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

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 000-32935

ARCADIA RESOURCES, INC.

(Exact name of registrant as specified in its charter)

NEVADA		88-0331369
(State or other jurisdiction of Incorporation)		(I.R.S. Employer Identification Number)
9229 DELEGATES ROW, SUITE 260
INDIANAPOLIS, INDIANA		46240
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (317) 569-8234

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. Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for shorter period that the Registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Large Accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 12, 2009, 161,858,000 shares of common stock, $0.001 par value, of the Registrant were outstanding.

 

 

Table of Contents

		Page
		No.
Part I: Financial Information
Item 1. Financial Statements			2
Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and March 31, 2009			2
Condensed Consolidated Statements of Operations for the Three and Six Months ended September 30, 2009 and 2008 (unaudited)			3
Condensed Consolidated Statement of Stockholders’ Equity for the Six Months ended September 30, 2009 (unaudited)			4
Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2009 and 2008 (unaudited)			5
Notes to the Condensed Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			41
Part II: Other Information
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			42
Item 6. Exhibits			49
Signatures			49
Exhibits
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

PART I. — FINANCIAL INFORMATION

Item 1.		Financial Statements

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,				March 31,
		2009				2009
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	1,522
Accounts receivable, net of allowance of $3,609 and $3,386, respectively			14,454				15,679
Inventories, net			575				863
Prepaid expenses and other current assets			1,154				1,764
Current assets of discontinued operations			117				5,458
Total current assets			16,300				25,286
Property and equipment, net			1,822				2,308
Goodwill			17,053				17,053
Acquired intangible assets, net			7,987				8,305
Other assets			626				590
Restricted cash			500				—
Assets of discontinued operations			29				5,850
Total assets		$	44,317			$	59,392
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit, current portion		$	—			$	437
Accounts payable			2,101				2,765
Accrued expenses:
Compensation and related taxes			2,904				2,986
Interest			69				89
Health insurance			511				545
Other			1,112				917
Payable to affiliated agencies			852				1,284
Long-term obligations, current portion			3,434				596
Capital lease obligations, current portion			67				59
Current liabilities of discontinued operations			590				2,037
Total current liabilities			11,640				11,715
Lines of credit, less current portion			6,715				10,889
Long-term obligations, less current portion			24,242				26,918
Capital lease obligations, less current portion			55				37
Total liabilities			42,652				49,559
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding			—				—
Common stock, $.001 par value, 200,000,000 shares authorized; 161,858,403 shares and 161,249,529 shares issued, respectively			162				161
Additional paid-in capital			136,470				135,920
Accumulated deficit			(134,967	)			(126,248	)
Total stockholders’ equity			1,665				9,833
Total liabilities and stockholders’ equity		$	44,317			$	59,392

See accompanying notes to these condensed consolidated financial statements.

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Month Period Ended								Six Month Period Ended
		September 30,								September 30,
		(Unaudited)								(Unaudited)
		2009				2008				2009				2008
Revenues, net		$	25,616			$	26,719			$	52,025			$	53,497
Cost of revenues			18,210				18,504				37,171				37,172
Gross profit			7,406				8,215				14,854				16,325
Selling, general and administrative			10,082				10,081				19,748				20,263
Depreciation and amortization			531				613				942				1,072
Total operating expenses			10,613				10,694				20,690				21,335
Operating loss			(3,207	)			(2,479	)			(5,836	)			(5,010	)
Other expenses (income):
Interest expense, net			846				1,054				1,684				2,010
Loss on extinguishment of debt			—				—				—				248
Other			(6	)			44				30				54
Total other expenses (income)			840				1,098				1,714				2,312
Loss from continuing operations before income taxes			(4,047	)			(3,577	)			(7,550	)			(7,322	)
Income tax expense			7				198				100				394
Loss from continuing operations			(4,054	)			(3,775	)			(7,650	)			(7,716	)
Discontinued operations:
Income / (loss) from discontinued operations			(255	)			540				(1,448	)			1,195
Net gain on disposal			163				—				379				—
			(92	)			540				(1,069	)			1,195
NET LOSS		$	(4,146	)		$	(3,235	)		$	(8,719	)		$	(6,521	)
Weighted average number of common shares outstanding			161,201,000				133,019,000				160,709,000				132,357,000
Basic and diluted net income (loss) per share:
Loss from continuing operations		$	(0.03	)		$	(0.03	)		$	(0.05	)		$	(0.06	)
Income from discontinued operations			—				0.01				—				0.01
Net loss per share		$	(0.03	)		$	(0.02	)		$	(0.05	)		$	(0.05	)

See accompanying notes to these condensed consolidated financial statements.

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

										Additional								Total
		Common Stock								Paid-In				Accumulated				Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Balance, April 1, 2009			161,249,529			$	161			$	135,920			$	(126,248	)		$	9,833
Stock-based compensation expense			120,625				—				551				—				551
Cashless exercise of warrants			488,249				1				(1	)			—				—
Net loss for the period			—				—				—				(8,719	)			(8,719	)
Balance, September 30, 2009			161,858,403			$	162			$	136,470			$	(134,967	)		$	1,665

See accompanying notes to these condensed consolidated financial statements.

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six-Month Period Ended
		September 30,
		(Unaudited)
		2009				2008
Operating activities
Net loss for the period		$	(8,719	)		$	(6,521	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts			1,155				1,654
Depreciation of property and equipment			912				2,297
Amortization of intangible assets			405				943
Gain on business disposals			(379	)			—
Non-cash interest expense			1,224				1,102
Loss on sale of property and equipment			—				55
Amortization of deferred financing costs and debt discounts			121				492
Stock-based compensation expense			551				741
Loss on extinguishment of debt			—				248
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			2,440				(2,952	)
Inventories			904				(611	)
Other assets			821				689
Accounts payable			(1,449	)			908
Accrued expenses			(956	)			781
Due to affiliated agencies			(277	)			166
Deferred revenue			—				(19	)
Net cash used in operating activities			(3,247	)			(27	)
Investing activities
Business acquisitions, net of cash acquired			(196	)			(429	)
Proceeds from business disposal			9,320				356
Increase in restricted cash			(500	)			—
Proceeds from disposals of property and equipment			—				19
Purchases of property and equipment			(96	)			(462	)
Net cash provided by (used in) investing activities			8,528				(516	)
Financing activities
Net payments on lines of credit			(4,610	)			(2,956	)
Proceeds from note payable, net of fees			2,141				—
Payments on notes payable and capital lease obligations			(4,334	)			(558	)
Net cash used in financing activities			(6,803	)			(3,514	)
Net change in cash and cash equivalents			(1,522	)			(4,057	)
Cash and cash equivalents, beginning of period			1,522				6,351
Cash and cash equivalents, end of period		$	—			$	2,294
Supplementary information:
Cash paid during the period for:
Interest		$	322			$	485
Income taxes			33				97
Non-cash investing / financing activities:
Capital lease			70				—
Accounts payable converted to notes payable			750				—
Warrants issued in conjunction with line of credit amendment			—				248
Accrued interest converted to notes payable			1,224				—

See accompanying notes to these condensed consolidated financial statements.

