e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
| |
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| þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2005
OR
| |
|
|
| o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition period from to
Commission file number 000-31249
ARCADIA RESOURCES, INC.
(Exact name of registrant as specified in its charter)
| |
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| NEVADA
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88-0331369 |
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|
(State or other jurisdiction of
incorporation or organization)
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|
(I.R.S. Employer I.D. Number) |
| |
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26777 CENTRAL PARK BLVD., SUITE 200
SOUTHFIELD, MI
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|
48076 |
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| (Address of principal executive offices)
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|
Zip Code |
Registrant’s telephone no.: 248-352-7530
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). o Yes þ No
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 11, 2005, 93,864,481 shares of common stock, $0.001 par value, of the
Registrant were outstanding.
PART I: Financial Information
Item 1. Financial Statements
The financial statements of the Registrant included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain
information normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America has been condensed or omitted, the
Registrant believes that the disclosures are adequate to make the information presented not
misleading. Readers are urged to carefully review and consider the various disclosures made by us
in this quarterly report on Form 10-Q, our Current Reports on Form 8-Ks filed on April 6, 2005,
April 20, 2005, May 2, 2005, June 30, 2005, September 22, 2005 and September 30, 2005 along with
our annual report on Form 10-K as of and for the year ended March 31 2005, our quarterly report of
Form 10Q for the period ended June 30, 2005, and our other filings with the Securities and Exchange
Commission. These reports and filings attempt to advise interested parties of the risks and factors
that may affect our business, financial condition and results of operation and prospects.
The unaudited consolidated financial statements included herein reflect all adjustments, consisting
only of normal recurring items, which, in the opinion of management, are necessary to present a
fair statement of the results for the interim periods presented.
The results for interim periods are not necessarily indicative of trends or results to be expected
for a full year.
3
Arcadia Resources, Inc.
Consolidated Balance Sheets
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September 30, |
|
|
March 31, |
|
| |
|
2005 |
|
|
2005 |
|
| |
|
(Unaudited) |
|
|
(Audited) |
|
Assets (Note 7) |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
4,111,667 |
|
|
$ |
1,412,268 |
|
Accounts receivable, net of allowance of $2,021,000 and $1,692,000, respectively |
|
|
24,609,729 |
|
|
|
21,453,424 |
|
Inventory, net of allowance of $40,000 and $80,000 |
|
|
762,656 |
|
|
|
664,269 |
|
Prepaid expenses and other current assets |
|
|
2,893,589 |
|
|
|
876,523 |
|
Income taxes receivable (Note 11) |
|
|
131,602 |
|
|
|
130,000 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
32,509,243 |
|
|
|
24,536,484 |
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
|
|
|
|
|
|
Equipment |
|
|
2,935,738 |
|
|
|
2,033,919 |
|
Software |
|
|
1,039,889 |
|
|
|
251,446 |
|
Furniture and fixtures |
|
|
701,382 |
|
|
|
376,095 |
|
Vehicles |
|
|
504,370 |
|
|
|
205,080 |
|
Leasehold improvements |
|
|
449,810 |
|
|
|
196,337 |
|
|
|
|
|
|
|
|
|
|
|
5,631,189 |
|
|
|
3,062,877 |
|
Accumulated depreciation and amortization |
|
|
(1,302,385 |
) |
|
|
(787,899 |
) |
|
|
|
|
|
|
|
Net Fixed Assets |
|
|
4,328,804 |
|
|
|
2,274,978 |
|
|
|
|
|
|
|
|
Other Assets (Note 4) |
|
|
|
|
|
|
|
|
Goodwill |
|
|
24,865,453 |
|
|
|
15,704,743 |
|
Trade name, net of accumulated amortization of $378,000 and $244,000 |
|
|
7,622,223 |
|
|
|
7,755,556 |
|
Customer relationships, net of accumulated amortization of $614,000 and $306,000 |
|
|
5,608,251 |
|
|
|
4,694,444 |
|
Technology, net of accumulated amortization of $359,000 and $232,000 |
|
|
401,111 |
|
|
|
527,778 |
|
Non-competition agreements, net of accumulated amortization of $46,000 and $0 |
|
|
184,000 |
|
|
|
— |
|
Deferred financing costs, net of accumulated amortization of $57,000 and $231,000 |
|
|
23,466 |
|
|
|
99,099 |
|
|
|
|
|
|
|
|
Total Other Assets |
|
|
38,704,504 |
|
|
|
28,781,620 |
|
|
|
|
|
|
|
|
|
|
$ |
75,542,551 |
|
|
$ |
55,593,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Line of credit, current portion (Note 7) |
|
$ |
225,420 |
|
|
$ |
1,150,186 |
|
Accounts payable and checks issued against future deposits |
|
|
1,684,204 |
|
|
|
1,649,551 |
|
Accrued expenses |
|
|
5,068,041 |
|
|
|
3,367,812 |
|
Payable to affiliated agencies, current portion (Note 5) |
|
|
2,862,788 |
|
|
|
1,612,715 |
|
Long-term debt, current portion (Note 6) |
|
|
1,051,954 |
|
|
|
6,723,830 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
10,892,407 |
|
|
|
14,504,094 |
|
Payable to affiliate, less current portion (Note 5) |
|
|
383,077 |
|
|
|
615,544 |
|
Long-term debt, less current portion (Note 6) |
|
|
739,042 |
|
|
|
546,572 |
|
Line of credit, less current portion (Note 7) |
|
|
5,172,979 |
|
|
|
14,404,404 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
17,187,505 |
|
|
|
30,070,614 |
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 6, 7 and 14) |
|
|
|
|
|
|
|
|
Stockholders’ Equity (Note 8) |
|
|
|
|
|
|
|
|
Common stock $.001 par value, 150,000,000 shares authorized, 93,915,590
and 90,413,662 shares issued and outstanding, respectively |
|
|
93,916 |
|
|
|
90,414 |
|
Additional paid-in capital |
|
|
69,207,972 |
|
|
|
33,516,506 |
|
Treasury stock, 169,224 and 112,109 shares, respectively |
|
|
(319,975 |
) |
|
|
(187,375 |
) |
Accumulated deficit |
|
|
(10,626,867 |
) |
|
|
(7,897,077 |
) |
|
|
|
|
|
|
|
Total Stockholders’ Equity |
|
|
58,355,046 |
|
|
|
25,522,468 |
|
|
|
|
|
|
|
|
|
|
$ |
75,542,551 |
|
|
$ |
55,593,082 |
|
|
|
|
|
|
|
|
4
Arcadia Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
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|
|
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|
|
|
|
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|
Successor |
|
| |
|
Quarter |
|
|
Quarter |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
Net Sales (Note 15) |
|
$ |
32,665,292 |
|
|
$ |
25,512,001 |
|
Cost of Sales |
|
|
21,964,338 |
|
|
|
18,190,107 |
|
|
|
|
|
|
|
|
Gross Profit |
|
|
10,700,954 |
|
|
|
7,321,894 |
|
General and Administrative Expenses |
|
|
10,359,241 |
|
|
|
7,086,773 |
|
Depreciation and Amortization |
|
|
716,156 |
|
|
|
53,701 |
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(374,443 |
) |
|
|
181,420 |
|
Other Expenses |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
554,878 |
|
|
|
152,730 |
|
Amortization of debt discount (Note 6) |
|
|
509,404 |
|
|
|
122,217 |
|
|
|
|
|
|
|
|
Total Other Expenses |
|
|
1,064,282 |
|
|
|
274,947 |
|
|
|
|
|
|
|
|
Net Loss Before Income Tax Expense |
|
|
(1,438,725 |
) |
|
|
(93,527 |
) |
Income Tax Expense (Note 11) |
|
|
40,000 |
|
|
|
67,139 |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(1,478,725 |
) |
|
$ |
(160,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share (Note 8): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
Diluted |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (in thousands): |
|
|
|
|
|
|
|
|
Basic |
|
|
83,782 |
|
|
|
68,449 |
|
Diluted |
|
|
83,782 |
|
|
|
68,449 |
|
5
Arcadia Resources, Inc.
