
for these shares totaled $34,999. On December 31, 2004, the lender converted a $250,000 payment plus interest on a subordinated
convertible note payable, dated June 12, 2004 into 533,370 shares of common stock at $0.50 per
share in accordance with the loan agreement. See Note 14 for transactions subsequent to December 31, 2004 related to shareholders equity. NOTE 11  INCOME TAXES Although the Company experienced a loss for the quarter ended December 31, 2004 and the period
May 10, 2004 through December 31, 2004, the Company recognized income tax expense of $95,114 and
$102,253 for these periods, respectively. Income tax expense relates to state income taxes as a
result of the Companys multistate locations. NOTE 12  COMMITMENTS EMPLOYMENT AGREEMENTS Three officers of the Company entered into substantially similar employment agreements on May
7, 2004, as Chief Executive Officer, Chief Financial Officer, President and Chief Operating
Officer, and Executive Vice President, respectively. Each agreement is for three years,
automatically renewable for successive oneyear periods unless terminated on three months prior
written notice at $150,000 per annum in salary plus discretionary annual bonuses determined by the
Board of Directors. If either Messrs. Elliott, Kuhnert, or Bensols employment is terminated by the
Company other than for cause (as defined) or by the executive for good reason (as defined), then
such executive shall receive twice his base salary. Upon a change in control, other than the RKDA
Merger, if the executives employment is terminated by the Company other than for cause or by the
executive for good reason, the executive shall receive three times 19




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##### Table of Contents



his total compensation for the past year. Each executive agreed not to compete with the Company
within North America for one year following termination of his employment. Messrs. Elliott and Kuhnert were each granted stock options to purchase 4,000,000 shares of
Common Stock exercisable at $0.25 per share. The options shall vest in six tranches provided
certain adjusted EBITDA milestones are met through fiscal 2008, subject to acceleration upon
certain events occurring. The options may be exercised by Messrs. Elliott and Kuhnert as long as
they are employed by the Company and for one year from termination for any reason provided they
have achieved the EBITDA milestones. The expense, if any, related to these options will be
recognized in the period the milestones are achieved or are likely to be achieved. On September 23, 2004, two-year employment agreements were entered into with two managers as
part of the acquisition of Trinity providing for total salaries of $162,000 plus quarterly and
annual performance-based cash bonuses. In connection with his resignation effective December 23, 2004, Mr. Bensol was paid
outstanding reimbursable business expenses and compensation through December 31, 2004. The Company
paid $28,948 to RVC Realty (of which Mr. Bensol is a principal) to satisfy and terminate a lease
obligation of the Company. Mr. Bensol released all options held to purchase shares of the
Companys common stock, and retained his rights to his issued shares of the Companys common stock
and related Class A warrants, including his shares of common stock held in escrow. On January 6, 2005, the Company entered into an employment agreement with the Companys Chief
Financial Officer, Ms. Irish. The agreement is for a one-year term at $125,000 per annum in
salary, along with discretionary annual bonuses and salary increases to be determined by the Board
of Directors. If Ms. Irishs employment is terminated by the Company other than for cause (as
defined), then she shall receive one-half her base salary. Ms. Irishs agreement includes a
non-compete provision with the Company for the one-year-period post-termination. Ms. Irish shall
be granted options, per the Companys Employee Stock Purchase Plan, to purchase 150,000 shares of
the Companys common stock at an exercise price of $1.15, to vest in a manner yet to be determined.
Additionally, to the extent she is employed by the Company as of January 10, 2005, and January 1,
2006, 2007 & 2008, she shall be granted 18,750 restricted shares of the Companys common stock as
of each such date. The initial 18,750 shares related to 2005 have been issued. NOTE 13  RELATED PARTY TRANSACTIONS As described in Note 12, in connection with Mr. Bensols resignation as a director, officer
and employee effective December 23, 2004, the Company paid $28,948 to RVC Realty to satisfy and
terminate a lease obligation of the Company. Mr. Bensol is a principal in RVC Realty. Total
lease obligations to RVC Realty for the nine months ended December 31, 2004 were $28,948. As more fully described in Note 14, the Company purchased Beacon Respiratory Services
effective January 1, 2005. Ms. Irish was one of the selling shareholders of those companies and
has received a note payable from the Company of $150,000 related to the purchase. NOTE 14  SUBSEQUENT EVENTS Acquisition of Beacon Respiratory Services On December 22, 2004, Arcadia Resources, Inc. agreed to purchase all of the outstanding shares
of common stock of Beacon Respiratory Services, Inc., Beacon Respiratory Services of Alabama, Inc.,
Beacon Respiratory Services of Colorado, Inc., and Beacon Respiratory Services of Georgia, Inc.
(collectively Beacon). Beacon provides respiratory services in Florida, Alabama, Colorado, and
Georgia and collectively had annual revenues of approximately $1,900,000. The purchase agreement
was 20