ARCADIA RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 — Description of Company and Recent Accounting Pronouncements

Description of Company

Arcadia Resources, Inc., a Nevada corporation, together with its wholly-owned subsidiaries (the “Company”), is a national provider of home care, medical staffing, and pharmacy services operating under the service mark Arcadia HealthCare. In May 2009, the Company disposed of its Home Health Equipment (“HHE”), industrial staffing and retail pharmacy software businesses. Subsequent to these divestitures, the Company operates in three reportable business segments: Home Care/Medical Staffing Services (“Services”), Pharmacy and Catalog. The Company’s corporate headquarters are located in Indianapolis, Indiana. The Company conducts its business from approximately 65 facilities located in 20 states. The Company operates pharmacies in Indiana and Minnesota and has customer service centers in Michigan and Indiana.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of September 30, 2009, the consolidated statements of operations for the three-month and six-month periods ended September 30, 2009 and 2008, the consolidated statements of cash flows for the six-month periods ended September 30, 2009 and 2008 and the consolidated statement of stockholders’ equity for the six-month period ended September 30, 2009 are unaudited but include all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position at such dates and the results of operations and cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States (“GAAP”). The consolidated balance sheet as of March 31, 2009 has been derived from the audited consolidated financial statements at that date but, in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”), does not include all of the information and notes required by GAAP for complete financial statements. Operating results for the three-month period and six-month period ended September 30, 2009 are not necessarily indicative of results that may be expected for the entire fiscal year. The financial statements should be read in conjunction with the financial statements and notes for the fiscal year ended March 31, 2009 included in the Company’s Form 10-K filed with the SEC on July 14, 2009.

Reclassifications

Certain amounts presented in prior periods have been reclassified to conform to current period presentations including the reflection of discontinued operations separately from continuing operations.

Recent Accounting Pronouncements

On July 1, 2009, the FASB issued the FASB Accounting Standards Codification (the Codification). The Codification became the single source of authoritative nongovernmental U.S. GAAP, superseding existing accounting pronouncements issued by FASB, American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF). The Codification eliminates the previous US GAAP hierarchy and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. The Codification is effective for interim and annual periods ending after September 15, 2009. The Company adopted the Codification for the quarter ending September 30, 2009. There was no impact to the consolidated financial results as this change is disclosure-only in nature.

In May 2009, the FASB issued guidelines on subsequent event accounting which sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. These guidelines are effective for interim and annual periods ending after June 15, 2009, and the Company adopted them in the quarter ended June 30, 2009. There was no impact on the consolidated financial results. We evaluated subsequent events through the date the financial statements were issued, which was November 13, 2009.

In April 2009, the FASB issued additional requirements regarding interim disclosures about the fair value of financial instruments which were previously only disclosed on an annual basis. Entities are now required to disclose the fair value of financial instruments which are not recorded at fair value in the financial statements in both their interim and annual financial statements. The new requirements were effective for interim and annual periods ending after June 15, 2009 on a prospective basis. The Company adopted these requirements in the quarter ended June 30, 2009. The recorded amounts of the Company’s financial instruments at September 30, 2009 approximate fair value.

On April 1, 2009, the Company adopted the revised FASB guidance regarding business combinations which was required to be applied to business combinations on a prospective basis. The revised guidance requires that the acquisition method of accounting be applied to a broader set of business combinations, amends the definition of a business combination, provides a definition of a business, requires an acquirer to recognize an acquired business at its fair value at the acquisition date and requires the assets and liabilities assumed in a business combination to be measured and recognized at their fair values as of the acquisition date (with limited exceptions). There was no impact upon adoption and the effects of this guidance will depend on the nature and significance of business combinations occurring after the effective date.

Note 2 — Management’s Plan

Since fiscal 2008, the Company has been focused on the implementation of a board approved strategic plan designed to focus on expanding certain core businesses; restructuring the Company’s long-term debt; closing or selling non-strategic businesses and assets; improving operating margins; reducing selling, general and administrative (“SG&A”) expenses; and establishing a more disciplined approach to cash management. To date, management has made progress in these areas as discussed below.

On March 25, 2009, the Company restructured $24 million of debt with its two largest equity holders and received an additional $3 million in debt financing as part of the transaction. The debt maturity was extended through April 1, 2012, and the Company will continue to have the option to add the accrued interest to the principal balance on a quarterly basis. The debt agreements include a formula for splitting the cash proceeds upon the sale of assets. (See Note 6 — “Long-Term Obligations” for details).

On July 13, 2009, the Company executed an amendment to its line of credit agreement with Comerica Bank. The amendment reduced the total availability from $19 million to $14 million; extended the maturity from October 2009 to August 2011; and increased the interest rate from the prime rate plus 1% to the prime rate plus 2.75%.

In May and June 2009, the Company sold its HHE, industrial staffing and pharmacy software businesses and received an aggregate of $9,157,000 in cash proceeds at the closings. The Company used $5,921,000 of the proceeds to pay down debt balances due to JANA, Vicis and AmerisourceBergen Drug Corporation. Cash proceeds from all divestitures received at the closings, net of fees, less amounts used to pay down debt were $2,629,000. The transactions included holdback provisions for an additional $1,475,000 in cash, which is to be released assuming certain criteria are met. The Company plans to use the cash received from the release of the holdback amounts to further reduce debt.

As of September 30, 2009, the Company had $3.4 million in cash and line of credit availability.

On November 6, 2009, the Company entered into definitive agreements with certain institutional investors to sell an aggregate of 15,857,141 shares of common stock and 7,135,713 warrants to purchase common stock. The Company will raise $10,154,000 in net proceeds from this transaction, which is expected to be finalized on or before November 17, 2009. Consistent with the terms of the debt agreement dated September 10, 2009, the Company will use $2,400,000 of the net proceeds to pay off the outstanding balance. The remaining $7,754,000 will be used to fund on-going operations (See “Note 13 — Subsequent Event”).

