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

For the Transition period from                 to               

Commission file number 001-32935

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 Regulation S-T during the preceding 12 months (or for such 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 August 12, 2009, 161,255,000 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
Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and March 31, 2009			2
Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2009 and 2008 (unaudited)			3
Condensed Consolidated Statement of Stockholders’ Equity for the Three Months ended June 30, 2009 (unaudited)			4
Condensed Consolidated Statements of Cash Flows for the Three Months ended June 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			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
Part II: Other Information
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			33
Item 5. Other			38
Item 6. Exhibits			38
Exhibits			40
Signatures			39
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. — FINANCIAL INFORMATION

Item 1.		Financial Statements

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30,				March 31,
		2009				2009
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	517			$	1,522
Accounts receivable, net of allowance of $3,571 and $3,386, respectively			14,803				15,679
Inventories, net			841				863
Prepaid expenses and other current assets			1,577				1,764
Current assets of discontinued operations			757				5,458
Total current assets			18,495				25,286
Property and equipment, net			2,180				2,308
Goodwill			17,053				17,053
Acquired intangible assets, net			8,146				8,305
Other assets			629				590
Restricted cash			500				—
Assets of discontinued operations			34				5,850
Total assets		$	47,037			$	59,392
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit, current portion		$	—			$	437
Accounts payable			2,579				2,765
Accrued expenses:
Compensation and related taxes			2,662				2,986
Interest			41				89
Health insurance			524				545
Other			1,046				917
Payable to affiliated agencies			809				1,284
Long-term obligations, current portion			1,235				596
Capital lease obligations, current portion			73				59
Current liabilities of discontinued operations			1,064				2,037
Total current liabilities			10,033				11,715
Lines of credit, less current portion			7,749				10,889
Long-term obligations, less current portion			23,646				26,918
Capital lease obligations, less current portion			64				37
Total liabilities			41,492				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; 161,291,415 shares and 161,249,529 shares issued, respectively			161				161
Additional paid-in capital			136,205				135,920
Accumulated deficit			(130,821	)			(126,248	)
Total stockholders’ equity			5,545				9,833
Total liabilities and stockholders’ equity		$	47,037			$	59,392

See accompanying notes to these condensed consolidated financial statements.

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Month Period Ended June 30,
		(Unaudited)
		2009				2008
Revenues, net		$	26,409			$	26,778
Cost of revenues			18,961				18,668
Gross profit			7,448				8,110
Selling, general and administrative			9,666				10,244
Depreciation and amortization			411				459
Total operating expenses			10,077				10,703
Operating loss			(2,629	)			(2,593	)
Other expenses:
Interest expense, net			838				956
Loss on extinguishment of debt			—				248
Other			36				10
Total other expenses			874				1,214
Loss from continuing operations before income taxes			(3,503	)			(3,807	)
Income tax expense			93				196
Loss from continuing operations			(3,596	)			(4,003	)
Discontinued operations:
Income / (loss) from discontinued operations			(1,193	)			717
Net gain on disposal			216				—
Net loss from discontinued operations			(977	)			717
NET LOSS		$	(4,573	)		$	(3,286	)
Weighted average number of common shares outstanding			160,552				131,688
Basic and diluted net loss per share:
Loss from continuing operations		$	(0.02	)		$	(0.03	)
Loss from discontinued operations			(0.01	)			—
Net loss per share		$	(0.03	)		$	(0.03	)

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			64,375				—				285				—				285
Cashless exercise of warrants			(22,489	)			—				—				—				—
Net loss for the period			—				—				—				(4,573	)			(4,573	)
Balance, June 30, 2009			161,291,415			$	161			$	136,205			$	(130,821	)		$	5,545

See accompanying notes to these condensed consolidated financial statements.

