UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended March 31, 2011
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the Transition period from to .
Commission file number 001-32935
Arcadia Resources, Inc.
(Exact name of registrant as specified in its charter)
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NEVADA
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88-0331369 |
(State or other jurisdiction of
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(I.R.S. Employer I.D. Number) |
incorporation or organization) |
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9320 PRIORITY WAY WEST DRIVE |
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INDIANAPOLIS, INDIANA
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46240 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number: (317) 569-8234
Securities registered under Section 12(b) of the Exchange Act: Common Stock, $0.001 par value.
Securities registered under Section 12(g) of the Exchange Act: None.
Name of each exchange on which securities are registered: American Stock Exchange
Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes o No þ
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files), Yes o No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
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Large Accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of
September 30, 2010 based on $0.40 per share (the last reported sale price of our Common Stock
quoted on the NYSE Amex Exchange), was approximately $41 million. For purposes of this computation
only, all executive officers, directors and 10% beneficial owners of the Registrant are assumed to
be affiliates. This determination of affiliate status is not necessarily a determination for other
purposes.
As of June 28, 2011, the Registrant had 193,313,000 shares of Common Stock outstanding.
Documents incorporated by reference:
Portions of the definitive Proxy Statement for the Registrants fiscal 2011 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A within 120 days after the Registrants fiscal
year end on March 31, 2011 are incorporated by reference into Part III of this Report.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We caution you that certain statements contained in this report (including any of our documents
incorporated herein by reference), or which are otherwise made by us or on our behalf, are
forward-looking statements. Also, documents which we subsequently file with the SEC and are
incorporated herein by reference will contain forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors, which
could cause actual financial or operating results, performances or achievements expressed or
implied by such forward-looking statements not to occur or be realized. Such forward-looking
statements generally are based on our 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. Although the Company
believes that the expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct. Forward-looking
statements speak only as of the date hereof and are not guaranties of future performance. Important
factors that could cause actual results to differ materially from the Companys expectations are
disclosed in this Form 10-K. We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
Forward-looking statements include statements that are predictive in nature and depend upon or
refer to future events or conditions. Forward-looking statements include words such as believe,
plan, anticipate, estimate, expect, intend, seek, may, can, will, could,
should, project, predict, aim, continue, potential, opportunity or similar
forward-looking terms, variations of those terms or the negative of those terms or other variations
of those terms or comparable words or expressions. In addition, any statements concerning future
financial performance, ongoing business strategies or prospects, and possible future actions, which
may be provided by our management, are also forward-looking statements.
Other parts of, or documents incorporated by reference into, this report may also describe
forward-looking information. Forward-looking statements are based on current expectations and
projections about future events. Forward-looking statements are subject to risks, uncertainties,
and assumptions about our Company. Forward-looking statements are also based on economic and market
factors and the industry in which we do business, among other things. These statements speak only
as of the date hereof and are not guaranties of future performance.
Readers are urged to carefully review and consider the various disclosures made by us in this
Report on Form 10-K and our other filings with the U.S. Securities and Exchange Commission. These
reports and filings attempt to advise interested parties certain risks and factors that may affect
our business, financial condition and results of operations and prospects.
Unless otherwise provided, Arcadia, we, us, our, and the Company refer to Arcadia
Resources, Inc. and its wholly-owned subsidiaries, and when we refer to 2011, 2010, and 2009, we
mean the twelve-month period ended March 31 of those respective years, unless otherwise provided.
3
Part I
Overview
Arcadia Resources, Inc., a Nevada corporation, together with its wholly-owned subsidiaries, is a
national provider of pharmacy, home care, and medical staffing services operating under the service
mark Arcadia HealthCare. In October 2010, the Company disposed of its Catalog business. In May
and June 2009, the Company disposed of its Home Health Equipment (HHE), retail pharmacy software
and industrial staffing businesses. Subsequent to these divestitures, the Company operates in two
reportable business segments: Pharmacy and Home Care/Medical Staffing Services (Services). The
Companys corporate headquarters are located in Indianapolis, Indiana. The Company conducts its
business from approximately 65 facilities located in 18 states. The Company has pharmacy
operations in Indiana and California and has customer service centers in Michigan and Indiana.
Recent Events
The Companys Board of Directors has committed to a plan to sell the Services segment business, and
management is actively engaged in the sale of this business segment. Once a definitive agreement
to sell this business is approved by the Board of Directors, the Company intends to seek approval
from the Companys shareholders for any such sale and anticipates obtaining the necessary approvals
and completing the sale of the Services segment by October 2011. Once this sale is completed, the
Companys sole remaining business will be its Pharmacy segment. In March 2011, the Company ceased
the operations of its Minnesota pharmacy location. On October 1, 2010, the Company completed the
sale of its ownership interest in Rite at Home Health Care Products, LLC, which operated its
home-health oriented mail-order catalog and related website, to Home Health Depot, Inc. This
entity represented the Companys Catalog segment.
Business Strategy
The Company has two reportable business segments Pharmacy and Services.
The key elements of the Companys on-going business strategy are:
Business line focus. The Company has refocused its business strategy to support its overall
vision of Keeping People at Home and Healthier Longer. Population demographics, the need for
more effective management of medication for targeted groups and the projected demand for home
health care are key drivers behind this strategic focus. The Company provides various health care
services and products that fulfill these market needs. These services and products include
specialty pharmacy services, medication management services and home care services.
The Company will focus on its Pharmacy business going forward. The Pharmacy segment operates
under the DailyMedTM brand and the Company intends to promote this brand in the market
as the leading provider of medication management services.
Organic growth and potential acquisitions. In the short term, the Company is focused on
organic growth of its pharmacy business. With the launch of its proprietary DailyMed medication
management program, the Company has experienced the largest organic growth (both in percentage and
revenue terms) in the Pharmacy business segment, and this trend is expected to continue. In
addition to organic growth, longer term, the Company will consider acquisition opportunities in the
pharmacy markets, as capital availability permits.
Pharmacy growth plan. The Company has developed an aggressive growth plan for its DailyMed
pharmacy business. The DailyMed program is designed to improve compliance and adherence for
members with complex chronic drug regimens, improving the quality of life for members living at
home and cost reduction opportunities for at-risk payers. The Company is primarily focused on
marketing directly to the at-risk payers and other delivery partners focused on cost-effective
provision of health care services with an emphasis on caring for people in their home environments.
Marketing efforts have been identified and developed to implement the Companys sales plans to
this target group.
4
Reduction of SG&A expense. The Company continues to focus on reducing its overall level of
selling, general and administrative (SG&A) expense. During the past three years, the Company
has implemented several actions designed to reduce SG&A expense, including exiting unprofitable
business lines, reducing headcount, closing and consolidating executive and support offices, and
reducing professional fees. The Company constantly evaluates further cost reduction opportunities.
In light of the sale of certain businesses during fiscal 2010 and 2011, the revenue of the
Company has been reduced, and the scope of its activities has been narrowed. As a result,
management made additional reductions in SG&A expenses during fiscal 2011, principally at the
corporate level, to bring these expenses more in line with the size and scope of current business
operations. When the sale of the Services segment is completed, it is anticipated that the
Company will make further reductions in SG&A expenses to bring its expense structure more in line
with the size and scope of a single segment business.
Centralized management with local delivery of products and services. The Companys Executive
Committee includes the Chief Financial Officer, Chief Operating Officer and Executive Vice
President of Pharmacy Operations and is chaired by the President/Chief Executive Officer. The
Executive Committee oversees all day-to-day aspects of the Companys business including the
establishment of operational policies and procedures. Subject to the review and approval of the
Companys Board of Directors, the Executive Committee sets the strategic direction for each
business segment and establishes appropriate financial targets and controls. However, the
strategies for delivery of the Companys services and products are done at a business segment and
local market level. Within the Services segment, regional/local managers are given responsibility
for tailoring their service and product mix in each office to meet the needs of the regional and
local customers they serve.
Our Operating Segments
As indicated above, the Companys services operate in two segments. These segments and their
service and product offerings are discussed in more detail below.
Pharmacy Segment. The Pharmacy segment offers the Companys DailyMed medication management
system, which was acquired as part of its purchase of PrairieStone Pharmacy, LLC in February 2007.
DailyMed transfers a patients prescriptions, over-the-counter medications and vitamins and
organizes them into pre-sorted 28-day supply packages marked with the date and time each dosage
should be taken. Our registered pharmacists review the patients panel of medications at the
time a patient is enrolled and periodically perform more detailed medication therapy management
(MTM) reviews to ensure the safety and effectiveness of the patients medications. DailyMed
is aimed at reducing medication errors, improving medication adherence and ultimately lowering the
cost of health care for its target customers. The Company is focused on marketing its DailyMed
products and services through managed care providers and others responsible for managing the health
care costs of the targeted population. The Company plans to invest in DailyMed as the need for
improved systems for medication management creates growth opportunities for this segment.
The Pharmacy segment operates from two locations. The Indianapolis, Indiana pharmacy operation
shares a facility with the corporate headquarters. All customer enrollment, customer service, MTM
reviews and adjudication and collection of claims are performed from the Indianapolis location. It
also houses the administrative overhead employees for the Pharmacy segment, including
finance/accounting, compliance, information technology and human resources. The Pharmacy also has
contracted operations in California where prescriptions are processed, reviewed and shipped to
patients in California.
Numerous companies provide products and services in the pharmacy industry. These companies include
community-based retail pharmacies, some of whom operate on a national level, and independents
operating from a small number of locations; long-term care pharmacies, which provide pharmacy
products and services to long-term care facilities such as assisted living and skilled nursing
facilities; and providers of MTM services. The Company believes it has a unique competitive
position. The Company has integrated various aspects of pharmacy product distribution and MTM
services into a method of providing an enhanced system of medication management.
Services Segment. The Services segment provides home care and medical staffing services across
the United States. Operated principally through the Companys wholly-owned subsidiary, Arcadia
Services, Inc. (ASI), this segment is a national provider of home care services, including
skilled and personal care; and medical staffing services to numerous types of acute care and
sub-acute care medical facilities. The Services segment provides nurses, certified nursing
assistants, home health aides, homemakers and companions to home care clients. It provides nurses,
certified nursing assistants and various allied health professionals to medical facilities. The
medical staffing business provides per diem, local contract and travel staffing services to its
customers.
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The Services segment operates through a network of both company-owned offices, as well as affiliate
offices that are locally owned and operated under a contractual arrangement with the Company. The
Company and the affiliate offices share the gross margin on business generated by the affiliate
office using a revenue-based formula. The affiliate offices market to local customers and service
the contracts between the Company and those customers. The affiliates also recruit local field
staff, which are employed by the Company, and manage the day-to-day assignment of the field
employees to meet customer needs. In the Services segment, sales through affiliate offices
represent approximately 66% of net revenue, with 34% of sales being done through company-owned
offices. The mix of company-owned sales has increased over the past two years as the Company has
converted several affiliate offices into company-owned locations.
The sales activity for home care and medical staffing services is primarily performed at
company-owned and affiliate offices in local markets across the United States. In the home care
market, these offices work with a wide range of referral sources and also sell directly to
consumers. Referral sources for home care services include elder law attorneys, financial
counselors, case managers, geriatric care managers, physicians, medical social workers, facility
discharge planners and numerous other entities that influence the purchase of home care services.
Selling efforts focus on our ability to provide high quality, cost-effective services, in a
consistent, reliable fashion, performed by trained caregivers who are employed directly by the
Company. The Company serviced more than 9,900 home care clients in fiscal 2011.
The sales activity for medical staffing is also primarily performed at the local office level.
Sales are done via direct contacts with a wide variety of acute-care and sub-acute care facilities,
including hospitals, rehabilitation facilities, skilled nursing facilities, hospices and others.
Selling efforts focus on our ability to provide highly-skilled staff, often on short notice, on a
cost-effective basis. Some facilities utilize vendor managed services (VMS) providers who
contract on their behalf for these services. The Company serviced approximately 540 facilities in
fiscal 2011.
The Company also has a central contracting group that pursues contracts for home care and medical
staffing services on a national and regional level. These activities are coordinated with the
local offices expected to provide the services.
Recruitment of home care and medical staffing personnel is conducted at the local level. Each
local office has a different mix of clients and, therefore, has its own requirements for the
employees needed to service these clients. All employees hired by the Company go through a
rigorous screening process that includes criminal background checks, drug screening and skills
assessments and undergo a variety of training to ensure compliance and quality service.
Competition in the Services segment consists of national and regional service providers, as well as
smaller locally-owned and operated companies. In the home care segment, competition is highly
fragmented with only a few national or regional providers. Because the home care business largely
consists of personal care, homemaker/companion services and non-Medicare skilled care, the Company
does not compete directly with the larger publicly-traded, Medicare-certified home health agencies.
In the medical staffing segment, the Company competes with per diem staffing agencies, as well as
agencies focused primarily on travel staffing. Competition in the travel staffing segment is
dominated by several large, publicly-traded companies that operate on much larger scale than the
Companys travel staffing business.
Segment Financial Information
Financial information about the segments can be found in Item 7 of this report, Managements
Discussion and Analysis of Financial Condition and Results of Operations and Note 16 to the
Consolidated Financial Statements included under Item 8 of this report.
Government Regulation and Compliance
Our health care-related businesses are subject to extensive government regulation. The federal
government and all states in which we currently operate (or intend to operate) regulate various
aspects of our health care-related businesses. In particular, our operations are subject to
numerous laws: (a) requiring licensing and approvals to conduct certain activities; (b) targeting
the prevention of fraud and abuse; and (c) regulating reimbursement under various government-funded
programs. Our locations are subject to laws governing, among other things, pharmacies, nursing
services and certain types of home care.
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The marketing, billing, documentation and other practices of health care companies are subject to
periodic review by regional insurance carriers and various government agencies. These reviews
include on-site audits, records reviews and investigations of
complaints. Violations of federal and state regulations can result in criminal, civil and
administrative penalties and sanctions, including disqualification from Medicare and other
reimbursement programs.
Our operations are subject to: Medicare and Medicaid reimbursement laws; laws permitting Medicare,
Medicaid and other payers to audit claims and seek repayment when claims have been improperly paid;
laws such as the Health Insurance Portability and Accountability Act (HIPPA) regulating the
privacy of individually identifiable health information; laws prohibiting kickbacks and the
exchange of remuneration as an inducement for the provision of reimbursable services or products;
laws regulating physician self-referral relationships; and laws prohibiting the submission of false
claims. Health care is an area of rapid regulatory change. Changes in laws and regulations, as
well as new interpretations of existing laws and regulations, may affect permissible activities,
the relative costs associated with doing business and reimbursement amounts paid by federal, state
and other third party payors. We cannot predict the future changes in legislations and
regulations, but such changes could have a material adverse impact on the Company.
The Company has a dedicated credentialing and compliance group that manages our licensure,
contracting and regulatory compliance. The compliance group oversees the Companys quality
assurance program, which includes periodic audits of the Companys locations. In addition,
compliance with billing and invoicing requirements is performed continually by billing center
personnel. The Company believes that it is in material compliance with all laws and regulations
applicable to its businesses.
Invoicing, Billing and Accounts Receivable Management
The Company performs most of its accounts receivable management at a national billing center
covering the Services segment. The Company also maintains a billing center for its Pharmacy
segment at its Indianapolis, Indiana pharmacy facility. Each of these billing centers has unique
information systems, experienced billing personnel and established credit and collection procedures
to support their business segments. Within each segment, third-party reimbursement is a detailed
and complicated process that requires knowledge of and compliance with regulatory, contractual and
billing processing requirements. The majority of our business is invoiced shortly after the time
of service or at the time the product is shipped. Accurate billing and successful collections are
a key to our business plan.
Employees
The Company employs full-time management and administrative employees throughout the United States.
In addition, the Company employs a variety of field staff, including health care professionals and
caregivers, to service the needs of our customers. The following summarizes the number of full
time or part time management and administrative employees by segment as of March 31, 2011:
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Pharmacy |
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61 |
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Services |
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Corporate |
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37 |
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Total |
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229 |
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In addition to the above, the Services segment employed approximately 4,000 field employees as of
March 31, 2011. We have no unionized employees and do not have any collective bargaining
agreements. We believe our relationships with our employees are good.
Supply
We purchase supplies from various vendors. While we utilize one vendor for a majority of our
pharmaceutical purchases, we are not dependent upon any single supplier and believe that our
product needs can be met by an adequate number of various manufacturers.
Environmental Compliance
We believe we are currently in compliance, in all material respects, with applicable federal, state
and local statutes and ordinances regulating the discharge of hazardous materials into the
environment. We do not believe the Company will be required to expend any material amount to
remain in compliance with these laws and regulations or that such compliance will materially affect
our capital expenditures, earnings or competitive position.
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Available Information
The Company files annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission (the SEC). Interested parties may read and copy any
documents filed with the SEC at the SECs public reference room at 100 F Street, NE, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The
SEC maintains an internet site that contains annual, quarterly and current reports, proxy and
information statements and other information that issuers (including the Company) file
electronically with the SEC. The SECs internet site is www.sec.gov.
Our internet site is www.arcadiahealthcare.com. You can access our investor, media and corporate
governance information through our internet site, by clicking on the heading Investors. We make
available free of charge, on or through our Investors webpage, our proxy statements, annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to
those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the
Exchange Act), as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the SEC. Information on our website does not constitute part of this 10-K
report or any other report we file with or furnish to the SEC.
Executive Officers
The following table sets forth information concerning our executive officers, including their ages,
positions and tenure:
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Served as Executive |
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Marvin R. Richardson |
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President and Chief Executive Officer |
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February 2007 |
Matthew R. Middendorf |
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Chief Financial Officer, Secretary and Treasurer |
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February 2008 |
Steven L. Zeller |
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Chief Operating Officer and General Counsel |
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September 2007 |
Charles L. Goodall |
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Executive Vice President, Pharmacy Operations |
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April 2011 |
Marvin R. Richardson. Mr. Richardson, who has over 30 years of health care and retail pharmacy
experience, joined the Company in conjunction with its acquisition of PrairieStone Pharmacy, LLC in
February 2007. In 2003, he co-founded PrairieStone Pharmacy LLC headquartered in Minneapolis,
Minnesota and served as President and CEO. While at PrairieStone, DailyMed was launched a
comprehensive Medication Therapy Management (MTM) program along with compliance packaging of
pharmaceuticals geared to help those in need better manage their conditions while helping payers
reduce unnecessary costs associated with medication waste, avoidable hospitalizations and
unintended long-term care admissions. The company was named Chain of the Year by Drug Topics
magazine in 2005. Prior to his involvement with PrairieStone, Mr. Richardson held various management
positions with the Walgreen Co. and was Senior Vice President of Pharmacy Operations for Rite Aid
Corporation, overseeing Rite Aids 3,500 operating pharmacies. Richardson is a 1980 graduate of
Purdue University, where he earned his Bachelor of Science degree in Pharmacy. He received the
Pharmacy Distinguished Alumni Award in 2008 and was named to the Purdue University Foundation
Development Council in 2008. He also serves on the Board of Directors for the Mental Health America
of Indiana Association. He has been an advisor to several major government leaders on healthcare
policy including Vice President Dan Quayle and current New York City Deputy Mayor and former
Indianapolis Mayor Stephen Goldsmith.
Matthew R. Middendorf, Chief Financial Officer, Secretary and Treasurer, joined the Company in
February 2008 as Chief Financial Officer. Mr. Middendorf previously served as a consultant to the
Company, providing day-to-day financial and accounting support to the Interim CFO and working on
special projects for the CEO. He has responsibility for internal and external reporting, planning
and analysis, and corporate and business unit accounting. Mr. Middendorf formerly served as the
Corporate Controller and Director of Financial Reporting for Workstream, Inc., a publicly-traded
human resources software company. He worked in public accounting for more than a decade, most
recently with Grant Thornton in its Seattle office; and, has significant experience working with
mid-size companies in the technology, healthcare and banking industries. Mr. Middendorf holds a
Bachelor of Science Degree in Accountancy from the University of Illinois and passed the CPA Exam
in 1992.
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Steve L. Zeller, Chief Operating Officer, joined the Company in September 2007 as part of the
Executive Committee. Mr. Zeller is responsible for managing the Companys day-to-day operations
that are reported to the Board of Directors and Chief Executive Officer. Mr. Zeller assumed the
additional responsibility of General Counsel in 2011. From 2006 to September 2007, Mr. Zeller was
President of BestCare Travel Staffing, LLC, an Arcadia affiliate providing travel nursing and
allied health services, a position he held until February 2009. Prior to becoming an Arcadia
affiliate in 2006, Mr. Zeller served as a division president for SPX Corporation from 2003 to 2005
and was employed for 18 years at Cummins, Inc., where he last served as Vice President and Managing
Director
for a European-headquartered power generation subsidiary. He received his Juris Doctor degree from
Indiana University in 1981 where he graduated Summa Cum Laude, and received a B.A. in Economics
from The College of William and Mary in 1978.
Charles L. Goodall, Executive Vice President of Pharmacy Operations, joined Arcadia Resources in
June 2009 and is responsible for managing the Companys day-to-day pharmacy operations. Prior to
joining the Company, Mr. Goodall worked for Walgreens for 25 years and held various positions
including Divisional Vice-President of Pharmacy Technology Services where he was responsible for
all pharmacy technology systems maintenance and development. He received a B.S. degree in
pharmacy from Purdue University in 1984 with honors where he currently serves on the Deans Advisory
Council. He received an M.S. degree in information technology from Northwestern University
McCormick School of Engineering in 2002. Mr. Goodall has also attended The Wharton School of
Business, University of Pennsylvania and Fuqua School of Business, Duke University. He has
lectured at over 20 colleges and universities on the topic of pharmacy and technology. He also
holds 11 U.S. patents on pharmacy technology and processes.
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This Annual Report, including Managements Discussion and Analysis of Financial Condition and
Results of Operations, contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We face a number of
risks and uncertainties that could cause actual results or events to differ materially from those
contained in any forward-looking statement. Factors that could cause or contribute to such
differences include, but are not limited to, the risks and uncertainties listed below. If any of
the following risks actually occur, our business, financial condition or results of operations
could be materially and adversely affected. In that case, the trading price of our common stock
could decline, and you may lose all or part of your investment in us. You should carefully consider
and evaluate the risks and uncertainties listed below, as well as the other information set forth
in this Report.
We have a history of operating losses and negative cash flow that may continue into the
foreseeable future.
We have a history of operating losses and negative cash flow. If we fail to execute our strategy
to achieve and maintain profitability in the future, investors could lose confidence in the value
of our common stock, which could cause our stock price to decline, adversely affect our ability
to raise additional capital, and adversely affect our ability to meet the financial covenants
contained in our credit agreements. Further, if we continue to incur operating losses and
negative cash flow, we may have to implement further significant cost cutting measures, which
could include a substantial reduction in work force, location closures, and/or the sale or
disposition of certain assets or subsidiaries. We cannot assure that any of the cost cutting
measures we implement will be effective or result in profitability or positive cash flow. To
achieve profitability, we will need to increase our revenue base, reduce our cost structure and
realize economies of scale. If we are unable to achieve and maintain profitability, our stock
price could be materially adversely affected.