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##### Table of Contents



signed on December 22, 2004 to become effective on January 1, 2005, with the purchase price
distributed based on the actual liabilities as of December 31, 2004. The purchase price was $1,500,000, including the payment of outstanding shareholder notes
totaling $258,891 and assumption of leases and accounts payable totaling $257,681. The purchase
price was subject to increase by up to an additional $400,000 based on expected pricing changes for
certain of the Companys products and services for calendar year 2005, with any additional amounts
owed being payable to the sellers by January 1, 2006. In 2005, the Company paid $983,428 in cash
to Beacons shareholders, less $150,000 to be held by the Company to offset valid indemnification
and other claims of the Company. The Companys counsel will hold 16.33% of the Beacon shares
purchased until the $150,000 (including accrued interest less any amounts disputed) is paid to
sellers by January 1, 2006. During this time, the Company may vote such shares and shall have all
incidents of ownership. On January 15, 2005, one of Beacons selling shareholders was issued a promissory note for
$150,000, with a one-year term at 8% annual interest. Principal and interest will be payable
quarterly. If the Company defaults on the note, the selling shareholder may require the Company to
transfer back the shares of stock sold by this selling shareholder (i.e., 33% of the Beacon shares
purchased by the Company) or elect other remedies. These shares will be held by the Companys
counsel until the note is paid. Until the note is paid, the Company may vote such shares and shall
have all incidents of ownership. Additional Borrowings On January 18, 2005, the Company obtained a $1,500,000 loan from Jana Partners, LLC due on
February 2, 2005 in exchange for warrants to purchase 50,000 shares of the Companys common stock
at $1.28 per share. This loan plus accrued interest of $15,000 was paid in full on February 4,
2005 with proceeds from the sale of unregistered securities described below. Issuances of Common Stock On January 21, 2005, the Company issued a total of 243,040 shares of its common stock to two
limited liability companies whose owners are certain of the members of Kerr, Russell and Weber, PLC
(KRW), as payment for legal services in the amount of $250,000 which KRW furnished to the
Company. On January 24, 2005, the Company issued a total of 407,866 shares of its common stock to two
former shareholders of Trinity Healthcare of Winston-Salem, Inc. (Trinity) per the agreement by
which a second-tier wholly owned subsidiary of the Company acquired all of Trinitys outstanding
common stock on September 23, 2004. Per the terms of the stock purchase agreement, the 407,866
shares issued have a total aggregate value of $347,500. Of the 407,866 shares of common stock
issued, 305,898 shares have been escrowed until January 15, 2006 to satisfy the purchasers rights
of recoupment/offset, per the terms of the stock purchase agreement. Late Registration Class A Warrants Issuable As of January 31, 2005, an additional 9,575 seven-year Class A Warrants to purchase 9,575
shares of common stock at $0.50 per share (the Late Registration Warrants) are issuable to those
shareholders that purchased shares in the Regulation D private placement which was completed on May
27, 2004 as more fully described in Note 10. These Late Registration Warrants are issuable because
per the terms of the Regulation D private placement offering, a registration statement of the
related securities was not declared effective (with a current prospectus) by the Securities and
Exchange Commission on or before January 22, 2005. Sale of Unregistered Securities 21




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Beginning February 2, 2005, Arcadia Resources, Inc. (the Company) sold an aggregate of
5,000,000 shares of its common stock, at a price of $0.90 per share, in private transactions to
investors qualifying as accredited investors as defined in Rule 501(a) of Regulation D. The
aggregate consideration received totaled $4,500,000 of the maximum $5,000,000 which the Company
intends to raise from this private offering for debt repayment, acquisitions and new business
ventures. The Company has agreed to use its best efforts to register these shares within ninety
days. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. General The following discussion and analysis should be read in conjunction with the Unaudited
Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10QSB.
Different business components are described herein as staffing and home care referring to the
different types of services and products provided to the Companys customer bases during the
periods indicated. We caution you that certain statements contained in this report (including documents, if any,
incorporated herein by reference) are forward-looking statements within the meaning of court
opinions construing such statements. Forwardlooking statements involve known and unknown risks,
uncertainties and other factors, which could cause actual financial or operating results,
performances or achievements expressed or implied by such forwardlooking statements not to occur
or be realized. Such forwardlooking statements generally are based on our best estimates of future
results, performances or achievements, predicated upon current conditions and the most recent
results of the companies involved and their respective industries. Forwardlooking statements may
be identified by the use of forwardlooking terminology such as may, can, will, could,
should, project, expect, plan, predict, believe, estimate, aim, anticipate,
intend, continue, potential, opportunity or similar terms, variations of those terms or the
negative of those terms or other variations of those terms or comparable words or expressions. Readers are urged to carefully review and consider the various disclosures made by us in this
quarterly report on Form 10Q, the quarterly report on Form 10-Q for the period ended September 31,
2004, the quarterly report on Form 10Q for the period ended June 30, 2004, our Current Reports on
Form 8K filed on November 10, 2004, December 23, 2004, December 28, 2004, January 6, 2005, January
26, 2005 and February 8, 2005, our annual report on Form 10KSB filed on February 18, 2004, and our
transition report file don November 16, 2004, and our other filings with the Securities and
Exchange Commission. These reports and filings attempt to advise interested parties of the risks
and factors that may affect our business, financial condition and results of operation and
prospects. The forwardlooking statements made in this Form 10Q speak only as of the
date hereof and we disclaim any obligation to provide updates, revisions or amendments to any
forwardlooking statements to reflect changes in our expectations or future events. Arcadia Accounting Policies The Company has identified the following accounting policies that require significant
judgment. The Company believes its judgments relating to allowance for doubtful accounts and
goodwill are appropriate. Allowance for Doubtful Accounts  The Company reviews all accounts receivable balances and
provides for an allowance for uncollectible accounts based on historical analysis of its records.
The analysis is based on patient and institutional client payment histories, the aging of the
accounts receivable, and specific review of patient and institutional client records. Items
greater than one year old are fully reserved. As actual collection experience changes, revisions
to the allowance may be required. Any unanticipated change in customers credit worthiness or
other matters affecting the collectibility of amounts due from such customers, could have a
material effect on the results of operations in the period in which 22