ARCADIA RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three-Month Period Ended
		June 30,
		(Unaudited)
		2009				2008
Operating activities
Net loss for the period		$	(4,573	)		$	(3,286	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for doubtful accounts			873				811
Depreciation of property and equipment			531				1,012
Amortization of intangible assets			246				456
Gain on business disposals			(216	)			—
Non-cash interest expense			584
Loss on sale of property and equipment			—				10
Amortization of deferred financing costs and debt discounts			52				246
Stock-based compensation expense			285				401
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			1,750				(792	)
Inventories			639				(228	)
Other assets			233				1,176
Accounts payable			(547	)			(63	)
Accrued expenses			(1,146	)			625
Due to affiliated agencies			(327	)			16
Deferred revenue			—				(9	)
Net cash provided by (used in) operating activities			(1,616	)			375
Investing activities
Business acquisitions, net of cash acquired			(190	)			(363	)
Proceeds from business disposal			9,157				—
Increase in restricted cash			(500	)			—
Proceeds from disposals of property and equipment			—				19
Purchases of property and equipment			(75	)			(264	)
Net cash provided by (used in) investing activities			8,392				(608	)
Financing activities
Net payments on lines of credit			(3,577	)			(3,299	)
Payments on notes payable and capital lease obligations			(4,204	)			(438	)
Net cash used in financing activities			(7,781	)			(3,737	)
Net change in cash and cash equivalents			(1,005	)			(3,970	)
Cash and cash equivalents, beginning of period			1,522				6,351
Cash and cash equivalents, end of period		$	517			$	2,381
Supplementary information:
Cash paid during the period for:
Interest		$	209			$	480
Income taxes			14				83
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
Prior period liability satisfied with equity			—				45
Accrued interest converted to notes payable			628				541

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 and June 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 70 facilities located in 21 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 June 30, 2009, the consolidated statements of operations for the three-month periods ended June 30, 2009 and 2008, the consolidated statements of cash flows for the three-month periods ended June 30, 2009 and 2008 and the consolidated statement of stockholders’ equity for the three-month period ended June 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 ended June 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

In April 2008, FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”), which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset. FSP No. 142-3 also requires the disclosure of the weighted-average period prior to the next renewal or extension for each major intangible asset class, the accounting policy for the treatment of costs incurred to renew or extend the term of a recognized intangible assets and for intangible assets renewed or extended during the period, if renewal or extension costs are capitalized, the costs incurred to renew or extend the asset and the weighted-average period prior to the next renewal or extension for each major intangible asset class. FSP No. 142-3 is effective for financial statements for fiscal years beginning after December 15, 2008. The Company adopted FSP No. 142-3 on April 1, 2009, resulting in no impact to its consolidated financial statements.

In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF Issue No. 07-5”). EITF Issue No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. EITF Issue No. 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company adopted this pronouncement on April 1, 2009, resulting in no impact to its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”. The statement amends and expands the disclosure requirements of SFAS No. 133 to provide users of financial statements with an enhanced understanding of (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. The statement also requires (i) qualitative disclosures about objectives for using derivatives by primary underlying risk exposure, (ii) information about the volume of derivative activity, (iii) tabular disclosures about balance sheet location and gross fair value amounts of derivative instruments, income statement, and other comprehensive income location and amounts of gains and losses on derivative instruments by type of contract, and (iv) disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years or interim periods beginning after November 15, 2008. The adoption of this pronouncement did not have a significant impact on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”), which replaces SFAS 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for fiscal years beginning on or after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. The Company adopted SFAS No. 141R on April 1, 2009, and the impact of adopting this pronouncement will be dependent on the future business combinations that the Company may pursue.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP No. FAS 107-1 and APB 28-1 requires entities to provide disclosure in interim reporting periods of the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized at fair value in the balance sheet. Prior to the issuance of FSP No. FAS 107-1 and APB 28-1, such disclosures were required only in annual reporting periods. As of June 30, 2009, the Company adopted FSP No. FAS 107-1 and APB 28-1, which was effective for interim periods ending after June 15, 2009. The recorded amounts of the Company’s financial instruments at June 30, 2009 approximate fair value.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued for interim and annual periods ending after June 15, 2009. The Company adopted this standard as of June 30, 2009 and considered the accounting and disclosure of events occurring after the balance sheet date through the date and time the Company’s financial statements were issued on August 13, 2009. The adoption of this standard did not have an impact on the Company’s financial position, results of operations, or liquidity.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of SFAS No. 162” to become the single source of authoritative nongovernmental U.S. GAAP; all existing accounting standards are superseded as described in SFAS No. 168. All other accounting literature not included in the Codification is non-authoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Note 2 — Management’s Plan

Since fiscal 2008, the Company has been focused on the implementation of a new 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 each of 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. Specifically, the first $2 million in proceeds are to be retained by the Company. The next $5 million in proceeds are then paid to the lenders as provided in the promissory notes. After these amounts are paid, proceeds up to $20,000,000 are split 50% to the Company and 50% to be paid pro-rata to these lenders. Thereafter, proceeds are split 25% to the Company and 75% to the lenders.