Consolidated Statements of Operations
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Successor |
|
|
Predecessor |
|
| |
|
Two Quarters |
|
|
Period From |
|
|
Period From |
|
| |
|
Ended |
|
|
May 10, 2004 to |
|
|
April 1, 2004 to |
|
| |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
|
May 9, 2004 |
|
Net Sales (Note 15) |
|
$ |
63,404,332 |
|
|
$ |
39,133,058 |
|
|
$ |
9,486,601 |
|
Cost of Sales |
|
|
42,807,360 |
|
|
|
27,889,200 |
|
|
|
6,905,998 |
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
20,596,972 |
|
|
|
11,243,858 |
|
|
|
2,580,603 |
|
General and Administrative Expenses |
|
|
20,132,674 |
|
|
|
10,871,769 |
|
|
|
2,101,381 |
|
Impairment of Goodwill |
|
|
— |
|
|
|
— |
|
|
|
16,055 |
|
Depreciation and Amortization |
|
|
1,131,130 |
|
|
|
87,445 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(666,832 |
) |
|
|
284,644 |
|
|
|
463,167 |
|
Other Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
1,029,773 |
|
|
|
397,012 |
|
|
|
— |
|
Amortization of debt discount (Note 6) |
|
|
933,185 |
|
|
|
157,451 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total Other Expenses |
|
|
1,962,958 |
|
|
|
554,463 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Tax Expense |
|
|
(2,629,790 |
) |
|
|
(269,819 |
) |
|
|
463,167 |
|
Income Tax Expense (Note 11) |
|
|
100,000 |
|
|
|
7,139 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,729,790 |
) |
|
$ |
(276,958 |
) |
|
$ |
463,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma amounts to reflect
pro forma Income Taxes from tax status change |
|
|
|
|
|
|
|
|
|
|
158,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Income After Income Tax from tax status change |
|
|
|
|
|
|
|
|
|
$ |
305,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Per Share (Note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
$ |
0.49 |
|
Diluted |
|
$ |
(0.03 |
) |
|
$ |
0.00 |
|
|
$ |
0.49 |
|
Proforma Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
$ |
0.32 |
|
Diluted |
|
|
|
|
|
|
|
|
|
$ |
0.32 |
|
Weighted average number of shares (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
83,138 |
|
|
|
68,449 |
|
|
|
948 |
|
Diluted |
|
|
83,138 |
|
|
|
68,449 |
|
|
|
948 |
|
6
Arcadia Resources, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Period from |
|
| |
|
Two Quarters |
|
|
Period from May 10, |
|
|
April 1, 2004 |
|
| |
|
Ended |
|
|
2004 to September |
|
|
To |
|
| |
|
September 30, 2005 |
|
|
30, 2004 |
|
|
May 9, 2004 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,729,790 |
) |
|
$ |
(276,958 |
) |
|
$ |
463,167 |
|
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for bad debts |
|
|
367,264 |
|
|
|
204,393 |
|
|
|
42,192 |
|
Depreciation and amortization |
|
|
642,358 |
|
|
|
87,445 |
|
|
|
77 |
|
Amortization of debt discount and deferred financing costs |
|
|
1,358,818 |
|
|
|
157,451 |
|
|
|
— |
|
Issuance of stock for services |
|
|
42,713 |
|
|
|
— |
|
|
|
— |
|
Accrual of stock option expense |
|
|
87,612 |
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
614,193 |
|
|
|
— |
|
|
|
— |
|
Impairment of goodwill |
|
|
— |
|
|
|
— |
|
|
|
16,055 |
|
Loss on disposition of asset |
|
|
— |
|
|
|
89,810 |
|
|
|
— |
|
Recording of expected release of stock from escrow |
|
|
410,000 |
|
|
|
— |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,386,353 |
) |
|
|
(2,730,806 |
) |
|
|
(692,193 |
) |
Inventory |
|
|
(78,586 |
) |
|
|
(157,227 |
) |
|
|
— |
|
Prepaid expenses and other current assets |
|
|
(2,012,904 |
) |
|
|
(1,531,743 |
) |
|
|
27,903 |
|
Income taxes receivable |
|
|
38,398 |
|
|
|
— |
|
|
|
— |
|
Checks issued against future deposits |
|
|
— |
|
|
|
(850,125 |
) |
|
|
(314,025 |
) |
Accounts payable |
|
|
(317,480 |
) |
|
|
144,005 |
|
|
|
42,823 |
|
Accrued expenses and other current liabilities |
|
|
909,987 |
|
|
|
(204,166 |
) |
|
|
(301,999 |
) |
Due to affiliated agencies |
|
|
(218,374 |
) |
|
|
(266,885 |
) |
|
|
170,915 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) OPERATING ACTIVITIES |
|
|
(3,272,144 |
) |
|
|
(5,334,806 |
) |
|
|
(545,085 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of businesses |
|
|
(4,134,396 |
) |
|
|
(3,352,634 |
) |
|
|
(157,500 |
) |
Purchases of property and equipment |
|
|
(2,122,215 |
) |
|
|
(13,949 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) INVESTING ACTIVITIES |
|
|
(6,256,611 |
) |
|
|
(3,366,583 |
) |
|
|
(157,500 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock warrants |
|
|
29,180,000 |
|
|
|
— |
|
|
|
— |
|
Proceeds from issuance of convertible note payable |
|
|
5,000,000 |
|
|
|
— |
|
|
|
— |
|
Proceeds from issuance of common stock |
|
|
1,980,065 |
|
|
|
5,157,860 |
|
|
|
— |
|
Proceeds from exercise of stock option |
|
|
37,500 |
|
|
|
|
|
|
|
|
|
Net (payments) drawn on line of credit |
|
|
(12,092,353 |
) |
|
|
2,735,144 |
|
|
|
— |
|
Payments on acquisition debt |
|
|
(1,383,882 |
) |
|
|
(5,657,109 |
) |
|
|
— |
|
Payments on notes payable |
|
|
(10,493,176 |
) |
|
|
(613,243 |
) |
|
|
— |
|
Cash acquired with reverse merger |
|
|
— |
|
|
|
7,536,180 |
|
|
|
— |
|
Advances from stockholder |
|
|
— |
|
|
|
— |
|
|
|
702,585 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
12,228,154 |
|
|
|
9,158,832 |
|
|
|
702,585 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS |
|
|
2,699,399 |
|
|
|
457,443 |
|
|
|
— |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
1,412,268 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
4,111,667 |
|
|
$ |
457,443 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Supplementary information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
929,220 |
|
|
$ |
397,012 |
|
|
|
— |
|
Income taxes |
|
|
24,500 |
|
|
|
— |
|
|
|
— |
|
Non cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for the purchases of businesses |
|
$ |
3,086,925 |
|
|
$ |
1,143,000 |
|
|
|
— |
|
Non cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt issue discount |
|
$ |
1,127,727 |
|
|
$ |
1,507,600 |
|
|
|
— |
|
Exercise of cashless warrants |
|
|
132,600 |
|
|
|
— |
|
|
|
— |
|
Payment of note payable with issuance of common stock |
|
|
119,231 |
|
|
|
|
|
|
|
|
|
7
Arcadia Resources, Inc. and Subsidiaries
Summary of Accounting Policies (Unaudited)
Principles of Consolidation — The unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the financial statements, and revenue and
expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents — For purposes of the Statements of Cash Flows, the Company
considers cash in banks and all short-term investments with a maturity of three months or less to
constitute cash and cash equivalents.
Revenue Recognition and Concentration of Credit Risk — Revenues for services are recorded in
the period the services are rendered at rates established contractually or by other agreements made
with the institution or patient prior to the services being performed. Revenues for products are
recorded in the period delivered based on rental or sales prices established with the client or
their insurer prior to delivery. Insurance entities generally determine their pricing schedules
based on the regional usual and customary charges or based on contractual arrangements with their
insureds. Revenues are recorded based on the expected amount to be realized by the Company.
Federally-based Medicare and state-based Medicaid programs publish their pricing schedules
periodically for covered products and services. Revenues reimbursed under arrangements with
Medicare, Medicaid and other governmental-funded organizations were approximately 27%, 24%, 19% and
20% for the two quarters ended September 30, 2005 and the years ended March 31, 2005, 2004 and
2003, respectively. No other customers represent more than 10% of the Company’s revenues for the
periods presented.
Allowance for Doubtful Accounts — The Company reviews all accounts receivable balances and
provides for an allowance for doubtful accounts based on historical analysis of its records. The
analysis is based on patient and institutional client payment histories, the aging of the accounts
receivable, and specific review of patient and institutional client records. Items greater than one
year old are fully reserved. As actual collection experience changes, revisions to the allowance
may be required. Any unanticipated change in customers’ credit worthiness or other matters
affecting the collectability of amounts due from customers, could have a material effect on the
results of operations in the period in which such changes or events occur. After all attempts to
collect a receivable have failed, the receivable is written off against the allowance.
Inventories — Inventories are valued at acquisition cost utilizing the first in, first out
(FIFO) method. Inventories include products and supplies held for sale at the Company’s individual
locations. The home care and pharmacy operations of the Company possess the majority of the
inventory. Inventories are evaluated at least annually for obsolescence and shrinkage.
Fixed Assets and Depreciation — Fixed assets are valued at acquisition cost and depreciated or
amortized over the estimated useful lives of the assets (3-15 years) by use of the straight-line
method. The majority of the Company’s fixed assets include equipment used for rental to patients in
the home for which the related depreciation expense is included in cost of sales, approximately
$260,000 for the two quarters ended September 30, 2005.
Intangible Assets — The Company has acquired several entities resulting in the recording of
intangible assets including goodwill, which represents the excess of purchase price over net assets
of businesses acquired. The Company follows Statement of Financial Accounting Standards (“SFAS”)
No. 142, “Goodwill and Other Intangible Assets.” Certain intangible assets have been identified and
recorded as more fully described in Note 4. Goodwill is now tested for impairment annually in the
fourth quarter, and between annual tests in certain circumstances, by comparing the fair value of
each reporting unit to its carrying value. The other purchased intangibles are amortized on a
straight-line basis over the estimated useful lives as follows: trade name over 30 years; customer
and referral source relationships over 5 and 15 years (depending on the type of business
purchased); technology for 3 years; and non-competition agreements over 5 years.
Impairment of Long-Lived Assets — The Company reviews its long-lived assets for impairment
whenever changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. To determine if impairment exists, the Company compares the estimated future
undiscounted cash flows from the related long-lived assets to the net carrying amount of such
assets. Once it has been determined that an impairment exists, the carrying value of the asset is
adjusted to fair value. Factors considered in
8
the determination of fair value include current operating results, trends and the present
value of estimated expected discounted future cash flows.
Earnings (Loss) Per Share — Basic earnings per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution that could occur if
securities, or other contracts to issue common stock, were exercised or converted into shares of
common stock. Outstanding stock options and warrants to acquire shares of common stock have not
been considered in the computation of dilutive losses per share since their effect would be
antidilutive. Shares held in escrow pursuant to the agreements more fully described in Note 8 are
not included in earnings per share until they are released.
Income Taxes — Income taxes are accounted for in accordance with the provisions specified in
SFAS No. 109, “Accounting for Income Taxes.” Accordingly, the Company provides deferred income
taxes based on enacted income tax rates in effect on the dates temporary differences between the
financial reporting and tax bases of assets and liabilities reverse. The effect on deferred tax
assets and liabilities of a change in income tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of
deferred tax assets to amounts that are more likely than not to be realized. Prior to May 7, 2004,
Arcadia Services elected to be taxed as a Subchapter S corporation with the individual stockholders
reporting their respective shares of income on their income tax return. Accordingly, the Company
has no deferred tax assets or liabilities recorded in the prior periods.
Stock Plans — The Company issues stock options and other stock-based awards to key employees
and directors under stock-based compensation plans. The Company accounted for its stock-based
compensation under APB 25 through March 31, 2005. The Company’s stock-based compensation is
described more fully in Note 10 to the Consolidated Financial Statements. In December 2004, the
FASB issued SFAS No. 123R, “Share-Based Payment.” This statement replaces SFAS No. 123, “Accounting
for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” SFAS No. 123R requires a company to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant date fair value of the award. The
cost will be recognized over the period during which the employee is required to provide service in
exchange for the award (usually the vesting period). Adoption of SFAS No. 123R is required as of
the beginning of the first annual reporting period that begins after June 15, 2005. Arcadia adopted
SFAS No. 123R on April 1, 2005.
9
Arcadia Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 — BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND DESCRIPTION OF
BUSINESS
The accompanying unaudited consolidated financial statements as of September 30, 2005 and for
the periods ended September 30, 2005, September 30, 2004 and May 9, 2004 have been prepared by the
Company in accordance with accounting principles generally accepted in the United States of
America. These interim financial statements include all adjustments which management considers
necessary to make the financial statements not misleading. The results of operations for the
quarter and for the two quarters ended September 30, 2005 are not necessarily indicative of results
that may be expected for any other interim period or for the remainder of the year.
The unaudited consolidated financial statements as of September 30, 2005 and for the period
from May 10, 2004 to September 30, 2005, include the accounts of Arcadia Resources, Inc. and its
wholly-owned subsidiaries (collectively referred to as “Arcadia” or the “Company”). The statements
of income for the period from April 1, 2004 to May 9, 2004 include the accounts of Arcadia
Services, Inc. (“Arcadia Services” or “Predecessor”) and subsidiaries prior to the effect of the
acquisition and merger described below. All significant intercompany balances and transactions have
been eliminated in consolidation.