The Company is now focused on improving the performance of its two remaining core business units: Pharmacy and Services. Subsequent to the various divestitures during fiscal first quarter 2010, management believes that its increased focus on the remaining businesses will enable it to realize operational improvements. Within the Pharmacy segment, the Company has significantly expanded revenue over the last 12 months and began to see improvements in the margins during the quarter ended September 30, 2009. The success of the Pharmacy business depends heavily on the continued increase in revenue, continued improvement in margins and the ability to reduce SG&A expenses as a percentage of revenue. Management believes that the Company’s relationships with certain large payers and home care partners will provide the necessary revenue growth to allow the Company to leverage its current SG&A structure, improve margins, and achieve profitability in this segment. The timing and size of the revenue growth will be the primary driver impacting the Pharmacy business’s financial performance over the next several quarters. However, it is expected that the Pharmacy segment will not become profitable and will continue to be a net user of cash throughout fiscal 2010.

Within the Services segment, the Company has seen modest increase in Home Care revenue over the last 12 months. Management continues to explore cost-effective ways to organically grow the Home Care revenue. At the same time, the Company has seen a significant reduction in medical staffing revenue consistent with overall staffing industry trends. The Company has reduced the SG&A in this segment over the last 12 months and will continue to look for additional cost-saving opportunities. Management expects these on-going initiatives to improve the Service segment results during the second half of fiscal 2010 and beyond. At current levels of revenue, it is unlikely that the profitability of the Services segment will be sufficient to offset the losses and cash usage in the Pharmacy segment.

Management believes that the additional cash raised with the November 12, 2009 equity financing will provide the Company with the capital necessary to support operating cash requirements.

Note 3 — Discontinued Operations

Industrial Staffing Operations

On May 29, 2009, the Company finalized the sale of substantially all of the assets of its industrial and non-medical staffing business for cash proceeds of $250,000, which were paid in five equal installments through September 2009. Additionally, the Company will receive 50% of the future earnings of the business until the total payments equal $1,600,000. Such payments, if any, will be recorded as additional gains when earned. The Company retained all accounts receivable for services provided prior to May 29, 2009.

HHE Operations

On January 5, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P. to sell the assets of its HHE business in San Fernando, California. Total proceeds were originally estimated to be $503,000, less fees of $24,000. This amount included $126,000 that was to be held back by the buyer to cover certain contingent obligations of the Company. During the three-month period ended September 30, 2009, the Company and the buyer resolved certain claims and the holdback amount of $126,000 was forfeited by the Company. The Company retained all accounts receivables for services provided prior to January 2009.

On May 18, 2009, the Company completed the sale of its ownership interest in Lovell Medical Supply, Inc., Beacon Respiratory Services of Georgia, Inc., and Trinity Healthcare of Winston-Salem, Inc. to Aerocare Holdings, Inc. for total proceeds of $4,750,000, less fees of $150,000. At the time of closing, $475,000 of the purchase price was held by the buyer to cover the Company’s contingent obligations. In September 2009, the buyer released $160,000 of this amount, which was recognized as an additional gain on the sale. The entities sold represented the Southeast region of the Company’s HHE business.

On May 19, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P. to sell the assets of its Midwest region of the Company’s HHE business. Total proceeds were $4,000,000, less fees of $150,000. $1,000,000 of the purchase price is being held by the buyer to cover the Company’s contingent obligations. The Company retained all accounts receivable for services provided prior to May 2009.

As of May 2009, the Company had sold all of its HHE operations.

Retail Pharmacy Software Business

On June 11, 2009, the Company entered into an Asset Purchase Agreement with a leading pharmacy management company to sell substantially all of the assets of JASCORP, LLC (“JASCORP”) for proceeds of $2,200,000, less estimated fees of $100,000. $220,000 of the purchase price is being held back by the buyer until December 2011 in order to cover the Company’s contingent obligations. JASCORP operated the retail pharmacy software business that the Company acquired in September 2007. As part of the divestiture, the Company entered into a License and Services Agreement with the buyer which provides the Company the right to continue to use the software for internal purposes.

The assets and liabilities associated with these discontinued business operations have been classified as assets and liabilities of discontinued operations in the accompanying consolidated balance sheets. The results of the above are reported in discontinued operations in the accompanying consolidated statements of operations, and the prior period consolidated statement of operations have been recast to conform to this presentation. The segment results in Note 12 also reflect the reclassification of the discontinued operations. The discontinued operations do not reflect the costs of certain services provided to these operations by the Company. Such costs, which were not allocated by the Company to the various operations, included internal employee costs associated with administrative functions, including accounting, information technology, human resources, compliance and contracting as well as external costs for legal fees, insurance, audit fees, payroll processing, and various public-company expenses. The Company uses a centralized approach to cash management and financing of its operations, and, accordingly, debt and the related interest expense were also not allocated specifically to these operations. The consolidated statements of cash flows do not separately report the cash flows of the discontinued operations.

The components of the assets and liabilities of the discontinued operations are presented below (in thousands):

		September 30, 2009
		Services -
		Industrial								Pharmacy -
		Staffing				HHE				Software				Total
Assets
Accounts receivable, net of allowance of $516		$	—			$	—			$	9			$	9
Prepaid expenses and other current assets			—				30				78				108
Total current assets of discontinued operations			—				30				87				117
Property and equipment, net			—				29				—				29
Total assets of discontinued operations		$	—			$	59			$	87			$	146
Liabilities
Accounts payable		$	—			$	163			$	33				196
Accrued compensation and related taxes			—				84				129				213
Accrued other			59				122				—				181
Total liabilities of discontinued operations		$	59			$	369			$	162			$	590

		March 31, 2009
		Services -
		Industrial								Pharmacy -
		Staffing				HHE				Software				Total
Assets
Accounts receivable, net of allowance of $968		$	972			$	3,199			$	138			$	4,309
Inventory, net			—				829				20				849
Prepaid expenses and other current assets			35				175				90				300
Total current assets of discontinued operations			1,007				4,203				248				5,458
Property and equipment, net			17				1,716				132				1,865
Goodwill			—				507				923				1,430
Acquired intangibles assets, net			—				1,822				733				2,555
Total non-current assets of discontinued operations			17				4,045				1,788				5,850
Total assets of discontinued operations		$	1,024			$	8,248			$	2,036			$	11,308
Liabilities
Accounts payable		$	4			$	986			$	74			$	1,064
Accrued compensation and related taxes			228				350				93				671
Accrued other			84				64				60				208
Long-term obligations, current portion			—				94				—				94
Total current liabilities of discontinued operations		$	316			$	1,494			$	227			$	2,037