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. In addition to the cash proceeds received at closing, the transactions included holdback provisions for an additional $1,475,000 in cash, which is to be released over the next 18 months assuming certain criteria are met. Consistent with the terms of the debt agreements described above, the Company paid certain lenders a total of $3,941,000 from the cash proceeds to reduce outstanding debt. The Company plans to use the cash received upon the release of the holdback amounts to further reduce debt. The Company also paid AmerisourceBergen Drug Corporation $1,980,000 from the proceeds of the pharmacy software business divestiture plus an additional $145,000 in order to pay off the outstanding line of credit balance. Cash proceeds received at the closings, net of fees, less amounts used to pay down debt were $2,629,000.

The Company has expanded revenues in the Pharmacy segment over the last three quarters and has seen steady increases in Home Care revenue. Management believes that it will make further progress with implementing its strategic plan during the remainder of fiscal 2010. The Company believes that its focus on two core businesses will enable it to realize operational improvements in both the Services and Pharmacy segments. These planned operational improvements include growth in Home Care revenues, growth in DailyMed revenues, improved gross margins in the Pharmacy segment and more efficient operation of its pharmacy facilities as the DailyMed volumes grow. In addition to these operational improvements, the Company intends to make further reductions in corporate expenses in order to bring these expenses more in line with current and projected revenues.

With the Company’s reduced debt levels (described above) and its focus on two core business platforms, management believes that it would be able to raise additional capital to support operating cash requirements, if necessary, and to fund investment in growth opportunities. This capital could be in the form of debt financing, private equity placements and/or investments in its core business platforms by strategic business partners. At the same time, because of normal fluctuations in the timing of the Company’s cash receipts and disbursements, management is focused on disciplined management of its cash flow. While management believes that it will be successful in managing its cash requirements, and has developed alternatives for addressing short-term cash shortfalls, no assurance can be made that these alternatives can be successfully implemented in the time frame required. In such a case, the Company would need to consider other strategies, including the divestiture of additional assets or business lines, to meet its cash requirements and/or fund its investment in growth opportunities.

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 will be 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 $1.6 million. 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 $503,000, less fees of $24,000. $126,000 of the purchase price is being held by the buyer to cover the Company’s contingent obligations. 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. $475,000 of the purchase price is being held by the buyer to cover the Company’s contingent obligations. 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 11 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):

		June 30, 2009
		Services -
		Industrial								Pharmacy -
		Staffing				HHE				Software				Total
Assets
Accounts receivable, net of allowance of $845		$	139			$	431			$	—			$	570
Prepaid expenses and other current assets			—				103				84				187
Total current assets of discontinued operations			139				534				84				757
Property and equipment, net			—				34				—				34
Total assets of discontinued operations		$	139			$	568			$	84			$	791
Liabilities
Accounts payable		$	—			$	555			$	76			$	631
Accrued compensation and related taxes			—				43				172				215
Accrued other			80				138				—				218
Total liabilities of discontinued operations		$	80			$	736			$	248			$	1,064

		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
		June 30,
		2009				2008
Revenues, net:
Services — Industrial Staffing		$	1,223			$	5,218
Home Health Equipment			1,423				4,832
Pharmacy — Software			356				556
		$	3,002				10,606
Earnings (loss) from operations:
Services — Industrial Staffing		$	(37	)		$	475
Home Health Equipment			(1,061	)			190
Pharmacy — Software			(95	)			52
		$	(1,193	)		$	717
Gain / (loss) on disposal:
Services — Industrial Staffing		$	126			$	—
Home Health Equipment			120				—
Pharmacy — Software			(30	)			—
		$	216			$	—
Earnings (loss) from discontinued operations:
Services — Industrial Staffing		$	89			$	475
Home Health Equipment			(941	)			190
Pharmacy — Software			(125	)			52
		$	(977	)		$	717

Note 4 — Goodwill and Acquired Intangible Assets

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

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

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):

		June 30, 2009								March 31, 2009
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Trade name		$	6,664			$	724			$	6,664			$	682
Customer relationships			4,720				2,514				4,720				2,397
			11,384			$	3,238				11,384			$	3,079
Less accumulated amortization			(3,238	)							(3,079	)
Net acquired intangible assets		$	8,146							$	8,305

Amortization expense for acquired intangible assets included in continuing operations was $159,000 and $301,000 for the three-month periods ended June 30, 2009 and 2008, respectively.