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##### Table of Contents



such changes or events occur. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Goodwill  Goodwill represents the excess of purchase price over net assets of businesses
acquired. The Company follows Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Accordingly, goodwill is not amortized but is tested for
impairment annually in the fourth quarter, and between annual tests in certain circumstances. The
estimates associated with the goodwill impairment test are considered critical due to judgment
required in determining fair value amounts, including projected discounted future cash flows.
Changes in these estimates may result in the recognition of an impairment loss. Impairment of LongLived Assets  The Company reviews its longlived assets for impairment
whenever changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. To determine if impairment exists, the Company compares the estimated future
undiscounted cash flows from the related longlived assets to the net carrying amount of such
assets. Once it has been determined an impairment exists, the carrying value of the asset is
adjusted to fair value. Factors considered in the determination of fair value include current
operating results, trends and the present value of estimated expected discounted future cash flows. Results of Operations Three Months Ended December 31, 2004 Compared to the Three Months Ended December 31, 2003 Sales for the three months ended December 31, 2004 increased by $8,220,587, or 41%, to
$28,090,534 as compared to $19,869,947 for the three months ended December 31, 2003. The increase
in sales was attributed primarily to the following components: $898,030 from operations of the
entities that merged into the company effective May 10, 2004; $1,102,039 from the two staffing
acquisitions completed between January 1, 2004 and June 30, 2004; and $3,565,895 from the four
acquisitions done during the quarter ended September 30, 2004. The only acquisition during the
quarter ended December 31, 2004 was of BK Tool, Inc. on December 17, 2004, for which there were
minimal revenues as most of their industrial customers were closed for the holiday season. In
addition, the Company had internal growth of $2,654,623 or 13.4% during the three months ended
December 31, 2004 compared to the same period of the prior year in staffing revenues. There were
no significant changes in sales prices during the quarter ended December 31, 2004. Total sales for
the Company increased 10% to $28,090,536 for the third quarter from $25,512,001 for the second
quarter of its fiscal 2005. Gross profit margin for the quarter ended December 31, 2004 increased 18% to 17.9% of sales
compared to 15.2% of sales for the quarter ended December 31, 2003. The Companys expansion into
home care in May 2004 has and will continue to drive changes to the consolidated gross profit
margin of the Company. Staffing revenues for the quarter ended December 31, 2004 were $25,181,013
and yielded a gross margin of 13%, while the home care revenues were $2,909,521 at a gross margin
of 63%. Cost of sales for staffing are primarily employee costs, while cost of sales for home
care represents the cost of products and medications sold to patients and supplies used in the
delivery of other rental products and services to patients. The staffing business gross margins
were more seasonally affected in the quarter ended December 31, 2004 than the same period of the
prior year due to the business and client mix of institutional customers, factory closures for the
holidays and a lower margin service staffing demand in the facilities. General and administrative expenses for the quarter ended December 31, 2004 were $4,707,090
compared to $2,061,420 for the quarter ended December 31, 2003. The increase of $2,645,670, or
128%, are due to the changes in the Companys mix of business and include non-recurring costs
related to the post-transaction registration expenses of approximately $200,000 as more fully
described in the notes to the unaudited consolidated financial statements. The Company incurred
expenses of approximately $270,000 during the quarter ended December 31, 2004 toward building a
home care infrastructure and bolstering its 23