Our indebtedness could adversely affect our financial condition and operations, prevent us from
fulfilling our debt service obligations and adversely affect our ability to operate our business.
We have $39.5 million of outstanding debt as of March 31, 2011, of which $34.9 million matures in
April 2012.
Our indebtedness could have important consequences, including, but not limited to:
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We may be unable to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate or other purposes. |
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We may be unable to plan for, or react to, changes in our business and general market
conditions. |
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We may be more vulnerable in a volatile market and at a competitive disadvantage to less
leveraged competitors. |
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Our operating flexibility is more limited due to financial and other restrictive
covenants, including restrictions on incurring additional debt, creating liens on our
properties, making acquisitions and paying dividends. |
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We are subject to the risks that interest rates and our interest expense will increase. |
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Our ability to use operating cash flow in other areas of our business may be limited
because we must dedicate a substantial portion of these funds to make principal and
interest payments on our indebtedness. |
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Our ability to make investments or take other actions or borrow additional funds may be
limited based on the financial and other restrictive covenants in our indebtedness. |
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The amount we are permitted to draw on our revolving credit facilities may be limited
and we may be unable to fund our early-stage pharmacy product and patient care services and
home care staffing business strategies. |
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We may be forced to implement cost reductions, which could impact our product and
service offerings. |
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We may be unable to successfully implement our growth strategy and spread our cost
structure over a larger revenue base and ultimately become profitable. |
The Company may not be successful in selling its Services segment, which is necessary to
generate cash to fund the remaining operations.
The Companys Board of Directors has committed to a plan to sell the Services segment, and
management is actively engaged in the sale of this business. The anticipated proceeds from the
sale of this business will be used for general corporate purposes, including funding the
remaining Pharmacy operations, capital expenditures and repayment of debt, as determined
appropriate by the Companys Board of Directors. The Board of Directors intends to seek
approval of any such sale from the Companys shareholders. If the Company cannot identify a
financially capable buyer who is willing to pay an appropriate price for the Services segment in
a timely manner, or if shareholders do not approve the sale, the Company would be forced to
implement
further cost cutting measures. We cannot assure that any of the cost cutting measures we
implement would be effective or result in profitability or positive cash flow.
10
With the sale of our Services segment, the Company results will be entirely dependent on the
performance of its Pharmacy segment, which is still in its early stages of a broad market
roll-out.
With the sale of our Services segment, the Company will have a single line of business, which is
its Pharmacy segment. The Pharmacy segment is still in its early stages of a broad market
roll-out. The business has not yet become profitable and currently has negative cash flow. The
success of our Pharmacy segment is dependent on the viability and continued demonstration of the
effectiveness of the DailyMed business model. As an innovative, first to market pharmacy care
model, DailyMed is challenging the approach of traditional community based retail pharmacies and
others to providing pharmacy products and services. It is providing a unique opportunity for
at-risk payers to substantially reduce health care costs. Market adoption and customer acceptance
are key to continued growth in revenues as is payer adoption of DailyMed as part of efforts to
reduce overall health care spend. To date, competitive responses to DailyMed have yet to evolve.
Our ability to grow revenue and receive compensation for the value-added services we provide are
keys to the long-term financial viability of the DailyMed business model.
As part of a recapitalization or restructuring plan necessary to address the Companys
significant amount of outstanding debt, current and future shareholders could be substantially
diluted.
The Companys operating cash flow has generally been negative in recent quarters, and generating
positive cash flow is highly dependent on the growth of Pharmacy segment revenues and improved
profitability in that segment. The Company has a significant amount of debt that matures in
April 2012, and it will not be able to generate sufficient positive cash flow from operations in
that timeframe to repay this indebtedness. As a result, the Company will continue to explore
options for dealing with these debt maturities, which could include renegotiation of the terms
of these debt instruments with the current debt holders, raising additional capital (in the form
of debt or equity) to refinance the outstanding debt, selling assets, including its Services
segment, and using the proceeds to repay debt, other restructuring or recapitalization plans, or
a combination thereof. Depending on the options pursued by the Company, the result could be
substantial dilution of current and future holders of the Companys common stock. There can be
no assurance that any such recapitalization or debt restructuring plans will be successful.
Due to our debt level, our history of operating losses and negative cash flows, and the current
conditions in the credit markets, we may not be able to increase the amount we can draw on our
revolving credit facility with Comerica Bank, or to obtain credit from other sources, to fund our
future needs for working capital, funding early-stage strategies and ongoing business operations,
or acquisitions.
Due to our debt level and the current conditions in the credit market, there is 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 facilities or to lend additional funds for day-to-day operations,
working capital, making potential acquisitions and for other purposes. This development would
have a material adverse affect on our financial condition and liquidity, and there can be no
assurance that we would be able to refinance our existing credit facility or obtain alternative
financing.
We may not be able to meet the financial covenants contained in our credit facilities, and we may
not be able to obtain waivers for any violations of those covenants should they occur.
Under certain of our existing credit facilities, we are required to adhere to certain financial
covenants. Specifically, we have a line of credit agreement with Comerica Bank with financial
covenants relating to our Services segment. We were not in compliance with two financial
covenants under our Comerica Bank line of credit as of September 30, 2010, but we received a
waiver of this non-compliance from the bank. We were in compliance with these covenants as of
March 31, 2011, but there is no assurance that the Company will be in compliance in future
periods. Additionally, our H.D. Smith line of credit agreement includes certain financial
covenants specific to our Pharmacy segment, which take effect with the fiscal quarter beginning
January 1, 2012. If there are future covenant violations, our lenders could declare a default
under the applicable credit facility and, among other actions, refuse to make additional
advances, increase our borrowing costs, further restrict our operations, take possession or
control of any asset (including our cash) and demand the immediate repayment of all amounts
outstanding under the credit facility. Any of these actions could have a material adverse affect
on our financial condition and liquidity. Based on our history of operating losses, we cannot
guarantee that we would be able to refinance our existing credit facility or obtain alternative
financing.
11
In addition to the financial covenants, our existing credit facility with Comerica Bank includes
a subjective acceleration clause and requires the Company to maintain a lockbox. Currently, the
Company has the ability to control the funds in the deposit account and determine the amount
issued to pay down the line of credit balance. The bank reserves the right under the security
agreement to request that the indebtedness be on a remittance basis in the future, whether or not
an event of default has occurred. If the bank exercises this right, then the Company would be
forced to use its cash to pay down this indebtedness rather than for other needs, including
day-to-day operations, expansion initiatives or the pay down of debt which accrues interest at a
higher rate.
The terms of our credit agreements with various lenders subject us to the risk of foreclosure on
certain property.
Our wholly-owned subsidiary RKDA, Inc. granted Comerica Bank a first-priority security interest
in all of the issued and outstanding capital stock of its wholly-owned subsidiary, Arcadia
Services, Inc. and Arcadia Services, Inc. and its subsidiaries granted Comerica Bank security
interests in all of their assets. Effective April 2010, the Company granted H.D. Smith Wholesale
Drug Co. a first priority security interest in all of the issued and outstanding ownership
interest of its wholly-owned subsidiary PrairieStone Pharmacy, LLC, and PrairieStone granted H.D.
Smith a security interest in all of its assets. Additionally, PrairieStone agreed to provide our
lenders, JANA Master Fund, Ltd. (JANA), Vicis Capital Master Fund (Vicis), and LSP Partners,
LP (LSP), a subordinated security interest in its assets. If an event of default occurs under
the applicable credit agreements, each lender may, at its option, accelerate the maturity of the
debt and exercise its respective right to foreclose on the issued and outstanding capital stock
and/or on all of the assets of Arcadia Services, Inc. and its subsidiaries, and/or PrairieStone
Pharmacy, LLC and its subsidiaries. Any such default and resulting foreclosure would have a
material adverse effect on our financial condition and our ability to continue operations.
In order to fund operations, repay our debt obligations, or pursue our growth strategies, we may
seek additional equity financing, which could result in dilution to our security holders and
adversely affect our stock price.
In November 2010, the Company sold certain institutional investors an aggregate of 15,606,250
shares of common stock. The Company raised $4.4 million in net proceeds from this transaction.
Additionally, in November 2009, the Company finalized a similar equity financing transaction
whereby it raised $10.2 million through the sale of 15,857,141 shares of common stock and
7,135,713 warrants to purchase common stock. We may continue to raise additional financing
through the equity markets to repay debt obligations and to fund operations. Because of the
capital requirements needed to pursue our early-stage pharmacy growth strategies, we may access
the public or private equity markets whenever conditions appear to us to be favorable, even if we
do not have an immediate need for additional capital at that time. To the extent we access the
equity markets, the price at which we sell shares may be lower than the current market prices for
our common stock. If we obtain financing through the sale of additional equity or convertible
debt securities, this could result in dilution to our security holders by increasing the number
of shares of outstanding stock. We cannot predict the effect this dilution may have on the price
of our common stock.
To the extent we are unable to generate sufficient cash from operations or raise adequate funds
from the equity or debt markets, we would need to sell assets or modify or abandon our growth
strategy.
Our cash on hand and line of credit availability may not be adequate to satisfy our cash needs.
To the extent that we are unable to generate sufficient cash from operations, or to raise
additional funds from the equity or debt markets, we may be required to sell additional assets or
modify or abandon our growth strategy. Asset sales and modification or abandonment of our growth
strategy could negatively impact our profitability and financial position, which in turn could
negatively impact the price of our common stock.
Given the recurring losses from operations and net capital deficiency, we received a going
concern opinion from our independent auditors, which could negatively affect our business and
results of operation.
After conducting an audit of the Companys consolidated financial statements for the fiscal year
ended March 31, 2011, our independent auditors issued an unqualified opinion on the financial
statements that included a material uncertainty related to our ability to continue as a going
concern due to our recurring losses from operations and net capital deficiency. The Companys
ability to continue as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis. Management anticipates the need to for additional
cash to fund operating activities during fiscal 2012 and is in the process of divesting its
Services segment and is also exploring additional financing alternatives for its Pharmacy
segment. If the Company is unable to generate additional funds when they are required or if the
funds cannot be obtained on terms favorable to the Company, management may be required to delay,
scale back or eliminate its current business strategy.
12
Due to our low stock price and operating losses during recent fiscal years, our stock could be
delisted by the NYSE Amex Equities Exchange.
Our stock currently trades on the NYSE Amex Equities Exchange (Amex). The Amex, as a matter of
policy, will consider the suspension of trading in, or removal from listing of any stock when, in
the opinion of the Amex (i) the financial condition and/or operating results of an issuer of
stock listed on the Amex appear to be unsatisfactory, (ii) it appears that the extent of public
distribution or the aggregate market value of the stock has become so reduced as to make further
dealings on the Amex inadvisable, (iii) the issuer has sold or otherwise disposed of its
principal operating assets, or (iv) the issuer has sustained losses which are so substantial in
relation to its overall operations or its existing financial condition has become so impaired
that it appears questionable, in the opinion of the Amex, whether the issuer will be able to
continue operations and/or meet its obligations as they mature.
On April 4, 2011, the Company received written notification from Amex indicating that because the
Companys average closing price of its common stock was less than $0.20 per share over a
consecutive 30-day trading period, the Company was not in compliance with Section 1003(f)(v) of
the NYSE Amex Company Guide. Amex advised that it deems it appropriate for the Company to effect
a reverse stock split to remain in compliance with its continued listing standards and has given
the Company until October 4, 2011 to effect such a split. The Company is currently considering
its options to comply with Section 1003(f)(v).
In addition, as of March 31, 2011, due to its history of operating losses and negative
stockholders equity, the Company has fallen below the minimum continued listing standards of
Amex.
Delisting of our common stock could adversely affect the price and liquidity of our common stock.
Our Pharmacy segment revenue is highly dependent upon our relationships with key state Medicaid
programs, managed care organizations, health plans and other payers.
A significant portion of our current Pharmacy segment revenue is generated from programs that we
have in place with several key state Medicaid programs, managed care organizations, health plans
and other payers, including Indiana Medicaid and WellPoint. The rate of growth in the Pharmacy
segment is highly dependent on maintaining our on-going relationships with these parties. We
have contractual arrangements with some of these entities, including WellPoint. Our ability to
grow revenue under these arrangements is dependent upon several factors, including the rate of
enrollment of their members into the program, the quality of our services and our ability to help
at-risk payers achieve health care cost containment and reduction. In addition, our ability to
grow revenue under these programs depends upon factors outside of our control, including state
appropriations and funding and changes in eligibility requirements. However, our inability to
maintain these relationships, and specifically our agreement with WellPoint, would negatively
impact current and future Pharmacy segment revenue. There can be no assurance that the loss of
these relationships would be offset by relationships with new or additional payers.
Declines in prescription volumes may negatively affect our net revenues and profitability.
We dispense significant volumes of brand-name and generic drugs as part of our Pharmacy business,
which we expect to be a significant source of our net revenues and profitability. Demand for
prescription drugs can be negatively affected by a number of factors, including increased safety
risk problems, manufacturing issues, regulatory action, and negative press or media coverage.
Certain prescriptions may also be withdrawn by their manufacturer or transition to
over-the-counter products. A reduction in the use of prescription drugs may negatively affect our
volumes, net revenues, profitability and cash flows.
The success of our business depends on maintaining a well-secured pharmacy operation and
technology infrastructure and failure to do so could adversely impact our business.
We depend on our infrastructure, including our information systems, for many aspects of our
business operations, particularly our pharmacy operations. A fundamental requirement for our
business is the secure storage and transmission of personal health information and other
confidential data and we must maintain our business processes and information systems, and the
integrity of our confidential information. Although we have developed systems and processes that
are designed to protect information against security breaches, failure to protect such
information or mitigate any such breaches may adversely affect our operations. Malfunctions in
our business processes, breaches of our information systems or the failure to maintain effective
and up-to-date information systems could disrupt our business operations, result in customer and
member disputes, damage our reputation, expose
us to risk of loss or litigation, result in regulatory violations, increase administrative
expenses or lead to other adverse consequences.
13
We are exposed to certain risks related to the frequency and rate of the introduction of generic
drugs and brand-name prescription products.
The profitability of retail and mail order pharmacy businesses are dependent upon the utilization
of prescription drug products. Utilization trends are affected by the introduction of new and
successful prescription pharmaceuticals as well as lower-priced generic alternatives to existing
brand-name products. Accordingly, a slowdown in the introduction of new and successful
prescription pharmaceuticals and/or generic alternatives (the sale of which normally yield higher
gross profit margins than brand-name equivalents) could adversely affect our business, financial
position and results of operations.
Changes in federal and state laws that govern our financial relationships with physicians and
other health care providers may impact potential or current referral sources.
We offer certain healthcare-related products and services that are subject to federal and state
laws restricting our relationship with physicians and other healthcare providers. Generally
referred to as anti-kickback laws, these laws prohibit certain direct and indirect payments or
other financial arrangements that are designed to encourage the referral of patients to a
particular medical services provider. In addition, certain financial relationships, including
ownership interests and compensation arrangements, between physicians and providers of designated
health services, such as our Company, to whom those physicians refer patients, are prohibited by
the federal physician self-referral prohibition, known as the Stark Law, and similar state
laws. Violations of these laws could lead to fines or sanctions that could have a material
adverse effect on our business. In addition, changes in healthcare law or new interpretations of
existing laws may have a material impact on our business and results of operations.
We are required to comply with laws governing the transmission of privacy of health information.
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply
with standards for the exchange of health information within our Company and with third parties,
such as payers, business associates and consumers. These include standards for common health care
transactions, such as claims information, plan eligibility, payment information, the use of
electronic signatures, unique identifiers for providers, employers, health plans and individuals
and security, privacy and enforcement. New standards and regulations may be adopted governing the
use, disclosure and transmission of health information with which we may be required to comply.
We could be subject to criminal penalties and civil sanctions if we fail to comply with these
standards. In addition, compliance with new standards and regulations could increase our costs
and adversely affect our results of operations.
The Health Information Technology for Economic and Clinical Health Act, or HITECH, established
certain health information security breach notification requirements. A covered entity must
notify any individual whose protected health information is breached. While we believe that we
protect individuals health information, if our information systems are breached, we may
experience reputational harm that could adversely affect our business. In addition, failure to
comply with the HITECH Act could result in fines and penalties that could have a material adverse
effect on us.
Because we depend on key management, the loss of the services or advice of any of these persons
could have a material adverse effect on our business and prospects.
Our success is dependent on our ability to attract and retain qualified and experienced
management and personnel. We do not presently maintain key person life insurance for any of our
personnel. There can be no assurance that we will be able to attract and retain key personnel in
the future, and our inability to do so could have a material adverse effect on us. Our management
team will need to work together effectively to successfully develop and implement our business
strategies and financial operations. In addition, management will need to devote significant
attention and resources to preserve and strengthen relationships with employees, customers and
the investor community. If our management team is unable to achieve these goals, our ability to
grow our business and successfully meet operational challenges could be impaired.
14
We do not have long-term agreements or exclusive guaranteed order contracts with our home care,
hospital and healthcare facility clients.
The success of our Services business depends upon our ability to continually secure new orders
from home care clients, hospitals and other healthcare facilities and to fill those orders with
our temporary healthcare professionals. We do not have long-term agreements or exclusive
guaranteed order contracts with our home care, hospital and health care facility clients. We rely
on our agencies to establish and maintain positive relationships with these clients. If we, or
our agents, fail to maintain positive relationships with our home care, hospital and healthcare
facility clients, we may be unable to generate new temporary healthcare professional orders and
our business may be adversely affected. In addition, many of these clients may have devised
strategies to reduce the expenditures on temporary healthcare workers and to limit overall agency
utilization. If current pressures to control agency usage continue and escalate, we will have
fewer business opportunities, which could harm our business.
Our operations subject us to risk of litigation.
Operating in the homecare industry exposes us to an inherent risk of wrongful death, personal
injury, professional malpractice and other potential claims or litigation brought by our
consumers and employees. These claims may include, for example, allegations that we did not
properly treat or care for a consumer or that we failed to follow internal or external procedures
that resulted in death or harm to a consumer.
In addition, regulatory agencies may initiate administrative proceedings alleging violations of
statutes and regulations arising from our services and seek to impose monetary penalties on us.
We could be required to pay substantial amounts to respond to regulatory investigations or, if we
do not prevail, damages or penalties arising from these legal proceedings. We also are subject to
potential lawsuits under the False Claims Act or other federal and state whistleblower statutes
designed to combat fraud and abuse in our industry. These lawsuits can involve significant
monetary awards or penalties which may not be covered by our insurance. If our third-party
insurance coverage and self-insurance reserves are not adequate to cover these claims, it could
have a material adverse effect on our business, results of operations and financial condition.
Even if we are successful in our defense, civil lawsuits or regulatory proceedings could distract
management from running our business or irreparably damage our reputation.
Absent a divestiture of our Services segment, a significant decline in sales in our Services
business would adversely impact our revenue, operating income and cash flow and our ability to
repay indebtedness and invest in new products and services.
Our Services segment has traditionally accounted for the majority of our revenue, operating
profit and cash flow. There can be no assurance that this business will continue to generate cash
flows at the levels generated in recent periods. Failure to achieve our sales targets in this
market segment would adversely impact our revenue. While operating expense reductions and other
actions would be taken in response to a decline in projected sales, such a reduction could
adversely affect our projected operating income and cash flow. If this were to occur, we would
have less cash available to fund our Pharmacy segment and repay indebtedness.
Sales of certain of our services and products are largely dependent upon payments from
governmental programs and private insurance, and cost containment initiatives by these payers may
reduce our revenues, thereby harming our performance.
In the U.S., healthcare providers and consumers who purchase home care services, prescription
drug products and related products and services generally rely on third party payers, such as
Medicare and Medicaid, to reimburse all or part of the cost of the healthcare product or service.
Our sales and profitability are affected by the efforts of healthcare payers to contain or reduce
the cost of healthcare by lowering reimbursement rates, limiting the scope of covered services,
and negotiating reduced or capitated pricing arrangements. Any changes which lower reimbursement
levels under Medicare, Medicaid or private pay programs, including managed care contracts, could
reduce our future revenue. Furthermore, other changes in these reimbursement programs or in
related regulations could reduce our future revenue. These changes may include modifications in
the timing or processing of payments and other changes intended to limit or decrease the growth
of Medicare, Medicaid or third party expenditures. In addition, our profitability may be
adversely affected by any efforts of our suppliers to shift healthcare costs by increasing the
net prices on the products we obtain from them.
15
The markets in which we operate are highly competitive and we may be unable to compete
successfully against competitors with greater resources.
We compete in markets that are constantly changing, intensely competitive (given low barriers to
entry), highly fragmented and subject to dynamic economic conditions. Increased competition is
likely to result in price reductions, reduced gross margins, loss of customers, and loss of
market share, any of which could adversely affect our net revenue and results of operations. Many
of our competitors and potential competitors have more capital and marketing and technical
resources than we do. These competitors and potential competitors include large drugstore chains,
pharmacy benefits managers, on-line marketers, national wholesalers, and national and regional
distributors. Further, the Company may face a significant competitive challenge from alliances
entered into between and among its competitors, major HMOs or chain drugstores, as well as from
larger competitors created through industry consolidation. These potential competitors may be
able to respond more quickly than we can to emerging market changes or changes in customer needs.
To the extent competitors seek to gain or retain market share by reducing prices or increasing
marketing expenditures, we could lose revenues or clients. In addition, relatively few barriers
to entry exist in local healthcare markets. As a result, we could encounter increased competition
in the future that may increase pricing pressure and limit our ability to maintain or increase
our market share for our mail order pharmacy and related businesses.
We cannot predict the impact that registration of shares may have on the price of our common
stock.
We cannot predict the impact, if any, that sales of, or the availability for sale of, shares of
our common stock by selling security holders pursuant to a prospectus or otherwise will have on
the market price of our securities prevailing from time to time. The possibility that substantial
amounts of our common stock might enter the public market could adversely affect the prevailing
market price of our common stock and could impair our ability to fund acquisitions or to raise
capital in the future through the sales of securities. Sales of substantial amounts of our
securities, including shares issued upon the exercise of options or warrants, or the perception
that such sales could occur, could adversely affect prevailing market prices for our securities.
The price of our common stock has been, and will likely continue to be, volatile, which could
diminish the ability to recoup an investment, or to earn a return on an investment, in our common
stock.
The market price of our common stock has fluctuated over a wide range, and it is likely that it
will continue to do so in the future. During fiscal 2011, the Companys stock price decreased
from a high of $0.75 during the first quarter to a low of $0.10 in the fourth quarter. Limited
demand for our common stock has resulted in limited liquidity, and it may be difficult to dispose
of our securities. Due to the volatility of the price of our common stock, an investor may be
unable to resell shares of our common stock at or above the price paid for them, thereby exposing
an investor to the risk that he may not recoup an investment in our common stock or earn a return
on such an investment. In the past, securities class action litigation has been brought against
companies following periods of volatility in the market price of their securities. If we are the
target of similar litigation in the future, we would be exposed to incurring significant
litigation costs. This would also divert managements attention and resources, all of which could
substantially harm our business and results of operations.