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

Remainder of fiscal 2010		$	476
Fiscal 2011			571
Fiscal 2012			518
Fiscal 2013			476
Fiscal 2014			382
Thereafter			5,723
Total		$	8,146

Note 4 — Lines of Credit

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

						At June 30, 2009
						Maximum
						Available								March 31,
Lending Institution		Maturity date				Borrowing				Balance				2009				Interest rate
Comerica Bank		August 1, 2011				$	10,220			$	7,749			$	9,126			Prime plus 2.75		%
AmerisourceBergen Drug Corporation		September 30, 2010					—				—				2,200				10	%
Total lines of credit obligations						$	10,220				7,749				11,326
Less current portion											—				(437	)
Long-term portion										$	7,749			$	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. As of June 30, 2009, advances under the Comerica Bank line of credit agreement cannot exceed the lesser of the revolving credit commitment amount of $19 million or the aggregate principal amount of indebtedness permitted under the advance formula amount at any one time. 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, to have any person who acquires Arcadia Services, Inc.’s capital stock to pledge such stock to Comerica Bank, and to customary negative covenants. 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 June 30, 2009, the interest rate on this line of credit agreement was the bank’s prime rate plus 1.0% (4.25%), and the availability under the line was $2,471,000.

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 June 30, 2009, the Company was in compliance with all financial covenants.

On July 13, 2009, ASI 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%. The advance formula will remain the same as described above. The amended agreement requires the Company to maintain a deposit account with a minimum balance of $500,000. ASI agreed to the following financial covenants: tangible effective net worth of $2 million as of June 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 a result of this amendment, the Company classified the outstanding balance as a long-term liability as of June 30, 2009 and March 31, 2009. As of June 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 was guaranteed by the Company.

On June 10, 2009, the Company entered into an amendment to the line of credit agreement. 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 June 30, 2009 on the accompanying consolidated balance sheets.

Note 5 — Long-Term Obligations

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

		June 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.		$	16,579			$	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.			6,040				7,882
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.			1,027				1,000
Payable due to AmerisourceBergen Drug Corporation consistent with the terms of an amendment to a line of credit agreement date 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 note payable 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.			296				408
Note payable, unsecured bearing interest at prime plus 1% due on July 31, 2009.			189				189
Total long-term obligations			24,881				27,514
Less current portion of long-term obligations			(1,235	)			(596	)
Long-term obligations, less current portion		$	23,646			$	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 June 30, 2009 future maturities of long-term obligations are as follows (in thousands):

Remainder of fiscal 2010		$	485
Fiscal 2011			750
Fiscal 2012			—
Fiscal 2013			23,646
Total		$	24,881

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

Note 6 — Stockholders’ Equity

Warrants

The following represents warrants outstanding:

										June 30,				March 31,
Description		Exercise Price				Granted		Expiration		2009				2009
Class A		$	0.50			May 2004		May 2011			3,593,836				3,593,836
Class B-1		$	0.001			September 2005		September 2009			444,444				444,444
Class B-2		$	1.20			September 2005		May 2014			44,444				44,444
ABDC issuance		$	0.75			June 2008		June 2015			490,000				490,000
											4,572,724				4,572,724

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 three-month period ended June 30, 2009, the Company accounted for 22,489 shares of common stock forfeited to the Company as part of the cashless exercise of 8,545,833 B-1 warrants in March 2009. No warrants were exercised during the three-month period ended June 30, 2008.

Note 7 — Contingencies

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, results of operations or financial condition.

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. The total number of shares of common stock that may be issued pursuant to Awards under the 2006 Plan may not exceed an aggregate of 2.5% of the Company’s authorized and unissued shares of common stock as of the date the Plan was approved by the shareholders or 5,000,000 shares. 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 June 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. The Amendment proposes to increase the number of shares available to be issued under the Plan to 5% of the Company’s authorized shares of common stock as of the date the Amendment is approved by the Company’s stockholders. The Amendment is subject to approval by the Company’s stockholders at the next regularly scheduled or special meeting of stockholders.