The components of the earnings/(loss) from discontinued operations are presented below (in thousands):

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues, net:
Services — Industrial Staffing		$	—			$	4,821			$	1,223			$	10,039
Home Health Equipment			—				4,855				1,423				9,687
Pharmacy — Software			—				528				348				1,085
		$	—				10,204			$	2,994				20,811
Income (loss) from operations:
Services — Industrial Staffing		$	(8	)		$	425			$	(44	)		$	837
Home Health Equipment			(189	)			124				(1,230	)			315
Pharmacy — Software			(58	)			(9	)			(174	)			43
		$	(255	)		$	540			$	(1,448	)		$	1,195
Gain / (loss) on disposal:
Services — Industrial Staffing		$	3			$	—			$	129			$	—
Home Health Equipment			160				—				280				—
Pharmacy — Software			—				—				(30	)			—
		$	163			$	—			$	379			$	—
Income (loss) from discontinued operations:
Services — Industrial Staffing		$	(5	)		$	425			$	85			$	837
Home Health Equipment			(29	)			124				(950	)			315
Pharmacy — Software			(58	)			(9	)			(204	)			43
		$	(92	)		$	540			$	(1,069	)		$	1,195

Note 4 — Goodwill and Acquired Intangible Assets

Goodwill by segment as of September 30 and March 31, 2009 was as follows (in thousands):

		Services				Pharmacy				Catalog				Total
Balance		$	14,553			$	2,500			$	—			$	17,053

The Company’s policy is to perform its annual impairment analysis during the fourth quarter of the fiscal year end. If actual performance in any reporting unit falls short of expected results, a non-cash impairment charge may be required.

For tax purposes, goodwill of approximately $24.0 million is amortizable over 15 years. The difference between the book and tax balance of goodwill is due to certain impairment charges incurred for book purposes in previous periods.

Acquired intangible assets consist of the following (in thousands):

		September 30, 2009								March 31, 2009
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Trade name		$	6,664			$	765			$	6,664			$	682
Customer relationships			4,720				2,632				4,720				2,397
			11,384			$	3,397				11,384			$	3,079
Less accumulated amortization			(3,397	)							(3,079	)
Net acquired intangible assets		$	7,987							$	8,305

Amortization expense for acquired intangible assets included in continuing operations was $158,000 and $306,000 for the three-month periods ended September 30, 2009 and 2008, respectively, and $318,000 and $607,000 for the six-month periods ended September 30, 2009 and 2008, respectively.

The estimated amortization expense related to acquired intangible assets in existence as of September 30, 2009 was as follows (in thousands):

Remainder of fiscal 2010		$	316
Fiscal 2011			571
Fiscal 2012			518
Fiscal 2013			476
Fiscal 2014			382
Thereafter			5,724
Total		$	7,987

Note 5 — Lines of Credit

The following table summarizes the lines of credit for the Company (in thousands):

						At September 30, 2009
						Maximum
						Available								March 31,
Lending Institution		Maturity date				Borrowing				Balance				2009				Interest rate
Comerica Bank		August 1, 2011				$	10,157			$	6,715			$	9,126			Prime plus 2.75		%
AmerisourceBergen Drug Corporation		September 30, 2010					—				—				2,200			10		%
Total lines of credit obligations						$	10,157				6,715				11,326
Less current portion											—				(437	)
Long-term portion										$	6,715			$	10,889

Comerica Bank

Arcadia Services, Inc. (“ASI”), a wholly-owned subsidiary of the Company, and three of ASI’s wholly-owned subsidiaries have an outstanding line of credit agreement with Comerica Bank. Advances under the line of credit agreement cannot exceed the revolving credit commitment amount or the aggregate principal amount of indebtedness permitted under the advance formula amount at any one time. On July 13, 2009, ASI executed an amendment to this line of credit agreement, which reduced the total available advances from $19 million to $14 million. The advance formula base is 85% of the eligible accounts receivable, plus the lesser of 85% of eligible unbilled accounts or $3,000,000. The line of credit agreement contains a subjective acceleration clause and requires the Company to maintain a lockbox. However, the Company has the ability to control the funds in the deposit account and to determine the amount used to pay down the line of credit balance. As such, the line of credit is not automatically classified as a current obligation in the consolidated balance sheets. Arcadia Services, Inc. agreed to various financial covenant ratios (as described below), to have any person who acquires Arcadia Services, Inc.’s capital stock to pledge such stock to Comerica Bank, and to customary negative covenants. The amendment to the line of credit agreement also requires the Company to maintain a deposit account with a minimum balance of $500,000, and this amount is classified as restricted cash on the Company’s balance sheet. If an event of default occurs, Comerica Bank may, at its option, accelerate the maturity of the debt and exercise its right to foreclose on the issued and outstanding capital stock of Arcadia Services, Inc. and on all of the assets of Arcadia Services, Inc. and its subsidiaries. On September 30, 2009, the interest rate on this line of credit agreement was the bank’s prime rate plus 2.75% (6.0%), and the availability under the line was $3,442,000.

RKDA, Inc. (“RKDA”), a wholly-owned subsidiary of the Company and the holding company of Arcadia Services, Inc. and Arcadia Products, Inc., granted Comerica Bank a first priority security interest in all of the issued and outstanding capital stock of Arcadia Services, Inc. Arcadia Services, Inc. granted Comerica Bank a first priority security interest in all of its assets. The subsidiaries of Arcadia Services, Inc. granted the bank security interests in all of their assets. RDKA is restricted from paying dividends to the Company. RKDA executed a guaranty to Comerica Bank for all indebtedness of Arcadia Services, Inc. and its subsidiaries. Any such default and resulting foreclosure would have a material adverse effect on the Company’s financial condition. As of September 30, 2009, the Company was in compliance with all financial covenants.

The July 2009 amendment to the line of credit agreement includes the following financial covenants: tangible effective net worth of $2 million as of September 30, 2009 and gradually increasing on a quarterly basis to $2.8 million by September 2011; minimum quarterly net income of $400,000; and, minimum subordination of indebtedness to Arcadia Resources, Inc. of $15.5 million. As of September 30, 2009, the Company was in compliance with the loan covenants.