MERGER, RECAPITALIZATION AND CHANGE IN REGISTRANT NAME
Effective May 10, 2004, CHC Sub, Inc., a wholly-owned subsidiary of the Company, merged with
and into RKDA, Inc. (“RKDA”), a Michigan corporation, (the “RKDA Merger”). RKDA’s assets consist of
all of the capital stock of Arcadia Services and the membership interest of SSAC, LLC d/b/a Arcadia
Rx. RKDA acquired Arcadia Services on May 7, 2004 pursuant to a Stock Purchase Agreement by and
among RKDA, Arcadia Services, Addus HealthCare, Inc. (“Addus”), and the principal stockholder of
Addus (the “Arcadia Services Acquisition”). The transaction between RKDA and Arcadia was considered
a reverse merger, and RKDA will be considered the acquirer of the Company for accounting purposes.
Effective November 16, 2004, the Company changed its name from Critical Home Care, Inc. to
Arcadia Resources, Inc. and its stock symbol on the OTC Bulletin Board to ACDI. The name change has
been reflected herein as all references to Critical Home Care, Inc. are now indicated as Arcadia
Resources, Inc., Arcadia or the Company. The change presents a new identity for the Company and
encompasses the Company’s expanded lines of business and broadened strategic focus. References to
Arcadia Services are to the Company’s wholly-owned subsidiary, Arcadia Services, Inc.
This report should be read in conjunction with the Consolidated Financial Statements of
Arcadia Resources, Inc. and subsidiaries for the years ended March 31, 2005 and 2004, included in
its Form 10-K.
NOTE 2 — DESCRIPTION OF BUSINESS
Arcadia is incorporated in Nevada and based in Southfield, Michigan. The Company is a national
provider of staffing and home care services, respiratory and durable medical equipment and
mail-order home health care products and pharmaceuticals. The Company provides staffing by both
medically-trained personnel and non-medical personnel. The Company’s medical staffing service
includes registered nurses, travel nurses, licensed practical nurses, certified nursing assistants,
respiratory therapists and medical assistants. The non-medical staffing service includes light
industrial, clerical, and technical personnel. In addition to nurses, the home care services
include personal care aides, home care aides, homemakers, companions, physical therapists,
occupational therapists, speech pathologists and medical social workers. The Company markets and
sells surgical supplies, orthotic and prosthetic products and durable medical equipment, such as
wheelchairs and hospital beds and also provides oxygen and other respiratory therapy services and
equipment. The Company provides staffing to institutions and facilities as well as providing
staffing and other services and products to patients directly in the home. These services are
contractually agreed upon with institutional and facilities clients and billed directly to the
respective entity or other payor sources as determined and verified prior to the performance of the
services. When providing services and products to patients in the home, the arrangements are
determined case by case in advance of delivery, generally on a month to month basis, and are paid
for by the clients directly or by their insurers, including commercial insurance companies,
Medicare and state-based Medicaid programs.
10
NOTE 3 — EMPLOYEE BENEFIT PLANS
The Company has a 401(k) defined contribution plan, whereby eligible employees may defer a
percentage of compensation up to defined limits. The Company may make discretionary employer
contributions. The Company made no contributions on the employees’ behalf for the two quarters
ended September 30, 2005 or the period from May 10, 2004 to September 30, 2004.
NOTE 4 — ACQUISITIONS AND RELATED INTANGIBLE ASSETS
During the two quarters ended September 30, 2005, the Company purchased the operations of 8
entities, as more fully described below. The total amounts assigned to assets and liabilities at
the respective acquisition dates are as follows:
| |
|
|
|
|
| |
|
(in thousands) |
|
Description of assets and (liabilities) purchased: |
|
|
|
|
Current and other assets |
|
$ |
1,098 |
|
Fixed assets |
|
|
574 |
|
Intangibles and goodwill |
|
|
10,613 |
|
Liabilities |
|
|
(2,015 |
) |
|
|
|
|
Total assets and liabilities acquired |
|
$ |
10,270 |
|
|
|
|
|
On April 7, 2005, the Company acquired the net assets of United Health Care Services
(“United”) and of two related smaller companies. United is a home respiratory and durable medical
equipment company located in Ft. Myers and Port Charlotte, Florida. The purchase price was
$1,588,000 as follows: cash of $1,200,000 drawn on the Company’s line of credit, the delivery of an
unsecured subordinated promissory note in the principal amount of $100,000, with interest at five
(5%) percent per annum, payable in two equal installments due at six months and twelve months from
the closing date, and the issuance of an aggregate of 147,500 shares of the Company’s common stock
having an aggregate value of $288,000.
On April 29, 2005, the Company entered into and closed on an agreement by which it purchased
the outstanding capital stock of Home Health Professionals, Inc. and certain assets of Home Health
Professionals Staffing, LLC. The acquisition was effective May 1, 2005. Home Health Professionals
operates a home care services business headquartered in Battle Creek, Michigan. The purchase price
for the acquired stock was a cash payment of $2,500,000, plus 1,058,201 shares of the Company’s
common stock valued at $2,000,000, plus the payment of amounts to be determined per an earnout
formula over the twelve month period following the closing. At closing, the cash consideration and
shares of the Company’s common stock were paid, less amounts escrowed to satisfy potential
indemnification and other claims of the purchaser. The Company utilized proceeds from a convertible
promissory note issued to a third party to pay the cash portion of the purchase price (see Note 6).
Because the balance of the purchase price payable is computed per a specified earnout formula based
on operations, the Company does not anticipate that it will incur debt to finance payment of the
balance of the purchase price.
On May 13, 2005, the Company acquired the net assets of HealthLink, a home respiratory and
durable medical equipment company located in Crown Point, Indiana. The purchase price was a note to
the seller of $160,000 plus 15,000 shares of the Company’s common stock valued at $30,300. The
non-interest bearing purchase price payable is due in 12 equal monthly installments of $6,700 plus
a final payment of $80,000 one year from the closing date.
On May 31, 2005, the Company acquired the membership interests in Rite at Home Health Care,
LLC, a health care product-oriented catalog company located in Illinois. The purchase price of
$1.34 million included 88,000 shares of the Company’s common stock valued at $189,000, $325,000
cash plus assumption of the outstanding liabilities of $829,000. The line of credit in place for
Rite at Home Health Care, LLC provided $750,000 toward the funding of the transaction.
On June 27, 2005, the Company issued 42,000 shares of its common stock valued at $79,800 to a
limited liability company for intellectual property it developed and the related rights to pursue a
licensing agreement for providing durable medical equipment through a retailer’s store locations.
On July 18, 2005, the Company acquired certain assets of Alternative Home Health Care of Lee
County with a cash payment of $100,000.
11
On August 12, 2005, the Company acquired certain assets of Summit Healthcare with a cash
payment of $100,000 funded from operations and a note payable of $500,000 which was paid in full as
of September 30, 2005. An additional $50,000 is being held in escrow for one year pending
resolution of certain items.
On September 27, 2005, the Company acquired certain assets of Low Country Home Medical
Equipment Company, Inc. with a cash payment of $1.5 million funded with proceeds from its warrant
offering, along with issuance of 191,571 shares of the Company’s common stock valued at $500,000.
Acquisitions completed after September 30, 2005 are presented in Note 13 — Subsequent Events.
The cash payments and note redemptions subsequent to mid-September 2005 were funded by the
Company’s warrant offering as more fully described in Note 8 — Stockholders’ Equity.
The Company had net intangible assets of $38.7 million as of September 30, 2005 including
$10.6 million in intangible assets acquired during the two quarters ended September 30, 2005.
Goodwill related to asset purchases and intangible assets are amortizable over 15 years for tax
purposes, while the remainder of the Company’s goodwill related to the purchase of common stock of
corporations is not amortizable for tax purposes as the acquisitions.
Amortization expense related to the intangibles recorded in conjunction with the Company’s
acquisitions totaled approximately $614,000 for the two quarters ended September 30, 2005. The
intangible assets are amortized over their expected useful lives as follows: trade name over 30
years, customer and referral source relationships over 5 years and 15 years (depending on the type
of business purchased), technology over 3 years and non-competition agreements over 5 years.
NOTE 5 — AFFILIATED AGENCIES PAYABLE
Arcadia Services, Inc. (Arcadia Services), a wholly-owned subsidiary of the Company, operates
independently and through a network of affiliated agencies throughout the United States. These
affiliated agencies are independently-owned, owner-managed businesses, which have been contracted
by the Company to sell services under the Arcadia Services name. The arrangements with affiliated
agencies are formalized through a standard contractual agreement. The affiliated agencies operate
in particular regions and are responsible for recruiting and training field service employees and
marketing their services to potential customers within the region. The field service employees are
employees of Arcadia Services. Arcadia Services provides sales and marketing support to the
affiliated agencies and develops and maintains operating manuals that provide suggested standard
operating procedures.
The contractual agreements require a specific, timed, calculable flow of funds and expenses
between the affiliated agencies and Arcadia Services. The net amounts due to affiliated agencies
under these agreements include short-term and long-term net liabilities totaling $3.2 million and
$2.2 million as of September 30, 2005 and March 31, 2005, respectively.
NOTE 6 — LONG-TERM DEBT
Long-term debt at September 30, 2005 is summarized in the following table. Accrued interest payable
is stated separately on the balance sheet and is not included in the table below.
| |
|
|
|
|
Purchase price payable to the selling stockholders of Trinity Healthcare of
Winston-Salem, Inc. (“Trinity”) dated September 23, 2004, bearing simple
interest of 8% per year payable in equal quarterly payments of principal and
interest beginning January 15, 2005, due October 15, 2006. The note payable is
unsecured and interest began accruing on January 15, 2005. |
|
$ |
471,958 |
|
|
|
|
|
|
Unsecured note payable to the selling stockholders of Trinity dated January 15,
2005, bearing simple interest of 8% per year with equal payments due October 15,
2005 and January 15, 2006. |
|
|
160,746 |
|
|
|
|
|
|
Purchase price escrowed to the selling stockholders of Beacon Respiratory
Services, Inc. (“Beacon”) dated January 1, 2005, payable on January 1, 2006 (See
Notes 4 and 12) secured by 16.33% of the outstanding shares of the Beacon
companies. |
|
|
150,000 |
|
|
|
|
|
|
Purchase price payable to United Health Care Services, Inc., payable in 2 equal
semi-annual payments due on October 7, 2005 and April 7, 2006 bearing simple
interest of 5%. |
|
|
100,000 |
|
12
| |
|
|
|
|
Purchase price payable (non-interest bearing) to HealthLink, payable in 12 equal
monthly installments of $6,700 plus a final payment of $80,000 due May 13, 2006. |
|
|
134,000 |
|
|
|
|
|
|
Other interest-bearing obligations to be paid over time based on respective terms |
|
|
774,292 |
|
|
|
|
|
|
Less — Current portion of long-term debt |
|
|
(1,051,954 |
) |
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
$ |
739,042 |
|
|
|
|
|
NOTE 7 — LINES OF CREDIT
On May 7, 2004, Arcadia Services and three of its wholly-owned subsidiaries entered into a
credit agreement with Comerica Bank. The credit agreement provides the borrowers with a revolving
credit facility of up to $12 million. The initial advance on May 7, 2004 was $11 million, which was
immediately distributed to RKDA to fund a portion of the purchase price of the capital stock of
Arcadia Services by RKDA. All other advances under the credit facility shall be used primarily for
working capital or acquisition purposes. On July 29, 2004, the revolving credit commitment amount
was increased to $14.4 million and increased again to $16 million on November 23, 2004. The credit
agreement provides that advances to the Company will not exceed the lesser of the revolving credit
commitment amount 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 $2.5 million. On August 15,
2005, the credit agreement was amended to extend the maturity date to July 7, 2006 and to change
the applicable date of a financial covenant to September 30, 2005. The credit agreement was
further amended on August 30, 2005 to include a fourth wholly-owned subsidiary of Arcadia Services,
to increase the credit commitment amount to $19 million and to extend the maturity date to
September 1, 2007. As of September 30, 2005, the Company was in compliance with all financial
covenants.