Resale of our securities by any holder may be limited and affected by state blue-sky laws, which
could adversely affect the price of our securities and the holders investment in our Company.
Under the securities laws of some states, shares of common stock and warrants can be sold in such
states only through registered or licensed brokers or dealers. In addition, in some states,
warrants and shares of common stock may not be sold unless these shares have been registered or
qualified for sale in the state or an exemption from registration or qualification is available
and is complied with. The requirement of a seller to comply with the requirements of state blue
sky laws may lead to delay or inability of a holder of our securities to dispose of such
securities, thereby causing an adverse effect on the resale price of our securities.
The issuance of our preferred stock could materially impact the market price of our common stock
and the rights of holders of our common stock.
We are authorized to issue 5,000,000 shares of serial preferred stock, par value $0.001. Shares
of preferred stock may be issued from time to time in one or more series as may be determined by
our Board of Directors. Except as otherwise provided in our Restated Articles of Incorporation,
the Board of Directors has the authority to fix by resolution adopted before the issuance of any
shares of each particular series of preferred stock, the designation, powers, preferences, and
relative participating, optional redemption and other rights, and the qualifications,
limitations, and restrictions of that series. The issuance of our preferred stock could
materially impact the price of our common stock and the rights of holders of our common stock,
including voting rights. The
issuance of preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock, and may have the effect of delaying, deferring or
preventing a change in control of our company, despite such change of control being in the best
interest of the holders of our common stock. The existence of authorized but unissued preferred
stock may enable the Board of Directors to render more difficult or to discourage an attempt to
obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
16
The exercise of common stock warrants and stock options may depress our stock price and may
result in dilution to our common security holders.
Warrants to purchase approximately 12.1 million shares of our common stock were issued and
outstanding as of March 31, 2011, and these warrants had exercise prices ranging from $0.13 to
$0.95. Options to purchase approximately 8.9 million shares of our common stock were issued and
outstanding as of March 31, 2011, and these options had exercise prices ranging from $0.18 to
$2.92. As of March 31, 2011, none of the outstanding warrants or options were in the money.
The Arcadia Resources, Inc. 2006 Equity Incentive Plan (the Plan), as amended on October 14,
2009, allows for the granting of additional incentive stock options, non-qualified stock options,
stock appreciation rights and restricted shares up to 15 million shares (5.0% of our authorized
shares of common stock as of the date the Plan was approved), of which the Company had available
approximately 5.1 million shares as of March 31, 2011 for future grants.
If the market price of our common stock is above the exercise price of some of the outstanding
warrants or options; the holders of those warrants or options may exercise their warrants or
options and sell the common stock they acquire upon exercise in the public market. Sales of a
substantial number of shares of our common stock in the public market may depress the prevailing
market price for our common stock and could impair our ability to raise capital through the
future sale of our equity securities. Additionally, if the holders of outstanding warrants
exercise those warrants, our common security holders will suffer dilution in their voting power.
The exercise price and the number of shares subject to the warrant or option is subject to
adjustment upon stock dividends, splits and combinations, as well as certain anti-dilution
adjustments as set forth in the respective common stock warrants.
We depend on our affiliated agencies and our internal sales force to sell our services and
products, the loss of which could adversely affect our business.
We rely upon our affiliated agencies and our internal sales force to sell our home care and
medical staffing services and our internal sales force to sell our pharmacy products and
services. Arcadia Services affiliated agencies are owner-operated businesses. The primary
responsibilities of Arcadia Services affiliated agencies include the recruitment and training of
field staff employed by Arcadia Services and generating and maintaining sales to Arcadia
Services customers. The arrangements with affiliated agencies are formalized through a standard
contractual agreement, which states performance requirements of the affiliated agencies. Our
employees provide the services to our customers, and the affiliated agents and internal sales
force are restricted by non-competition agreements. In the event of loss of our affiliated agents
or internal sales force personnel, we would recruit new sales and marketing personnel and/or
affiliated agents, which could cause our operating costs to increase and our sales to fall in the
interim.
Any additional impairment of intangible assets could negatively impact our results of operations.
During fiscal 2011, 2010 and 2009, we wrote off an aggregate of $2.5 million, $14.6 million and
$23.5 million, respectively, of goodwill and other intangible assets. As of March 31, 2011, we
have $7.1 million of Service segment intangible assets remaining on our balance sheet. These
intangibles are subject to an impairment test whenever events and circumstances indicate possible
impairment. Intangible assets are generally amortized over the useful life of such assets. In
addition, from time to time, we may acquire or make an investment in a business which will
require us to record goodwill based on the purchase price and the value of the acquired assets.
We may subsequently experience unforeseen issues with such business which adversely affect the
anticipated returns of the business or value of the intangible assets and trigger an evaluation
of the recoverability of the recorded intangible assets for such business. Future determinations
of significant write-offs of intangible assets as a result of an impairment test or any
accelerated amortization of other intangible assets could have a negative impact on our results
of operations and financial condition.
17
Negative publicity or changes in public perception of our services may adversely affect our
ability to receive referrals, obtain new agreements and renew existing agreements.
Our success in receiving referrals, obtaining new agreements and renewing our existing agreements
depends upon maintaining our reputation as a quality service provider among governmental
authorities, physicians, hospitals, discharge planning departments, case managers, nursing homes,
rehabilitation centers, advocacy groups, consumers and their families, other referral sources and
the public. Negative publicity, changes in public perceptions of our services or government
investigations of our operations could damage our reputation and hinder our ability to receive
referrals, retain agreements or obtain new agreements. Increased government scrutiny may also
contribute to an increase in compliance costs and could discourage consumers from using our
services. Any of these events could have a negative effect on our business, financial condition
and operating results.
Delays in reimbursement due to state budget deficits or otherwise have decreased, and may in the
future further decrease, our liquidity.
There is generally a delay between the time that we provide services and the time that we receive
reimbursement or payment for these services. A majority of states are facing budget deficits and
other states may in the future delay reimbursement, which would adversely affect our liquidity.
From time to time, procedural issues require us to resubmit claims before payment is remitted,
which contributes to our aged receivables. Additionally, unanticipated delays in receiving
reimbursement from state programs due to changes in their policies or billing or audit procedures
may adversely impact our liquidity and working capital. Because we fund our operations primarily
through the collection of accounts receivable, any delays in reimbursement would result in the
need to increase borrowings under our credit facility.
We are subject to extensive government regulation. Changes to the laws and regulations governing
our business could negatively impact our profitability and any failure to comply with these
regulations could adversely affect our business.
The federal government and the states in which we operate regulate our industry extensively. The
laws and regulations governing our operations, along with the terms of participation in various
government programs, impose certain requirements on the way in which we do business, the services
we offer, and our interactions with consumers and the public. These requirements relate to:
|
|
|
Licensure and certification; |
|
|
|
|
Adequacy and quality of health care services; |
|
|
|
|
Qualifications and training of health care and support personnel; |
|
|
|
|
Confidentiality, maintenance and security issues associated with medical records and claims processing; |
|
|
|
|
Relationships with physicians and other referral sources; |
|
|
|
|
Operating policies and procedures; |
|
|
|
|
Addition of facilities and services; and |
|
|
|
|
Billing for services. |
These laws and regulations, and their interpretations, are subject to frequent change. These
changes could reduce our profitability by increasing our liability, increasing our
administrative and other costs, increasing or decreasing mandated services, forcing us to
restructure our relationships with referral sources and providers or requiring us to
implement additional or different programs and systems. Failure to comply could lead to the
termination of rights to participate in federal and state-sponsored programs, the suspension
or revocation of licenses and other civil and criminal penalties and a delay in our ability
to bill and collect for services provided.
On March 23, 2010, the President signed into law the Health Reform Law. The Health Reform
Law is broad, sweeping reform, and is subject to change, including through the adoption of
related regulations, the way in which its provisions are interpreted and the manner in which
it is enforced. We cannot assure you that such provisions of the Health Reform Law will not
adversely impact our business, results of operations or financial results. We may be unable
to mitigate any adverse effects resulting from the Health Reform Act.
18
We are subject to reviews, compliance audits and investigations that could result in adverse
findings that negatively affect our net service revenues and profitability.
As a result of our participation in Medicaid and other governmental programs, and pursuant to
certain of our contractual relationships, we are subject to various reviews, audits and
investigations by governmental authorities and other third parties to verify our compliance
with these programs and agreements as well as applicable laws, regulations and conditions of
participation. If we fail to meet any of the conditions of participation or coverage, we may
receive a notice of deficiency from the applicable surveyor or authority. Failure to
institute a plan of action to correct the deficiency within the period provided by the
surveyor or authority could result in civil or criminal penalties, the imposition of fines or
other sanctions, damage to our reputation, cancellation of our agreements, suspension or
revocation of our licenses or disqualification from federal and state reimbursement programs.
These actions may adversely affect our ability to provide certain services, to receive
payments from other payers and to continue to operate. Additionally, actions taken against
one of our locations may subject our other locations to adverse consequences. Any termination
of one or more of our locations from a government program for failure to satisfy such
programs conditions of participation could adversely affect our net service revenues and
profitability.
Payments we receive in respect of Medicaid can be retroactively adjusted after a new
examination during the claims settlement process or as a result of pre- or post-payment
audits. Federal, state and local government payers may disallow our requests for
reimbursement based on determinations that certain costs are not reimbursable because proper
documentation was not provided or because certain services were not covered or deemed
necessary. In addition, other third-party payers may reserve rights to conduct audits and
make reimbursement adjustments in connection with or exclusive of audit activities.
Significant adjustments as a result of these audits could adversely affect our revenues and
profitability.
Several anti-takeover measures under Nevada law could delay or prevent a change of control,
despite such change of control being in the best interest of the holders of our common stock.
Several anti-takeover measures under Nevada law could delay or prevent a change of control,
despite such change of control being in the best interest of the holders of our common stock.
This could make it more difficult or discourage an attempt to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise. This could negatively impact the value of an
investment in our common stock, by discouraging a potential suitor who may otherwise be willing
to offer a premium for shares of our common stock.
|
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ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS. |
None.
Our corporate headquarters and Pharmacy segment share a facility in Indianapolis, Indiana. Our
Services segment administrative support office is located in Southfield, Michigan. Additionally,
our Services segment operates local offices in 18 states and approximately 65 locations. All
facilities are leased and have lease expiration dates ranging from 2011 to 2017.
We do not own any real estate.
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|
ITEM 3. |
|
LEGAL PROCEEDINGS |
We are a defendant from time to time in lawsuits incidental to our business in the ordinary course
of business. We are not currently subject to, and none of our subsidiaries are subject to, any
material legal proceedings.
19
Part II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Shares of our common stock are currently quoted on the NYSE Amex Exchange (NYSE Amex) under the
symbol KAD. The following table sets forth the quarterly high and low sale prices for our common
stock for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2011 |
|
|
|
4th Quarter |
|
|
3rd Quarter |
|
|
2nd Quarter |
|
|
1st Quarter |
|
High |
|
$ |
0.34 |
|
|
$ |
0.42 |
|
|
$ |
0.58 |
|
|
$ |
0.75 |
|
Low |
|
$ |
0.10 |
|
|
$ |
0.27 |
|
|
$ |
0.37 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2010 |
|
|
|
4th Quarter |
|
|
3rd Quarter |
|
|
2nd Quarter |
|
|
1st Quarter |
|
High |
|
$ |
0.74 |
|
|
$ |
1.09 |
|
|
$ |
1.24 |
|
|
$ |
0.74 |
|
Low |
|
$ |
0.35 |
|
|
$ |
0.38 |
|
|
$ |
0.57 |
|
|
$ |
0.38 |
|
There is no established market for our warrants to purchase common stock. The Companys warrants
are not quoted by NYSE Amex, nor are they listed on any exchange. We do not expect our warrants to
be quoted by the NYSE Amex or listed on any exchange. As a result, an investor may find it
difficult to trade, dispose of, or to obtain accurate quotations of the price of our warrants.
There are 260 record holders of our common stock as of May 31, 2011. The number of record holders
of our common stock excludes an estimate of the number of beneficial owners of common stock held in
street name, totaling approximately 174.1 million shares held by approximately 2,000 shareholders.
The transfer agent and registrar for our common stock is Computershare, 7530 Lucerne Drive, Ste.
305, Cleveland, Ohio, 44130 (440-239-7361).
We have never paid cash dividends on our common shares, and we do not anticipate that we will pay
dividends with respect to those securities in the foreseeable future. Our current business plan is
to retain any future earnings to finance the expansion and development of our business. Any future
determination to pay cash dividends will be at the discretion of our Board of Directors, and will
be dependent upon our financial condition, results of operations, capital requirements, debt
agreement restrictions and other factors as our Board may deem relevant at that time.
20
Stock Performance Graph
The following graph compares the percentage change in the cumulative total shareholder return on
the Company Common Stock during the period beginning April 1, 2006 and ending March 31, 2011 with
the NYSE Amex index, a peer group index comprised of the following companies: Almost Family, Inc.,
Amedisys, Inc., Genitiva Health Services, Inc., LHC Group, Inc., Omnicare, Inc., and Pharmerica
Corp. The stock prices shown are historical and do not determine future performance.
21
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The selected consolidated summary financial data is set forth in the table below. You should read
the following summary consolidated financial data in conjunction with the audited consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenues, net |
|
$ |
100,041 |
|
|
$ |
98,084 |
|
|
$ |
100,999 |
|
|
$ |
99,216 |
|
|
$ |
102,899 |
|
Cost of revenues |
|
|
72,636 |
|
|
|
70,274 |
|
|
|
70,749 |
|
|
|
70,690 |
|
|
|
73,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
27,405 |
|
|
|
27,810 |
|
|
|
30,250 |
|
|
|
28,526 |
|
|
|
29,713 |
|
Selling, general and administrative expenses |
|
|
36,403 |
|
|
|
38,500 |
|
|
|
38,565 |
|
|
|
35,501 |
|
|
|
34,005 |
|
Depreciation and amortization |
|
|
1,380 |
|
|
|
1,300 |
|
|
|
1,513 |
|
|
|
1,769 |
|
|
|
1,923 |
|
Goodwill and intangible asset impairment |
|
|
2,500 |
|
|
|
14,599 |
|
|
|
22,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(12,878 |
) |
|
|
(26,589 |
) |
|
|
(32,447 |
) |
|
|
(8,744 |
) |
|
|
(6,215 |
) |
Total other expenses |
|
|
2,376 |
|
|
|
2,422 |
|
|
|
8,634 |
|
|
|
3,765 |
|
|
|
3,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(15,254 |
) |
|
|
(29,011 |
) |
|
|
(41,081 |
) |
|
|
(12,509 |
) |
|
|
(9,256 |
) |
Current income tax expense |
|
|
33 |
|
|
|
29 |
|
|
|
122 |
|
|
|
207 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(15,287 |
) |
|
|
(29,040 |
) |
|
|
(41,203 |
) |
|
|
(12,716 |
) |
|
|
(9,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(464 |
) |
|
|
(2,603 |
) |
|
|
(4,009 |
) |
|
|
(10,725 |
) |
|
|
(34,361 |
) |
Net gain (loss) on disposal |
|
|
1,400 |
|
|
|
557 |
|
|
|
(1,258 |
) |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936 |
|
|
|
(2,046 |
) |
|
|
(5,267 |
) |
|
|
(10,682 |
) |
|
|
(34,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(14,351 |
) |
|
$ |
(31,086 |
) |
|
$ |
(46,470 |
) |
|
$ |
(23,398 |
) |
|
$ |
(43,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.08 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.31 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.10 |
) |
Loss from discontinued operations |
|
|
(0.00 |
) |
|
|
(0.02 |
) |
|
|
(0.04 |
) |
|
|
(0.09 |
) |
|
|
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.08 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.35 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of basic and diluted
common shares outstanding |
|
|
185,796 |
|
|
|
166,840 |
|
|
|
134,583 |
|
|
|
122,828 |
|
|
|
91,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance Sheet Data (excluding
assets/liabilities of
discontinued
operations): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
$ |
16,435 |
|
|
$ |
19,575 |
|
|
$ |
8,604 |
|
|
$ |
24,770 |
|
|
$ |
24,927 |
|
Working capital |
|
|
9,559 |
|
|
|
8,004 |
|
|
|
10,283 |
|
|
|
17,835 |
|
|
|
(1,104 |
) |
Total assets |
|
|
26,131 |
|
|
|
32,133 |
|
|
|
45,990 |
|
|
|
53,619 |
|
|
|
54,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, including current maturities |
|
|
39,525 |
|
|
|
33,964 |
|
|
|
38,936 |
|
|
|
38,735 |
|
|
|
44,044 |
|
Total liabilities |
|
|
46,187 |
|
|
|
44,562 |
|
|
|
49,558 |
|
|
|
49,775 |
|
|
|
34,588 |
|
Total stockholders (deficit) equity |
|
|
(20,056 |
) |
|
|
(11,775 |
) |
|
|
9,833 |
|
|
|
49,797 |
|
|
|
54,084 |
|
22
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Statement Concerning Forward-Looking Statements
The MD&A should be read in conjunction with the other sections of this report, including the
consolidated financial statements and notes thereto beginning on page F-1 of this report and the
subsection captioned Disclosure Regarding Forward-Looking Statements above. Historical results
set forth in Selected Consolidated Financial Information and the Financial Statements beginning on
page F-3 and this section should not be taken as indicative of our future operations.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Identified below are some of the more significant accounting policies followed by the Company in
preparing the accompanying consolidated financial statements. For further discussion of our
accounting policies see Note 1 Description of Company and Significant Accounting Policies in
the notes to the consolidated financial statements.
Revenue Recognition
In general, the Company recognizes revenue when all revenue recognition criteria are met, which
typically is when:
|
|
|
Evidence of an arrangement exists; |
|
|
|
|
Services have been provided or goods have been delivered; |
|
|
|
|
The price is fixed or determinable; and |
|
|
|
|
Collection is reasonably assured. |
Revenues for services are recorded in the period the services are rendered. Revenues for products
are recorded in the period delivered based on sales prices established with the client or its
insurer prior to delivery.
Allowance for Doubtful Accounts
The Company reviews its accounts receivable balances on a periodic basis. Accounts receivable have
been reduced by the estimated allowance for doubtful accounts.
The provision for doubtful accounts is primarily based on historical analysis of the Companys
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. As actual
collection experience changes, revisions to the allowance may be required. Any unanticipated change
in customers creditworthiness 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 reasonable attempts to collect a receivable have failed, the
receivable is written off against the allowance.
23
Goodwill
The Company has acquired several entities resulting in the recording of intangible assets,
including goodwill, which represents the excess of the purchase price over the fair value of the
net assets of businesses acquired.
The Company has two reporting units included in continuing operations: Services and Pharmacy.
These reporting units are also the Companys two reportable business segments. The following table
represents goodwill by reporting unit as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Services |
|
$ |
|
|
|
$ |
|
|
|
$ |
14,553 |
|
Pharmacy |
|
|
|
|
|
|
2,500 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
Total Goodwill |
|
$ |
|
|
|
$ |
2,500 |
|
|
$ |
17,053 |
|
|
|
|
|
|
|
|
|
|
|
The Company conducts its annual goodwill impairment assessment during its fiscal fourth quarter.
We test for impairment between annual goodwill impairment assessments if events occur or
circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Examples of such events or circumstances include, but are not limited
to, the following: (i) a significant adverse change in business climate; (ii) an adverse action or
assessment by a regulator; (iii) unanticipated competition; or (iv) a decline in the market
capitalization below net book value.
Goodwill is tested using a two-step process. The first step of the goodwill impairment assessment,
used to identify potential impairment, compares the fair value of a reporting unit with its
carrying amount, including goodwill (net book value). If the fair value of a reporting unit
exceeds its net book value, goodwill of the reporting unit is considered not impaired, thus the
second step of the impairment test is unnecessary. If net book value of a reporting unit exceeds
its fair value, the second step of the goodwill impairment test will be performed to measure the
amount of impairment loss, if any. The second step of the goodwill impairment assessment, used to
measure the amount of impairment loss, if any, compares the implied fair value of reporting unit
goodwill, which is determined in the same manner as the amount of goodwill recognized in a business
combination, with the carrying amount of that goodwill. If the carrying amount of reporting unit
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess.
In the first step of the goodwill impairment assessment, the Company uses an income approach to
derive a present value of the reporting units projected future annual cash flows and the present
residual value of the reporting unit. The fair value is calculated as the sum of the projected
discounted cash flows of the reporting unit over the next five years and the terminal value at the
end of those five years. The Company uses a variety of underlying assumptions to estimate these
future cash flows, which vary for each of the reporting units and include (i) future revenue growth
rates, (ii) future operating profitability, (iii) the weighted-average cost of capital and (iv) a
terminal growth rate. In addition, the Company makes certain judgments about the allocation of
corporate overhead costs in order to calculate the fair values of each of the Companys reporting
units. Estimates of future revenue and expenses associated with each reporting unit are the most
sensitive of estimates related to the fair value calculations. Other factors considered in the
fair value calculations include assumptions as to the business climate, industry and economic
conditions. The assumptions are subjective and different estimates could have a significant impact
on the results of the impairment analyses. In determining the appropriate assumptions, management
considers historic trends as well as current activities and initiatives.
In addition to estimating fair value of the Companys reporting units using the income approach,
the Company also estimates fair value using a market-based approach which relies on values based on
market multiples derived from comparable public companies. The Company uses the estimated fair
value of the reporting units under the market-based approach to validate the estimated fair value
of the reporting units under the income approach.
Intangible Assets
Acquired finite-lived intangible assets are amortized using the economic benefit method when
reliable information regarding future cash flows is available and the straight-line method when
this information is unavailable. The estimated useful lives are as follows:
|
|
|
|
|
Trade name |
|
30 years |
Customer relationships (depending on the type of business purchased) |
|
|
5 to 15 years |
|
24
Income Taxes
Income taxes are accounted for under the asset and liability method. Accordingly, deferred tax
assets and liabilities are recognized currently for the future tax consequences attributable to the
temporary differences between the financial statement carrying amounts of assets and liabilities
and their respective tax bases, as well as for tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets if it is more likely than not that such assets will not
be realized.
We consider all available evidence, both positive and negative, to determine whether, based on the
weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred
tax asset. Judgment is used in considering the relative impact of negative and positive evidence.
In arriving at these judgments, the weight given to the potential effect of negative and positive
evidence is commensurate with the extent to which it can be objectively verified. We record a
valuation allowance to reduce our deferred tax assets and review the amount of such allowance
periodically. When we determine certain deferred tax assets are more likely than not to be
utilized, we will reduce our valuation allowance accordingly. Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of which are uncertain.