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##### Table of Contents



existing staffing infrastructure to accommodate recent and expected acquisitions. General and
administrative expenses for home care were 66% of related revenues and include the cost of
employees, compared to staffing general and administrative expenses at 8% of related revenues.
General and administrative expenses for home care were $1,912,179 and for the parent company were
$763,751 for the quarter ended December 31, 2004 compared to the prior year when the Company was
not in the home care business and not a publicly-traded entity. The post-transaction costs of registering securities issued in the offering are considered an
expense for accounting purposes. Due to the complex nature of the business combination and the
time schedule required, those costs have been significant to the Company for the periods presented.
Such related costs include primarily external professional fees for legal, accounting and auditing
services along with internal costs of preparing and filing the required documents with the
Securities and Exchange Commission. The Company estimates its external costs as $200,000 for the
three months ended December 31, 2004. Additional costs will be incurred until the registration is
completed. Depreciation and amortization expense was $133,883 for the quarter ended December 31, 2004
compared to $5,655 for the quarter ended December 31, 2003. The increase of $128,228 includes
additional depreciation expense of the home care component associated with the fleet of vehicles,
equipment held for rental to patients, pharmacy equipment and office furnishings and equipment
required to service the patients. The base of depreciable assets increased from $75,078 at March
31, 2004 to $1,624,411 at December 31, 2004. Interest expense was $315,267 for the three months ended December 31, 2004. The Company had no
borrowings during the same period of the prior year and therefore had no interest expense.
Interest expense incurred in the three months ended December 31, 2004 is interest paid as a result
of borrowings related to the acquisitions discussed in the notes to the unaudited consolidated
financial statements. Interest-bearing borrowings were $24,202,000 at December 31, 2004 at rates
ranging from 6.25% to 12% per annum compared to $22,183,000 borrowed at September 30, 2004 at rates
ranging from 6.25% to 12% per annum. Amortization of deferred debt discount was $525,141 for the three months ended December 31,
2004 generated by the attachment of warrants to two notes payable, while there were no such
arrangements for the same period in the prior year. The deferred debt discount is the fair value
of stock options and warrants granted to certain note holders as explained in Note 5 to the
unaudited consolidated financial statements. The deferred debt discount is being amortized over the
life of the related notes payable. Nine Months Ended December 31, 2004 Compared to the Nine Months Ended December 31, 2003 Sales for the nine months ended December 31, 2004 are split between the Predecessor (April 1,
2004 to May 9, 2004) and Successor (May 10, 2004 to December 31, 2004) companies. The sales from
May 10, 2004 to December 31, 2004 were $67,223,593 and from April 1, 2004 to May 9, 2004 were
$9,486,601. The combined sales for the nine months ended December 31, 2004 increased by
$19,046,425, or 33%, to $76,710,194 as compared to $57,633,769 for the nine months ended December
31, 2003. The increase in sales for the three quarters is attributed primarily to the following
components: $2,625,468 from operations of the entities that merged into the company effective May
10, 2004; $3,178,952 from the two staffing acquisitions completed between January 1, 2004 and June
30, 2004; and $4,324,510 from the four acquisitions done during the quarter ended September 30,
2004. See notes to the unaudited consolidated financial statements for discussion of various
acquisitions made during the three quarters ended December 31, 2004. In addition, the Company had
15.5% internal growth of $8,917,495 during the three quarters ended December 31, 2004. There were
no significant changes in sales prices during the period May 10, 2004 through December 31, 2004.
Total sales for the Company increased 10% from $23,107,658 for the first quarter (predecessor and
successor combined) to $25,512,002 for the second quarter and another 10% to $28,090,534 for the
third quarter of its fiscal year ending March 31, 2005. 24