AmerisourceBergen Drug Corporation

In connection with the acquisition of PrairieStone in February 2007, PrairieStone entered into a line of credit agreement with AmerisourceBergen Drug Corporation (“ABDC”), which previously maintained an ownership interest in PrairieStone. The line of credit was secured by a security interest in all of the assets of PrairieStone and SSAC, LLC, a wholly-owned subsidiary of the Company, and is guaranteed by the Company.

On June 10, 2009, the Company entered into an amendment to the line of credit agreement, which converted the line of credit to a term loan. The amendment included terms whereby if the Company paid down the remaining balance outstanding on the line of credit, ABDC would defer the payment of certain inventory purchases up to $750,000 until April 1, 2010, and the deferred balance would accrue interest at 8.0%. Additionally, ABDC agreed to negotiate in good faith the extension of an existing Prime Vendor Agreement relating to the Pharmacy segment which expires in September 2010 and a new credit agreement. On June 11, 2009 and simultaneous with the divestiture of JASCORP, the Company paid ABDC a total of $2,125,000 in order to pay off the line of credit balance. During June 2009, the Company deferred $750,000 in inventory purchasing payments. To date, the Company and ABDC have not yet negotiated the new credit agreement relating to the $750,000 or the Prime Vendor Agreement. The $750,000 is included in current long-term obligation as of September 30, 2009 on the accompanying consolidated balance sheets.

Note 6 — Long-Term Obligations

Long-term obligations consist of the following (in thousands):

		September 30,				March 31,
		2009				2009
Note payable to JANA in the amount of $18.0 million, dated March 25, 2009 bearing an effective interest rate of 10% with unpaid accrued interest and principal due in full on April 1, 2012. Cash interest that would otherwise be payable on such quarterly interest payment dates may be added to the principal balance of the note payable at the Company’s option. The note payable is unsecured.		$	16,997			$	18,035
Note payable to Vicis Capital Master Fund (“Vicis”) in the amount of $7.8 million, dated March 25, 2009 bearing an effective interest rate of 10% with unpaid accrued interest and principal due in full on April 1, 2012. Cash interest that would otherwise be payable on such quarterly interest payment dates may be added to the principal balance of the note payable at the Company’s option. The note payable is unsecured.			6,193				7,882
Notes payable in the aggregate amount of $2.4 million, dated September 10, 2009 with principal due in full on April 1, 2010. The notes payable are unsecured. The amounts reported are net of unamortized original issue discounts of $90,000 on September 30, 2009. The notes include a mandatory repayment provision whereby if the Company raises in excess of $5 million in a debt or equity transaction, the notes would be paid in full.			2,310				—
Note payable to LSP Partners, LP (“LSP”) in the amount of $1.0 million, dated March 25, 2009 bearing an effective interest rate of 10% with unpaid accrued interest and principal due in full on April 1, 2012. Cash interest that would otherwise be payable on such quarterly interest payment dates may be added to the principal balance of the note payable at the Company’s option. The note payable is unsecured.			1,052				1,000
Payable due to AmerisourceBergen Drug Corporation consistent with the terms of an amendment to a line of credit agreement dated June 10, 2009 bearing an effective interest rate of 8.0% with unpaid accrued interest and principal due in full on April 1, 2010. The debt is secured by the assets of the Pharmacy segment.			750				—
Post-closing risk share obligation relating to the PrairieStone acquisition due to Lunds, bearing an effective interest rate of 10%, maturing on February 17, 2010 with monthly principal payments of $37,000. The balance is unsecured.			185				408
Other			189				189
Total long-term obligations			27,676				27,514
Less current portion of long-term obligations			(3,434	)			(596	)
Long-term obligations, less current portion		$	24,242			$	26,918

On March 25, 2009, the Company entered into a Master Exchange Agreement with JANA (related entity), Vicis (related entity) and LSP. Pursuant to the agreement, Vicis purchased $2,000,000 of the principal balance of promissory note held by JANA. Additionally, JANA and LSP advanced the Company $2,000,000 and $1,000,000 of cash, respectively. JANA and Vicis then exchanged their previously outstanding promissory notes for new notes with terms as described above. The new promissory notes due to JANA, Vicis, and LSP include covenants relating to, among other items, limitations of additional indebtedness, issuance of new equity securities and the application of proceeds from future asset sales. Specifically, the notes provide that the first $2,000,000 in proceeds would be retained by the Company. Additional proceeds are then paid to JANA, Vicis and LSP as provided in the promissory notes. After these promissory note prepayments are made, proceeds up to $20,000,000 are split 50% to the Company and 50% to be paid pro-rata to these three lenders. Thereafter, proceeds are split 25% to the Company and 75% to the lenders. As of September 30, 2009, the Company owes these lenders $1,200,000 before additional proceeds are split between the Company and the lenders.

As of September 30, 2009 future maturities of long-term obligations are as follows (in thousands):

Remainder of fiscal 2010		$	284
Fiscal 2011			3,240
Fiscal 2012			—
Fiscal 2013			24,242
			27,766
Less — unamortized debt discount			(90	)
Total		$	27,676

The weighted average interest rate of outstanding long-term obligations as of September 30, 2009 and March 31, 2009 and 2008 was 10.0%.

Note 7 — Stockholders’ Equity

General

On October 14, 2009, the Company’s shareholders approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock to 300,000,000, $0.001 par value per share from 200,000,000, $0.001 par value per share.

Warrants

The following represents warrants outstanding:

										September 30,				March 31,
Exercise Price						Granted		Expiration		2009				2009
$	0.001					September 2005		September 2010			—				444,444
$	0.41					April 2009		April 2014			52,800				—
$	0.50					May 2004		May 2011			2,299,696				2,436,307
$	0.50					May 2004		March 2014			1,104,729				1,104,729
$	0.75					June 2008		June 2015			490,000				490,000
$	2.25					September 2005		May 2014			44,444				44,444
											3,991,669				4,519,924

The outstanding warrants have no voting rights and provide the holder with the right to convert one warrant for one share of the Company’s common stock at the stated exercise price. The majority of the outstanding warrants have a cashless exercise feature.

During the six-month period ended September 30, 2009, 581,055 warrants were exercised on a cashless basis resulting in the issuance of 510,738 shares of common stock. Additionally, the Company accounted for 22,489 shares of common stock forfeited to the Company as part of the cashless exercise of 8,545,833 certain warrants in March 2009. No warrants were exercised during the six-month period ended September 30, 2008.