RKDA granted Comerica Bank a first priority security interest in all of the issued and
outstanding capital stock of Arcadia Services. Arcadia Services granted Comerica Bank a first
priority security interest in all of its assets. The subsidiaries of Arcadia Services granted the
bank security interests in all of their assets. Arcadia Services’ former stockholder subordinated
indebtedness which Arcadia Services owed it to indebtedness Arcadia Services owes to Comerica Bank.
RKDA and its former owners, Messrs. Elliott and Kuhnert, each executed a guaranty to Comerica Bank
for all indebtedness of Arcadia Services and its subsidiaries. Messrs. Elliott and Kuhnert were
released from the personal guaranty requirements after September 30, 2005.
Advances under the credit facility bear interest at the prime-based rate (as defined) or the
Eurodollar based rate (as defined), at the election of borrowers, currently prime, effectively
6.75%. Arcadia Services agreed to various financial covenant ratios, to have any person who
acquires Arcadia Services’ capital stock to pledge such stock to Comerica Bank, and, along with
Messrs. Elliott and Kuhnert, to customary negative covenants. Amounts outstanding under this
agreement totaled $5.2 million at September 30, 2005.
SSAC, LLC, a wholly-owned subsidiary, established a revolving line of credit with US Bank with
a credit limit of $250,000, bearing interest at prime +1%, effectively 7.75%, at September 30,
2005, which matures on August 20, 2006. There were no amounts outstanding under this line of credit
at September 30, 2005. The Company was in compliance with all covenants at September 30, 2005.
On February 18, 2005, Trinity Healthcare of Winston-Salem, Inc. (“Trinity Healthcare”), a
wholly-owned subsidiary, entered into a separate credit agreement with Comerica Bank which provides
Trinity Healthcare with a revolving credit facility of up to $2,000,000 payable upon demand of
Comerica Bank, bearing interest at prime + 1/2%, effectively 7.25% at September 30, 2005. The credit
agreement provides that advances to Trinity Healthcare will not exceed the lesser of the revolving
credit commitment amount or the aggregate principal amount of indebtedness permitted under the
advance formula amount at any one time. The advance formula base is 80% of the eligible accounts
receivable, subject to Comerica Bank’s adjustment to account for dilution of accounts receivable
caused by customer credits, returns, setoffs, etc., plus 30% of eligible inventory. 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 Trinity Healthcare and on all
of the assets of Trinity Healthcare and its subsidiaries. Any such default and resulting
foreclosure would have a material adverse effect on our financial condition. There were no amounts
outstanding under this agreement at September 30, 2005. The Company was in compliance with all
covenants at September 30, 2005.
On May 31, 2005, the Company purchased the membership interests in Rite at Home, LLC, which
had an outstanding line of credit agreement with Fifth Third Bank. The Company obtained a new line
of credit of up to $750,000, which matures on June 1,
13
2006. The Company used $436,000 to repay the assumed line of credit and $300,000 was used to
fund the acquisition. The outstanding balance under this agreement totaled $225,000 at September
30, 2005, bearing interest at prime + 1/2%, effectively 7.25%.
NOTE 8 — STOCKHOLDERS’ EQUITY
On May 10, 2004, CHC Sub, Inc., a wholly-owned subsidiary of Arcadia, consummated an Agreement
and Plan of Merger under which CHC Sub, Inc., merged with and into RKDA. The purchase price paid
was 21,300,000 shares of Arcadia common stock and 1,000,000 seven-year Class A warrants to purchase
1,000,000 shares of common stock at $0.50 per share. RKDA’s assets consist of all of the capital
stock of Arcadia Services and the membership interests of SSAC, LLC d/b/a Arcadia Rx. RKDA acquired
Arcadia Services through a stock purchase on May 7, 2004. The Company raised $8,245,000 through a
Regulation D private placement of 32,980,000 common shares at a price of $0.25 per share which was
completed and terminated on May 27, 2004. The offering also included 3,298,000 Class A Warrants to
purchase 3,298,000 common shares of stock over seven years at an exercise price of $0.50 per share.
The Placement Agent received a 10% sales commission and reimbursement for out-of-pocket expenses
totaling $887,000 along with seven-year Class A warrants to purchase 2,298,000 shares of the
Company’s common stock exercisable on a cashless basis at $0.50 per share which was recorded as a
reduction to paid in capital.
The post-transaction costs of registering securities issued in the offering are considered an
expense for accounting purposes. Due to the complex nature of the business combination and the time
schedule required, those costs have been significant to the Company for the periods presented. Such
related costs include primarily external professional fees for legal, accounting and auditing
services along with internal costs of preparing and filing the required documents with the
Securities and Exchange Commission. Additional costs will be incurred until the registration is
completed.
On April 7, 2005 the Company issued 147,500 shares of its common stock valued at $288,000 to
purchase certain assets of United Health Care Services.
On April 26, 2005, the Company sold an aggregate 1,212,121 shares of its common stock valued
at $1.65 per share, for aggregate consideration of $2,000,000, in a private transaction to an
accredited investor as defined in Rule 501(a) of Regulation D.
On April 27, 2005, the Company issued Jana Master Fund, LTD (“Jana”) a $5,000,000 Convertible
Promissory Note with a term due May 1, 2006 and providing for quarterly interest payments at 12%
annual interest. Under the terms of the Note, Jana may convert the outstanding balance into shares
of the Company’s common stock at the rate of one (1) share of common stock per $2.25 of outstanding
debt. The shares issuable upon conversion of the Note carry registration rights. The $5,000,000
convertible promissory note was repaid prior to September 30, 2005 with proceeds from the September
warrant offering described below and the remaining debt discount was amortized during the quarter
ended September 30, 2005.
On April 29, 2005, the Company issued 1,058,201 shares of its common stock valued at
$2,000,000 as partial consideration to purchase the stock of Home Health Professionals, Inc.
As of September 30, 2005, two officers and one former officer of the Company have escrowed
4,800,000, 3,200,000 and 1,600,000 shares of the Company’s common stock, respectively, pursuant to
Escrow Agreements dated as of May 7, 2004 (collectively, the “Escrow Shares”). Fifty (50%) percent
of the Escrow Shares will be released from escrow in each fiscal 2007 and fiscal 2008, if RKDA, in
the case of Messrs. Elliott and Kuhnert, and the Company, in the case of Mr. Bensol, meets the
following milestones: for the 12 month period ending March 31, 2006, an Adjusted EBITDA (as
defined) of $9,700,000 and for the 12 month period ending March 31, 2007, an Adjusted EBITDA of
$12,500,000. In addition, for any of the Escrow Shares to be released pursuant to the foregoing
thresholds, the Company’s, in the case of Mr. Bensol, and RKDA’s, in the case of Messrs. Elliott
and Kuhnert, Debt to Adjusted EBITDA ratio must be 2.0 or less. Alternatively, the Escrow Shares
shall be released in fiscal 2008 if RKDA, in the case of Messrs. Elliott and Kuhnert, and the
Company, in the case of Mr. Bensol, obtains an Adjusted EBITDA for the 24 month period ending March
31, 2007 of at least $22,000,000. During the quarter ended September 30, 2005, the Company
determined it was unlikely to meet the targets described above and therefore, no additional amounts
were accrued during the quarter ended September 30, 2005. Total expense for the six months ended
September 30, 2005 related to this was $410,000.
Beginning September 16, 2005, the Company sold to accredited investors pursuant to Regulation
D, Series B-1 common stock purchase warrants and Series B-2 common stock purchase warrants for
aggregate consideration totaling $31 million. An aggregate of 13.8 million shares of the
Company’s common stock are issuable on exercise of the Series B-1 warrants at an exercise price of
$0.001 per share. An aggregate of 4.8 million shares of the Company’s common stock are issuable on
exercise of the Series B-2 warrants at
14
an exercise price of $2.25 per share. The Series B-1 and Series B-2 warrants are exercisable
for a term of four years and after one year, may be exercised on a cashless basis. A holder may
not acquire shares of common stock on exercise to the extent that the number of shares of common
stock beneficially owned would exceed 4.9% of the Company’s common stock then issued and
outstanding. If applicable, the four year term is subject to an 18 month extension if this
limitation applies on expiration of the term. The warrants and underlying shares of common stock
carry registration rights.
During the two quarters ended September 30, 2005, the Company issued an aggregate net 623,000
shares of its common stock through the exercise of stock option and warrant agreements. The Company
also issued 18,000 shares of its common stock valued at $34,000 for services.
See Note 4 for the discussion of issuance of shares as consideration in acquisitions, Note 13
for transactions subsequent to September 30, 2005 related to stockholders’ equity and Note 12 for
transactions with related parties.
NOTE 9 — OPERATING LEASES
The Company leases office space under several operating lease agreements, which expire through
2009. Rent expense relating to these leases amounted to approximately $849,000, $479,000 and
$464,000 for the years ended March 31, 2005, 2004 & 2003 respectively. The following is a schedule
of approximate future minimum rental payments, exclusive of real estate taxes and other operating
expenses, required under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year, to which there has been no material change since March 31, 2005:
| |
|
|
|
|
Year ending March 31: |
|
|
|
|
2006 |
|
$ |
810,000 |
|
2007 |
|
|
700,000 |
|
2008 |
|
|
597,000 |
|
2009 |
|
|
94,000 |
|
|
|
|
|
Total |
|
$ |
2,201,000 |
|
|
|
|
|
NOTE 10 — STOCK-BASED COMPENSATION
On April 1, 2005, the Company adopted SFAS No. 123R. The adoption of this statement affected
the accounting for shares held in escrow and outstanding options as described below for the two
quarters ended September 30, 2005.
As more fully described in Note 8, 4.8 million shares held in escrow could be released based
on the results of operations for the years ending March 31, 2006 and 2007.
On January 4, 2005, options to purchase 150,000 shares of the Company’s common stock at $1.15
per share for a five year period were granted to an officer. Those options vested in full on May
31, 2005. Therefore, the Company recorded $81,000 in compensation expense related to this grant
during the two quarters ended September 30, 2005, all of which is non-cash in nature. The Company
utilizes the Black-Scholes method and these amounts are shown net of related taxes.