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##### Table of Contents



Gross profit margin for the period from May 10, 2004 to December 31, 2004 increased 14% to
16.4% of sales and for the period from April 1, 2004 to May 9, 2004 was 14.4% of sales. The
combined gross profit for the nine months ended December 31, 2004 was 16.2% compared with the nine
months ended December 31, 2003 at 15.1%. The Companys expansion into home care in May 2004 has
and will continue to drive changes to the consolidated gross profit margin of the Company.
Staffing revenues for the three quarters ended December 31, 2004 were $71,913,301 and yielded a
gross margin of 13.4%, while the home care revenues were $4,796,893 at a gross margin of 57.2%.
Cost of sales for staffing are primarily employee costs, while cost of sales for home care
represents the cost of products and medications sold to patients and supplies used in the delivery
of other rental products and services to patients. The staffing business gross margins were
more seasonally affected in the three quarters ended December 31, 2004 than the same period of the
prior year due to the business and client mix of institutional customers and a lower margin service
staffing demand in the facilities. General and administrative expenses for the period from May 10, 2004 to December 31, 2004 were
$10,320,389 and for the period from April 1, 2004 to May 9, 2004 were $886,916. Combined general
and administrative expenses totaled $11,207,305 for the nine months ended December 31, 2004
compared to $5,942,404 for the nine months ended December 31, 2003. The 89% increase of $5,264,901
is due to the changes in the Companys mix of business and additional general and administrative
expenses related to the merged entities as discussed in the notes to the unaudited consolidated
financial statements. The Company incurred non-recurring costs related to the post-transaction
registration expenses of approximately $450,000 in the nine months ended December 31, 2004. The
Company incurred expenses of approximately $433,000 in the nine months ended December 31, 2004
toward building a home care infrastructure and bolstering its existing staffing infrastructure to
accommodate recent and expected acquisitions. The post-transaction costs of registering securities issued in the offering are considered an
expense for accounting purposes. Due to the complex nature of the business combination and the
time schedule required, those costs have been significant to the Company for the three quarters
ended December 31, 2004. Such related costs include primarily external professional fees for
legal, accounting and auditing services along with internal costs of preparing and filing the
required documents with the Securities and Exchange Commission. The Company estimates its
external costs as $450,000 for the nine months ended December 31, 2004. Additional costs will be
incurred until the registration is completed. Depreciation and amortization expense was $221,328 for the nine months ended December 31, 2004
compared to $17,100 for the nine months ended December 31, 2003. The increase of $204,228 consists
primarily of additional depreciation expense of the home care component associated with the fleet
of vehicles, equipment held for rental to patients, pharmacy equipment and office furnishings and
equipment required to service the patients. The base of depreciable assets increased from $75,078
at March 31, 2004 to $1,624,411 at December 31, 2004. Interest expense was $712,279 for the nine months ended December 31, 2004. There was no
interest expense for the nine months ended December 31, 2003 as the company had no interest-bearing
borrowings. Interest expense incurred in the nine months ended December 31, 2004 included $416,715
to banks and $295,564 to note holders. The increase in interest expense is a result of borrowings
resulting from the acquisitions of the various merged entities as discussed in the notes to the
unaudited consolidated financial statements. Interest-bearing borrowings were $24,202,000 at
December 31, 2004 at rates ranging from 6.25% to 12% per annum compared to $22,183,000 borrowed
compared to no interest-bearing borrowings at March 31, 2004. Amortization of deferred debt discount was $682,593 for the nine months ended December 31,
2004 generated by the attachment of warrants to two notes payable, while there were no such
arrangements for the same period in the prior year. The deferred debt discount is the fair value
of stock options and warrants granted to certain note holders as explained in Notes to the
unaudited consolidated financial statements. The deferred debt discount is being amortized over the
life of the respective promissory notes. 25




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##### Table of Contents



Liquidity and Capital Resources The Companys primary needs for liquidity and capital resources are the funding of operating
and administrative expenses related to the management of the Company and its subsidiaries.
Secondarily, the Company began executing its long-term strategic growth plan in May 2004, which
includes plans for complementary acquisitions, internal growth at existing locations, expanded
product offerings and synergistic integration of the Companys types of businesses. During the period May 10, 2004 through December 31, 2004, the Company used $6,464,697 in cash
flows from operations, used $3,484,100 in investing activities and generated $10,087,470 from
financing activities for a net decrease of $225,327 in cash and cash equivalents. This compares to
the three quarters ended December 31, 2003, in which the Company generated $4,744,623 in cash flows
from operations, utilized $363,584 in cash flows from investing activities and used $4,381,039 in
financing activities yet had no change in the amount of its cash and cash equivalents. Prior to undertaking the Companys long-term strategic growth plan, as is demonstrated by the
results for the three quarters ended December 31, 2003, the operating company was generating
significant cash flows from operations and pre-tax net income of 5% of revenues. Management has
shown the ability to raise funds sufficient to provide for the cash flow needs of the Company in
pursuit of its long-term strategic growth plan, as evidenced by the $10,716,975 raised in the three
quarters ended December 31, 2004. The company raised $6,455,359 through common stock issuances and
$4,261,616 by drawing on the Companys long-term line of credit. The Company has also been
successful in using notes payable and common stock as part of its consideration paid for
acquisitions. In the event the Company is unable to continue to obtain financing through the sale
of additional common stock or increased borrowings, management will reduce the amount of
acquisitions and investments in related infrastructure and focus on the performance of the
operations of the Company, until it can once again resume its strategic plans. Gross accounts receivable of $21,420,000 represent accounts receivable from operations and
from acquired entities. The Company is focusing significant additional resources on the collection
of accounts receivables as a means to generate cash flow from operations. During the three quarters
ended December 31, 2004, the Company reduced it net operating liabilities by $868,000, using cash
from operations and borrowings to do so yet has improved its cash position from no cash at March
31, 2004 to $633,108 at December 31, 2004. The Company started a new workers compensation
arrangement in May 2004 which requires deposits of funds in advance. The net increase in prepaid
workers compensation costs was $774,000 in the quarter ended December 2004 to reach the balance of
$2,041,000 as of December 31, 2004. In May 2004, the Company consummated the merger with and into RKDA. This transaction was
preceded by the Company obtaining a note payable in the amount of $1,500,000. Simultaneous with the
RKDA Merger the Company completed the minimum amount of $8,000,000 of a Regulation D Private
Placement (the Offering). The Company subsequently sold an additional $245,000 of securities and
terminated the Offering. The Company sold an aggregate of 32,980,000 shares at $0.25 per share
together with 3,298,000 Class A Warrants exercisable for 7 years at $0.50 per share. The Placement
Agent received warrants to purchase 2,298,000 shares, exercisable on a cashless basis for 7 years
at $0.50 per share. The Placement Agent also received a 10% commission and reimbursement of
outofpocket expenses. The Company used $5,000,000 of the net proceeds to complete the RKDA Merger
as described in Note 2, and used the balance for working capital. On May 7, 2004, Arcadia Services, Inc. and three of its whollyowned subsidiaries entered into
a Loan Agreement with Comerica Bank. The agreement provides the borrowers with a revolving credit
facility of up to $12,000,000 through May 7, 2006. The initial advance on May 7, 2004, was in the
amount of $11,000,000. The initial advance was immediately distributed up to RKDA, Inc., to fund a
portion of the purchase price of the capital stock of Arcadia by RKDA from the seller and to pay
expenses associated with the transaction. All other advances under the credit facility shall be
used solely for working capital purposes. RKDA granted Comerica Bank a first priority security
interest in all of the issued and outstanding capital stock of Arcadia. The Arcadia subsidiaries
and Arcadia granted the bank a security 26