Note 8 — Stock-Based Compensation

On August 18, 2006, the Board of Directors unanimously approved the Arcadia Resources, Inc. 2006 Equity Incentive Plan (the “2006 Plan”), which was subsequently approved by the stockholders on September 26, 2006. The 2006 Plan provides for grants of incentive stock options, non-qualified stock options, stock appreciation rights and restricted shares (collectively “Awards”). The 2006 Plan will terminate and no more Awards will be granted after August 2, 2016, unless terminated by the Board of Directors sooner. The termination of the 2006 Plan will not affect previously granted Awards. All non-employee directors, executive officers and employees of the Company and its subsidiaries are eligible to receive Awards under the 2006 Plan. As of September 30, 2009, approximately 200,000 shares were available for grant under the 2006 Plan.

On January 27, 2009, the Board of Directors approved and adopted the Second Amendment (the “Amendment”) to the 2006 Plan, and the Amendment was approved by the stockholders on October 14, 2009. The Amendment increased the number of shares available to be issued under the Plan to 5% of the Company’s authorized shares of common stock or 15 million shares.

Stock Options

Prior to the adoption of the 2006 Plan, stock options were granted to certain members of management and the Board of Directors. The terms of these options varied depending on the nature and timing of the grant. The maximum contractual term for the options granted to date is seven years.

The fair value of each stock option award is estimated on the date of the grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The Company estimated the volatility of its common stock by using historical stock price volatility. The Company based the risk-free interest rate that it uses in the option pricing model on U.S. Treasury constant maturity issues having remaining terms similar to the expected terms of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore used an expected dividend yield of zero in the option pricing model. The expected life of employee stock options represents the calculation using the “simplified” method for “plain vanilla” options applied consistently to all “plain vanilla” options. Due to a lack of adequate historical experience to provide a reasonable estimate, the Company will continue to use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life. For the expected option life, the Company has “plain-vanilla” stock options, and therefore uses a simple average of the vesting period and the contractual term for options. All share-based payment awards are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period.

Following are the specific valuation assumptions used for each respective period:

		Three-Month Period Ended						Six-Month Period Ended
		September 30,						September 30,
Weighted-average		2009				2008		2009				2008
Expected volatility			85	%		N/A			78	%			74	%
Expected dividend yields			0	%		N/A			0	%			0	%
Expected terms (in years)			4			N/A			4				4
Risk-free interest rate			2.59	%		N/A			2.64	%			3.23	%

Stock option activity for the six-month period ended September 30, 2009 is summarized below:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Intrinsic
						Exercise				Contractual				Value
Options		Shares				Price				Term (Years)				(thousands)
Outstanding at April 1, 2009			3,771,225			$	0.76
Granted			35,000				0.67
Forfeited or expired			(332,250	)			1.12
Outstanding at September 30, 2009			3,473,975			$	0.72				5.1			$	1,668
Exercisable at September 30, 2009			3,129,400			$	0.75				4.9			$	1,435

In fiscal 2009, the Board determined that certain members of executive management would be granted a number of options which would vest over three years. On April 3, 2008, the Board authorized the issuance of one-third of these total option grants for executive management (such portion which vested quarterly over fiscal 2009) and determined that the remaining two-thirds were to be issued as soon as the Company has option shares available to do so. Following approval of the Amendment of the Plan as describe above, on January 27, 2009, the Board of Directors granted the remaining two-thirds of these options to the executives (an aggregate of 2,253,334 options), such options (i) having an exercise price of $0.72 per share (the closing share price on April 2, 2008), (ii) vesting in equal installments on March 31, 2010 and 2011, and (iii) expiring on January 26, 2016. At the annual meeting on October 14, 2009, the shareholders approved the Amendment to the Plan. Therefore, the 2,253,334 options were granted in third quarter of fiscal 2010 and are not included in the above table, which presents activity through September 30, 2009.

The following table summarizes information about stock options outstanding at September 30, 2009:

						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
		Number				Contractual				Exercise				Number				Exercise
Range of Exercise Prices		Outstanding				Life				Price				Exercisable				Price
$0.18 – $0.25			516,000				4.1			$	0.25				508,000			$	0.25
$0.26 – $1.00			2,389,395				4.8			$	0.61				2,052,820			$	0.64
$1.01 – $1.50			450,967				3.3			$	1.34				450,967			$	1.34
$1.51 – $2.25			43,000				3.6			$	2.22				43,000			$	2.22
$2.92			74,613				3.8			$	2.92				74,613			$	2.92
Outstanding at September 30, 2009			3,473,975							$	0.72				3,129,400			$	0.75

The weighted-average grant-date fair value of options granted during the six-month period ended September 30, 2009 and 2008 was $0.43 and $0.85, respectively.

No stock options were exercised during either the six-month periods ended September 30, 2009 and 2008.

The Company recognized $178,000 and $222,000 in stock-based compensation expense from all operations relating to stock options during the three-month periods ended September 30, 2009 and 2008, respectively, and $363,000 and $428,000 during the six-month periods ended September 30, 2009 and 2008, respectively.

As of September 30, 2009, total unrecognized stock-based compensation expense related to stock options was $$873,000, which is expected to be expensed through 2011.

Restricted Stock

Restricted stock is measured at fair value on the date of the grant, based on the number of shares granted and the quoted price of the Company’s common stock. The value is recognized as compensation expense ratably over the corresponding employee’s specified service period. Restricted stock vests upon the employees’ fulfillment of specified performance and service-based conditions.

The following table summarizes the activity for restricted stock awards during the three-month period ended September 30, 2009:

						Weighted-
						Average
						Grant Date
						Fair Value
		Shares				per Share
Unvested at April 1, 2009			476,092			$	1.45
Vested			(120,625	)			1.40
Forfeited			(10,000	)			1.48
Unvested at September 30, 2009			345,467			$	1.42

During the three-month periods ended September 30, 2009 and 2008, the Company recognized $88,000 and $117,000, respectively, of stock-based compensation expense from all operations related to restricted stock. During the six-month periods ended September 30, 2009 and 2008, the Company recognized $187,000 and $245,000, respectively, of stock-based compensation expense from all operations related to restricted stock.

During the six-month periods ended September 30, 2009 and 2008, the total fair value of restricted stock vested was $422,000 and $318,000, respectively.

As of September 30, 2009, total unrecognized stock-based compensation expense related to unvested restricted stock awards was $481,000, which is expected to be expensed over a weighted-average period of 1.62 years.