Internal Revenue Code Section 382 rules limit the utilization of net operating losses following a
change in control of a company. It has been determined that a change in control of the Company took
place at the time of the reverse merger in 2004. Therefore, the Companys ability to utilize
certain net operating losses generated by Critical Home Care 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 respective net operating losses. Tax benefits from the utilization of net
operating loss carry-forwards will be recorded at such time as they are considered more likely than
not to be realized.
25
Fiscal Year Ended March 31, 2011 Compared to the Fiscal Year Ended March 31, 2010
The Companys Board of Directors has committed to a plan to sell the Services segment, and
management is actively engaged in the sale of this business. The Company intends to seek approval
from the Companys shareholders for any such sale, and since such approval had not been obtained by
March 31, 2011, the accompanying consolidated financial statements reflect the Services segment as
a continuing operation. Upon approval of a definitive agreement by the Companys Board of
Directors and subsequent shareholder approval, should it be obtained, the Services segment will
begin to be reflected as a discontinued operations in the Companys current and historical
consolidated financial statements. Management anticipates obtaining the necessary approvals and
completing the sale of the Services segment by October 2011.
Results of Continuing Operations (in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Services |
|
|
83,328 |
|
|
|
86,635 |
|
Pharmacy |
|
|
16,713 |
|
|
|
11,449 |
|
|
|
|
|
|
|
|
Revenues, net |
|
|
100,041 |
|
|
|
98,084 |
|
Cost of revenues |
|
|
72,636 |
|
|
|
70,274 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
27,405 |
|
|
|
27,810 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
36,403 |
|
|
|
38,500 |
|
Depreciation and amortization |
|
|
1,380 |
|
|
|
1,300 |
|
Goodwill and intangible impairment |
|
|
2,500 |
|
|
|
14,599 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
40,283 |
|
|
|
54,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(12,878 |
) |
|
|
(26,589 |
) |
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
3,799 |
|
|
|
3,371 |
|
Change in fair value of warrant liability |
|
|
(1,423 |
) |
|
|
(979 |
) |
Other |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
Total other expenses (income) |
|
|
2,376 |
|
|
|
2,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income tax expense |
|
|
(15,254 |
) |
|
|
(29,011 |
) |
Income tax expense |
|
|
33 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(15,287 |
) |
|
$ |
(29,040 |
) |
|
|
|
|
|
|
|
Weighted average number of shares basic and diluted |
|
|
185,796 |
|
|
|
166,840 |
|
Net loss from continuing operations per share basic and diluted |
|
$ |
(0.08 |
) |
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
26
Revenues, Cost of Revenues and Gross Profits
The following table summarizes revenues, cost of revenues and gross profit for the fiscal years
ended March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2011 |
|
|
Revenue |
|
|
2010 |
|
|
Revenue |
|
|
(Decrease) |
|
|
(Decrease) |
|
Revenues, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
83,328 |
|
|
|
83.3 |
% |
|
$ |
86,635 |
|
|
|
88.3 |
% |
|
$ |
(3,307 |
) |
|
|
-3.8 |
% |
Pharmacy |
|
|
16,713 |
|
|
|
16.7 |
% |
|
|
11,449 |
|
|
|
11.7 |
% |
|
|
5,264 |
|
|
|
46.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,041 |
|
|
|
100.0 |
% |
|
|
98,084 |
|
|
|
100.0 |
% |
|
|
1,957 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
58,342 |
|
|
|
|
|
|
|
60,247 |
|
|
|
|
|
|
|
(1,905 |
) |
|
|
-3.2 |
% |
Pharmacy |
|
|
14,294 |
|
|
|
|
|
|
|
10,027 |
|
|
|
|
|
|
|
4,267 |
|
|
|
42.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,636 |
|
|
|
|
|
|
|
70,274 |
|
|
|
|
|
|
|
2,362 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
Margin % |
|
|
Margin % |
|
|
|
|
|
|
|
|
|
Gross margins: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
24,986 |
|
|
|
30.0 |
% |
|
|
26,388 |
|
|
|
30.5 |
% |
|
|
(1,402 |
) |
|
|
-5.3 |
% |
Pharmacy |
|
|
2,419 |
|
|
|
14.5 |
% |
|
|
1,422 |
|
|
|
12.4 |
% |
|
|
997 |
|
|
|
70.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,405 |
|
|
|
27.4 |
% |
|
$ |
27,810 |
|
|
|
28.4 |
% |
|
$ |
(405 |
) |
|
|
-1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Segment
The following table summarizes the Services segment revenues by type for the fiscal years ended
March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2011 |
|
|
Revenue |
|
|
2010 |
|
|
Revenue |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home care |
|
$ |
67,116 |
|
|
|
80.5 |
% |
|
$ |
68,511 |
|
|
|
79.2 |
% |
|
$ |
(1,395 |
) |
|
|
-2.0 |
% |
Per diem medical staffing |
|
|
11,014 |
|
|
|
13.2 |
% |
|
|
12,296 |
|
|
|
14.2 |
% |
|
|
(1,282 |
) |
|
|
-10.4 |
% |
Travel staffing |
|
|
5,198 |
|
|
|
6.3 |
% |
|
|
5,828 |
|
|
|
6.6 |
% |
|
|
(630 |
) |
|
|
-10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Services |
|
$ |
83,328 |
|
|
|
100.0 |
% |
|
$ |
86,635 |
|
|
|
100.0 |
% |
|
$ |
(3,307 |
) |
|
|
-3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Services segment remains the largest source of revenue for the Company. Services revenue comes
from two business lines, Home Care and Medical Staffing. Medical Staffing consists of both per
diem staffing as well as travel nursing and allied health staffing.
For fiscal 2011, Home Care revenue as a percentage of total Services segment revenue increased to
80.5% as compared with 79.2% for the prior year. Home Care revenues fell by $1,395,000, or 2.0%,
to $67,116,000 from $68,511,000 compared to the prior year. Home Care revenue from government
programs declined compared to the prior year as various state waiver and community-based programs
reduced reimbursement rates, limited hours per program participant, put moratoriums on new program
enrollments or a combination of the three. This impacted the Companys business in several key
markets, including Arizona, Washington, North Carolina and California. In addition, private duty
Home Care revenue was impacted compared to the prior year by high unemployment rates and the
resulting availability of family caregivers in lieu of our services, and the impact of lower
retirement savings and investment accounts on the demand for private pay services.
27
Total Medical Staffing revenue declined 10.5% compared to the prior year to $16,212,000 from
$18,124,000. Per diem medical staffing declined 10.4% over the prior year, while travel nursing
and allied health medical staffing decreased 10.8% compared to the prior year. Overall demand for
temporary medical staffing remains depressed driven by low patient censuses, the return of retired
or part-time staff to full time status and the increases in overtime accepted by permanent staff at
many facilities. In February 2011, the Company was notified that it was not awarded a new contract
to provide travel nurses to the North Carolina Department of
Corrections, which accounted for approximately $4,100,000 in revenue during fiscal 2011, because of
lower price proposals received from other vendors. The Companys appeal of this decision was
denied on June 3, 2011.
The Services segment operates independently and through a network of affiliated agencies
(Affiliates) 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 name. The affiliated agencys commission is based on a percentage of gross profit (see
additional discussion in the Selling, General and Administrative section). Revenue generated
from the Affiliate locations was $55,135,000 for fiscal 2011 compared to $58,822,000 for the prior
year. This $3,687,000, or 6.3%, decrease in revenue was driven by lower levels of Medical Staffing
as well as some reduction in Home Care revenues in some Affiliate locations. The Company-Owned
locations revenue increased by $382,000, or 1.4%, to $28,194,000 during fiscal 2011 compared to the
prior year. The Affiliate locations accounted for 66.2% of total Services segment revenue during
fiscal 2011, and this percentage is down slightly from 67.9% for the prior year.
Gross margin in the Services segment was 30.0% for fiscal 2011, which represents a slight decrease
from 30.5% for the prior fiscal. While the overall mix of higher margin Home Care business
increased as a percentage of total revenues, this gross margin benefit was offset by several
factors. These factors included a reduction in margins on several state-sponsored home care
programs, such as Arizona, North Carolina, Washington and California; a reduction in the percentage
of business generated in some of the Companys higher margin offices and markets, including the
state of Michigan; and an overall decline in the margins in the medical staffing business due to
changes in staffing business mix.
Pharmacy Segment
Revenue increased by $5,264,000, or 46.0%, to $16,713,000 during fiscal 2011 compared to the prior
year. This growth was driven by the Companys DailyMed program. During the second half of fiscal
2009, revenue generated from the DailyMed medication management program began to increase at a
rapid pace. The revenue growth in fiscal 2011 was primarily driven by the Companys relationship
with WellPoint. In June 2009, the Company announced the signing of an agreement with WellPoint.
Under this agreement, the Company initiated the DailyMed medication management program to certain
WellPoint Medicaid members in specific states where WellPoint companies provide Medicaid managed
care benefits. The Company is currently serving WellPoints members in California, Kansas, South
Carolina, and Virginia. The WellPoint agreement currently runs through July 2015.
The costs of revenue include the cost of medications and packaging for the DailyMed proprietary
dispensing system. Gross margins for fiscal 2011 were 14.5% compared to 12.4% for the prior year.
The margin improvement was primarily attributable to improved drug pricing under its new prime
vendor agreement with H.D. Smith, which was executed in April 2010. Additionally, subsequent to
the amendment to the WellPoint agreement in August 2010, the Pharmacy began recognizing revenue
from the additional fees being generating for the services provided through the DailyMed program.
This incremental revenue has no additional cost of goods sold associated with it, which resulted in
margin improvement.
28
Selling, General and Administrative
The following table summarizes selling, general and administrative expenses for the fiscal years
ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2011 |
|
|
SG&A |
|
|
2010 |
|
|
SG&A |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
20,043 |
|
|
|
55.1 |
% |
|
|
22,003 |
|
|
|
57.1 |
% |
|
|
(1,960 |
) |
|
|
-8.9 |
% |
Pharmacy |
|
|
8,080 |
|
|
|
22.2 |
% |
|
|
7,069 |
|
|
|
18.4 |
% |
|
|
1,011 |
|
|
|
14.3 |
% |
Corporate |
|
|
8,280 |
|
|
|
22.7 |
% |
|
|
9,428 |
|
|
|
24.5 |
% |
|
|
(1,148 |
) |
|
|
-12.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,403 |
|
|
|
100.0 |
% |
|
$ |
38,500 |
|
|
|
100.0 |
% |
|
$ |
(2,097 |
) |
|
|
-(5.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A as a % of net revenue |
|
|
43.7 |
% |
|
|
|
|
|
|
44.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Services Segment
The Services segment selling, general and administrative expense decreased to $20,043,000 for
fiscal 2011 compared to $22,003,000 for the prior year. This $1,960,000, or 8.9%, decrease was
primarily due to decreases in commissions paid to Affiliates and bad debt expense. Affiliate
commissions are based on the gross margins of the individual Affiliates, and the $958,000, or 8.7%,
decrease is approximately consistent with the 6.3% decrease in Affiliate revenue. Additionally,
bad debt expense decreased by $679,000 over the prior fiscal year. The Services business has
focused on improving its cash collections on both current and past due accounts and has both
reduced the absolute dollar level of past due accounts, particularly over 150 days, as well as
decreased its days sales outstanding. The improved management of accounts receivable has resulted
in the need for a lower allowance for doubtful accounts provision than in the prior year. The
selling, general and administrative expense for the Services segment does not include costs that
are incurred at the corporate level but which include personnel and expenses used to support the
Services business.
Pharmacy Segment
The Pharmacy segment selling, general and administrative expense increased by $1,011,000, or 14.3%,
to $8,080,000 during fiscal 2011 compared to fiscal 2010. In general, the increase in Pharmacy
expenses was due to the significant growth in revenue year over year. Specifically, total labor
costs increased by $209,000 during fiscal 2011 as the Company hired additional pharmacists,
pharmacy technicians, and customer service representatives in order to process the increased volume
and to support the patient care component of the DailyMed program. With patient enrollment efforts
associated with the WellPoint agreement, the Company also incurred $472,000 in costs associated
with an external call center during fiscal 2010. Shipping costs and bad debt expense also
increased during the year by $393,000 and $147,000, respectively, which was consistent with the
revenue growth. The remaining increase during the fiscal 2011 was due to various other
administrative expenses, including travel, marketing materials, and various service fees, that
increased with the growth in revenue and headcount that has occurred over the prior year. The
selling, general and administrative expense for the Pharmacy segment does not include costs that
are incurred at the corporate level but which include personnel and expenses used to support the
Pharmacy business.
Corporate
Corporate overhead decreased by $1,148,000, or 12.2%, to $8,280,000 for fiscal 2011 compared to
$9,428,000 for the prior year. The decrease was due to a $769,000 reduction in professional and
legal expenses and a $289,000 reduction in insurance costs. The reduction in legal fees was the
primary driver in the lower professional fees as the Company was involved in fewer disputes and
claims in the current year compared to the prior year. Insurance costs were lower due to
reductions in premiums effective with the policy year that began in September 2010.
29
Depreciation and Amortization
The following table summarizes depreciation and amortization expense for the fiscal years ended
March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Depreciation and amortization of property and equipment |
|
$ |
808 |
|
|
$ |
665 |
|
|
|
143 |
|
|
|
21.5 |
% |
Amortization of acquired intangible assets |
|
|
572 |
|
|
|
635 |
|
|
|
(63 |
) |
|
|
-9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
1,380 |
|
|
$ |
1,300 |
|
|
$ |
80 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment increased by $143,000 or 21.5%, during
fiscal 2011 compared to the prior year. The increase reflects the increase in the depreciation
expense relating to recently acquired pharmacy equipment and software.
Amortization of acquired intangible assets decreased by $64,000, or 10.1%, during fiscal 2011
compared to the prior year. The decrease reflects a slight decrease in the amortization expense
associated with customer relationships. The amortization expense is adjusted annually and attempts
to match the expense to the economic benefit generated by the specific intangible asset.
Goodwill and Intangible Asset Impairment
The following table summarizes goodwill and intangible asset impairment charges for the fiscal
years ended March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Services: |
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
|
$ |
14,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy: |
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,500 |
|
|
$ |
14,599 |
|
|
|
|
|
|
|
|
In accordance with our policy, the Company performs its annual impairment review during the fiscal
fourth quarter.
Fiscal 2011
As part of the fourth quarter fiscal 2011 Pharmacy goodwill impairment analysis, the Company
recognized that based on recent growth trends and other factors surrounding the timing and amount
of future revenue and cash flow streams, the Company determined that it was appropriate to write
off the remaining goodwill balance and recorded a $2,500,000 impairment charge.
Fiscal 2010
During fiscal 2009 and 2010, the Services segment as a whole had seen declining revenue, and the
decline was primarily driven by a decline in the medical staffing and travel staffing businesses.
Many of the Services segments locations provided both home care and medical staffing services.
During fiscal 2010, home care accounted for 79% of total segment revenue and medical staffing and
travel staffing, in the aggregate, accounted for the remaining 21% of revenue. The medical
staffing and travel staffing business experienced a 46% decline in revenue from fiscal 2008 to
fiscal 2010. During the same period, home care revenue increased by 9%, but fiscal 2010 revenue
was approximately 1% lower than fiscal 2009. Managements ability to predict the timing and extent
of the segments recovery was subject to some uncertainty. Therefore, management focused on more
recent trends in its annual impairment analysis, which resulted in lower future cash flow
projections than in prior years analysis. The impairment analysis resulted in a $14,599,000
goodwill impairment charge for fiscal 2010, and subsequent to this charge, there was no remaining
goodwill associated with the Services segment.
30
In conjunction with the fiscal 2009 goodwill impairment analysis (as described below), the Company
recognized a $13,217,000 goodwill impairment charge in the Pharmacy reporting unit. As evidenced
by the annual revenue growth in fiscal 2010, the Pharmacy segment continued to advance its DailyMed
business during the year, but it continued to be in the early stages of development. In performing
the goodwill impairment analysis for the Pharmacy reporting unit during the fiscal fourth quarter
2010, management relied on recent trends and future expectations based on these trends and on
industry experience to project future operating results. The fiscal 2011 revenue estimates were
based on payer relationships that existed as of the time of the analysis. The revenue estimates in
the future years assumed new payer relationships similar to the WellPoint relationship.
Additionally, management assumed margin improvement over the next five years due to increased
volume, operational improvements and additional revenue from medication adherence services, which
would generate higher margins than drug revenue. Management also estimated that SG&A as a
percentage of revenue would improve due to software and technological enhancements as well as
efficiencies gained through volume and experience. As of March 31, 2010, the Pharmacy reporting
unit analysis indicated that its fair value was in excess of it carrying value by approximately 40%
so the second step of the analysis was not considered necessary.
Interest Expense and Income
The following table summarizes interest expense and income for the fiscal years ended March 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Interest expense |
|
$ |
3,810 |
|
|
$ |
3,395 |
|
|
$ |
415 |
|
|
|
12.2 |
% |
Interest income |
|
|
(11 |
) |
|
|
(24 |
) |
|
|
13 |
|
|
|
-54.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,799 |
|
|
$ |
3,371 |
|
|
$ |
428 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense for fiscal 2011 increased by $415,000, or 12.2%, to $3,810,000 as compared to the
prior year. Total interest expense includes the amortization of debt discounts and deferred
financing costs of $391,000 and $332,000 for fiscal 2011 and 2010, respectively. Additionally,
interest expense includes non-cash interest that was added to the principal balance of the
outstanding debt of $2,892,000 and $2,397,000 for fiscal 2011 and 2010, respectively. Cash paid
for interest totaled $527,000 and $623,000 during fiscal 2011 and 2010, respectively, and this
amount primarily includes the interest due on the Comerica Bank line of credit.
The average interest bearing liabilities balance (sum of the balances at the end of each quarter
divided by the number of quarters) for fiscal 2011 was $38.1 million compared to $35.0 million for
fiscal 2010, which represents an increase of 8.8%. The increase in the total debt balance was the
primary driver for the increase in interest expense during the current year. The increase in total
debt was primarily due to the increase in the amounts due to H.D. Smith under the line of credit
agreement executed in April 2010 and the additional non-cash interest that was added to the
principal balance for certain notes.
Change in Fair Value of Warrant Liability
As of March 31, 2011 and 2010, the 7,135,713 warrants issued in November 2009 in conjunction with
the equity financing transaction and are recorded as a liability at fair value with subsequent
changes in fair value recorded in earnings. Additionally, the 500,000 warrants issued to H.D.
Smith that vested effective March 31, 2011 were originally recorded as a warrant liability from
their issuance date in April 2010 until the vesting date, at which time these warrants were
reclassified to permanent equity. The fair value of the warrants is determined using the
Black-Scholes pricing model and is affected by changes in inputs to that model, including: our
stock price, expected stock price volatility, and contractual terms. To the extent that the fair
value of the warrant liability increases or decreases, the Company records a loss or gain in the
consolidated statement of operations. The total gain of $1,423,000 and $979,000 on the change in
fair value of the warrant liability during fiscal 2011 and 2010, respectively, was primarily due to
the changes in our stock price.
31
Income Taxes
Income tax expense was $33,000 for the year ended March 31, 2011 compared to $29,000 for the year
ended March 31, 2010, an increase of $4,000.
Due to the Companys losses in recent years, it has paid nominal federal income taxes. For federal
income tax purposes, the Company had significant permanent and timing differences between book
income and taxable income resulting in combined net deferred tax asset balance to be utilized by
the Company for which an offsetting valuation allowance has been established for the entire amount.
The Company has a net operating loss carry-forward for tax purposes totaling $78.4 million that
expires at various dates through 2031. Internal Revenue Code Section 382 rules limit the
utilization of certain of these net operating loss carry-forwards upon a change of control of the
Company. It has been determined that a change in control took place at the time of the reverse
merger in 2004, and as such, the utilization of $700,000 of the net operating loss carry-forwards
will be subject to severe limitations in future periods.
32
Earnings (Loss) from Discontinued Operations
The components of the earnings/(loss) from discontinued operations by segment are presented below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net: |
|
$ |
|
|
|
$ |
3,194 |
|
|
$ |
|
|
|
$ |
660 |
|
|
$ |
3,854 |
|
Cost of revenue |
|
|
|
|
|
|
2,541 |
|
|
|
|
|
|
|
397 |
|
|
|
2,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
653 |
|
|
|
|
|
|
|
263 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
372 |
|
|
|
1,295 |
|
Depreciation and amortization |
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
1,008 |
|
|
|
|
|
|
|
372 |
|
|
|
1,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from operations |
|
|
|
|
|
|
(355 |
) |
|
|
|
|
|
|
(109 |
) |
|
|
(464 |
) |
Net gain (loss) on disposal |
|
|
686 |
|
|
|
127 |
|
|
|
655 |
|
|
|
(68 |
) |
|
|
1,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations |
|
$ |
686 |
|
|
$ |
(228 |
) |
|
$ |
655 |
|
|
$ |
(177 |
) |
|
$ |
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
1,223 |
|
|
$ |
4,054 |
|
|
$ |
1,423 |
|
|
$ |
1,813 |
|
|
$ |
8,513 |
|
Cost of revenue |
|
|
979 |
|
|
|
3,078 |
|
|
|
511 |
|
|
|
1,095 |
|
|
|
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
244 |
|
|
|
976 |
|
|
|
912 |
|
|
|
718 |
|
|
|
2,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
290 |
|
|
|
1,426 |
|
|
|
2,251 |
|
|
|
795 |
|
|
|
4,762 |
|
Depreciation and amortization |
|
|
3 |
|
|
|
600 |
|
|
|
88 |
|
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
293 |
|
|
|
2,026 |
|
|
|
2,339 |
|
|
|
795 |
|
|
|
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from operations |
|
|
(49 |
) |
|
|
(1,050 |
) |
|
|
(1,427 |
) |
|
|
(77 |
) |
|
|
(2,603 |
) |
Net gain (loss) on disposal |
|
|
201 |
|
|
|
(30 |
) |
|
|
386 |
|
|
|
|
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations |
|
$ |
152 |
|
|
$ |
(1,080 |
) |
|
$ |
(1,041 |
) |
|
$ |
(77 |
) |
|
$ |
(2,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Segment
On May 29, 2009, the Company finalized the sale of substantially all of the assets of its
industrial and non-medical staffing business, which had then been a part of the Services segment,
for cash proceeds of $250,000, which were paid in five equal installments through September 2009.
Additionally, the Company is to receive 50% of the future earnings of the business until the total
payments equal $1,600,000. During fiscal 2011 and 2010, the Company received $683,000 and $72,000,
respectively, in earn out payments and recorded these amount as additional gain on the transaction.
The Company retained all accounts receivable for services provided prior to May 29, 2009.
Based on the original sales price, the Company recorded an impairment charge of $2,403,000 in the
fourth quarter of fiscal 2009.
33
Pharmacy Segment
In March 2011, the Company ceased operations at its Minnesota pharmacy and began reflecting the
ceased operations as discontinued operations in the consolidated financial statements. A portion
of the business and the majority of the Minnesota assets were transferred to the Indianapolis,
Indiana pharmacy location. The cost to close the Minnesota facility was immaterial.