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, consistent with the guidance in Staff Accounting Bulletin (“SAB”) SAB 107. In December 2007, the Securities and Exchange Commission (SEC) issued SAB110 to amend the SEC’s views discussed in SAB 107 regarding the use of the simplified method in developing an estimate of expected life of share options in accordance with SFAS 123R. 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 in accordance with SAB 107, as amended by SAB 110. For the expected option life, the Company has what SAB 107 defines as “plain-vanilla” stock options, and therefore use a simple average of the vesting period and the contractual term for options as permitted by SAB 107. 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
		June 30,
Weighted-average		2009				2008
Expected volatility			N/A				73	%
Expected dividend yields			N/A				0	%
Expected terms (in years)			N/A				4
Risk-free interest rate			N/A				3.19	%

Stock option activity for the three-month period ended June 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
Forfeited or expired			(31,667	)			0.71
Outstanding at June 30, 2009			3,739,558			$	0.76				3.7				395,608
Exercisable at June 30, 2009			3,196,920			$	0.81				4.9				285,396

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. In the event shareholder approval of the Amendment to the Plan is not received at the next special or annual meeting of the Company’s shareholders, these option grants shall be terminated and voided in all respects and shall not vest or be exercisable by the participants at any time. The 2,253,334 options are not included in the above table, and to date, the Company has not recognized compensation expense associated with these options.

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

		Options Outstanding												Options Exercisable
						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			524,000				5.8			$	0.25				509,000			$	0.25
$0.26 – $1.00			2,446,978				5.9			$	0.61				1,919,340			$	0.66
$1.01 – $1.50			650,967				3.6			$	1.37				650,967			$	1.37
$1.51 – $2.25			43,000				3.8			$	2.22				43,000			$	2.22
$2.92			74,613				4.1			$	2.92				74,613			$	2.92
Outstanding at June 30, 2009			3,739,558							$	0.76				3,196,920			$	0.81

The weighted-average grant-date fair value of options granted during the three-month period ended June 30, 2008 was $0.40. No stock options were granted during the three-month period ended June 30, 2009.

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

The Company recognized $185,000 and $206,000 in stock-based compensation expense from all operations relating to stock options during the three-month periods ended June 30, 2009 and 2008, respectively.

As of June 30, 2009, total unrecognized stock-based compensation expense related to stock options was $1,039,000, 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 June 30, 2009:

						Weighted-
						Average
						Grant Date
						Fair Value
		Shares				per Share
Unvested at April 1, 2009			656,092			$	1.41
Vested			(244,375	)			1.37
Forfeited			(10,000	)			1.48
Unvested at June 30, 2009			401,717			$	1.44

During the three-month periods ended June 30, 2009 and 2008, the Company recognized $99,000 and $128,000, respectively, of stock-based compensation expense from all operations related to restricted stock.

During the three-month periods ended June 30, 2009 and 2008, the total fair value of restricted stock vested was $97,000 and $165,000, respectively.

As of June 30, 2009, total unrecognized stock-based compensation expense related to unvested restricted stock awards was $569,000, which is expected to be expensed over a weighted-average period of 1.85 years.

Note 9 — Income Taxes

The Company incurred state and local tax expense of $93,000 and $196,000 during the three-month periods ended June 30, 2009 and 2008, respectively.

SFAS No. 109 requires that a valuation allowance 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. SFAS No. 109 further states that 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 10 — Related Party Transactions

On June 30, 2009, the Company had an outstanding balance of $16.6 million related to a note payable with JANA dated March 25, 2009. JANA held greater than 15% of the outstanding shares of Company common stock on June 30, 2009. The Company incurred interest expense relating to the debt due JANA in the amounts of $444,000 and $408,000 during the three-month periods ended June 30, 2009 and 2008, respectively. See “Note 5 — Long-term Obligations” for additional information pertaining to this debt instrument.

On June 30, 2009, the Company had an outstanding balance of $6.0 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 Company common stock on June 30, 2009. The Company incurred interest expense, including amortization of debt discount, relating to the debt in the amounts of $158,000 and $150,000 during the three-month periods ended June 30, 2009 and 2008, respectively. See “Note 5 — Long-term Obligations” for additional information pertaining this debt instrument.