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##### Table of Contents



interest in all of their assets and the seller subordinated $500,000 indebtedness of Arcadia
to Arcadias indebtedness to Comerica Bank. RKDA and its former principals, Messrs. Elliott and
Kuhnert, each executed a personal guaranty to Comerica over all indebtedness of Arcadia and its
subsidiaries. On July 29, 2004 the credit limit was increased to $14,400,000. On November 23, 2004, the revolving credit commitment with Comerica Bank amount was increased
to $16,000,000, and the credit agreement was also amended to provide an overformula balance of
$1,200,000 payable at the rate of $100,000 per month for 12 consecutive months, beginning in
January, 2005. Further, certain amendments were made relative to accounts from business
originating from state Medicaid plans eligible for inclusion in the advance formula. Advances
under the credit facility bear interest at the primerate (as defined) or the Eurodollarbased rate
(as defined), at the election of borrowers. Arcadia agreed to various financial covenant ratios; to
have any person who acquires Arcadia capital stock pledge such stock to Comerica Bank, and along
with Messrs. Elliott and Kuhnert, to customary negative covenants. On September 21, 2004, the Company issued a note payable in the amount of $5,000,000 to fund
acquisitions. The promissory note bears an interest rate of 6% per annum. The note is due on or
before June 21, 2005. The note may be extended at the Companys discretion for three months bearing
a 12% interest rate per annum. The lender also received a warrant to purchase 3,150,000 shares of
common stock of the company at $0.95 per share. The value of these warrants is being expensed over
the life of the note. The Company plans to repay this note with cash flows from operations,
proceeds from the issuance of additional shares of common stock and new borrowings. On December 2, 2004, the Company issued a total of 144,999 shares of its common stock upon the
exercise of stock options by three former employees of the Company. The aggregate consideration
for these shares totaled $34,999. On January 11, 2005, the Company issued 533,370 shares of its common stock to Jana Master
Fund, Ltd. (Jana). Jana elected to convert $266,685 in principal and accrued interest payable by
the Company as of December 31, 2004 into shares of the Companys common stock, per a $1,500,000
Amended and Restated Promissory Note dated June 12, 2004. Under the Note, Jana may convert debt
into shares of the Companys common stock at the rate of one (1) share of common stock per $0.50 of
outstanding debt. On January 18, 2005, the Company obtained a $1,500,000 loan from Jana Partners, LLC due on
February 2, 2005 in exchange for warrants to purchase 50,000 shares of the Companys common stock
at $1.28 per share. This loan plus accrued interest of $15,000 was paid in full on February 4,
2005 with proceeds from the sale of unregistered securities described below. These funds were used
to satisfy purchase price arrangements pending for Trinity and for Beacon. On January 21, 2005, the Company issued a total of 243,040 shares of its common stock to two
limited liability companies whose owners are certain of the members of Kerr, Russell and Weber, PLC
(KRW), as payment for legal services in the amount of $250,000 which KRW furnished to the
Company. On January 24, 2005, the Company issued a total of 407,866 shares of its common stock to two
former shareholders of Trinity Healthcare of Winston-Salem, Inc. (Trinity) per the agreement by
which a second-tier wholly owned subsidiary of the Company acquired all of Trinitys outstanding
common stock on September 23, 2004. Per the terms of the stock purchase agreement, the 407,866
shares issued have a total aggregate value of $347,500, indicated as a short-term borrowing at
December 31, 2004. Of the 407,866 shares of common stock issued, 305,898 shares have been escrowed
until January 15, 2006 to satisfy the purchasers rights of recoupment/offset, per the terms of the
stock purchase agreement. The additional purchase price payable to Trinity shareholders of
$975,510, also indicated as a short-term borrowing at December 31, 2004, was paid down to $225,000
in January 2005 with proceeds from the January 11, 2005 short-term note payable described above. 27