On May 7, 2004, Messrs. Elliott and Kuhnert were each granted stock options to purchase 4
million shares of Common Stock exercisable at $0.25 per share. The options shall vest in six
tranches provided certain adjusted EBITDA milestones are met through fiscal 2008, subject to
acceleration upon certain events occurring. The options may be exercised by Messrs. Elliott and
Kuhnert as long as they are employed by the Company and for one year from termination for any
reason provided they have achieved the EBITDA milestones. The expense, if any, related to these
options will be recognized in the period the milestones are achieved or are deemed likely to be
achieved. The milestones and vesting for each party are as follows: fiscal 2006 EBITDA of $10.7
million will vest 500,000 options, if $11.0 million, an additional 500,000 options will vest;
fiscal 2007 EBITDA of $13.5 million will vest 500,000 options, if $14.0 million, an additional
500,000 options will vest; fiscal 2008 EBITDA of $17.5 million will vest 1 million options, if
$18.5 million, an additional 1 million options will vest. During the quarter ended September 30,
2005, the Company determined it was unlikely to meet the targets described above and therefore, no
additional amounts were accrued during the quarter ended September 30, 2005.
In summary, during the two quarters ended September 30, 2005, the Company recognized $491,000
in compensation expense related to the adoption of FAS 123R. The effect on earnings per share is
less than one cent per share. There was no cash effect from the adoption of SFAS No. 123R. There
are no other unvested awards pending.
15
NOTE 11 — INCOME TAXES
Although the Company experienced a loss for the two quarters ended September 30, 2005, the
Company recognized income tax expense of $100,000 related to state income taxes as a result of the
Company’s multi-state locations. The Company has state and federal income tax refunds pending and
amounts on deposit totaling approximately $314,000 as of September 30, 2005.
As of September 30, 2005, the Company has net operating loss carryforwards (“NOLs”) of
approximately $1.9 million, which may be available to reduce taxable income if any, which expire
through 2024. However Internal Revenue Code Section 382 rules limit the utilization of NOLs upon a
change in control of a company. It has been determined that a subsequent change in control has
taken place. Since the change in control has taken place utilization of the Company’s NOLs will be
subject to severe limitations in future periods, which could have an effect of eliminating
substantially all the future income tax benefits of the NOLs. The Company has an additional $5.7
million in NOLs that are not subject to the limitations described above, which expire in 2025.
NOTE 12 — RELATED PARTY TRANSACTIONS
The Company purchased four entities collectively referred to as Beacon Respiratory Services
effective January 1, 2005. Ms. Irish was one of the selling stockholders of those companies and has
received an interest-bearing installment note payable from the Company of $150,000 related to the
purchase, the balance of which was $112,500 as of September 30, 2005, with the final payment due
January 1, 2006. The Company also retained $150,000 of the purchase price to be held until January
1, 2006 to offset valid indemnification and other claims of the Company. Ms. Irish converted the
balance of the note and the related accrued interest on September 30, 2005 to 48,865 shares of the
Company’s common stock at the market price.
The Company issued to director John T. Thornton 954 shares of common stock and options to
purchase 24,303 shares of the Company’s common stock at an exercise price of $2.20 per share, per
the terms of his compensation agreement for attendance at Board and Audit Committee meetings
through September 30, 2005 and for his annual retainer as director and Audit Committee Chair
through September 30, 2006. These shares carry registration rights.
NOTE 13 — SUBSEQUENT EVENTS
On October 17, 2005, the Company acquired certain assets of Madrid Medical Equipment with cash
payments totaling $170,000 and assumption of debts totaling $72,000.
On October 21, 2005, the Company acquired certain assets of Sparrow Private Duty Services with
a cash payment of $90,000.
On November 3, 2005, the Company acquired the outstanding stock of O2 Plus. The purchase price
of $1.9 million included: $1.1 million cash funded with proceeds from its warrant offering; plus
assumption of the outstanding liabilities of $736,000; and $100,000 held in escrow pending the
satisfaction of certain post-closing requirements. In the event that certain future growth goals
are met, an additional purchase price of up to $1 million could be paid over two years to the
sellers in shares of the Company’s common stock.
NOTE 14 — 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.
NOTE 15 — SEGMENT INFORMATION
For financial reporting purposes, our branch offices are aggregated into two reportable
segments, Services and Products, which are managed separately based on their predominant line of
business. Our Services Division consists primarily of a national provider of home care and staffing
services currently operating in 22 states through its 81 locations. The Services Division operates
primarily in
16
the home health care area of the health care industry by providing care to patients in their
home, some of which is prescribed by a physician. The Company also utilizes its base of employees
to provide staffing to institutions on a temporary basis.
Our Products Division consists primarily of respiratory and durable medical equipment
operations, including retail stores, which service patients in 10 states through its 24 locations.
For the benefit of all of our patients, we also operate a full service mail-order pharmacy and a
home health-oriented mail-order catalog.
The accounting policies of the operating segments are the same as those described in the
Summary of Significant Accounting Policies (See Note 1). We evaluate performance based on profit or
loss from operations, excluding corporate, general and administrative expenses. The two companies,
predecessor and successor, are combined in the following presentation to accommodate discussion and
comparability between the two quarters ended September 30, 2005 and September 30, 2004.
| |
|
|
|
|
|
|
|
|
| |
|
Quarter ended |
|
|
Quarter ended |
|
| (in thousands) |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
Net Revenues: |
|
|
|
|
|
|
|
|
Services |
|
$ |
27,850 |
|
|
$ |
24,334 |
|
Products |
|
|
4,815 |
|
|
|
1,178 |
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
32,665 |
|
|
$ |
25,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) and Net Loss: |
|
|
|
|
|
|
|
|
Services |
|
$ |
1,076 |
|
|
$ |
1,378 |
|
Products |
|
|
(263 |
) |
|
|
(479 |
) |
Unallocated Corporate Overhead |
|
|
(1,188 |
) |
|
|
(718 |
) |
|
|
|
|
|
|
|
Total Operating Income (Loss) |
|
|
(375 |
) |
|
|
181 |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
555 |
|
|
|
153 |
|
Amortization of Debt Discount |
|
|
509 |
|
|
|
122 |
|
|
|
|
|
|
|
|
Net Loss before Income Tax Expense |
|
|
(1,439 |
) |
|
|
(94 |
) |
Income Tax Expense |
|
|
40 |
|
|
|
67 |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(1,479 |
) |
|
$ |
(161 |
) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Two Quarters |
|
|
Two Quarters |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| (in thousands) |
|
2005 |
|
|
2004 |
|
Net Revenues: |
|
|
|
|
|
|
|
|
Services |
|
$ |
54,601 |
|
|
$ |
46,732 |
|
Products |
|
|
8,803 |
|
|
|
1,888 |
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
63,404 |
|
|
$ |
48,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) and Net Income (Loss): |
|
|
|
|
|
|
|
|
Services |
|
$ |
2,306 |
|
|
$ |
2,468 |
|
Products |
|
|
89 |
|
|
|
(908 |
) |
Unallocated Corporate Overhead |
|
|
(3,062 |
) |
|
|
(812 |
) |
|
|
|
|
|
|
|
Total Operating Income (Loss) |
|
|
(667 |
) |
|
|
748 |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
1,030 |
|
|
|
397 |
|
Amortization of Debt Discount |
|
|
933 |
|
|
|
158 |
|
|
|
|
|
|
|
|
Net Income (Loss) before Income Tax Expense |
|
|
(2,630 |
) |
|
|
193 |
|
Income Tax Expense |
|
|
100 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,730 |
) |
|
$ |
186 |
|
|
|
|
|
|
|
|
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
We caution you that statements contained in this report on Form 10-Q (including any of 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.
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 financing; (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 be listed on a national securities exchange or quotation system; (13) our ability to
adapt to economic, political and regulatory conditions affecting the health care industry; and (14)
other unforeseen events that may impact our business.
Readers are urged to carefully review and consider the various disclosures made by us in this
quarterly report on Form 10-Q, our Current Reports on Form 8-Ks filed on April 6, 2005, April 20,
2005, May 2, 2005, June 30, 2005, September 22, 2005 and September 30, 2005 along with our annual
report on Form 10-K as of and for the year ended March 31, 2005, and our other filings with the
Securities and Exchange Commission. These reports and filings attempt to advise interested parties
of the risks and factors that may affect our business, financial condition and results of operation
and prospects. The forward-looking statements made in this Form 10-Q speak only as of the date
hereof and we disclaim any obligation to provide updates, revisions or amendments to any
forward-looking statements to reflect changes in our expectations or future events.
Overview
Arcadia Resources, Inc. provides home health care services and products through its subsidiaries’
107 operating locations in 27 states. Arcadia Services, Inc., a wholly-owned subsidiary, is a
national provider of staffing (medical and non-medical) and home care services (skilled and
personal care/support) currently operating in 22 states through its 81 locations. We also operate a
mail-order pharmacy and a home health care oriented mail-order catalog. We have durable medical
equipment businesses, including retail stores, operating in 10 states through 24 locations,
providing oxygen and other respiratory therapy services and home medical equipment. We also sell
surgical supplies and orthotic and prosthetic products, principally through our retail outlet in
the New York metropolitan area.
18
Results of Operations
Quarter Ended September 30, 2005 Compared to Quarter Ended September 30, 2004
For financial reporting purposes, beginning with the quarter ended June 30, 2005, our branch
offices are aggregated into two reportable segments, services and products, which are managed
separately based on their predominant line of business. Our Services Division (“Services”) consists
primarily of a national provider of home care and staffing services currently operating in 22
states through its 81 locations. The Company operates primarily in the home health care area of the
health care industry by providing care to patients in their home, some of which is prescribed by a
physician. The Company also utilizes its base of employees to provide staffing to institutions on a
temporary basis. Our Products Division (“Products”) consists primarily of respiratory and durable
medical equipment operations, including retail stores, which service patients in 10 states through
its 24 locations. For the benefit of all of our patients, we also operate a full service mail-order
pharmacy and a home health oriented mail-order catalog.