One of the members of the Board of Directors of the Company 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. Lunds, Inc. and LFHI Rx, LLC received 2,400,000 shares of Company common stock at the closing of the transaction and an additional 47,437 shares in February 2008 due to a stock price guarantee provision relating to the acquisition. 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 $27,000 and $64,000 in revenue during the three-month periods ended June 30, 2009 and 2008, respectively. The Asset Purchase Agreement with Lunds also included a “post-closing risk-share” clause whereby PrairieStone will 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 June 30, 2009, the remaining principal balance of $296,000 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.

Another member of the Board of Directors of the Company is the Director of Private Equity of CMS Companies. Entities affiliated with CMS Companies purchased 4,201,681 shares of the Company’s common stock for $5,000,000 as part of the May 2007 private placement. In addition, these entities received 1,050,420 warrants to purchase shares of common stock at $1.75 per share for a period of seven years. These warrants were converted to 1,050,420 shares of common stock in conjunction with the March 25, 2009 debt refinancing.

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 $212,000 and $371,000 for the three-month periods ended June 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 11 — 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 June 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 June 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 June 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
		June 30,
		2009				2008
Revenue, net:
Services		$	22,680			$	25,006
Pharmacy			3,218				1,106
Catalog			511				666
Total revenue			26,409				26,778
Operating income (loss):
Services		$	1,207			$	1,105
Pharmacy			(1,313	)			(851	)
Catalog			(38	)			9
Unallocated corporate overhead			(2,485	)			(2,856	)
Total operating income (loss)			(2,629	)			(2,593	)
Other expenses:
Interest expense, net			838				956
Loss on extinguishment of debt			—				248
Other			36				10
Net loss before income tax expense			(3,503	)			(3,807	)
Income tax expense			93				196
Net loss from continuing operations		$	(3,596	)		$	(4,003	)
Depreciation and amortization:
Services		$	193			$	282
Pharmacy			87				131
Catalog			—				13
Corporate			131				33
Total depreciation and amortization		$	411			$	459

		June 30,
		2009				2008
Capital expenditures:
Services		$	15			$	37
Pharmacy			58				103
Corporate			2				101
Discontinued operations			—				23
Total capital expenditures		$	75			$	264

		June 30, 2009				March 31, 2009
Assets:
Services		$	38,848			$	39,183
Pharmacy			5,462				5,514
Catalog			358				221
Unallocated corporate assets			1,578				3,166
Assets of discontinued operations			791				11,308
Total assets		$	47,037			$	59,392

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-month periods ended June 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 filed with the SEC on July 14, 2009, which is 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 70 facilities located in 21 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 June 30, 2009 Compared to the Three-Month Period Ended June 30, 2008

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

		Three-Month Period
		Ended June 30,
		2009				2008
Revenues, net		$	26,409			$	26,778
Cost of revenues			18,961				18,668
Gross profit			7,448				8,110
Selling, general and administrative expenses			9,666				10,244
Depreciation and amortization			411				459
Total operating expenses			10,077				10,703
Operating loss			(2,629	)			(2,593	)
Other expenses			874				1,214
Net loss before income tax expense			(3,503	)			(3,807	)
Income tax expense			93				196
Net loss from continuing operations		$	(3,596	)		$	(4,003	)
Weighted average number of shares — basic and diluted			160,552				131,688
Net loss from continuing operations per share — basic and diluted			($0.02	)			($0.03	)

Revenues, Cost of Revenues and Gross Profits

The following summarizes revenues, cost of revenues and gross profits by segment for the three-month periods ended June 30, (in thousands):

						% of Total								% of Total				$ Increase/				% Increase/
		2009				Revenue				2008				Revenue				(Decrease)				(Decrease)
Revenues, net:
Services		$	22,680				85.9	%		$	25,006				93.4	%		$	(2,326	)			-9.3	%
Pharmacy			3,218				12.2	%			1,106				4.1	%			2,112				191.0	%
Catalog			511				1.9	%			666				2.5	%			(155	)			-23.3	%
			26,409				100.0	%			26,778				100.0	%			(369	)			-1.4	%
Cost of revenues:
Services		$	15,764							$	17,399							$	(1,635	)			-9.4	%
Pharmacy			2,863								914								1,949				213.2	%
Catalog			334								355								(21	)			-5.9	%
			18,961								18,668								293				1.6	%
						Gross								Gross
						Margin %								Margin %
Gross margins:
Services			6,916				30.5	%			7,607				30.4	%			(691	)			-9.1	%
Pharmacy			355				11.0	%			192				17.4	%			163				84.9	%
Catalog			177				34.6	%			311				46.7	%			(134	)			-43.1	%
		$	7,448				28.2	%		$	8,110				30.3	%		$	(662	)			-8.2	%