Note 9 — Contingencies

As a health care provider, the Company is subject to extensive federal and state government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, billing, documenting and other practices of health care companies are all subject to government scrutiny. To ensure compliance with Medicare and other regulations, audits may be conducted, with requests for patient records and other documents to support claims submitted for payment of services rendered to customers, beneficiaries of the government programs. Violations of federal and state regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs.

The Company is subject to various legal proceedings and claims which arise in the ordinary course of business. The Company does not believe that the resolution of such actions will materially affect the Company’s business.

Note 10 — Income Taxes

The Company incurred state and local tax expense of $7,000 and $198,000 during the three-month periods ended September 30, 2009 and 2008, respectively, and $100,000 and $394,000 during the six-month periods ended September 30, 2009 and 2008, respectively.

A valuation allowance is required to be established when it is more likely than not that all or a portion of deferred income tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, the length of carryback and carryforward periods, and expectation of future profits. Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as the cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. The Company will provide a full valuation allowance on future tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the assets, or other significant positive evidence arises that suggests the Company’s ability to utilize such assets.

Note 11 — Related Party Transactions

On September 30, 2009, the Company had an outstanding balance of $17.0 million related to a note payable with JANA dated March 25, 2009. JANA held greater than 15% of the outstanding shares of the Company’s common stock on September 30, 2009. The Company incurred interest expense relating to the debt due to JANA in the amounts of $418,000 and $423,000 during the three-month periods ended September 30, 2009 and 2008, respectively, and $862,000 and $831,000 during the six-month periods ended September 30, 2009 and 2008, respectively. See “Note 6 — Long-term Obligations” for additional information pertaining to this debt instrument.

On September 30, 2009, the Company had an outstanding balance of $6.2 million related to a note payable with Vicis Capital Master Fund dated March 25, 2009. Vicis held greater than 15% of the outstanding shares of the Company’s common stock on September 30, 2009. The Company incurred interest expense, relating to debt due to Vicis in the amounts of $152,000 and $133,000 during the three-month periods ended September 30, 2009 and 2008, respectively, and $310,000 and $265,000 during the six-month periods ended September 30, 2009 and 2008, respectively. See “Note 6 — Long-term Obligations” for additional information pertaining to this debt instrument.

One of the members of the Board of Directors of the Company, who resigned effective November 4, 2009, has minority ownership interests in each of Lunds, Inc. and LFHI Rx, LLC and serves as the Chairman and CEO of Lunds, Inc. These two entities held an ownership interest in PrairieStone prior to its acquisition by the Company and held approximately 2% of the outstanding shares of the Company’s common stock on September 30, 2009. Immediately prior to Company’s acquisition of PrairieStone, PrairieStone closed on the sale of the assets of fifteen retail pharmacies located within grocery stores owned and operated by Lunds, Inc. and Byerly’s, Inc. to Lunds, Inc., which transaction included execution of a five-year Management Services Agreement and a five-year Licensed Services Agreement between Lunds, Inc. and PrairieStone. Under the terms of the Management Services Agreement, PrairieStone provided such services that were appropriate for the day-to-day management of the pharmacies. In conjunction with these two agreements, the Company recognized $25,000 and $62,000 in revenue during the three-month periods ended September 30, 2009 and 2008, respectively, and $52,000 and $126,000 during the six-month periods ended September 30, 2009 and 2008, respectively. The Asset Purchase Agreement with Lunds also included a “post-closing risk-share” clause whereby PrairieStone was to pay Lunds 50% of the first two years’ losses, if any, up to a cumulative total loss of $914,000. $457,000 was accrued during the fiscal 2007. In March 2009, the Company entered into an Override Agreement with Lunds whereby the Company agreed to pay the post-closing risk-share balance of $457,000 with an initial payment of $50,000 and then eleven monthly equal installments plus interest through February 2010. As of September 30, 2009, the remaining principal balance of $185,000 is included in the current portion of long-term obligations in the accompanying consolidated balance sheets. The Override Agreement also terminated the Management Services Agreement and provided for the granting of 100,000 shares of the Company’s common stock to Lunds.

The Company’s Chief Operating Officer has a beneficial ownership interest in an affiliated agency and thereby has an interest in the affiliate’s transactions with the Company, including the payments of commissions to the affiliate based on a specified percentage of gross margin. The affiliate is responsible to pay its selling, general and administrative expenses. Commissions totaled $200,000 and $348,000 for the three-month periods ended September 30, 2009 and 2008, respectively, and $411,000 and $722,000 for the six-month periods ended September 30, 2009 and 2008, respectively. In addition, the Company has an agreement with this affiliate, which is terminable under certain circumstances, to purchase the business under certain events, but in no event later than 2011.

Note 12 — Segment Information

The Company reports net revenue from continuing operations and operating income/(loss) from continuing operations by reportable segment. Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company’s continuing operations include three segments: Services, Pharmacy and Catalog. Segments include operations engaged in similar lines of business and in some cases, may utilize common back office support services. Prior period segment information has been reclassified in order to conform to the current year presentation.

The Services segment is a national provider of home care services, including skilled and personal care, and medical staffing services (per diem and travel nursing) to numerous types of acute care and sub-acute care medical facilities. In May 2009, the Company sold its industrial staffing business, which was previously included in the Services segment and is included in discontinued operations as of September 30, 2009.

The Pharmacy segment includes the Company’s proprietary medication management system called DailyMed. The Company’s pharmacies in Indiana and Minnesota dispense patients’ prescriptions, over-the-counter medications and vitamins, and organize them into pre-sorted packets clearly marked with the date and time they should be taken. The DailyMed approach is designed to improve the safety and efficacy of the medications being dispensed. In June 2009, the Company sold its pharmacy dispensing and billing software business, which was previously included in the Pharmacy segment and is included in discontinued operations as of September 30, 2009.

The Catalog segment operates a home-health oriented mail-order catalog and related website. In May 2009, the Company sold its HHE business, which sold respiratory and medical equipment throughout the United States. The Catalog and HHE businesses were previously combined as one segment. The HHE business is included in discontinued operations as of September 30, 2009.