| |
|
|
|
|
|
|
|
|
| |
|
Successor |
|
|
Successor |
|
| |
|
Quarter |
|
|
Quarter |
|
| |
|
Ended |
|
|
Ended |
|
| Consolidated Statements of Operations (in thousands) |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
Net Sales |
|
$ |
32,665 |
|
|
$ |
25,512 |
|
Cost of Sales |
|
|
21,964 |
|
|
|
18,190 |
|
|
|
|
|
|
|
|
Gross Profit |
|
|
10,701 |
|
|
|
7,322 |
|
General and Administrative Expenses |
|
|
10,359 |
|
|
|
7,087 |
|
Impairment of Goodwill |
|
|
— |
|
|
|
— |
|
Depreciation and Amortization |
|
|
716 |
|
|
|
54 |
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(374 |
) |
|
|
181 |
|
Other Expenses |
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
555 |
|
|
|
153 |
|
Amortization of Debt Discount |
|
|
510 |
|
|
|
122 |
|
|
|
|
|
|
|
|
Total Other Expenses |
|
|
1,065 |
|
|
|
275 |
|
|
|
|
|
|
|
|
Net Loss Before Income Tax Expense |
|
|
(1,439 |
) |
|
|
(94 |
) |
Income Tax Expense |
|
|
40 |
|
|
|
67 |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(1,479 |
) |
|
$ |
(161 |
) |
|
|
|
|
|
|
|
Net sales were $32.7 million for the quarter ended September 30, 2005 compared to $25.5 million for
the quarter ended September 30, 2004, representing a increase of 28%. The Company generated
revenues from operations acquired since September 30, 2004 totaling 91.1% of the increase in sales,
while internal growth of existing operations represented 8.9% of the increase in sales compared to
the same quarter in the prior year. There were no material changes in sales prices from the quarter
ended September 30, 2004 to the quarter ended September 30, 2005 to contribute to the improvement
in revenues.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Increase from prior |
|
Increase from same |
| Net sales by quarter: |
|
(in millions) |
|
Quarter |
|
quarter prior year |
First quarter ended June 30, 2004* |
|
$ |
23.1 |
|
|
|
11.5 |
% |
|
|
26.9 |
% |
Second quarter ended September 30, 2004 |
|
|
25.5 |
|
|
|
10.4 |
% |
|
|
30.5 |
% |
Third quarter ended December 31, 2004 |
|
|
28.1 |
|
|
|
10.2 |
% |
|
|
41.4 |
% |
Fourth quarter ended March 31, 2005 |
|
|
28.6 |
|
|
|
1.8 |
% |
|
|
38.1 |
% |
First quarter ended June 30, 2005 |
|
|
30.7 |
|
|
|
7.4 |
% |
|
|
33.0 |
% |
Second quarter ended September 30, 2005 |
|
|
32.7 |
|
|
|
6.5 |
% |
|
|
28.2 |
% |
|
|
|
| * |
|
Includes results from the predecessor entity |
The Company’s consolidated gross profit margin was 32.8% for the quarter ended September 30, 2005
compared to 28.7% for the quarter ended September 30, 2004. The Company’s acquisition and expansion
into pharmacy and durable medical equipment operations in May 2004 as well as the addition of a
mail-order catalog operation in May 2005 has and is expected to continue to drive changes to the
consolidated gross profit margin of the Company. The Services’ division revenues for the quarter
ended September 30, 2005 were $27.9 million and yielded a gross margin of 27.1% compared to
revenues of $24.3 million and gross margin of 27.8% for the quarter ended September 30, 2004. The
Products’ divisional revenues for the quarter ended September 30, 2005 were $4.8 million at a gross
margin of 65.2% compared to revenues of $1.2 million and gross margin of 47.9% for the quarter
ended September 30, 2004. Cost of sales for Services are primarily employee costs, while cost of
sales for Products represents the cost of products and
19
medications sold to patients and supplies used in the delivery of other rental products and
services to patients. The Services’ division’s gross margins were negatively affected in the
quarter ended September 30, 2005 compared to the quarter ended September 30, 2004 due to the
business climate and customer mix of institutional customers, increases in workers’ compensation
insurance costs and a demand for lower margin service staffing in the facilities. The Products’
division was approximately half mail-order pharmacy operation and half durable medical and
respiratory equipment in the quarter ended September 30, 2004 compared to a mix of those two
product offerings along with mail-order catalog and retail sales in the quarter ended September 30,
2005.
Corporate general and administrative expenses for the quarter ended September 30, 2005 were $10.4
million or 32% of revenues versus $7.1 million or 28% of revenues for the quarter ended September
30, 2004. The 47% increase is due primarily to changes in the Company’s mix of business, costs
related to changing the structure of the business from a privately-held organization to a
publicly-held company, and additional general and administrative expenses related to the merged
entities as discussed in the notes to the consolidated financial statements. The general and
administrative expenses for the Services and Products divisions were 22% and 67% of revenues,
respectively as compared to 22% and 89% for the same period last year. The Company recorded $1.76
million in non-cash expenses during the quarter ended September 30, 2005, of which $216,000 are
included in general and administrative expenses with no corresponding comparable items in the prior
year with the exception for bad debt expense of $137,000 for the quarter ended September 30, 2004.
The Company continues to incur expenses toward building an infrastructure for the Products Division
and bolstering the existing Services Division infrastructure to accommodate recent and expected
acquisitions, most of which are personnel and information systems related. The post-merger
transaction costs of registering securities issued in the offering are considered an expense for
accounting purposes. Due to the complex nature of the business combination and the time schedule
required, those costs have been significant to the Company for the year ended March 31, 2005 and
will continue to be until the registration is effective. Such related costs include primarily
external professional fees for legal, accounting and auditing services along with internal costs of
preparing and filing the required documents with the Securities and Exchange Commission. The
Company estimates its external costs were $60,000 for the quarter ended September 30, 2005.
Depreciation and amortization expense was $716,000 for the quarter ended September 30, 2005
compared to depreciation and amortization expense $54,000 in the quarter ended September 30, 2004.
Additionally, the Company includes depreciation expense related to equipment rented to patients of
$140,000 as a component of cost of sales for the quarter ended September 30, 2005 compared to none
recorded in the quarter ended September 30, 2004. The increase in depreciation expense relates to
the increase in the Company’s fleet of vehicles, equipment held for rental to patients, pharmacy
equipment and office furnishings and equipment required to service the patients and additional
information systems technology and equipment benefiting the entire Company. Other intangibles were
amortized based on their expected useful lives (3 to 30 years) which resulted in amortization
expense of $613,000 for the quarter ended September 30, 2005 compared to none recorded in the
quarter ended September 30, 2004. Amortizable net intangibles, other than goodwill, were $13.8
million at September 30, 2005. The Company completed the purchase price allocation of Trinity
Healthcare of Winston Salem, Inc. during the quarter ended September 30, 2005 which required a
reallocation of $1.45 million from goodwill to amortizable intangibles and generated $127,000 of
related amortization during the quarter.
Earnings before interest, income taxes, depreciation and amortization (EBITDA) were $482,000 for
the quarter ended September 30, 2005 compared to $235,000 for the quarter ended September 30, 2004.
| |
|
|
|
|
|
|
|
|
| |
|
Quarter Ended |
|
|
Quarter Ended |
|
| (in thousands) |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
Operating Income (Loss) |
|
$ |
(374 |
) |
|
$ |
181 |
|
Depreciation and Amortization |
|
|
856 |
|
|
|
54 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
482 |
|
|
$ |
235 |
|
Interest expense was $555,000 for the quarter ended September 30, 2005 compared to $153,000 for the
quarter ended September 30, 2004. The increase in interest expense is a result of borrowings
resulting from the expansion of Products along with acquisitions of the various entities as
discussed in the Notes to the Consolidated Financial Statements. Total interest-bearing borrowings
were $7.3 million at September 30, 2005 at rates ranging from 6.75% to 7.75% per annum compared to
$14.6 million at similar interest rates at rates ranging from 5.75% to 12% at September 30, 2004.
During the quarter ended September 30, 2005, the Company paid down $22.8 million in
interest-bearing debt, most of which was paid off with the proceeds from the warrant offering as
more fully described in the Liquidity and Capital Resources section.
Amortization of deferred debt discount was $509,000 for the quarter ended September 30, 2005
compared to $122,000 for the quarter ended September 30, 2004. These discounts were generated by
the attachment of warrants to two notes payable and a conversion
20
feature attached to a third note payable. The convertible note payable was repaid in full on
September 30, 2005, therefore the remaining $355,000 unamortized portion of the conversion feature
was amortized at that time. The deferred debt discount is the fair value of stock options,
warrants and conversion features granted to certain note holders as explained in Notes to the
Consolidated Financial Statements. The deferred debt discounts have been amortized over the lives
of the respective promissory notes, all of which were paid in full as of September 30, 2005.
The Company had income tax expense of $40,000 for the quarter ended September 30, 2005 compared to
$67,000 for the quarter ended September 30, 2004, primarily related to state income tax expenses.
The Company has net operating loss carryforwards for tax purposes of $7.6 million that expire at
various dates through 2025.
The Company’s net loss for the quarter ended September 30, 2005 was $1.5 million compared to a net
loss of $161,000 for the quarter ended September 30, 2004. The Company incurred total non-cash
expenses of $1.5 million in the quarter ended September 30, 2005 compared to $264,000 in the
quarter ended September 30, 2004. The costs responsible for this reduction in net income are: debt
discount amortization and related interest expense, acquisition related amortization and
depreciation, infrastructure building, higher workers’ compensation costs, those costs related to
being a separate publicly-held entity versus a subsidiary of a privately-held entity and public
offering registration expenses, .
21
Results of Operations
Two Quarters Ended September 30, 2005 Compared to Two Quarters Ended September 30, 2004
The table below shows results of operations of April 1, 2004 to May 9, 2004 are those of Arcadia
Services, Inc. and its subsidiaries presented on a consolidated basis (i.e., the Predecessor
entity). Results for the period from May 10, 2004 to September 30, 2004 are those of the combined
Company resulting from the RKDA reverse merger, and other entities purchased subsequent to the
reverse merger, beginning with the respective date of each acquisition presented on a consolidated
basis (i.e., the Successor entity). The two companies, predecessor and successor, are combined to
accommodate discussion and comparability between the two quarters ended September 30, 2005 and
September 30, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Successor |
|
|
Successor |
|
|
Predecessor |
|
| |
|
|
|
|
|
Period From |
|
|
Period From |
|
| |
|
Two Quarters |
|
|
May 10, 2004 |
|
|
April 1, 2004 |
|
| |
|
Ended |
|
|
To |
|
|
To |
|
| Consolidated Statements of Operations (in thousands) |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
|
May 9, 2004 |
|
Net Sales |
|
$ |
63,404 |
|
|
$ |
39,133 |
|
|
$ |
9,487 |
|
Cost of Sales |
|
|
42,807 |
|
|
|
27,889 |
|
|
|
6,906 |
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
20,597 |
|
|
|
11,244 |
|
|
|
2,581 |
|
General and Administrative Expenses |
|
|
20,133 |
|
|
|
10,872 |
|
|
|
2,102 |
|
Impairment of Goodwill |
|
|
— |
|
|
|
— |
|
|
|
16 |
|
Depreciation and Amortization |
|
|
1,131 |
|
|
|
87 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(667 |
) |
|
|
285 |
|
|
|
463 |
|
Other Expenses Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
|
1,030 |
|
|
|
397 |
|
|
|
— |
|
Amortization of Debt Discount |
|
|
933 |
|
|
|
157 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total Other Expenses |
|
|
1,963 |
|
|
|
554 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Before Income Tax Expense |
|
|
(2,630 |
) |
|
|
(270 |
) |
|
|
463 |
|
Income Tax Expense |
|
|
100 |
|
|
|
7 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,730 |
) |
|
$ |
(277 |
) |
|
$ |
463 |
|
|
|
|
|
|
|
|
|
|
|
Net sales were $63.4 million for the two quarters ended September 30, 2005 compared to $48.6
million for the two quarters ended September 30, 2004, representing a increase of 30.5%. The
Company generated revenues from operations acquired since September 30, 2004 totaling 85.6% of the
increase in sales, while internal growth of existing operations represented 14.4% of the increase
in sales compared to the same two quarters in the prior year. There were no material changes in
sales prices from the quarter ended September 30, 2004 to the quarter ended September 30, 2005 to
contribute to the improvement in revenues.