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##### Table of Contents



Beginning February 2, 2005, the Company sold an aggregate of 5,000,000 shares of its common
stock, at a price of $0.90 per share, in private transactions to investors qualifying as accredited
investors as defined in Rule 501(a) of Regulation D. The aggregate consideration received totals
$4,500,000 of the maximum $5,000,000 which the Company intends to raise from this private offering
for repayment of debt, acquisitions and new business ventures. The Company has agreed to use its
best efforts to register these shares within ninety days. The Company has a $250,000 line of credit with US Bank that matures on February 17, 2005 on
which $222,476 was owed as of December 31, 2004. The Company expects to complete an extension of
the terms of the line of credit upon expiration, otherwise, the Company will repay the line of
credit with proceeds from its February sales of common stock as described above. Contractual Commitments As of December 31, 2004, the Company had contractual obligations in the form of noncancelable
operating leases, employment agreements and interest expense as follows: Payments due by March 31,Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Operating Leases
    
    $
    2,462,130
    
    
    $
    597,146
    
    
    $
    701,238
    
    
    $
    630,785
    
    
    $
    463,911
    
    
    $
    69,050Employment Agreements
    
    
    962,500
    
    
    
    518,750
    
    
    
    443,750
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,424,630
    
    
    $
    1,115,896
    
    
    $
    1,144,988
    
    
    $
    630,785
    
    
    $
    463,911
    
    
    $
    69,050
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. 
 Item 4. Controls and Procedures. Disclosure Controls and Procedures.Our chief executive officer and our chief financial
officer, after evaluating our disclosure controls and procedures (as defined in Rules 13a15(e)
and 15d15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) have concluded that
as of December 31, 2004, our disclosure controls and procedures are effective to ensure that
information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that information is accumulated and communicated to our
management, including our chief executive officer and our chief financial officer, as appropriate
to allow timely decisions regarding required disclosure. Changes in Internal Controls.During our fiscal quarter ended December 31, 2004, there was no
change in our internal control over financial reporting (as defined in Rule 13a15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. 28




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##### Table of Contents



Part II: Other Information 
 Item 1. Legal Proceedings. During the Companys fiscal quarter ended December 31, 2004, there were no material pending
legal proceedings, other than ordinary routine litigation incidental to the business, to which the
Company or any of its subsidiaries was a party or of which any of their property was the subject. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. On December 2, 2004, the Company issued a total of 144,999 shares of its common stock
upon the exercise of stock options by three former employees of the Company. The aggregate
consideration for these shares totaled $34,999. On January 11, 2005, the Company issued 533,370 shares of its common stock to Jana Master
Fund, Ltd. (Jana). Jana elected to convert $266,685 in principal and accrued interest payable by
the Company as of December 31, 2004 into shares of the Companys common stock, per a $1,500,000
Amended and Restated Promissory Note dated June 12, 2004. Under the Note, Jana may convert debt
into shares of the Companys common stock at the rate of one (1) share of common stock per $0.50 of
outstanding debt. On January 21, 2005, the Company issued a total of 243,040 shares of its common stock to two
limited liability companies whose owners are certain of the members of Kerr, Russell and Weber, PLC
(KRW), as payment for legal services in the amount of $250,000 which KRW furnished to the
Company. On January 24, 2005, the Company issued a total of 407,866 shares of its common stock to two
former shareholders of Trinity Healthcare of Winston-Salem, Inc. (Trinity) per the agreement by
which a second-tier wholly owned subsidiary of the Company acquired all of Trinitys outstanding
common stock on September 23, 2004. Per the terms of the stock purchase agreement, the 407,866
shares issued have a total aggregate value of $347,500. Of the 407,866 shares of common stock
issued, 305,898 shares have been escrowed until January 15, 2006 to satisfy the purchasers rights
of recoupment/offset, per the terms of the stock purchase agreement. Beginning February 2, 2005, the Company sold an aggregate of 5,000,000 shares of its common
stock, at a price of $0.90 per share, in private transactions to investors qualifying as accredited
investors as defined in Rule 501(a) of Regulation D. The aggregate consideration received totals
$4,500,000 of the maximum $5,000,000 which the Company intends to raise from this private offering
for acquisitions and new business ventures. On February 11, 2005, the Company issued 18,750 shares of common stock to its Chief Financial
Officer per the terms of her employment agreement. Each issuance of shares of the Companys common stock reported above occurred in a private
transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
because the transaction did not involve any public offering. These securities were issued without
general solicitation or advertising. There were no underwriters involved in any of the
transactions reported herein, nor were any underwriting discounts or commissions paid. The shares
sold are restricted securities as defined in Rule 144 (a)(3). Further, each common stock
certificate issued in each transaction bears a legend providing, in substance, that the securities
have been acquired for investment only and may not be sold, transferred or assigned in the absence
of an effective registration statement or opinion of the Companys counsel that registration is not
required under the Securities Act of 1933. In addition, the shares sold beginning February 2, 2005 were sold in transactions exempt from
registration pursuant to Rule 506 of Regulation D, on the basis that each investor is an accredited
investor as defined in Rule 501(a) of Regulation D. 29