On June 11, 2009, the Company entered into an Asset Purchase Agreement with a leading pharmacy
management company to sell substantially all of the assets of JASCORP, LLC (JASCORP) for proceeds
of $2,200,000, less fees of $185,000. $220,000 of the purchase price was held back by the buyer in
order to cover the Companys contingent obligations. In January 2011, the Company received
$190,000 of the original amount held back. JASCORP operated the retail pharmacy software business
that the Company acquired in July 2007. As part of the divestiture, the Company entered into a
License and Services Agreement with the buyer which provides the Company the right to continue to
use the software for internal purposes.
HHE Segment
On May 19, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P. to
sell the assets of its Midwest region of the Companys HHE business. Total proceeds were
$4,000,000, less fees of $150,000. $1,000,000 of the purchase price was held by the buyer to cover
the Companys contingent obligations. The Company retained all accounts receivable for services
provided prior to May 2009. Subsequent to the transaction date, the buyer made certain claims,
and in fiscal 2011, the buyer and the Company settled these claims and the final payment relating
to this transaction of $500,000 was released to the Company.
On May 18, 2009, the Company completed the sale of its ownership interest in Lovell Medical Supply,
Inc., Beacon Respiratory Services of Georgia, Inc., and Trinity Healthcare of Winston-Salem, Inc.
to Aerocare Holdings, Inc. for total proceeds of $4,750,000, less fees of $150,000. At the time of
closing, $475,000 of the purchase price was held by the buyer to cover the Companys contingent
obligations. During fiscal 2010, the buyer released $267,000 of this amount, which was recognized
as an additional gain on the sale. During fiscal 2011, the Company received the final payment of
$155,000. A total of $53,000 was retained by the buyer to cover certain obligations of the
Company. The entities sold represented the Southeast region of the Companys HHE business.
Based on the combined sales price of the HHE businesses sold in May 2009, the Company recorded an
impairment charge of $540,000 in the fourth quarter of fiscal 2009.
On January 5, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P.
to sell the assets of its HHE business in San Fernando, California. Total proceeds were originally
estimated to be $503,000, less fees of $24,000. The Company retained all accounts receivables for
services provided prior to January 2009. Total proceeds included $126,000 that was held back by
the buyer to cover certain contingent obligations of the Company. During fiscal 2010, the Company
and the buyer resolved certain claims, and the entire holdback amount was forfeited by the Company.
In October 2008, the Company recognized $696,000 in additional loss on the sale of its ownership
interest in Beacon Respiratory Services, Inc. (Beacon), which was divested of in September 2007.
See Note 9 Stockholders Equity for a more detailed discussion of this transaction.
As of May 2009, the Company had sold all of its HHE operations.
Catalog Segment
On October 1, 2010, the Company completed the sale of its ownership interest in Rite at Home Health
Care Products, LLC to Home Health Depot, Inc. The Company is to receive 50% of future earnings of
the business until total payments equal $375,000. 40% of these proceeds are to be paid to a third
party. No earn-out payments will be payable after the quarter ending September 30, 2013. The
Company recorded a loss of $6,000 during fiscal 2011 in conjunction with this disposal. This
entity represented the Companys Catalog segment.
34
Fiscal Year Ended March 31, 2010 Compared to the Fiscal Year Ended March 31, 2009
Results of Continuing Operations (in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Services |
|
|
86,635 |
|
|
|
97,537 |
|
Pharmacy |
|
|
11,449 |
|
|
|
3,462 |
|
|
|
|
|
|
|
|
Revenues, net |
|
|
98,084 |
|
|
|
100,999 |
|
Cost of revenues |
|
|
70,274 |
|
|
|
70,749 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
27,810 |
|
|
|
30,250 |
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
38,500 |
|
|
|
38,565 |
|
Depreciation and amortization |
|
|
1,300 |
|
|
|
1,513 |
|
Goodwill and intangible asset impairment |
|
|
14,599 |
|
|
|
22,619 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
54,399 |
|
|
|
62,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(26,589 |
) |
|
|
(32,447 |
) |
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
3,371 |
|
|
|
4,072 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
4,487 |
|
Change in fair value of warrant liability |
|
|
(979 |
) |
|
|
|
|
Other |
|
|
30 |
|
|
|
75 |
|
|
|
|
|
|
|
|
Total other expenses |
|
|
2,422 |
|
|
|
8,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income tax expense |
|
|
(29,011 |
) |
|
|
(41,081 |
) |
Income tax expense |
|
|
29 |
|
|
|
122 |
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(29,040 |
) |
|
$ |
(41,203 |
) |
|
|
|
|
|
|
|
Weighted average number of shares basic and diluted |
|
|
166,840 |
|
|
|
134,583 |
|
Net loss from continuing operations per share
basic and diluted |
|
$ |
(0.17 |
) |
|
$ |
(0.31 |
) |
|
|
|
|
|
|
|
35
Revenues, Cost of Revenues and Gross Profits
The following table summarizes revenues, cost of revenues and gross profit for the fiscal years
ended March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2010 |
|
|
Revenue |
|
|
2009 |
|
|
Revenue |
|
|
(Decrease) |
|
|
(Decrease) |
|
Revenues, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
86,635 |
|
|
|
88.3 |
% |
|
$ |
97,537 |
|
|
|
96.6 |
% |
|
$ |
(10,902 |
) |
|
|
-11.2 |
% |
Pharmacy |
|
|
11,449 |
|
|
|
11.7 |
% |
|
|
3,462 |
|
|
|
3.4 |
% |
|
|
7,987 |
|
|
|
230.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,084 |
|
|
|
100.0 |
% |
|
|
100,999 |
|
|
|
100.0 |
% |
|
|
(2,915 |
) |
|
|
-2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
60,247 |
|
|
|
|
|
|
|
67,779 |
|
|
|
|
|
|
|
(7,532 |
) |
|
|
-11.1 |
% |
Pharmacy |
|
|
10,027 |
|
|
|
|
|
|
|
2,970 |
|
|
|
|
|
|
|
7,057 |
|
|
|
237.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,274 |
|
|
|
|
|
|
|
70,749 |
|
|
|
|
|
|
|
(475 |
) |
|
|
-0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
Margin % |
|
|
Margin % |
|
|
|
|
|
|
|
|
|
Gross margins: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
26,388 |
|
|
|
30.5 |
% |
|
|
29,758 |
|
|
|
30.5 |
% |
|
|
(3,370 |
) |
|
|
-11.3 |
% |
Pharmacy |
|
|
1,422 |
|
|
|
12.4 |
% |
|
|
492 |
|
|
|
14.2 |
% |
|
|
930 |
|
|
|
189.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,810 |
|
|
|
28.4 |
% |
|
$ |
30,250 |
|
|
|
30.0 |
% |
|
$ |
(2,440 |
) |
|
|
-8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Segment
The following table summarizes the Services segment revenues by type for the fiscal years ended
March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2010 |
|
|
Revenue |
|
|
2009 |
|
|
Revenue |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home care |
|
$ |
68,511 |
|
|
|
79.1 |
% |
|
$ |
69,204 |
|
|
|
71.1 |
% |
|
$ |
(693 |
) |
|
|
-1.0 |
% |
Per diem medical staffing |
|
|
12,296 |
|
|
|
14.2 |
% |
|
|
18,779 |
|
|
|
19.3 |
% |
|
|
(6,483 |
) |
|
|
-34.5 |
% |
Travel staffing |
|
|
5,828 |
|
|
|
6.7 |
% |
|
|
9,554 |
|
|
|
9.7 |
% |
|
|
(3,726 |
) |
|
|
-39.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Services |
|
$ |
86,635 |
|
|
|
100.0 |
% |
|
$ |
97,537 |
|
|
|
100.0 |
% |
|
$ |
(10,902 |
) |
|
|
-11.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Services segment remains the largest source of revenue for the Company. Home Care revenue as a
percentage of the total segment revenue continues to increase, reaching 79.1% of such revenue
during fiscal 2010. Home care revenues fell by $693,000, or 1.0%, from $69,204,000 to $68,511,000
over the prior year. Home care revenues were adversely affected by several factors, including
reductions in hours/reimbursement rates by state-sponsored programs in some of the Companys key
markets such as Arizona, North Carolina, Washington and California; high unemployment rates,
particularly in the State of Michigan where the Company has substantial operations, resulting in
increased availability of family caregivers to provide care in lieu of our services; and the
significant reduction in the value of individual retirement savings and investment accounts during
2008 and 2009, resulting in some reduction in the hours of services purchased.
36
The negative trends in the medical staffing and travel staffing markets continued during fiscal
2010. Medical staffing and travel staffing declined by 34.5% and 39.0%, respectively, as compared
with the prior year. Several factors have contributed to the lower level of overall sales. Market
conditions for temporary medical staffing during this period were not favorable, driven by lower
patient censuses in facilities; constraints on facility staffing budgets; the return of part-time
staff to full-time status and increases in overtime accepted by permanent staff of our potential
customers, largely in response to overall economic conditions; and delays in the construction and
opening of new facilities that often drives short-term staffing requirements. In addition to these
market conditions, travel staffing revenues have been adversely affected by state budget
constraints with a major correctional institution customer.
The Services segment operates independently and through a network of affiliated agencies
(Affiliates) 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 name. The affiliated agencys commission is based on a percentage of gross profit (see
additional discussion in the Selling, General and Administrative section). Revenue generated
from the Affiliate locations was $58,822,000 for fiscal 2010 compared to $66,450,000 for the prior
year. This $7,628,000, or 11.5%, decrease in revenue was driven by lower levels of Medical
Staffing as well as some reduction in Home Care revenues in some Affiliate locations. The
Company-Owned locations revenue decreased by $3,266,000, or 10.5%, to $27,812,000 during fiscal
2010 compared to the prior year. The Affiliate locations accounted for 67.9% of total Services
segment revenue during fiscal 2010, and this percentage is down slightly from 68.1% for the prior
year.
Gross margin in the Services segment was 30.5% for both fiscal 2010 and 2009. While the overall
mix of higher margin home care business increased as a percentage of total revenues, this gross
margin benefit was offset by several factors. These factors included a reduction in margins on
several state-sponsored home care programs, such as Arizona, North Carolina, Washington and
California; a reduction in the percentage of business generated in some of the Companys higher
margin offices and markets, including the state of Michigan; and an overall decline in the margins
in the medical staffing business due to changes in staffing business mix. In addition, in the
fiscal fourth quarter 2010, the Company experienced an increase in state unemployment taxes in many
of the states in which it operates.
Pharmacy Segment
Pharmacy segment revenue increased by $7,987,000, or 230.7%, to $11,449,000 during fiscal 2010
compared to the prior year. This growth was driven by the Companys DailyMed program. During the
second half of fiscal 2009, revenue generated from the DailyMed medication management program began
to increase at a rapid pace. The revenue growth in fiscal 2010 was primarily driven by the
Companys relationship with WellPoint. In June 2009, the Company announced the signing of its
agreement with WellPoint. Under this agreement, the Company provides the DailyMed medication
management program to WellPoints high-risk Medicaid members in specific states where WellPoint
companies provide Medicaid managed care benefits. The program was launched to WellPoints high
risk members in Virginia in August 2009, and the Company began recognizing revenue from these
patients in September 2009. The program was rolled out to WellPoints California patients during
fiscal fourth quarter 2010.
The costs of revenue include the cost of medications and packaging for the DailyMed proprietary
dispensing system. Gross margins for fiscal 2010 were 12.4% compared to 14.2% for the prior year.
In general, the margins were negatively impacted by shifts in the payer and patient mix as the
revenue grew. The revenue growth during fiscal 2010 was primarily driven by the Indiana Medicaid
program and the WellPoint patients in Virginia. The margins associated with these patients are
lower due to a combination of lower reimbursement rates and the brand/generic drug mix where
generic drugs have lower margins than brand drugs.
37
Selling, General and Administrative
The following table summarizes selling, general and administrative expenses by segment for the
fiscal years ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2010 |
|
|
SG&A |
|
|
2009 |
|
|
SG&A |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
22,003 |
|
|
|
57.2 |
% |
|
$ |
25,316 |
|
|
|
65.6 |
% |
|
$ |
(3,313 |
) |
|
|
-13.1 |
% |
Pharmacy |
|
|
7,069 |
|
|
|
18.4 |
% |
|
|
3,612 |
|
|
|
9.4 |
% |
|
|
3,457 |
|
|
|
95.7 |
% |
Corporate |
|
|
9,428 |
|
|
|
24.5 |
% |
|
|
9,637 |
|
|
|
25.0 |
% |
|
|
(209 |
) |
|
|
-2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,500 |
|
|
|
100.0 |
% |
|
$ |
38,565 |
|
|
|
100.0 |
% |
|
$ |
(65 |
) |
|
|
-(0.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A as a % of net revenue |
|
|
44.4 |
% |
|
|
|
|
|
|
39.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Services Segment
The Services segment selling, general and administrative expense decreased to $22,003,000 for
fiscal 2010 compared to $25,316,000 for fiscal 2009. This $3,313,000, or 13.1%, decrease was
primarily due to a $1,346,000 decrease in commissions paid to the affiliates, a $838,000 decrease
in bad debt expense and a $674,000 decrease in labor costs. Affiliate commissions are based on the
gross margins of the individual affiliates, and the decrease reflects a decrease in revenues and
gross margins generated from the affiliate owned locations. The decrease in bad debt expense is
due to a combination of higher than normal bad debt expense in the prior year and an increased
focus on collection efforts during fiscal 2010. The decrease in labor costs was a direct result of
the Companys efforts to reduce headcount in certain areas. The selling, general and
administrative expense for the Services segment does not include costs that are incurred at the
corporate level but which include personnel and expenses used to support the Services business.
Pharmacy Segment
The Pharmacy segments selling, general and administrative expense increased by $3,457,000, or
95.7%, to $7,069,000 during fiscal 2010 compared to fiscal 2009. In general, the increase in
Pharmacy expenses was due to the significant growth in revenue year over year. Specifically, total
labor costs increased by $1,635,000 during fiscal 2010 as the Company hired additional pharmacists,
pharmacy technicians, and customer service representatives in order to process the increased volume
and to support the patient care component of the DailyMed program. With patient enrollment efforts
associated with the WellPoint agreement, the Company also incurred $472,000 in costs associated
with an external call center during fiscal 2010. Shipping costs and bad debt expense also
increased during the year by $393,000 and $147,000, respectively, which was consistent with the
revenue growth. The remaining increase during the fiscal 2010 was due to various other
administrative expenses, including travel, marketing materials, and various service fees, that
increased with the growth in revenue and headcount that has occurred over the prior year. The
selling, general and administrative expense for the Pharmacy segment does not include costs that
are incurred at the corporate level but which include personnel and expenses used to support the
Pharmacy business.
Corporate
Corporate general and administrative expense decreased by $209,000, or 2.2%, to $9,428,000 for
fiscal 2010 compared to $9,637,000 for the prior year. The slight decrease reflects a general
reduction in the Corporate overhead necessary to operate the business subsequent to the various
business divestitures during the fiscal first quarter 2010. These reductions were offset by
increases in:
|
|
|
legal fees as the number of claims and disputes arising during the normal course of
business was higher in fiscal 2010 than fiscal 2009; and, |
|
|
|
|
equity compensation, which was higher in fiscal 2010 due to a stock option grant to
senior management in March 2010 which vested immediately resulting in a $464,000 charge
during fiscal fourth quarter 2010. |
38
Depreciation and Amortization
The following table summarizes depreciation and amortization expense for the fiscal years ended
March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Depreciation and amortization of property and equipment |
|
$ |
666 |
|
|
$ |
601 |
|
|
|
65 |
|
|
|
10.8 |
% |
Amortization of acquired intangible assets |
|
|
634 |
|
|
|
704 |
|
|
|
(70 |
) |
|
|
-9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization operating expense |
|
$ |
1,300 |
|
|
$ |
1,305 |
|
|
$ |
(5 |
) |
|
|
-0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment increased by $65,000 or 10.8%, during
fiscal 2010 compared to the prior year. The increase reflects the increase in depreciation
associated with Pharmacy equipment acquired during the last year and various software.
Amortization of acquired intangible assets decreased by $70,000, or 9.9%, during fiscal 2010
compared to the prior year. The decrease reflects the fact that as of March 31, 2009, the Company
recognized certain impairment charges relating to amortizable intangible assets associated with the
Pharmacy segment, which ultimately reduced 2010 amortization expense.
Goodwill and Intangible Asset Impairment
The following table summarizes goodwill and intangible asset impairment charges for the fiscal
years ended March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Services: |
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
14,599 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
14,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy: |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
13,217 |
|
Intangible assets |
|
|
|
|
|
|
9,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,599 |
|
|
$ |
22,619 |
|
|
|
|
|
|
|
|
In accordance with our policy, the Company performs its annual impairment review during the fiscal
fourth quarter.
Fiscal 2010
During fiscal 2009 and 2010, the Services segment as a whole had seen declining revenue, and the
decline was primarily driven by a decline in the medical staffing and travel staffing businesses.
Many of the Services segments locations provided both home care and medical staffing services.
During fiscal 2010, home care accounted for 79% of total segment revenue and medical staffing and
travel staffing, in the aggregate, accounted for the remaining 21% of revenue. The medical
staffing and travel staffing business experienced a 46% decline in revenue from fiscal 2008 to
fiscal 2010. During the same period, home care revenue increased by 9%, but fiscal 2010 revenue
was approximately 1% lower than fiscal 2009. Managements ability to predict the timing and extent
of the segments recovery was subject to some uncertainty. Therefore, management focused on more
recent trends in its annual impairment analysis, which resulted in lower future cash flow
projections than in prior years analysis. The impairment analysis resulted in a $14,599,000
goodwill impairment charge for fiscal 2010, and subsequent to this charge, there was no remaining
goodwill associated with the Services segment.
39
In conjunction with the fiscal 2009 goodwill impairment analysis (as described below), the Company
recognized a $13,217,000 goodwill impairment charge in the Pharmacy reporting unit. As evidenced
by the annual revenue growth in fiscal 2010, the Pharmacy segment continued to advance its DailyMed
business during the year, but it continued to be in the early stages of development. In performing
the goodwill impairment analysis for the Pharmacy reporting unit during the fiscal fourth quarter
2010, management relied on recent trends and future expectations based on these trends and on
industry experience to project future operating results. The fiscal 2011 revenue estimates were
based on payer relationships that existed as of the time of the analysis. The revenue estimates in
the future years assumed new payer relationships similar to the WellPoint relationship.
Additionally, management assumed margin improvement over the next five years due to increased
volume, operational improvements and additional revenue from medication adherence services, which
would generate higher margins than drug revenue. Management also estimated that SG&A as a
percentage of revenue would improve due to software and technological enhancements as well as
efficiencies gained through volume and experience. As of March 31, 2010, the Pharmacy reporting
unit analysis indicated that its fair value was in excess of it carrying value by approximately 40%
so the second step of the analysis was not considered necessary.
Fiscal 2009
In the impairment analysis of the Services reporting unit performed as of March 31, 2009,
management assumed an annual revenue growth rate of approximately 5%. Additionally, management
assumed that margins over the next five years would remain consistent at between 30.0% and 30.5%
compared to margins of 30.5% for the year ended March 31, 2009. With regards to total SG&A for the
Services reporting unit, management assumed that it would decrease by approximately 2% for the year
ended March 31, 2010 and then modestly increase in the years thereafter. The decrease in SG&A
expenses in the first year of the projections reflects the impact of certain charges taken in the
year ended March 31, 2009 as well as the benefits of various cost reduction initiatives. In the
projections, the total SG&A was impacted by the amount of corporate allocation charged to the
Services segment. At the time, the Company believed that the Pharmacy segment would grow
significantly over the next several years, and as growth occurred, the amount of fixed corporate
overhead allocated to the Pharmacy would increase with a corresponding decrease to the Services
segment. As of March 31, 2009, the Services reporting unit analysis indicated that its fair value
was in excess of it carrying value by approximately 5% so the second step of the analysis was not
considered necessary.
The Pharmacy segment goodwill was originally recognized during fiscal 2007 in conjunction with the
PrairieStone Pharmacy, LLC acquisition in February 2007. As of March 31, 2007, the Company
recognized $15,717,000 in goodwill. Goodwill remained at that amount as of March 31, 2008. As
part of the fourth quarter fiscal 2009 goodwill impairment analysis, the Company recognized that
there had been a slower than anticipated growth from the DailyMed program and that there was
uncertainty surrounding the timing and amount of future revenue and cash flow streams. The analysis
resulted in a $13,217,000 impairment charge for fiscal 2009 resulting in $2,500,000 of Pharmacy
goodwill remaining at March 31, 2009. Additionally, the Company recognized a $9,402,000 impairment
charge for fiscal 2009 to write off the balance of its customer relationship intangible asset.
Interest Expense and Income
The following table summarizes interest expense and income for the fiscal years ended March 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Increase/ |
|
|
% Increase/ |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Interest expense |
|
$ |
3,395 |
|
|
$ |
4,123 |
|
|
$ |
(728 |
) |
|
|
-17.7 |
% |
Interest income |
|
|
(24 |
) |
|
|
(51 |
) |
|
|
27 |
|
|
|
-52.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,371 |
|
|
$ |
4,072 |
|
|
$ |
(701 |
) |
|
|
-17.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense for fiscal 2010 decreased by $728,000, or 17.7%, to $3,395,000 as compared to the
prior year. Total interest expense includes the amortization of debt discounts and deferred
financing costs of $332,000 and $972,000 for fiscal 2010 and 2009, respectively. Additionally,
interest expense includes non-cash interest that was added to the principal balance of the
outstanding debt of $2,397,000 and $2,215,000 for fiscal 2010 and 2009, respectively. Cash paid
for interest totaled $623,000 and $904,000 during fiscal 2010 and 2009, respectively.
40
The average interest bearing liabilities balance (sum of the balances at the end of each quarter
divided by the number of quarters) for fiscal 2010 was $35.0 million compared to $37.9 million for
fiscal 2009, which represents a reduction of 7.5%. The overall reduction of debt combined with the
reduction in the amount of amortization of debt discounts and deferred financing costs resulted in
the decrease in interest expense.
Loss on Extinguishment of Debt
The following table summarizes the components of the loss on extinguishment of debt for the fiscal
year ended March 31, 2009 (in thousands):
|
|
|
|
|
|
|
2009 |
|
JANA/Vicis debt refinancing value of equity |
|
$ |
3,769 |
|
Write off of remaining debt discount |
|
|
470 |
|
AmerisourceBergen line of credit amendment |
|
|
248 |
|
|
|
|
|
Loss on extinguishment of debt total |
|
$ |
4,487 |
|
|
|
|
|
In conjunction with the March 25, 2009 debt refinancing with JANA and Vicis, the Company recognized
$3,769,000 as a loss on extinguishment of debt. The Company issued 6,056,499 shares of common
stock valued at $2,059,000 to the lenders as consideration for providing the additional financing
and extending the maturity date of the previously existing debt. The Company also exchanged
4,683,111 warrants held by two of the lenders (Vicis and JANA) for 5,616,444 shares of common
stock and the incremental fair value was determined to be $1,145,000. Concurrent with the debt
refinancing, the holders of the warrants issued in conjunction with a May 2007 private placement
transaction agreed to exchange a total of 2,754,726 warrants for 2,754,726 shares of common stock
with an incremental fair value of $565,000.