The Company’s consolidated gross profit margin was 32.5% for the two quarters ended September 30,
2005 compared to 28.4% for the two quarters ended September 30, 2004. The Company’s acquisition and
expansion into pharmacy and durable medical equipment operations in May 2004 as well as the
addition of a mail-order catalog operation in May 2005 has and is expected to continue to drive
changes to the consolidated gross profit margin of the Company. The Services’ division revenues for
the two quarters ended September 30, 2005 were $54.6 million and yielded a gross margin of 27.3%
compared to $46.7 million at a gross margin of 27.6%. The Products’ divisional revenues for the
two quarters ended September 30, 2005 were $8.8 million at a gross margin of 64.8% compared to
revenues for the two quarters ended September 30, 2004 of $1.9 million at a gross margin of 48.7%.
Cost of sales for Services are primarily employee costs, while cost of sales for Products
represents the cost of products and medications sold to patients and supplies used in the delivery
of other rental products and services to patients. The Services’ division’s gross margins were
negatively affected in the two quarters ended September 30, 2005 compared to the two quarters ended
September 30, 2004 due to the business climate and customer mix of institutional customers,
increases in workers’ compensation insurance costs and a demand for lower margin service staffing
in the facilities. The Products’ division consisted of approximately 60% mail-order pharmacy and
40% durable medical and respiratory equipment in the two quarters ended September 30, 2004 compared
to a mix of those two product offerings along with mail-order catalog and retail sales in the two
quarters ended September 30, 2005.
Corporate general and administrative expenses for the two quarters ended September 30, 2005 were
$20.1 million or 32% of revenues versus $12.9 million or 27% of revenues for the two quarters ended
September 30, 2004. The 55% increase is due primarily to changes in the Company’s mix of business,
costs related to changing the structure of the business from a privately-held organization to a
publicly-held company, and additional general and administrative expenses related to the merged
entities as discussed in the notes to the consolidated financial statements. The general and
administrative expenses for the Services and Products divisions were 22% and 63% of revenues,
respectively as compared to 23% and 111% for the same period last year. The Company recorded $3.5
million in
22
non-cash expenses during the two quarters ended September 30, 2005, of which $908,000 are included
in general and administrative expenses compared to total non-cash expenses $597,000 for the two
quarters ended September 30, 2004. The Company continues to incur expenses toward building an
infrastructure for the Products Division and bolstering the existing Services Division
infrastructure to accommodate recent and expected acquisitions, most of which are personnel and
information systems related. The post-merger transaction costs of registering securities issued in
the offering are considered an expense for accounting purposes. Due to the complex nature of the
business combination and the time schedule required, those costs have been significant to the
Company for the year ended March 31, 2005 and will continue to be until the registration is
effective. Such related costs include primarily external professional fees for legal, accounting
and auditing services along with internal costs of preparing and filing the required documents with
the Securities and Exchange Commission. The Company estimates its external costs were $150,000 for
the two quarters ended September 30, 2005.
Depreciation and amortization expense was $1.1 million for the two quarters ended September 30,
2005 compared to $87,000 for the two quarters ended September 30, 2004. Additional depreciation
expense related to equipment rented to patients of $260,000 is included as a component of cost of
sales for the two quarters ended September 30, 2005 compared to none recorded in the two quarters
ended September 30, 2004. The increase in depreciation expense relates to the increase in the
Company’s fleet of vehicles, equipment held for rental to patients, pharmacy equipment and office
furnishings and equipment required to service the patients and additional information systems
technology and equipment benefiting the entire Company. Other intangibles were amortized based on
their expected useful lives (3 to 30 years) which resulted in amortization expense of $614,000 for
the two quarters ended September 30, 2005 compared to none recorded in the two quarters ended
September 30, 2004. Amortizable net intangibles, other than goodwill, were $13.8 million at
September 30, 2005. The Company completed the purchase price allocation of Trinity Healthcare of
Winston-Salem, Inc. during the quarter ended September 30, 2005 which required a reallocation of
$1.45 million from goodwill to amortizable intangibles and generated $127,000 of related
amortization during the quarter.
Earnings
before interest, income taxes, depreciation and amortization
(EBITDA) were $724,000 for
the two quarters ended September 30, 2005 compared to $835,000 for the two quarters ended September
30, 2004.
| |
|
|
|
|
|
|
|
|
| |
|
Two Quarters Ended |
|
|
Two Quarters Ended |
|
| |
|
September 30, 2005 |
|
|
September 30, 2004 |
|
Operating Income (Loss) |
|
$ |
(667 |
) |
|
$ |
748 |
|
Depreciation and Amortization |
|
|
1,391 |
|
|
|
87 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
724 |
|
|
$ |
835 |
|
Interest expense was $1.03 million for the two quarters ended September 30, 2005 compared to
$397,000 for the two quarters ended September 30, 2004. The increase in interest expense is a
result of borrowings resulting from the expansion of Products along with acquisitions of the
various entities as discussed in the Notes to the Consolidated Financial Statements. Total
interest-bearing borrowings were $7.3 million at September 30, 2005 at rates ranging from 6.75% to
7.75% per annum compared to $14.6 million at similar interest rates at rates ranging from 5.75% to
12% at September 30, 2004. During the quarter ended September 30, 2005, the Company paid down
$22.8 million in interest-bearing debt, most of which was paid off with the proceeds from the
warrant offering as more fully described in the Liquidity and Capital Resources section.
Amortization of deferred debt discount was $933,000 for the two quarters ended September 30, 2005
compared to $157,000 for the two quarters ended September 30, 2004. These discounts were generated
by the attachment of warrants to two notes payable and a conversion feature attached to a third
note payable. The convertible note payable was repaid in full on September 30, 2005, therefore the
remaining $355,000 unamortized portion of the conversion feature was amortized at that time. The
deferred debt discount is the fair value of stock options, warrants and conversion features granted
to certain note holders as explained in Notes to the Consolidated Financial Statements. The
deferred debt discounts have been amortized over the lives of the respective promissory notes, all
of which were paid in full as of September 30, 2005.
23
The Company had income tax expense of $100,000 for the two quarters ended September 30, 2005
compared to $7,000 for the two quarters ended September 30, 2004, primarily related to state income
tax expenses. The Company has net operating loss carryforwards for tax purposes of $7.6 million
that expire at various dates through 2025.
The Company’s net loss for the two quarters ended September 30, 2005 was $2.7 million compared to
net income of $186,000 for the two quarters ended September 30, 2004. The Company incurred total
non-cash expenses of $3.5 million in the two quarters ended September 30, 2005 compared to $597,000
for the two quarters ended September 30, 2004. The costs responsible for this reduction in net
income are: debt discount amortization and related interest expense, costs related to the release
of escrowed shares and stock options pursuant to FAS 123R, acquisition related amortization and
depreciation, infrastructure building, higher workers’ compensation costs, those costs related to
being a separate publicly-held entity versus a subsidiary of a privately-held entity and public
offering registration expenses.
Liquidity and Capital Resources
The Company’s primary needs for liquidity and capital resources are the funding of operating and
administrative expenses related to the management of the Company and its subsidiaries. Secondarily,
the Company began executing its long-term strategic growth plan in May 2004, which includes plans
for complementary acquisitions, internal growth at existing locations, expanded product offerings
and synergistic integration of the Company’s types of businesses.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Successor |
|
Successor |
|
Predecessor |
| |
|
Two Quarters |
|
Period from May 10, |
|
Period from April 1, |
| SUMMARY CONSOLIDATED |
|
ended |
|
2004 to September 30, |
|
2004 to May 9, |
| STATEMENTS OF CASH FLOWS (in millions) |
|
September 30, 2005 |
|
2004 |
|
2004 |
Net income (loss) |
|
$ |
(2.7 |
) |
|
$ |
(0.3 |
) |
|
$ |
0.5 |
|
Net cash (used in) operating activities |
|
|
(3.3 |
) |
|
|
(5.3 |
) |
|
|
(0.5 |
) |
Net cash (used in) investing activities |
|
|
(6.2 |
) |
|
|
(3.4 |
) |
|
|
(0.2 |
) |
Net cash provided by financing activities |
|
|
12.2 |
|
|
|
9.2 |
|
|
$ |
0.7 |
|
Net increase in cash and cash equivalents |
|
$ |
2.7 |
|
|
$ |
0.5 |
|
|
|
— |
|
Cash and cash equivalents at the end of the period |
|
$ |
4.1 |
|
|
$ |
0.5 |
|
|
|
— |
|
Prior to undertaking the Company’s long-term strategic growth plan, the operating company was
generating significant cash flows from operations and pre-tax income of 5% of revenues. Management
has shown the ability to raise funds sufficient to provide for the cash flow needs of the Company
in pursuit of its long-term strategic growth plan, as evidenced by the $48 million raised in equity
instruments after the merger through September 30, 2005 (including the conversion of notes payable
into common stock). The Company also has in place a long-term line of credit, a few short-term
lines of credit and has used notes payable to sellers as a means of financing some acquisitions.
On September 29, 2005, the Company completed a warrant offering as more fully
described in Note 8 — Stockholders’ Equity. With the proceeds of this
offering, the Company reduced its interest-bearing debt by $22.8million to $7.2
million as of September 30, 2005. Most of the debt was generated by the
reverse merger transaction of May 2004 and subsequent acquisitions.
Subsequent to September 30, 2005, the Company made 3 acquisitions with a
combination of cash of $1.4 million, $908,000 in notes or escrows payable and
shares of its common stock valued at $1 million (issuable upon attainment of
certain growth goals). The Company currently has $14 million available through
its various lines of credit.
The Company has been successful in using notes payable and common stock as part of its
consideration paid for acquisitions. In the event the Company is unable to continue to obtain
financing through the sale of additional common stock or increased borrowings, management will
reduce the amount of acquisitions and investments in related infrastructure and focus on the
performance of the operations of the Company, until it can once again resume its strategic plans.
The Company’s cash position as of September 30, 2005 was $4.1 million.
Gross accounts receivable of approximately $26.6 million represent accounts receivable from
operations and from acquired entities. The Company is focusing additional resources on the
collection of accounts receivables to improve cash flow from operations. As of September 30, 2005,
the Company’s net accounts receivable represented 67 days sales outstanding, consistent with the 67
days sales outstanding as of March 31, 2005, yet declined from 58 days sales outstanding as of
September 30, 2004. By type of revenue, as of September 30, 2005, the days sales outstanding for
Services Division revenues were 67 and the days sales outstanding on Products Division revenues
were 72 days. The acquisitions of certain Services Division operations with more institutional
staffing business
24
rather than home care revenues during fiscal 2005 has lengthened the collection process as that
type of customer represents historically slower payors. The Company was not in the Products
business until August 2004 and opened a regional billing center in January 2005 to consolidate the
billing of the local operations, achieve economies of scale, control the billing process and obtain
improvements in the timeliness of collections and has shown a 4 day improvement in days sales
outstanding during the quarter ended September 30, 2005. The Company calculates its days sales
outstanding as accounts receivable less acquired accounts receivable, net of the related allowance
for doubtful accounts, divided by the average daily net sales for the preceding three months. The
Company has a limited number of customers with individually large amounts due at any given balance
sheet date.