Management evaluates performance based on profit or loss from operations, excluding corporate, general and administrative expenses, as follows (in thousands):

		Three Month Period Ended								Six Month Period Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenue, net:
Services		$	21,709			$	24,824			$	44,389			$	49,831
Pharmacy			3,409				1,214				6,627				2,319
Catalog			498				681				1,009				1,347
Total revenue			25,616				26,719				52,025				53,497
Operating income (loss):
Services		$	1,036			$	1,103			$	2,243			$	2,269
Pharmacy			(1,564	)			(1,024	)			(2,877	)			(1,875	)
Catalog			7				(9	)			(31	)			1
Unallocated corporate overhead			(2,686	)			(2,549	)			(5,171	)			(5,405	)
Total operating income (loss)			(3,207	)			(2,479	)			(5,836	)			(5,010	)
Other expenses:
Interest expense, net			846				1,054				1,684				2,010
Loss on extinguishment of debt			—				—				—				248
Other			(6	)			44				30				54
Net loss before income tax expense			(4,047	)			(3,577	)			(7,550	)			(7,322	)
Income tax expense			7				198				100				394
Net loss from continuing operations		$	(4,054	)		$	(3,775	)		$	(7,650	)		$	(7,716	)
Depreciation and amortization:
Services		$	191			$	277			$	385			$	559
Pharmacy			206				239				293				370
Catalog			—				13				—				26
Corporate			134				84				264				117
Total depreciation and amortization		$	531			$	613			$	942			$	1,072

		September 30,
		2009				2008
Capital expenditures:
Services		$	26			$	66
Pharmacy			61				82
Corporate			7				115
Discontinued operations			2				199
Total capital expenditures		$	96			$	462

		September 30, 2009				March 31, 2009
Assets:
Services		$	37,526			$	39,183
Pharmacy			5,024				5,514
Catalog			189				221
Unallocated corporate assets			1,432				3,166
Assets of discontinued operations			146				11,308
Total assets		$	44,317			$	59,392

Note 13 — Subsequent Event

On November 6, 2009, the Company entered into definitive agreements with certain institutional investors to sell 15,857,141 units for $0.70 per unit. Each unit consists of one share of common stock and a warrant to purchase 0.45 shares of common stock. The Company will issue 15,857,141 shares of common stock and 7,135,713 warrants to purchase common stock. The transaction is expected to be finalized on or before November 17, 2009.

The warrants, which have an exercise price of $0.95, cannot be exercised until six months and one day after the original issuance date and expire five years after they first become exercisable.

Expenses associated with the transaction, which include a 6.5% placement agent fee, are expected to be approximately $946,000 resulting in anticipated net proceeds of $10,154,000. Consistent with the terms of the debt agreement entered into on September 10, 2009, the Company will use $2,400,000 of the net proceeds to pay off certain outstanding debt.

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations and financial condition for the three and six month periods ended September 30, 2009 and 2008. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included herein, the consolidated financial statements and notes and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2009 and Form 10-Q for the period ended June 30, 2009 filed with the SEC on July 14, 2009 and August 13, 2009, respectively, which are incorporated herein by this reference.

Cautionary Statement Concerning Forward-Looking Statements

The MD&A should be read in conjunction with the other sections of this report on Form 10-Q, including the consolidated financial statements and notes thereto beginning on page 2 of this Report. Historical results set forth in the financial statements beginning on page 2 and this section should not be taken as indicative of our future operations.

We caution you that statements contained in this report (including our documents incorporated herein by reference) include forward-looking statements. The Company claims all safe harbor and other legal protections provided to it by law for all of its forward-looking statements. Forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors about our Company, 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 reasonable 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 are also based on economic and market factors and the industry in which we do business, among other things. Forward-looking statements are not guaranties of future performance. 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.

Unless otherwise provided, “Arcadia,” “we,” “us,” “our,” and the “Company” refer to Arcadia Resources, Inc. and its wholly-owned subsidiaries.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Important factors that could cause actual results to differ materially include, but are not limited to (1) our ability to compete with our competitors; (2) our ability to obtain additional debt or equity financing, if necessary, and/or to restructure existing indebtedness, which may be difficult due to our history of operating losses and negative cash flows; (3) the ability of our affiliated agencies to effectively market and sell our services and products; (4) our ability to procure product inventory for resale; (5) our ability to recruit and retain temporary workers for placement with our customers; (6) the timely collection of our accounts receivable; (7) our ability to attract and retain key management employees; (8) our ability to timely develop new services and products and enhance existing services and products; (9) our ability to execute and implement our growth strategy; (10) the impact of governmental regulations; (11) marketing risks; (12) our ability to adapt to economic, political and regulatory conditions affecting the health care industry; (13) our ability to successfully integrate acquisitions; (14) the ability of our management team to successfully pursue our business plan; (15) other unforeseen events that may impact our business; and (16) the risks, uncertainties and other factors described in Part II, Item 1A of this Report which are incorporated herein by this reference.

Overview

Arcadia Resources, Inc., a Nevada corporation, together with its wholly-owned subsidiaries (the “Company”), is a national provider of home care, medical staffing, and pharmacy services operating under the service mark Arcadia HealthCare. In May 2009, the Company disposed of its Home Health Equipment (“HHE”), industrial staffing and retail pharmacy software businesses. Subsequent to these divestitures, the Company operates in three reportable business segments: Home Care/Medical Staffing Services (“Services”), Pharmacy and Catalog. The Company’s corporate headquarters are located in Indianapolis, Indiana. The Company conducts its business from approximately 65 facilities located in 20 states. The Company operates pharmacies in Indiana and Minnesota and has customer service centers in Michigan and Indiana.

Critical Accounting Policies

See Part II, Item 7 — Critical Accounting Policies, our consolidated financial statements and related notes in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended March 31, 2009 filed with the SEC on July 14, 2009 for accounting policies and related estimates we believe are the most critical to understanding our condensed consolidated financial statements, financial condition and results of operations and which require complex management judgment and assumptions, or involve uncertainties.

Three-Month Period Ended September 30, 2009 Compared to the Three-Month Period Ended September 30, 2008

Results of Continuing Operations, (in thousands, except share amounts)

		Three-Month Period
		Ended September 30,
		2009				2008
Revenues, net		$	25,616			$	26,719
Cost of revenues			18,210				18,504
Gross profit			7,406				8,215
Selling, general and administrative expenses			10,082				10,081
Depreciation and amortization			531				613
Total operating expenses			10,613				10,694
Operating loss			(3,207	)			(2,479	)
Other expenses			840				1,098
Net loss before income tax expense			(4,047	)			(3,577	)
Income tax expense			7				198
Net loss from continuing operations		$	(4,054	)		$	(3,775	)
Weighted average number of shares — basic and diluted			161,201,000				133,019,000
Net loss from continuing operations per share — basic and diluted		$	(0.03	)		$	(0.03	)