On March 31, 2008, the Company entered into a $5,000,000 note payable agreement with Vicis, which
had a corresponding debt discount of $1,202,000. In conjunction with the March 25, 2009 debt
refinancing with JANA and Vicis, the remaining debt discount of $470,000 was charged to loss on
extinguishment of debt.
On June 5, 2008, the Company issued AmerisourceBergen 490,000 warrants to purchase common stock at
an exercise price of $0.75 per share. The fair value of the warrants was determined to be $248,000
and was recorded as a loss on extinguishment of debt.
No similar expense was recognized during fiscal 2010.
Change in Fair Value of Warrant Liability
As discussed in Note 10 to the consolidated financial statements, the 7,135,713 warrants issued in
November 2009 in conjunction with the equity financing transaction are recorded as a liability at
fair value with subsequent changes in fair value recorded in earnings. The fair value of the
warrants are determined using the Black-Scholes pricing model and is affected by changes in inputs
to that model, including: our stock price, expected stock price volatility, and contractual terms.
To the extent that the fair value of the warrant liability increases or decreases, the Company
records a loss or gain in the statement of operations. The gain of $979,000 on the change in fair
value of the warrant liability during fiscal 2010 was primarily due to the changes in our stock
price.
Income Taxes
Income tax expense was $29,000 for the year ended March 31, 2010 compared to $122,000 for the year
ended March 31, 2009, a decrease of $93,000. This income tax reduction is primarily a result of a
decrease in the estimated amounts due for Michigan Business Tax and refunds resulting from
overpayments of fiscal 2009 state tax returns as filed.
Due to the Companys losses in recent years, it has paid nominal federal income taxes. For federal
income tax purposes, the Company had significant permanent and timing differences between book
income and taxable income resulting in combined net deferred tax asset balance to be utilized by
the Company for which an offsetting valuation allowance has been established for the entire amount.
The Company has a net operating loss carryforward for tax purposes totaling $63.3 million that
expires at various dates through 2030. Internal Revenue Code Section 382 rules limit the
utilization of certain of these net operating loss carryforwards upon a change of control of the
Company. It has been determined that a change in control took place at the time of the reverse
merger in 2004, and as such, the utilization of $700,000 of the net operating loss carryforwards
will be subject to severe limitations in future periods.
41
Earnings (Loss) from Discontinued Operations
The components of the earnings/(loss) from discontinued operations by segment are presented below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
1,223 |
|
|
$ |
4,054 |
|
|
$ |
1,423 |
|
|
$ |
1,813 |
|
|
$ |
8,513 |
|
Cost of revenue |
|
|
979 |
|
|
|
3,078 |
|
|
|
511 |
|
|
|
1,095 |
|
|
|
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
244 |
|
|
|
976 |
|
|
|
912 |
|
|
|
718 |
|
|
|
2,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
290 |
|
|
|
1,426 |
|
|
|
2,251 |
|
|
|
795 |
|
|
|
4,762 |
|
Depreciation and amortization |
|
|
3 |
|
|
|
600 |
|
|
|
88 |
|
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
293 |
|
|
|
2,026 |
|
|
|
2,339 |
|
|
|
795 |
|
|
|
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from operations |
|
|
(49 |
) |
|
|
(1,050 |
) |
|
|
(1,427 |
) |
|
|
(77 |
) |
|
|
(2,603 |
) |
Net gain (loss) on disposal |
|
|
201 |
|
|
|
(30 |
) |
|
|
386 |
|
|
|
|
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations |
|
$ |
152 |
|
|
$ |
(1,080 |
) |
|
$ |
(1,041 |
) |
|
$ |
(77 |
) |
|
$ |
(2,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
15,842 |
|
|
$ |
4,690 |
|
|
$ |
17,643 |
|
|
$ |
2,576 |
|
|
$ |
40,751 |
|
Cost of revenue |
|
|
12,675 |
|
|
|
2,463 |
|
|
|
5,266 |
|
|
|
1,594 |
|
|
|
21,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,167 |
|
|
|
2,227 |
|
|
|
12,377 |
|
|
|
982 |
|
|
|
18,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
2,155 |
|
|
|
2,436 |
|
|
|
11,158 |
|
|
|
1,130 |
|
|
|
16,879 |
|
Depreciation and amortization |
|
|
277 |
|
|
|
686 |
|
|
|
1,031 |
|
|
|
53 |
|
|
|
2,047 |
|
Goodwill and intangible asset impairment |
|
|
2,403 |
|
|
|
|
|
|
|
541 |
|
|
|
892 |
|
|
|
3,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,835 |
|
|
|
3,122 |
|
|
|
12,730 |
|
|
|
2,075 |
|
|
|
22,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from operations |
|
|
(1,668 |
) |
|
|
(895 |
) |
|
|
(353 |
) |
|
|
(1,093 |
) |
|
|
(4,009 |
) |
Net gain (loss) on disposal |
|
|
|
|
|
|
|
|
|
|
(1,258 |
) |
|
|
|
|
|
|
(1,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations |
|
$ |
(1,668 |
) |
|
$ |
(895 |
) |
|
$ |
(1,611 |
) |
|
$ |
(1,093 |
) |
|
$ |
(5,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Segment
On May 29, 2009, the Company finalized the sale of substantially all of the assets of its
industrial and non-medical staffing business, which had then been a part of the Services segment,
for cash proceeds of $250,000, which were paid in five equal installments through September 2009.
Additionally, the Company is to receive 50% of the future earnings of the business until the total
payments equal $1,600,000. During fiscal 2011 and 2010, the Company received $683,000 and $72,000,
respectively, in earn out payments and recorded these amount as additional gain on the transaction.
The Company retained all accounts receivable for services provided prior to May 29, 2009.
Based on the original sales price, the Company recorded an impairment charge of $2,403,000 in the
fourth quarter of fiscal 2009.
42
Pharmacy Segment
In March 2011, the Company ceased the majority of its operations at its Minnesota pharmacy and
began reflecting the ceased operations as discontinued operations in the consolidated financial
statements. A portion of the business and the majority of the Minnesota assets were transferred to
the Indianapolis, Indiana pharmacy location. The cost to close the Minnesota facility was
immaterial.
On June 11, 2009, the Company entered into an Asset Purchase Agreement with a leading pharmacy
management company to sell substantially all of the assets of JASCORP, LLC (JASCORP) for proceeds
of $2,200,000, less fees of $185,000. $220,000 of the purchase price was held back by the buyer in
order to cover the Companys contingent obligations. In January 2011, the Company received
$190,000 of the original amount held back. JASCORP operated the retail pharmacy software business
that the Company acquired in July 2007. As part of the divestiture, the Company entered into a
License and Services Agreement with the buyer which provides the Company the right to continue to
use the software for internal purposes.
HHE Segment
On May 19, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P. to
sell the assets of its Midwest region of the Companys HHE business. Total proceeds were
$4,000,000, less fees of $150,000. $1,000,000 of the purchase price was held by the buyer to cover
the Companys contingent obligations. The Company retained all accounts receivable for services
provided prior to May 2009. Subsequent to the transaction date, the buyer made certain claims,
and in fiscal 2011, the buyer and the Company settled these claims and the final payment relating
to this transaction of $500,000 was released to the Company.
On May 18, 2009, the Company completed the sale of its ownership interest in Lovell Medical Supply,
Inc., Beacon Respiratory Services of Georgia, Inc., and Trinity Healthcare of Winston-Salem, Inc.
to Aerocare Holdings, Inc. for total proceeds of $4,750,000, less fees of $150,000. At the time of
closing, $475,000 of the purchase price was held by the buyer to cover the Companys contingent
obligations. During fiscal 2010, the buyer released $267,000 of this amount, which was recognized
as an additional gain on the sale. During fiscal 2011, the Company received the final payment of
$155,000. A total of $53,000 was retained by the buyer to cover certain obligations of the
Company. The entities sold represented the Southeast region of the Companys HHE business.
Based on the combined sales price of the HHE businesses sold in May 2009, the Company recorded an
impairment charge of $541,000 in the fourth quarter of fiscal 2009.
On January 5, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P.
to sell the assets of its HHE business in San Fernando, California. Total proceeds were originally
estimated to be $503,000, less fees of $24,000. The Company retained all accounts receivables for
services provided prior to January 2009. Total proceeds included $126,000 that was held back by
the buyer to cover certain contingent obligations of the Company. During fiscal 2010, the Company
and the buyer resolved certain claims, and the entire holdback amount was forfeited by the Company.
In October 2008, the Company recognized $696,000 in additional loss on the sale of its ownership
interest in Beacon Respiratory Services, Inc. (Beacon), which was divested of in September 2007.
See Note 9 Stockholders Equity for a more detailed discussion of this transaction.
As of May 2009, the Company had sold all of its HHE operations.
Catalog Segment
On October 1, 2010, the Company completed the sale of its ownership interest in Rite at Home Health
Care Products, LLC to Home Health Depot, Inc. The Company is to receive 50% of future earnings of
the business until total payments equal $375,000. 40% of these proceeds are to be paid to a third
party. No earn-out payments will be payable after the quarter ending September 30, 2013. The
Company recorded a loss of $68,000 during fiscal 2011 in conjunction with this disposal. This
entity represented the Companys Catalog segment.
The Company recorded $892,000 of impairment charges relating to the Catalog segments goodwill and
customer relationship costs during the fiscal fourth quarter 2009.
43
Liquidity and Capital Resources
The Company currently operates in two business segments, Services and Pharmacy. Over the past
three years the Company has primarily focused on expanding its DailyMedTM Pharmacy
business. The Company has divested non-strategic businesses and assets and used the proceeds of
these sales to reduce debt and fund the Pharmacy business growth.
The Pharmacy business has incurred significant operating losses as it has invested to support
future growth. The earnings being generated by the Services segment have not been sufficient to
cover the operating losses generated in the Pharmacy segment and to pay corporate selling, general
and administrative expense; and therefore, the Company has incurred significant operating losses in
each of the last three fiscal years. In addition, the Company has generated negative cash flows
from operations of $11.2 million and $5.9 million in fiscal 2011 and 2010, respectively, and has
approximately $39.5 million in debt, of which $34.9 million is due in April 2012. The Company had
stockholders deficits of $20.0 million and $11.8 million as of March 31, 2011 and 2010,
respectively.
At the present time, the Company does not believe that it is feasible to raise sufficient capital
to fund operations and repay its existing indebtedness solely by accessing traditional equity or
debt markets. As a result, the Company is pursuing various financial restructuring alternatives,
including a divestiture of the Services segment. The Company has engaged an investment bank,
Lazard Middle Market LLC, to advise the Board of Directors on these restructuring alternatives.
The divestiture process is substantially underway and, if approved by shareholders and completed,
the proceeds of this sale will be used for general corporate purposes, including funding of the
remaining Pharmacy operations, capital expenditures and repayment of debt, as determined
appropriate by the Companys Board of Directors. It is also anticipated that approximately $8.0
million of debt associated with the Services segment will be transferred along with the sale of the
business, thereby reducing the Companys long-term indebtedness.
If completed, the divestiture of the Services segment will not provide sufficient cash to fund the
operations of the Pharmacy segment and address the Companys remaining debt obligations.
Therefore, the Company is also evaluating alternatives to obtain additional financing. This
additional financing, if obtained, will enable the Company to take further steps to reduce and
restructure its long-term debt and to provide funding for the expansion of the Pharmacy business.
Management expects to see improvement in the operating results in the Pharmacy segment through
increased revenue, improved gross margins and lower expenses as a percentage of revenue, which it
believes will position the Company to obtain this financing. There can be no assurances that these
improved operating results will be achieved or that additional capital investment in the Pharmacy
segment will be secured. However, the sale of the Services segment will provide near term
liquidity to allow the Company to implement its plans to profitably expand the Pharmacy segment.
The following summarizes the Companys cash flows for all operations for the fiscal years ended
March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(14,351 |
) |
|
$ |
(31,086 |
) |
|
$ |
(46,470 |
) |
Net cash provided by (used in) operating activities |
|
|
(11,192 |
) |
|
|
(5,881 |
) |
|
|
778 |
|
Net cash provided by (used in) investing activities |
|
|
397 |
|
|
|
8,143 |
|
|
|
(1,286 |
) |
Net cash provided by (used in) financing activities |
|
|
7,487 |
|
|
|
1,660 |
|
|
|
(4,321 |
) |
Net change in cash and cash equivalents |
|
|
(3,308 |
) |
|
|
3,922 |
|
|
|
(4,829 |
) |
Cash and cash equivalents, end of year |
|
|
2,136 |
|
|
|
5,444 |
|
|
|
1,522 |
|
Availability under line of credit agreement |
|
$ |
2,033 |
|
|
$ |
389 |
|
|
$ |
2,945 |
|
At March 31, 2011, the Company had $4,169,000 in cash and line of credit availability compared to
$5,833,000 at March 31, 2010, a decrease of $1,663,000. As of March 31, 2011, the line of credit
availability represents amounts available under the Comerica Bank working capital line of credit,
which supports the Services segment. This line of credit balance fluctuates based on working
capital needs. The decrease in cash plus line of credit availability reflects the cash used in
operations, primarily to fund the early-stage Pharmacy business.
44
Net cash used in operating activities was $11,192,000 and $5,881,000 for the years ended March 31,
2011 and 2010, respectively. The decrease in cash flows from operations was primarily driven the
negative impact of changes in operating assets and liabilities and by the operating losses
generated by the Pharmacy segment. The impact of operating assets and liabilities in fiscal 2011
of negative $3,256,000 compared to positive $3,690,000 in fiscal 2010. This $7,216,000 variance
reflects a significant amount of receivables maintained subsequent to the various divestitures in
early 2010 being collected as well as a decrease in payables year over year.
Cash provided by investing activities for fiscal 2011 of $397,000 included $1,532,000 of additional
cash proceeds from the various business disposals made in early fiscal 2010. These proceeds were
offset by $471,000 in capital expenditures, $164,000 in cash paid relating to certain prior year
business acquisitions, and $500,000 of cash necessary to increase the restricted cash account at
Comerica Bank consistent with an amendment to the line of credit agreement executed in October
2010. Cash provided by investing activities for fiscal 2010 of $8,143,000 included $9,498,000 of
cash proceeds from the various business disposals in early fiscal 2010. These cash proceeds were
offset by $574,000 in capital expenditures, $281,000 in cash paid relating to certain business
acquisitions, and $500,000 of cash used to establish a restricted cash account at Comerica Bank
used as additional security for the line of credit. Cash used in investing activities for fiscal
2009 totaled $1,286,000. This amount included $1,281,000 of capital expenditures, primarily
relating to the HHE business, which was disposed of in May 2009, and $675,000 used for business
acquisitions offset by $670,000 of proceeds from business disposals.
Net cash provided by financing activities for fiscal 2011 was $7,487,000. In November 2010, the
Company raised $4,430,000 in additional equity financing, net of fees paid in cash of $567,000.
During fiscal 2011, the Company made $813,000 in debt and capital lease payments, of which $750,000
was used to pay off the amounts due to AmerisourceBergen Drug Corporation in April 2010. Net
proceeds from lines of credit during fiscal 2011 totaled $3,868,000, of which $4,500,000 was
attributable to the line of credit agreement with H.D. Smith executed in April 2010. Net cash
provided by financing activities for fiscal 2010 was $1,660,000. In November 2009, the Company
raised $10,243,000 in additional equity financing, net of fees paid in cash of $857,000. In
September 2009, the Company received $2,142,000 in additional debt financing, net of fees, and this
amount was paid in full upon completion of the equity financing in November. During fiscal 2010,
the Company made $7,175,000 in debt and capital lease payments. The majority of these payments
were made subsequent to the various business divestitures during fiscal first quarter 2010 and
consistent with terms in the certain debt agreements. The Company also reduced its outstanding
line of credit balance by $3,550,000 during fiscal 2010. Cash used in financing activities for
fiscal 2009 consisted of a $6,416,000 reduction in the outstanding line of credit balance and
$705,000 in principal payments on outstanding notes payable and capital leases. In March 2009, the
Company secured an additional $2,800,000 in debt financing.
As of March 31, 2011, the Company had the following debt obligations:
|
|
|
|
|
|
|
|
|
Lender |
|
Description |
|
Maturity |
|
Balance |
|
|
|
|
|
|
|
|
|
|
JANA Master Fund, Ltd. |
|
note payable |
|
April 1, 2012 |
|
$ |
19,406 |
|
Vicis Capital Master Fund |
|
note payable |
|
April 1, 2012 |
|
|
7,181 |
|
Comerica Bank (Home Care/Medical Staffing segment) |
|
line of credit |
|
April 1, 2012 |
|
|
7,130 |
|
H.D. Smith (net of unamortized debt discount) |
|
line of credit |
|
April 23, 2013 |
|
|
4,374 |
|
LSP Partners, LP |
|
note payable |
|
April 1, 2012 |
|
|
1,220 |
|
Other |
|
note payable |
|
March 31, 2012 |
|
|
189 |
|
Various |
|
capital leases |
|
various |
|
|
25 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
39,525 |
|
|
|
|
|
|
|
|
|
JANA and Vicis own 13.0% and 11.8% of the Companys outstanding common stock, respectively. The
debt agreements with JANA, Vicis and LSP Partners require the lenders consent for debt
transactions which are senior or pari passu to the debt due them, with certain exceptions.
Additionally, the lenders also require consent for equity transactions. The Company received the
lenders consent in conjunction with the equity financings in November 2010 and 2009 and the H.D.
Smith debt financing in April 2010.
45
The Comerica Bank line of credit provides working capital for the Services segment. The agreement
includes certain financial covenants. These covenants are specific to Arcadia Services, Inc., a
wholly-owned subsidiary of the Company, which is the legal entity that operates the Companys
Services segment. As of September 30, 2010, ASI was not in compliance with two financial
covenants. On October 31, 2010, the Company and the bank entered into an amendment and waiver
agreement. The amendment reduced the revolving credit commitment amount from $14 million to $11
million and extended the maturity date to April 1, 2012. The amendment waived these covenant
violations and established new covenant requirements. Specifically, subsequent to this
amendment, the following financial covenants apply: tangible effective net worth of $750,000 as of
December 31, 2010 and gradually increasing on a quarterly basis to $1.25 million by March 31, 2012;
minimum quarterly net income of $400,000; and, minimum subordination of indebtedness to Arcadia
Resources, Inc. of $9.15 million. Finally, the amendment increased the required restricted cash
balance from $500,000 to $1,000,000. As of March 31, 2011, ASI was in compliance with the loan
covenants. In the event of default of any one of the financial covenants, the bank may declare all
outstanding indebtedness due and payable, and the bank shall not be obligated to make any further
advances to ASI. If this were to occur, the Company would need to obtain alternative financing, if
possible, and the terms of this alternative financing would presumably be less attractive than
those of the current line of credit agreement.
On April 23, 2010, the Company executed a Line of Credit and Security Agreement with H.D. Smith
Wholesale Drug Co. (H.D. Smith), its new primary supplier of pharmaceutical products. Under
terms of the agreement, the Company can borrow up to $5,000,000, including amounts payable under
normal product purchasing terms. Beginning April 1, 2011, borrowings under the agreement were
limited based upon a borrowing base of the assets of the Pharmacy business. The debt accrues
interest at the greater of 7% and the prime rate plus 3%, and it matures on April 23, 2013.
Interest during the first 12 months of the agreement will be added to the debt balance and then
interest only payments are required from May 2011 through April 2012. Beginning in May 2012, the
Company will make monthly payments of $75,000 plus interest. Borrowing may be prepaid at any time
without penalty. The debt is secured by all of the tangible and intangible assets of PrairieStone
Pharmacy, LLC, a wholly-owned subsidiary of the Company that operates the Companys Pharmacy
segment. The agreement includes certain financial covenants beginning in fiscal 2012. In
conjunction with the financing, the Company issued H.D. Smith warrants to purchase common stock,
and the warrant terms are more fully described in Note 10.
The H.D Smith line of credit agreement includes certain financial covenants specific to
PrairieStone Pharmacy, LLC. The financial covenants are as follows: positive quarterly earnings
before income tax, depreciation, and amortization (EBITDA) and current assets divided by current
liabilities of greater than .75. These financial covenants do not take effect until the fiscal
quarter ending March 31, 2012. The Companys ability to meet these financial covenants in the
future will depend on the Pharmacy segments ability to improve its financial performance over the
next several fiscal quarters.
The Company has a limited number of customers with individually large amounts due at any given
balance sheet date.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
46
Contractual Obligations and Commercial Commitments
As of March 31, 2011, the Company had contractual obligations, in the form of non-cancelable debt
and lease agreements, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
than 5 |
|
|
|
Total |
|
|
year |
|
|
2 - 3 years |
|
|
4 - 5 years |
|
|
years |
|
Operating leases |
|
$ |
3,811 |
|
|
$ |
976 |
|
|
$ |
1,539 |
|
|
$ |
777 |
|
|
$ |
519 |
|
Capital leases |
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations |
|
|
27,966 |
|
|
|
189 |
|
|
|
27,807 |
|
|
|
|
|
|
|
|
|
Lines of credit (1) |
|
|
11,504 |
|
|
|
|
|
|
|
11,504 |
|
|
|
|
|
|
|
|
|
Interest (2) |
|
|
4,018 |
|
|
|
3,659 |
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
47,324 |
|
|
$ |
4,849 |
|
|
$ |
41,208 |
|
|
$ |
777 |
|
|
$ |
519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Balance includes the amounts due to Comerica Bank and H.D. Smith at March 31, 2011
under two working capital lines of credit agreement. The balance fluctuates on a daily
balance depending on working capital needs. |
|
(2) |
|
Future interest amounts for variable interest obligations are based on the interest rate in
effect as of March 31, 2011. The debt agreements with JANA Master Fund, Ltd., Vicis Capital
Master Fund, and LSP Partners, LP provide for the Company to elect to either pay the quarterly
interest in cash or to add the amount to the principal balance. The future payment schedule
assumes that these amounts are paid in cash. The aggregate amounts due to these three lenders
in the above schedule are: less than 1 year $3,231,000. |
Recent Accounting Pronouncements
In August 2010, the FASB issued Accounting Standards Update (ASU) 2010-24, Health Care Entities
(Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries which clarifies for
medical malpractice claims or similar contingent liabilities, a health care entity should not net
insurance recoveries against a related claim liability. The amendments in this ASU are effective
for fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2010. The adoption of this ASU did not have a material impact on its consolidated financial
statements.