The following table summarizes the components of the Services segment revenues for the three-month periods ended June 30, (in thousands):

						% of Total								% of Total				$ Increase/				% Increase/
		2009				Revenue				2008				Revenue				(Decrease)				(Decrease)
Home care		$	17,688				78.0	%		$	16,900				67.6	%		$	788				4.7	%
Medical staffing			3,574				15.8	%			5,508				22.0	%			(1,934	)			-35.1	%
Travel staffing			1,418				6.2	%			2,598				10.4	%			(1,180	)			-45.4	%
Total Services		$	22,680				100.0	%		$	25,006				100.0	%		$	(2,326	)			-9.3	%

Services Segment

The Services segment remains the largest source of revenue for the Company. During first quarter of fiscal 2010, home care revenues increased 4.7% over the same period a year ago. A majority of this increase represents organic growth in several of the Company’s main geographic markets. The increase in sales included growth in government programs served, as well as private pay and insurance clients.

The growth in home care revenues was more than offset by significant declines in revenue in the medical staffing and travel staffing markets, which declined by 35.1% and 45.4%, respectively, as compared with the prior year quarter. Demand for the Company’s per diem and travel medical staffing services declined as compared with the same period a year ago. Several factors have contributed to the lower level of overall demand. Market conditions for temporary medical staffing are currently not favorable, driven by lower patient censuses in facilities; constraints on facility staffing budgets; the return of part-time staff to full-time status and increases in overtime accepted by permanent staff of our potential customers, largely in response to overall economic conditions; and delays in the construction and opening of new facilities that often drives short-term staffing requirements. In addition to these market conditions, travel staffing revenues have been adversely affected by state budget constraints with a major correctional institution customer.

Gross margins in the Services segment remained approximately flat at 30.5% during the three-month period ended June 30, 2009 compared to 30.4% for the prior year quarter. The cost of revenues in this segment consists primarily of employee costs, including wages, taxes, fringe benefits and workers’ compensation expense.

Pharmacy Segment

The revenue in the Pharmacy segment increased by $2,112,000, or 191%, to $3,218,000 during the first quarter of fiscal 2010 compared to the same period last year. This growth was primarily due to the Company’s DailyMed program. During the third and fourth quarters of fiscal 2009, revenue generated from the DailyMed medication management program began to increase at a more rapid pace than in previous quarters, and the Company continues to pursue additional opportunities with government entities, managed care organizations, assisted living and group home facilities, existing home care customers and in direct-to-consumer initiatives. The Company expects these growth trends to continue during fiscal 2010 and beyond. The revenue growth over the last several quarters was primarily driven by the Company’s relationship with Indiana Medicaid. The Company continues to work with the Indiana Medicaid program and its managed care providers to identify and enroll those patients who will benefit most from participation in the DailyMed. Additionally, in June 2009, the Company announced the signing of an agreement with WellPoint. Under this agreement, the Company will initiate the DailyMed medication management program to WellPoint’s high-risk Medicaid members in five states where WellPoint companies provide Medicaid managed care benefits. The program launch is underway for WellPoint’s high risk members in Virginia and will be rolled out to additional states during the next few quarters.

The costs of revenue in the Pharmacy segment include the cost of medications sold to clients and packaging costs for the DailyMed proprietary dispensing system. The reduction in the gross margin percentage from 17.5% in during the fiscal 2009 first quarter to 11.0% for the quarter ended June 30, 2009 was primarily due to larger than normal inventory adjustment at the Company’s Minnesota pharmacy facility. One of the Company’s primary on-going initiatives is to improve and maximize the Pharmacy segment’s margins. Management has identified various purchasing and operational improvements and believes that Pharmacy margins will improve in future periods.

Catalog Segment