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##### Table of Contents



Item 3. Defaults Upon Senior Securities. None. 
 Item 4. Submission of Matters to a Vote of Security Holders. No matter has been submitted to a vote of security holders during the period covered by this
report. 
 Item 5. Other Information. There is no information required to be disclosed in a report on Form 8K during the period
covered by this report, but not reported. 
 Item 6. Exhibits. ExhibitNo
    
    
    Exhibit Description3.1
    
    
    Amended and Restated Articles of Incorporation of Arcadia
Resources, Inc. (filed as an Exhibit to the Companys current
report on Form 8-K filed on November 16, 2004 and incorporated
herein by this reference).3.2
    
    
    Amended and Restated Bylaws of Arcadia Resources, Inc. (filed
as an Exhibit to the Companys current report on Form 8-K filed
on November 16, 2004 and incorporated herein by this
reference).10.1
    
    
    Agreement and Plan of Merger between Critical Home Care, Inc.
and Arcadia Resources, Inc. (filed as an Exhibit to the
Companys current report on Form 8-K filed on November 16, 2004
and incorporated herein by this reference).10.2
    
    
    Stock Purchase Agreement by and among, Arcadia Resources, Inc.
(Buyer), Beacon Respiratory Services, Inc., Beacon
Respiratory Services of Alabama, Inc., Beacon Respiratory
Services of Colorado, Inc., and Beacon Respiratory Services of
Georgia, Inc. (Companies), and Rebecca Irish, Ryan Powers and
Reid Wilburn (Sellers), dated December 22, 2004 (filed as an
exhibit to the Companys Current Report on Form 8K filed on
December 28, 2004 and incorporated herein by this reference).31.1
    
    
    Certification of the Chief Executive Officer required by rule
13a14(a) or rule 15d14(a).31.2
    
    
    Certification of the Principal Accounting and Financial Officer
required by rule 13a14(a) or rule 15d14(a).32.1
    
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C.
§1350, as Adopted Pursuant to §206 of the SarbanesOxley Act of
2002.32.2
    
    
    Principal Accounting and Financial Officer Certification
Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §206 of the
SarbanesOxley Act of 2002.99.1
    
    
    Press Release Announcing Name Change (filed as an Exhibit to
the Companys current report on Form 8-K filed on November 16,
2004 and incorporated herein by this reference).
 30




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Arcadia Resources, Inc. By:
    
    /s/ John E. Elliott II
    
    By:
    
    /s/ Lawrence R. KuhnertJohn E. Elliott II
    
    
    
    Lawrence R. KuhnertIts:
    
    Chairman of the Board
    
    Its:
    
    Vice Chairman of Financeand Chief Executive Officer
    
    
    
    (Principal Financial and
Accounting Officer),President and Chief
Operating Officer
 Dated: February 14, 2005 31




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##### Table of Contents



EXHIBIT INDEX ExhibitNo
    
    
    Exhibit Description3.1
    
    
    Amended and Restated Articles of Incorporation of Arcadia
Resources, Inc. (filed as an Exhibit to the Companys current
report on Form 8-K filed on November 16, 2004 and incorporated
herein by this reference).3.2
    
    
    Amended and Restated Bylaws of Arcadia Resources, Inc. (filed
as an Exhibit to the Companys current report on Form 8-K filed
on November 16, 2004 and incorporated herein by this
reference).10.1
    
    
    Agreement and Plan of Merger between Critical Home Care, Inc.
and Arcadia Resources, Inc. (filed as an Exhibit to the
Companys current report on Form 8-K filed on November 16, 2004
and incorporated herein by this reference).10.2
    
    
    Stock Purchase Agreement by and among, Arcadia Resources, Inc.
(Buyer), Beacon Respiratory Services, Inc., Beacon
Respiratory Services of Alabama, Inc., Beacon Respiratory
Services of Colorado, Inc., and Beacon Respiratory Services of
Georgia, Inc. (Companies), and Rebecca Irish, Ryan Powers and
Reid Wilburn (Sellers), dated December 22, 2004 (filed as an
exhibit to the Companys Current Report on Form 8K filed on
December 28, 2004 and incorporated herein by this reference).31.1
    
    
    Certification of the Chief Executive Officer required by rule
13a14(a) or rule 15d14(a).31.2
    
    
    Certification of the Principal Accounting and Financial Officer
required by rule 13a14(a) or rule 15d14(a).32.1
    
    
    Chief Executive Officer Certification Pursuant to 18 U.S.C.
§1350, as Adopted Pursuant to §206 of the SarbanesOxley Act of
2002.32.2
    
    
    Principal Accounting and Financial Officer Certification
Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §206 of the
SarbanesOxley Act of 2002.99.1
    
    
    Press Release Announcing Name Change (filed as an Exhibit to
the Companys current report on Form 8-K filed on November 16,
2004 and incorporated herein by this reference).