In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-29, Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business
Combinations a consensus of the FASB Emerging Issues Task Force (EITF). ASU No. 2010-29
amends accounting guidance concerning disclosure of supplemental pro forma information for business
combinations. If an entity presents comparative financial statements, the entity should disclose
revenue and earnings of the combined entity as though the business combination that occurred in the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
The accounting guidance also requires additional disclosures to describe the nature and amount of
material, nonrecurring pro forma adjustments. ASU No. 2010-29 is effective for fiscal years
beginning on or after
December 15, 2010 and will apply prospectively to business combinations completed on or after that
date. We do not expect the adoption of this pronouncement to have a significant impact on our
financial statements. The future impact of adopting this pronouncement will depend on the future
business combinations that we may pursue.
In December 2010, the FASB issued ASU No. 2010-28, Intangibles Goodwill and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts. ASU No. 2010-28 modifies Step 1 of the goodwill impairment test so that for
those reporting units with zero or negative carrying amounts, an entity is required to perform Step
2 of the goodwill impairment test if it is more likely than not based on an assessment of
qualitative indicators that a goodwill impairment exists. In determining whether it is more likely
than not that goodwill impairment exists, an entity should consider whether there are any adverse
qualitative factors indicating that an impairment may exist. ASU No. 2010-28 will be effective for
annual and interim reporting periods beginning after December 15, 2010, and any impairment
identified at the time of adoption will be recognized as a cumulative-effect adjustment to
beginning retained earnings. The adoption of this pronouncement did not have a significant impact
on our financial statements.
47
In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition Milestone Method (Topic
605): Milestone Method of Revenue Recognition a consensus of the FASB EITF. ASU No. 2010-17 is
limited to research or development arrangements and requires that this ASU be met for an entity to
apply the milestone method (record the milestone payment in its entirety in the period received) of
recognizing revenue. However, the FASB clarified that, even if the requirements in this ASU are
met, entities would not be precluded from making an accounting policy election to apply another
appropriate policy that results in the deferral of some portion of the arrangement consideration.
The guidance in this ASU will apply to milestones in both single-deliverable and
multiple-deliverable arrangements involving research or development transactions. ASU No. 2010-17
will be effective prospectively for milestones achieved in fiscal years, and interim periods within
those years, beginning on or after June 15, 2010. Early adoption is permitted. We do not anticipate
that ASU No. 2010-17 will have an impact on our financial statements.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The majority of our cash balances and cash equivalents are held primarily in highly liquid
commercial bank accounts. The Company utilizes a line of credit to fund operational cash needs. The
risk associated with fluctuating interest rates is limited to our cash equivalents 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 revenues since inception have been in the U.S. and
in U.S. Dollars; therefore, management has not yet adopted a strategy for foreign currency rate
exposure as it is not anticipated that foreign revenues are likely to occur in the near future.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements follow Item 15 beginning at page F-3 and are incorporated by reference in
response to this item.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to provide reasonable assurance
that information required to be disclosed in its reports filed pursuant to the Securities Exchange
Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commissions rules and forms. Such
information is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer as appropriate, to allow timely decisions regarding required
disclosure. A control system, no matter how well designed and implemented, can provide only
reasonable, not absolute, assurance the objectives of the control system are met.
As of March 31, 2011, our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls
and procedures as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures were effective as of March 31, 2011.
48
Managements Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal control
over financial reporting for the Company. Internal control over financial reporting, as defined in
Rule 13a-15(f) under the Exchange Act, is a set of processes designed by, or under the supervision
of, the Companys CEO and CFO, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with GAAP and includes those policies and procedures that:
|
|
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets; |
|
|
|
|
Provide reasonable assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP, and that receipts and
expenditures are being made only in accordance with authorizations of our management and
directors; and |
|
|
|
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statement. |
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect all misstatements. It should be noted that any system of internal control, however well
designed and operated, can provide only reasonable, and not absolute, assurance that the objectives
of the system will be met. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Companys management, including the
Companys CEO and CFO, the Company conducted an assessment of the effectiveness of its internal
control over financial reporting based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
as of March 31, 2011.
Based on this assessment, we assert that, as of March 31, 2011 and based on the specific criteria,
the Company maintained effective internal control over financial reporting, involving the
preparation and reporting of the Companys consolidated financial statements presented in
uniformity with U.S. GAAP.
We
have not included an attestation report of the Companys
independent registered public accounting firm
regarding internal control over financial reporting. We were not
required to have nor have we engaged our independent registered
public accounting firm to perform an audit of our internal controls
over financial reporting pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only managements report in
this annual report.
Changes in Internal Control Over Financial Reporting
There has been no change in the internal control over financial reporting (as defined in Securities
Exchange Act Rule 13a-15(f)) that occurred during the fourth quarter of the fiscal year covered by
this annual report that has materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
49
Part III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regarding our board of directors, audit committee, and audit committee financial expert
is set forth under the caption Election of Directors, in our definitive Proxy Statement to be
filed in connection with our 2011 Annual Meeting of Stockholders and such information is
incorporated herein by reference. Information regarding Section 16(a) beneficial ownership
compliance is set forth under the caption Executive CompensationCompliance with Section 16(a) of
the Securities and Exchange Act in our definitive Proxy Statement to be filed in connection with
our 2011 Annual Meeting of Stockholders and such information is incorporated by reference. A list
of our executive officers is included in Part III, Item 11 of this Report under the heading
Executive Officers.
We have adopted a Code of Business Conduct and Ethics that applies to each of our directors,
officers, employees and principal contractors, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar
functions. The Code of Business Conduct and Ethics is posted on the Companys website (www.
arcadiahealthcare.com). The Company will provide a copy of the Amended and Restated Code of
Ethics, without charge, to any person who sends a written request addressed to the Chairman and CEO
at Arcadia Resources, Inc. at 9320 Priority Way West Drive, Indianapolis, Indiana 46240. The
Company intends to disclose any waivers or amendments to its Amended and Restated Code of Ethics by
disclosure on its website (www.arcadiahealthcare.com) rather than in a report on Form 8-K Item
5.05, filing.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
The information required by this item is set forth under the captions Executive Compensation and
Other Information and Election of DirectorsCompensation of Directors in our definitive Proxy
Statement to be filed in connection with our 2011 Annual Meeting of Stockholders and such
information is incorporated herein by reference.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by this item is set forth under the captions Security Ownership of
Certain Beneficial Owners and Management and Equity Compensation Plan Information in our
definitive Proxy Statement to be filed in connection with our 2011 Annual Meeting of Stockholders
and such information is incorporated herein by reference.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is set forth under the captions Certain Relationships and
Related Transactions and Compensation Committee Interlocks and Insider Participation in our
definitive Proxy Statement to be filed in connection with our 2011 Annual Meeting of Stockholders
and such information is incorporated herein by reference.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is set forth under the caption Fees Paid to Independent
Registered Auditors in our definitive Proxy Statement to be filed in connection with our 2011
Annual Meeting of Stockholders and such information is incorporated herein by reference.
50
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) Documents filed as part of this report:
|
1. |
|
Financial Statements: |
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
|
Consolidated Balance Sheets as of March 31, 2011 and 2010 |
|
|
|
|
Consolidated Statements of Operations for the years ended March 31, 2011, 2010 and 2009 |
|
|
|
|
Consolidated Statements of Stockholders Equity (Deficit) for the years ended March 31, 2011, 2010 and 2009 |
|
|
|
|
Consolidated Statements of Cash Flows for the years ended March 31, 2011, 2010 and 2009 |
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
2. |
|
Financial Statement Schedules: |
|
|
|
|
Schedule I Consolidated Financial Information of Registrant |
|
|
|
|
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in Regulation S-X either (i) are not required under the
related instructions or are inapplicable and, therefore, have been omitted, or (ii) the information
required is included in the Consolidated Financial Statements or the Notes thereto that are a part hereof. |
|
|
3. |
|
Exhibits: |
|
|
|
|
The exhibits included as part of this report are listed in the attached Exhibit Index, which is
incorporated herein by reference. |
51
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
|
|
|
F-35 |
|
|
|
|
|
|
|
|
|
F-39 |
|
52
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ Marvin R. Richardson
Marvin R. Richardson
|
|
|
|
|
|
|
Chief Executive Officer (Principal |
|
|
|
|
|
|
Executive Officer) and a Director |
|
|
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ Matthew R. Middendorf
Matthew R. Middendorf
|
|
|
|
|
|
|
Treasurer and Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial and Accounting Officer) |
|
|
In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ Marvin R. Richardson
Marvin R. Richardson
|
|
|
|
|
|
|
President, Chief Executive Officer and Director |
|
|
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ John T. Thornton
John T. Thornton
|
|
|
|
|
|
|
Director |
|
|
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ Peter A. Brusca, M.D.
Peter A. Brusca, M.D.
|
|
|
|
|
|
|
Director |
|
|
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ Joseph Mauriello
Joseph Mauriello
|
|
|
|
|
|
|
Director |
|
|
|
|
|
|
|
|
|
June 28, 2011
|
|
By:
|
|
/s/ Daniel Eisenstadt
Daniel Eisenstadt
|
|
|
|
|
|
|
Director |
|
|
53
Exhibit Index
The following Exhibits are filed herewith and made a part hereof:
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of Form 8-K filed
November 9, 2009) |
|
3.2 |
|
|
Amended and Restated Bylaws of Arcadia Resources, Inc. (Nov. 5, 2008) (incorporated by reference to Exhibit
3.2 of Form 10-Q filed on November 6, 2008) |
|
4.1 |
|
|
Form of Regulation D Class A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 of Form
8-K filed on May 24, 2004) |
|
4.2 |
|
|
Class A Warrant issued to John E. Elliott, II (incorporated by reference to Exhibit 4.2 of Form 8-K filed on
May 24, 2004) |
|
4.3 |
|
|
Class A Warrant issued to Lawrence Kuhnert (incorporated by reference to Exhibit 4.3 of Form 8-K filed on May
24, 2004) |
|
4.4 |
|
|
John E. Elliot, II and Lawrence Kuhnert Registration Rights Agreement, dated May 7, 2004 (incorporated by
reference to Exhibit 4.6 of Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.5 |
|
|
Form Note Purchase Agreement (incorporated by reference to Exhibit 4.7 of Form S-1/A, Amendment No. 1, filed
August 27, 2004) |
|
4.6 |
|
|
Cleveland Overseas Settlement Agreement, dated June 16, 2004 (incorporated by reference to Exhibit 4.11 of
Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.7 |
|
|
Cleveland Overseas Warrant for Purchase of 100,000 Shares of Common Stock (incorporated by reference to
Exhibit 4.12 of Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.8 |
|
|
Cleveland Overseas Registration Rights Agreement, dated February 28, 2003 (incorporated by reference to
Exhibit 4.13 of Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.9 |
|
|
Stephen Garchik Option to Acquire 500,000 Shares, dated February 3, 2004, between Critical Home Care, Inc.
and Jana Master Fund, Ltd. (incorporated by reference to Exhibit 4.14 of Form S-1/A, Amendment No. 1, filed
August 27, 2004) |
|
4.10 |
|
|
Stephen Garchik Registration Rights Agreement, dated February 3, 2004 (incorporated by reference to Exhibit
4.15 of Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.11 |
|
|
Global Asset Management Settlement Agreement which includes provision regarding registration rights (to be
filed by amendment) (incorporated by reference to Exhibit 4.16 of Form S-1/A, Amendment No. 1, filed August
27, 2004) |
|
4.12 |
|
|
Stanley Scholsohn Family Partnership Stock Option Agreement, dated February 22, 2003 (incorporated by
reference to Exhibit 4.17 of Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.13 |
|
|
Stanley Scholsohn Family Partnership Registration Rights Agreement, dated February 22, 2004 (incorporated by
reference to Exhibit 4.18 of Form S-1/A, Amendment No. 1, filed August 27, 2004) |
|
4.14 |
|
|
Form of Regulation D Registration Rights Agreement (incorporated by reference to Exhibit 4.19 of Form S-1/A,
Amendment No. 1, filed August 27, 2004) |
|
4.15 |
|
|
Form of stock purchase agreement (incorporated by reference to Exhibit 4.1 of Form 8-K/A filed on May 2, 2005) |
|
4.16 |
|
|
Warrant Purchase and Registration Rights Agreement dated September 26, 2005 (incorporated by reference to
Exhibit 4.1 of Form 8-K filed on September 30, 2005) |
|
4.17 |
|
|
Warrant Purchase and Registration Rights Agreement dated September 28, 2005 (incorporated by reference to
Exhibit 4.2 of Form 8-K filed on September 30, 2005) |
|
4.18 |
|
|
Form of B-1 Warrant (incorporated by reference to Exhibit 4.3 of Form 8-K filed on September 30, 2005) |
|
4.19 |
|
|
Form of B-2 Warrant (incorporated by reference to Exhibit 4.4 of Form 8-K filed on September 30, 2005) |
|
4.20 |
|
|
Private Stock Purchase Agreement SICAV 1 dated November 28, 2005 (incorporated by reference to Exhibit 4.1 of
Form 10-Q on February 14, 2006) |
|
4.21 |
|
|
Private Stock Purchase Agreement SICAV 2 dated November 28, 2005 (incorporated by reference to Exhibit 4.2 of
Form 10-Q on February 14, 2006) |
|
4.22 |
|
|
Master Exchange Agreement among JANA Master Fund, Ltd., Vicis Capital Master Fund, LSP Partners, LP and
Arcadia Resources, Inc. dated March 25, 2009 (incorporated by reference to Exhibit 10.1 of Form 8-K filed on
March 31, 2009) |
|
4.23 |
|
|
JANA Master Fund, Ltd. Promissory Note dated March 25, 2009 (incorporated by reference to Exhibit 10.2 of
Form 8-K filed on March 31, 2009) |
|
4.24 |
|
|
Vicis Capital Master Fund Promissory Note dated March 25, 2009 (incorporated by reference to Exhibit 10.3 of
Form 8-K filed on March 31, 2009) |
54
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
|
4.25 |
|
|
LSP Partners, LP Promissory Note dated March 25, 2009 (incorporated by reference to Exhibit 10.4 of Form 8-K
filed on March 31, 2009) |
|
4.26 |
|
|
Assignment and Assumption Agreement among JANA Master Fund, Ltd., Vicis Capital Master Fund, LSP Partners, LP
and Arcadia Resources, Inc. dated March 25, 2009 (incorporated by reference to Exhibit 10.5 of Form 8-K filed
on March 31, 2009) |
|
4.27 |
|
|
Form of Subscription Agreement (incorporated by reference to Exhibit 4.1 of Form 8-K filed on November 9,
2009) |
|
4.28 |
|
|
Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 of Form 8-K filed on
November 9, 2009) |
|
4.29 |
|
|
Common Stock Purchase Warrant No. 99 dated April 23, 2010 issued to H. D. Smith Wholesale Drug Co.
(incorporated by reference to Exhibit 2.5 of Form 8-K filed on April 23, 2010) |
|
4.30 |
|
|
Common Stock Purchase Warrant No. 100 dated April 23, 2010 issued to H. D. Smith Wholesale Drug Co.
(incorporated by reference to Exhibit 2.5 of Form 8-K filed on April 23, 2010) |
|
9.1 |
|
|
Form of Voting Agreement (incorporated by reference to Exhibit 9.1 of Form 8-K filed on May 24, 2004) |
|
10.1 |
|
|
2006 Equity Incentive Plan as Amended (incorporated by reference to Appendix B to the Companys Proxy
Statement on Schedule 14A filed on September 18, 2009) |
|
10.2 |
|
|
Agreement and Plan of Merger dated May 7, 2004 by and among RKDA, Inc., CHC Sub, Inc., Critical Home Care,
Inc., John E. Elliott, II, Lawrence Kuhnert and David Bensol (incorporated by reference to Exhibit 2.1 of
Form 8-K filed on May 24, 2004) |
|
10.3 |
|
|
Stock Purchase Agreement dated as of May 7, 2004 by and among RKDA, Inc., Arcadia Services, Inc., Addus
Healthcare, Inc. and W. Andrew Wright (incorporated by reference to Exhibit 2.3 of Form 8-K filed on May 24,
2004) |
|
10.4 |
|
|
Stock Option Agreement dated May 7, 2004, between Critical Home Care, Inc. and John E. Elliott, II
(incorporated by reference to Exhibit 10.7 of Form 8-K filed on May 24, 2004) |
|
10.5 |
|
|
Stock Option Agreement dated May 7, 2004, between Critical Home Care, Inc. and Lawrence Kuhnert (incorporated
by reference to Exhibit 10.8 of Form 8-K filed on May 24, 2004) |
|
10.6 |
|
|
Lease of City Center Office ParkSouth Building (incorporated by reference to Exhibit 10.38 of Form S-1/A,
Amendment No. 1, filed August 27, 2004) |
|
10.7 |
|
|
Critical Home Care, Inc. Common Stock Purchase Warrant to Purchase up to 3,150,000 Shares of the Common Stock
of Critical Home Care, Inc., dated September 21, 2004 (incorporated by reference to Exhibit 10.3 of Form 8-K
filed on September 27, 2004) |
|
10.8 |
|
|
Investor Rights Agreement by and among Critical Home Care, Inc. and BayStar Capital II, L.P. dated September
21, 2004 (incorporated by reference to Exhibit 10.4 of Form 8-K filed on September 27, 2004) |
|
10.9 |
|
|
Asset Purchase Agreement dated August 30, 2004 by and between Arcadia Health Services, Inc., Second
Solutions, Inc., Merit Staffing Resources, Inc. and Harriette Hunter (incorporated by reference to Exhibit
99.1 of Form 8-K filed on September 2, 2004) |
|
10.10 |
|
|
Agreement and Plan of Merger between Critical Home Care, Inc. and Arcadia Resources, Inc. (incorporated by
reference to Exhibit 10.1 of Form 8-K filed on November 16, 2004) |
|
10.11 |
|
|
Form Stock Purchase Agreement (incorporated by reference to Exhibit 4.1 of Form 8-K filed on February 8, 2005) |
|
10.12 |
|
|
Stock Option Agreement dated March 22, 2005 (incorporated by reference to Exhibit 10.2 of Form 8-K filed on
March 28, 2005) |
|
10.13 |
|
|
Stock Purchase Agreement dated April 29, 2005, by and among Arcadia Health Services of Michigan, Inc., Home
Health Professionals, Inc., and the selling shareholders (incorporated by reference to Exhibit 10.1 of Form
8-K/A filed on May 2, 2005) |
|
10.14 |
|
|
Form of Director Compensation Agreement (incorporated by reference to Exhibit 10.62 of Form 10-K filed on
June 29, 2006) |
|
10.15 |
|
|
Form of Director Stock Option Agreement (incorporated by reference to Exhibit 10.63 of Form 10-K filed on
June 29, 2006) |
|
10.16 |
|
|
Form of Stock Grant Agreement dated June 22, 2006 (incorporated by reference to Exhibit 10.64 of Form 10-K
filed on June 29, 2006) |
|
10.17 |
|
|
Amended and Restated Employment Agreement dated August 12, 2009, by and between Arcadia Resources, Inc. and
Marvin Richardson (incorporated by reference to Exhibit 10.1 of Form 10-Q filed on August 13, 2009) |
|
10.18 |
|
|
Amendment to the Amended and Restated Employment Agreement dated August 12, 2009, by and between Arcadia
Resources, Inc. and Marvin Richardson (filed herewith) |
|
10.19 |
|
|
Limited Liability Company Ownership Interest Purchase Agreement dated January 28, 2007 by and among Arcadia
Resources, Inc., PrairieStone Pharmacy, LLC, and the selling shareholders of PrairieStone Pharmacy, LLC
(incorporated by reference to Exhibit 10.1 of Form 10-Q filed on February 14, 2007) |
55
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
|
10.20 |
|
|
Registration Rights Agreement dated February 16, 2007 by and among Arcadia Resources, Inc., PrairieStone
Pharmacy, LLC, and the selling shareholders of PrairieStone Pharmacy, LLC (incorporated by reference to
Exhibit 10.70 of Form 10-K filed on June 29, 2007) |
|
10.21 |
|
|
Form of Securities Purchase Agreement from December 2006 Private Placement (incorporated by reference to
Exhibit 10.1 of Form 8-K filed on January 4, 2007) |
|
10.22 |
|
|
Form of Registration Rights Agreement from December 2006 Private Placement (incorporated by reference to
Exhibit 10.2 of Form 8-K filed on January 4, 2007) |
|
10.23 |
|
|
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 of the Companys
Registration Statement on Form S-8 on October 4, 2006) |
|
10.24 |
|
|
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 of the Companys Registration
Statement on Form S-8 on October 4, 2006) |
|
10.25 |
|
|
Stock Purchase Agreement between Arcadia Products, Inc. and AeroCare Holdings, Inc. dated September 10, 2007
(incorporated by reference to Exhibit 10.1 of Form 8-K filed on September 14, 2007) |
|
10.26 |
|
|
Amended and Restated Employment Agreement between Arcadia Resources, Inc. and Steven L. Zeller dated August
12, 2009 (incorporated by reference to Exhibit 10.3 of Form 10-Q filed on August 13, 2009) |
|
10.27 |
|
|
Amendment to the Amended and Restated Employment Agreement between Arcadia Resources, Inc. and Steven L.
Zeller dated August 12, 2009 (filed herewith) |
|
10.28 |
|
|
Amended and Restated Employment Agreement between Arcadia Resources, Inc. and Matthew R. Middendorf, dated
August 12, 2009 (incorporated by reference to Exhibit 10.2 of Form 10-Q filed on August 13, 2009) |
|
10.29 |
|
|
Amendment to the Amended and Restated Employment Agreement between Arcadia Resources, Inc. and Matthew R.
Middendorf, dated August 12, 2009 (filed herewith) |
|
10.30 |
|
|
Arcadia Resources, Inc. 2008 Executive Performance Based Compensation Plan (incorporated by reference to
Exhibit 10.1 of Form 8-K filed on July 17, 2008) |
|
10.31 |
|
|
Amendment No. One to the Arcadia Resources, Inc. 2008 Executive Performance Based Compensation Plan
(incorporated by reference to Exhibit 10.2 of Form 8-K filed on July 17, 2008) |
|
10.32 |
|
|
Stock Purchase Agreement between Arcadia Products, Inc. and Aerocare Holdings, Inc. dated May 16, 2009
(incorporated by reference to Exhibit 10.1 of Form 8-K filed on May 21, 2009) |
|
10.33 |
|
|
Asset Purchase Agreement among Braden Partners, L.P., American Oxygen and Medical Equipment, Inc., Arcadia
Home Oxygen and Medical Equipment, Inc., Arcadia Products, Inc., RKDA, Inc. and Arcadia Resources, Inc. dated
May 19, 2009 (incorporated by reference to Exhibit 10.2 of Form 8-K filed on May 21, 2009) |
|
10.34 |
|
|
Amended and Restated Credit Agreement by and among Arcadia Services, Inc., Arcadia Health Services, Inc.,
Grayrose, Inc., Arcadia Health Services of Michigan, Inc., Arcadia Employee Services, Inc. and Comerica Bank
dated July 13, 2009 ((incorporated by reference to Exhibit 10.42 of Form 10-K filed on July 14, 2009) |
|
10.35 |
|
|
Comerica Revolving Credit Note dated July 13, 2009 (incorporated by reference to Exhibit 10.43 of Form 10-K
filed on July 14, 2009) |
|
10.36 |
|
|
Placement Agent Agreement between Arcadia Resources, Inc. and Burnham Hill Partners dated November 6, 2009
(incorporated by reference to Exhibit 1.1 of Form 8-k filed on November 9, 2009) |
|
10.37 |
|
|
Line of Credit and Security Agreement dated April 23, 2010 by and between PrairieStone Pharmacy, LLC and H.D.