During the two quarters ended September 30, 2005, the Company paid $4.2 million in cash, issued
$3.1 million in its common stock and assumed or incurred $5.1 million in liabilities to purchase 8
entities.
On April 26, 2005, the Company sold an aggregate 1,212,121 shares of its common stock valued at
$1.65 per share, for net aggregate consideration of $1.86 million, in a private transaction to an
accredited investor as defined in Rule 501(a) of Regulation D.
On April 27, 2005, the Company issued Jana Master Fund, LTD (“Jana”) a $5.0 million Convertible
Promissory Note with a term due May 1, 2006 and providing for quarterly interest payments at 12%
annual interest. Under the terms of the Note, Jana may convert the outstanding balance into shares
of the Company’s common stock at the rate of one (1) share of common stock per $2.25 of outstanding
debt. The debt was repaid on September 30, 2005 and therefore, the conversion rights were
extinguished.
The Company received $158,000 from the exercise of stock options and warrants during the two
quarters ended September 30, 2005.
Management believes that cash from operations will be sufficient to repay short-term debt
obligations. However, cash from operations alone may not be sufficient to pursue management’s
strategy of growth through acquisition. Management anticipates that the sources of funds for the
payment of long-term debt obligations and for acquisitions will be primarily from the equity
market. As of September 30, 2005, the current portion of our interest-bearing debt totals
approximately $1.3 million, while the long-term portion of our debt is approximately $5.9 million,
for a total of approximately $7.2 million. During calendar years 2005 and 2006, the Company has
raised $48 million from the equity markets (including the conversion of notes payable into common
stock) in accordance with its plan and has retired short term debt, reduced borrowings on its lines
of credit, funded internal growth and financed 18 acquisitions. In the short term, the Company
anticipates raising additional equity funding to fund selected acquisitions. Raising capital
through equity will result in dilution to our holders of Common Stock. The Company expects to incur
additional debt to fund the growth of its medical equipment business. Vendor-based financing is
available in the form of short term notes payable or capital leases. We do not have any material
commitments for capital expenditures.
To the extent that we do not successfully raise funds from the equity markets to finance new
acquisitions, we may seek debt financing or may choose debt financing, which is generally at a
higher cost and reduces available cash for operations by the amount of interest expense and
repayments. Alternatively, we may choose to modify or postpone our strategy to grow through
acquisition or may choose to eliminate certain product or service offerings. Higher financing
costs, modification of our growth strategy, or the elimination of product or service offerings
could negatively impact our profitability and financial position. Given the Company’s net proceeds
from financing activities during the fifteen months ended September 30, 2005, the changes in the
Company’s operational and financial position that have occurred during this period, and assuming no
material decline in our revenues, management does not anticipate that the Company will be
unsuccessful in its efforts to raise funds from the equity markets, although there is no guarantee
that the Company will successfully raise such funds.
The revolving credit commitment amount on the original Comerica Bank credit facility has been
increased three times since its May 7, 2004 inception. In August 2005, the credit agreement was
amended to in the credit commitment amount to $19 million and to extend the maturity date to
September 1, 2007. The Company is permitted to draw on the revolving credit facility to finance
working capital or staffing business acquisitions. Factors that have bearing on whether we may
require additional credit include our ability to assimilate our acquired businesses by reducing
operating costs through economies of scale, our ability to increase revenues through internal
growth based on our existing cost structure, and our ability to generate cash from operations
sufficient to service our debt level and operating costs. There is always the risk that Comerica
Bank or other sources of credit may decline to increase the amount we are permitted to draw on the
revolving credit facility or to lend additional funds for working capital or acquisition purposes.
This development could result in various consequences to the Company, ranging from implementation
of cost reductions which could impact our product and service offerings, to the modification or
abandonment of our present business strategy.
25
Contractual Obligations and Commercial Commitments
As of March 31, 2005, the Company had cash payment obligations to which the Company is
contractually bound, as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by March 31, |
|
| |
|
Total |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Operating Leases |
|
$ |
2,201,121 |
|
|
$ |
809,915 |
|
|
$ |
700,177 |
|
|
$ |
597,146 |
|
|
$ |
93,883 |
|
|
$ |
— |
|
Debt Maturities |
|
|
5,032,776 |
|
|
|
781,800 |
|
|
|
4,174,131 |
|
|
|
47,616 |
|
|
|
20,514 |
|
|
|
8,715 |
|
Employment Agreements |
|
|
995,834 |
|
|
|
516,667 |
|
|
|
414,167 |
|
|
|
65,000 |
|
|
|
— |
|
|
|
— |
|
Interest Expense |
|
|
2,190,362 |
|
|
|
2,028,202 |
|
|
|
162,160 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,420,093 |
|
|
$ |
4,136,584 |
|
|
$ |
5,450,635 |
|
|
$ |
709,762 |
|
|
$ |
114,397 |
|
|
$ |
8,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There have been no material changes since March 31, 2005 except for the recapitalization of the
Company’s debt with proceeds from its September warrant offering. The table has been adjusted to
remove those debt maturities outstanding at March 31, 2005 that have been extinguished as of
September 30, 2005 totalling $18 million plus repayment of a $5 million convertible promissory
note.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The majority of our cash balances are held primarily in highly liquid commercial bank
accounts. The Company utilizes lines of credit to fund operational cash needs. The risk associated
with fluctuating interest rates is limited to our investment portfolio and our borrowings. We do
not believe that a 10% change in interest rates would have a significant effect on our results of
operations or cash flows. All our revenues since inception have been in the U.S. and in U.S.
Dollars therefore we have not yet adopted a strategy for this future currency rate exposure as it
is not anticipated that foreign revenues are likely to occur in the near future.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures. Our chief executive officer and our chief financial
officer, after evaluating our “disclosure controls and procedures” (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) have concluded that
as of September 30, 2005, our disclosure controls and procedures are effective to ensure that
information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that information is accumulated and communicated to our
management, including our chief executive officer and our chief financial officer, as appropriate
to allow timely decisions regarding required disclosure.
Changes in Internal Controls. During our fiscal quarter ended September 30, 2005, there was no
change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. Additional resources in the accounting and finance
departments of the Company have been added to accommodate the Company’s growth through
acquisitions. The Company intends to implement a newly-acquired management information system
during the next 12 months to bolster timeliness and standardization of internal information
processing as well as continuing to improve existing systems currently in use.
26
Part II: Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Since the Company filed its last current report on Form 8-K on September 30, 2005, the Company
has not been required per Item 3.02(b) of Form 8-K to report unregistered sales of equity
securities which in the aggregate constitute less than one (1%) percent of the number of securities
of the same class outstanding. Notwithstanding, the Company reports herein such unregistered sales
of equity securities. All shares of common stock referenced herein carry resale registration
rights.
On September 30, 2005, the Company issued to its Chief Financial Officer 48,865 shares of
common stock, having an aggregate value of $119,231, as payment in full of a shareholder note
payable by Beacon Respiratory Services, Inc., a subsidiary of the Company. The Chief Financial
Officer was a shareholder of Beacon before its acquisition by the Company.
On September 29, 2005, the Company issued an aggregate of 150 shares having an aggregate value
of $365 to three of the Company’s affiliated agencies, as an incentive bonus, without payment of
consideration by such persons and not in lieu of compensation payable to such persons by the
Company. The Company awarded the shares as the result of a competition among the Company’s
affiliated agencies intended to provide an incentive for improving customer service skills and
sales of the Company’s staffing services.
On October 25, 2005, the Company issued 18,563 shares common stock upon the exercise of Class
A Warrants for consideration totaling $9,282.
Each issuance of shares of the Company’s common stock reported above occurred in a private
transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D, if applicable, because the transaction did not involve any public
offering. These securities were issued without general solicitation or advertising. There were no
underwriters involved in any of the transactions reported herein, nor were any underwriting
discounts or commissions paid. The shares sold are “restricted securities” as defined in Rule 144
(a)(3). Further, each common stock certificate issued in each transaction bears a legend
providing, in substance, that the securities have been acquired for investment only and may not be
sold, transferred or assigned in the absence of an effective registration statement or opinion of
the Company’s counsel that registration is not required under the Securities Act of 1933.
As of October 25, 2005, an aggregate of 99,552 shares of common stock, for aggregate
consideration of 23,948 shares of the Company’s common stock surrendered on conversion and which
are accounted for by the Company as treasury shares, were issued upon the cashless exercise of
Class A Warrants. No commission or other remuneration was paid or given for such exchange. The
issuances of these shares are exempt from registration on the basis of Section 3(a)(9) of the
Securities Act of 1933, as well as Section 4(2) of the Securities Act of 1933 as not involving any
public offering.
Item 6. Exhibits.
The Exhibits included as part of this report are listed in the attached Exhibit Index, which
is incorporated herein by this reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| |
|
|
|
|
November 11, 2005
|
|
By:
|
|
/s/ John E. Elliott, II |
|
|
|
|
|
|
|
|
|
John E. Elliott, II |
|
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
November 11, 2005
|
|
By:
|
|
/s/ Rebecca R. Irish |
|
|
|
|
|
|
|
|
|
Rebecca R. Irish |
|
|
|
|
Secretary and Chief Financial Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
27
EXHIBIT INDEX
The following documents are filed as part of this report. Exhibits not required for this
report have been omitted. Arcadia Resource’s Commission file number is 000-31249.
| |
|
|
| Exhibit |
|
|
| No. |
|
Exhibit Description |
4.1
|
|
Warrant Purchase and Registration Rights Agreement dated September 26, 2005.* |
|
|
|
4.2
|
|
Warrant Purchase and Registration Rights Agreement dated September 28, 2005.* |
|
|
|
4.3
|
|
Form of B-1 Warrant.* |
|
|
|
4.4
|
|
Form of B-2 Warrant.* |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer required by rule 13a — 14(a) or rule 15d — 14(a). |
|
|
|
31.2
|
|
Certification of the Principal Accounting and Financial Officer required by rule 13a — 14(a) or rule 15d — 14(a). |
|
|
|
32.1
|
|
Chief Executive Officer Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to §206 of the Sarbanes —
Oxley Act of 2002. |
|
|
|
32.2
|
|
Principal Accounting and Financial Officer Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to
§206 of the Sarbanes — Oxley Act of 2002. |
|
|
|
| * |
|
Previously filed with the Securities and Exchange Commission as an Exhibit to the Current Report
on Form 8-K filed on September 30, 2005 and incorporated herein by reference (File No. 000-31249). |
28