Smith Wholesale Drug Co. (incorporated by reference to Exhibit 2.1 of Form 8-K filed on April 28, 2010) |
|
10.38 |
|
|
Line of Credit Note dated April 23, 2010 made in favor of H. D. Smith by PrairieStone Pharmacy, LLC
(incorporated by reference to Exhibit 2.2 of Form 8-K filed on April 28, 2010) |
|
10.39 |
|
|
Guaranty Agreement dated April 23, 2010 by Arcadia Resources, Inc. in favor of H. D. Smith Wholesale Drug Co.
(incorporated by reference to Exhibit 2.3 on April 28, 2010) |
|
10.40 |
|
|
Pledge Agreement dated April 23, 2010 by and between Arcadia Resources, Inc., and H. D. Smith Wholesale Drug
Co. (incorporated by reference to Exhibit 2.4 of Form 8-K filed on April 28, 2010) |
|
10.41 |
|
|
Placement Agent Agreement between the Company and Wilmington Capital Securities, LLC dated October 28, 2010
(incorporated by reference to Exhibit 1.1 of Form 8-k filed on October 29, 2010) |
|
10.42 |
|
|
Exhibit 10.1 Form of Subscription Agreement (incorporated by reference to Exhibit 10.1 of Form 8-k filed on
October 29, 2010) |
|
10.43 |
|
|
Amendment dated October 31, 2010 to the Amended and Restated Credit Agreement by and among Arcadia Services,
Inc., Arcadia Health Services, Inc., Grayrose, Inc., Arcadia Health Services of Michigan, Inc., Arcadia
Employee Services, Inc. and Comerica Bank dated July 13, 2009 (incorporated by reference to Exhibit 10.1 of
Form 10-Q filed on November 9, 2010) |
|
10.44 |
|
|
Arcadia Employee Services, Inc. and Comerica Bank dated July 13, 2009 10.2 Amendment dated October 31, 2010
to the Comerica Revolving Credit Note dated July 13, 2009 (incorporated by reference to Exhibit 10.2 of Form
10-Q filed on November 9, 2010) |
56
|
|
|
|
|
Exhibit |
|
|
|
Number |
|
|
Description of Exhibit |
|
|
|
|
|
|
10.45 |
|
|
Employment Agreement by and between Charlie Goodall and Arcadia Resources, Inc. dated December 23, 2009
(filed herewith) |
|
10.46 |
|
|
Promissory Note dated April 4, 2011 payable to BestCare Travel Staffing, LLC by Arcadia Resources, Inc.
(filed herewith) |
|
10.47 |
|
|
Purchase of Assets and Termination Agreement dated as of April 1, 2011 by and among Arcadia Resources, Inc.,
BestCare Travel Staffing, LLC and Steven L. Zeller (filed herewith) |
|
14.1 |
|
|
Arcadia Resources, Inc. Code of Ethics and Conduct as Amended and Restated Effective April 1, 2009
(incorporated by reference to Exhibit 14.1 of Form 10-K filed on July 14, 2009) |
|
21.1 |
|
|
Subsidiaries of Arcadia Resources, Inc. (filed herewith) |
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm (filed herewith) |
|
31.1 |
|
|
Section 302 CEO Certification (filed herewith) |
|
31.2 |
|
|
Section 302 Principal Financial and Accounting Officer Certification (filed herewith) |
|
32.1 |
|
|
Section 906 CEO Certification (filed herewith) |
|
32.2 |
|
|
Section 906 Principal Financial and Accounting Officer Certification (filed herewith) |
57
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
|
|
|
F-35 |
|
|
|
|
|
|
|
|
|
F-39 |
|
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Arcadia Resources, Inc.
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheets of Arcadia Resources, Inc. as of March
31, 2011 and 2010 and the related consolidated statements of operations, stockholders equity
(deficit), and cash flows for each of the three years in the period ended March 31, 2011. In
connection with our audits of the financial statements, we have also audited the financial
statement schedules listed in the accompanying index. These financial statements and schedules are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements and schedules. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Arcadia Resources, Inc. at March 31, 2011 and 2010,
and the results of its operations and its cash flows for each of the three years in the period
ended March 31, 2011, in conformity with accounting principles generally accepted in the United
States of America.
Also, in our opinion, the financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Managements plans in regard to these matters are
also described in Note 2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ BDO USA, LLP
Troy, Michigan
June 28, 2011
F-2
ARCADIA RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,136 |
|
|
$ |
5,444 |
|
Accounts receivable, net of allowance of $1,897 and $2,614, respectively |
|
|
12,049 |
|
|
|
11,960 |
|
Inventories, net |
|
|
795 |
|
|
|
703 |
|
Prepaid expenses and other current assets |
|
|
1,455 |
|
|
|
1,468 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
801 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
16,435 |
|
|
|
20,376 |
|
Property and equipment, net |
|
|
1,253 |
|
|
|
1,476 |
|
Goodwill |
|
|
|
|
|
|
2,500 |
|
Acquired intangible assets, net |
|
|
7,098 |
|
|
|
7,670 |
|
Other assets |
|
|
345 |
|
|
|
412 |
|
Restricted cash |
|
|
1,000 |
|
|
|
500 |
|
Assets of discontinued operations |
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
26,131 |
|
|
$ |
33,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,226 |
|
|
$ |
2,826 |
|
Accrued expenses: |
|
|
|
|
|
|
|
|
Compensation and related taxes |
|
|
2,792 |
|
|
|
3,145 |
|
Interest |
|
|
35 |
|
|
|
82 |
|
Health insurance |
|
|
756 |
|
|
|
463 |
|
Other |
|
|
952 |
|
|
|
1,507 |
|
Fair value of warrant liability |
|
|
285 |
|
|
|
1,499 |
|
Payable to affiliate agencies |
|
|
616 |
|
|
|
1,076 |
|
Long-term obligations, current portion |
|
|
189 |
|
|
|
939 |
|
Capital lease obligations, current portion |
|
|
25 |
|
|
|
34 |
|
Liabilities of discontinued operations |
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
6,876 |
|
|
|
11,980 |
|
Lines of credit |
|
|
11,504 |
|
|
|
7,774 |
|
Long-term obligations, less current portion |
|
|
27,807 |
|
|
|
25,192 |
|
Capital lease obligations, less current portion |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
46,187 |
|
|
|
44,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 5,000,000 shares authorized, none outstanding |
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 300,000,000 shares authorized; 193,162,544 and 177,918,044 shares issued and outstanding, respectively |
|
|
193 |
|
|
|
178 |
|
Additional paid-in capital |
|
|
151,436 |
|
|
|
145,381 |
|
Accumulated deficit |
|
|
(171,685 |
) |
|
|
(157,334 |
) |
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(20,056 |
) |
|
|
(11,775 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
26,131 |
|
|
$ |
33,196 |
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial statements.
F-3
ARCADIA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Services |
|
$ |
83,328 |
|
|
$ |
86,635 |
|
|
$ |
97,537 |
|
Pharmacy |
|
|
16,713 |
|
|
|
11,449 |
|
|
|
3,462 |
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
|
100,041 |
|
|
|
98,084 |
|
|
|
100,999 |
|
Cost of revenues |
|
|
72,636 |
|
|
|
70,274 |
|
|
|
70,749 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
27,405 |
|
|
|
27,810 |
|
|
|
30,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
36,403 |
|
|
|
38,500 |
|
|
|
38,565 |
|
Depreciation and amortization |
|
|
1,380 |
|
|
|
1,300 |
|
|
|
1,513 |
|
Goodwill and intangible asset impairment |
|
|
2,500 |
|
|
|
14,599 |
|
|
|
22,619 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
40,283 |
|
|
|
54,399 |
|
|
|
62,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(12,878 |
) |
|
|
(26,589 |
) |
|
|
(32,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
3,799 |
|
|
|
3,371 |
|
|
|
4,072 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
4,487 |
|
Change in fair value of warrant liability |
|
|
(1,423 |
) |
|
|
(979 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
30 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
2,376 |
|
|
|
2,422 |
|
|
|
8,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(15,254 |
) |
|
|
(29,011 |
) |
|
|
(41,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense |
|
|
33 |
|
|
|
29 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(15,287 |
) |
|
|
(29,040 |
) |
|
|
(41,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(464 |
) |
|
|
(2,603 |
) |
|
|
(4,009 |
) |
Net gain (loss) on disposal |
|
|
1,400 |
|
|
|
557 |
|
|
|
(1,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
936 |
|
|
|
(2,046 |
) |
|
|
(5,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(14,351 |
) |
|
$ |
(31,086 |
) |
|
$ |
(46,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
185,796 |
|
|
|
166,840 |
|
|
|
134,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.08 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.31 |
) |
Loss from discontinued operations |
|
|
|
|
|
|
(0.02 |
) |
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
$ |
(0.08 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.35 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial statements.
F-4
ARCADIA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity (Deficit) |
|
Balance, April 1, 2008 |
|
|
133,113,440 |
|
|
|
133 |
|
|
|
129,442 |
|
|
|
(79,778 |
) |
|
|
49,797 |
|
Issuance of warrants |
|
|
|
|
|
|
|
|
|
|
248 |
|
|
|
|
|
|
|
248 |
|
Stock-based compensation expense |
|
|
1,159,694 |
|
|
|
1 |
|
|
|
1,653 |
|
|
|
|
|
|
|
1,654 |
|
Contingent consideration relating to prior year acquisitions |
|
|
3,316,893 |
|
|
|
3 |
|
|
|
692 |
|
|
|
|
|
|
|
695 |
|
Cashless exercise of warrants |
|
|
8,545,833 |
|
|
|
9 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
Equity issued in conjunction with debt refinancing |
|
|
15,113,669 |
|
|
|
15 |
|
|
|
3,894 |
|
|
|
|
|
|
|
3,909 |
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,470 |
) |
|
|
(46,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009 |
|
|
161,249,529 |
|
|
|
161 |
|
|
|
135,920 |
|
|
|
(126,248 |
) |
|
|
9,833 |
|
Sale of common stock and warrants, net of $902 in fees |
|
|
15,857,141 |
|
|
|
16 |
|
|
|
7,704 |
|
|
|
|
|
|
|
7,720 |
|
Stock-based compensation expense |
|
|
323,125 |
|
|
|
|
|
|
|
1,758 |
|
|
|
|
|
|
|
1,758 |
|
Cashless exercise of warrants |
|
|
488,249 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,086 |
) |
|
|
(31,086 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
177,918,044 |
|
|
|
178 |
|
|
|
145,381 |
|
|
|
(157,334 |
) |
|
|
(11,775 |
) |
Sale of common stock, net of $564 in fees |
|
|
15,606,250 |
|
|
|
16 |
|
|
|
4,414 |
|
|
|
|
|
|
|
4,430 |
|
Stock-based compensation expense |
|
|
227,500 |
|
|
|
|
|
|
|
1,315 |
|
|
|
|
|
|
|
1,315 |
|
Issuance and reclassification of warrants in conjunction with debt financing |
|
|
|
|
|
|
|
|
|
|
323 |
|
|
|
|
|
|
|
323 |
|
Cancellation of shares held in escrow |
|
|
(600,000 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
10,750 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,351 |
) |
|
|
(14,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
193,162,544 |
|
|
$ |
193 |
|
|
$ |
151,436 |
|
|
$ |
(171,685 |
) |
|
$ |
(20,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to these consolidated financial statements.
F-5
ARCADIA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year |
|
$ |
(14,351 |
) |
|
$ |
(31,086 |
) |
|
$ |
(46,470 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
676 |
|
|
|
1,736 |
|
|
|
4,433 |
|
Depreciation and amortization of property and equipment |
|
|
894 |
|
|
|
1,507 |
|
|
|
4,505 |
|
Amortization of intangible assets |
|
|
571 |
|
|
|
722 |
|
|
|
1,850 |
|
Goodwill and intangible asset impairment |
|
|
2,500 |
|
|
|
14,599 |
|
|
|
26,455 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
4,487 |
|
Non-cash interest expense |
|
|
2,892 |
|
|
|
2,397 |
|
|
|
2,215 |
|
(Gain) loss on business disposals |
|
|
(1,400 |
) |
|
|
(557 |
) |
|
|
1,258 |
|
Loss on disposal of property and equipment |
|
|
|
|
|
|
|
|
|
|
75 |
|
Amortization and write off of debt discount and deferred financing costs |
|
|
391 |
|
|
|
332 |
|
|
|
972 |
|
Change in fair value of warrant liability |
|
|
(1,423 |
) |
|
|
(979 |
) |
|
|
|
|
Stock-based compensation expense |
|
|
1,315 |
|
|
|
1,758 |
|
|
|
1,654 |
|
Changes in operating assets and liabilities, net of business acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(360 |
) |
|
|
3,895 |
|
|
|
(856 |
) |
Inventories |
|
|
124 |
|
|
|
546 |
|
|
|
(1,652 |
) |
Other assets |
|
|
125 |
|
|
|
558 |
|
|
|
515 |
|
Accounts payable |
|
|
(1,997 |
) |
|
|
(596 |
) |
|
|
1,278 |
|
Accrued expenses |
|
|
(733 |
) |
|
|
(694 |
) |
|
|
7 |
|
Due to affiliated agencies |
|
|
(416 |
) |
|
|
(19 |
) |
|
|
81 |
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(11,192 |
) |
|
|
(5,881 |
) |
|
|
778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired |
|
|
(164 |
) |
|
|
(281 |
) |
|
|
(675 |
) |
Proceeds from business disposals |
|
|
1,532 |
|
|
|
9,498 |
|
|
|
670 |
|
Increase in restricted cash |
|
|
(500 |
) |
|
|
(500 |
) |
|
|
|
|
Purchases of property and equipment |
|
|
(471 |
) |
|
|
(574 |
) |
|
|
(1,281 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
397 |
|
|
|
8,143 |
|
|
|
(1,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payables, net of fees |
|
|
|
|
|
|
2,142 |
|
|
|
2,800 |
|
Proceeds from exercise of stock options |
|
|
2 |
|
|
|
|
|
|
|
|
|
Net borrowings (payments) on lines of credit |
|
|
3,868 |
|
|
|
(3,550 |
) |
|
|
(6,416 |
) |
Payments on notes payable and capital lease obligations |
|
|
(813 |
) |
|
|
(7,175 |
) |
|
|
(705 |
) |
Proceeds
from equity financing, net cash fees of $564 in fiscal 2011 and $857 in fiscal 2010 |
|
|
4,430 |
|
|
|
10,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
7,487 |
|
|
|
1,660 |
|
|
|
(4,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(3,308 |
) |
|
|
3,922 |
|
|
|
(4,829 |
) |
Cash and cash equivalents, beginning of year |
|
|
5,444 |
|
|
|
1,522 |
|
|
|
6,351 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
2,136 |
|
|
$ |
5,444 |
|
|
$ |
1,522 |
|
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Supplementary information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
527 |
|
|
$ |
623 |
|
|
$ |
904 |
|
Income taxes |
|
|
33 |
|
|
|
35 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing / financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable converted to notes payable |
|
|
|
|
|
|
750 |
|
|
|
|
|
Line of credit converted to note payable in conjunction with refinancing |
|
|
|
|
|
|
|
|
|
|
5,000 |
|
Accrued interest converted to debt |
|
|
2,892 |
|
|
|
2,397 |
|
|
|
2,215 |
|
Non-cash equity financing fee |
|
|
|
|
|
|
45 |
|
|
|
|
|
Contingent consideration relating to prior year acquisition settled with issuance of common stock |
|
|
|
|
|
|
|
|
|
|
695 |
|
Financing of equipment with notes payable / capital lease obligations |
|
|
|
|
|
|
70 |
|
|
|
|
|
Equity issued in conjunction with debt financing |
|
|
|
|
|
|
|
|
|
|
3,909 |
|
See accompanying notes to these consolidated financial statements.
F-7
ARCADIA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description of Company and Significant Accounting Policies
Description of Company
Arcadia Resources, Inc., a Nevada corporation, together with its wholly-owned subsidiaries (the
Company), is a national provider of home care, medical staffing and pharmacy services operating
under the service mark Arcadia HealthCare. In May and June 2009, the Company disposed of its Home
Health Equipment (HHE), retail pharmacy software and industrial staffing businesses. In October
2010, the Company disposed of its home-health oriented mail-order catalog and website business
(Catalog). Subsequent to these divestitures, the Company operates in two reportable business
segments: Home Care/Medical Staffing Services (Services) and Pharmacy. The Companys corporate
headquarters are located in Indianapolis, Indiana. The Company conducts its business from
approximately 65 facilities located in 18 states. The Company operates pharmacies in Indiana and
California and has customer service centers in Michigan and Indiana.
The Companys Board of Directors has committed to a plan to sell the Services segment, and
management is actively engaged in the sale of that business. The Company intends to seek approval
from the Companys shareholders for any such sale, and since such approval had not been obtained by
March 31, 2011, the accompanying consolidated financial statements reflect the Services segment as
a continuing operation. Upon such approval, should it be obtained, the Services segment will begin
to be reflected as a discontinued operations in the Companys current and historical consolidated
financial statements. Management anticipates obtaining the necessary approvals and completing the
sale of the Services segment by October 2011. See Note 16 Segment Information for relevant
financial information of the Services segment.
Principles of Consolidation
The consolidated financial statements include the accounts of Arcadia Resources, Inc. and its
wholly-owned subsidiaries. The earnings of the subsidiaries are included from the dates of
acquisition. All intercompany accounts 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 (U.S. GAAP) 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. Changes in these estimates and assumptions may have a
material impact on the financial statements and accompanying notes.
Cash and Cash Equivalents
The Company considers cash in banks and all highly liquid investments with terms to maturity at
acquisition of three months or less to be cash and cash equivalents.
Affiliated Agencies
The Services segment 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 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 the Company and the related employee costs are included in cost
of revenues. The Company maintains the relationship with the customer and the payer and, as such,
recognizes the revenue. The affiliated agencys commission is based on a percentage of gross
profit. The Company provides sales and marketing support to the affiliated agencies and develops
and maintains policies and procedures related to certain aspects of the affiliates business. The
contractual agreements require a specific, timed, calculable flow of funds and expenses between the
affiliated agencies and the Company. The payments to affiliated agencies are considered a selling
expense and are classified as selling, general and administrative expenses in the Companys
consolidated statement of operations. The agreements may be terminated by
the affiliate upon advance notice to the Company. The Company may terminate the agreement only
under specified conditions. The agreements provide the Company with the first right of refusal to
purchase the affiliates contractual rights and interests.
F-8
Revenue generated through the affiliate agencies represented approximately 55%, 60%, and 66% of
total revenue from continuing operations during the years ended March 31, 2011, 2010 and 2009,
respectively. Related commission expense was $10,015,000, $10,973,000, and $12,313,000 during the
years ended March 31, 2011, 2010 and 2009, respectively.
Allowance for Doubtful Accounts
The Company reviews its accounts receivable balances on a periodic basis. Accounts receivable have
been reduced by the estimated allowance for doubtful accounts.
The provision for doubtful accounts is primarily based on historical analysis of the Companys
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. As actual
collection experience changes, revisions to the allowance may be required. Any unanticipated change
in customers creditworthiness 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 reasonable attempts to collect a receivable have failed, the
receivable is written off against the allowance.
Inventories
Inventories are stated at a cost that approximates the lower of cost or market method utilizing the
first in, first out (FIFO) approach. Inventories include products and supplies held for sale at the
Companys individual locations. Inventories are evaluated periodically for obsolescence and
shrinkage.
Property and Equipment
Property and equipment is stated at cost and is depreciated on a straight-line basis over the
estimated useful lives of the assets.
The Company generally provides for depreciation over the following estimated useful service lives:
|
|
|
|
|
Equipment |
|
5 years |
Software |
|
3 years |
Furniture and fixtures |
|
5 years |
Vehicles |
|
5 years |
Leasehold improvements |
|
Lesser of life of lease or expected useful life |
Goodwill
The Company has acquired several entities resulting in the recording of intangible assets,
including goodwill, which represents the excess of the purchase price over the fair value of the
net assets of businesses acquired.
The Company has two reporting units included in continuing operations: Services and Pharmacy.
These reporting units are also the Companys two reportable business segments. As of March 31,
2010, the Services segment had no remaining goodwill, and the Pharmacy segment remaining goodwill
was fully impaired during the year ended March 31, 2011.
The Company conducts its annual goodwill impairment assessment during its fiscal fourth quarter.
Management would test for impairment between annual goodwill impairment assessments if events occur
or circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Examples of such events or circumstances include, but are not limited
to, the following: (i) a significant adverse change in business climate; (ii) an adverse action or
assessment by a regulator; (iii) unanticipated competition; or (iv) a decline in the market
capitalization below net book value.
Goodwill is tested using a two-step process. The first step of the goodwill impairment assessment,
used to identify potential impairment, compares the fair value of a reporting unit with its
carrying amount, including goodwill (net book value). If the fair value of a reporting unit
exceeds its net book value, goodwill of the reporting unit is considered not impaired, thus the
second step of the impairment test is unnecessary. If net book value of a reporting unit exceeds
its fair value, the second step of the goodwill
impairment test will be performed to measure the amount of impairment loss, if any. The second
step of the goodwill impairment assessment, used to measure the amount of impairment loss, if any,
compares the implied fair value of reporting unit goodwill, which is determined in the same manner
as the amount of goodwill recognized in a business combination, with the carrying amount of that
goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss shall be recognized in an amount equal to that excess.
F-9
In the first step of the goodwill impairment assessment, the Company uses an income approach to
derive a present value of the reporting units projected future annual cash flows and the present
residual value of the reporting unit. The fair value is calculated as the sum of the projected
discounted cash flows of the reporting unit over the next five years and the terminal value at the
end of those five years. The Company uses a variety of underlying assumptions to estimate these
future cash flows, which vary for each of the reporting units and include (i) future revenue growth
rates, (ii) future operating profitability, (iii) the weighted-average cost of capital and (iv) a
terminal growth rate. In addition, the Company makes certain judgments about the allocation of
corporate overhead costs in order to calculate the fair values of each of the Companys reporting
units. Estimates of future revenue and expenses associated with each reporting unit are the most
sensitive of estimates related to the fair value calculations. Other factors considered in the
fair value calculations include assumptions as to the business climate, industry and economic
conditions. The assumptions are subjective and different estimates could have a significant impact
on the results of the impairment analyses. In determining the appropriate assumptions, management
considers historic trends as well as current activities and initiatives.
In addition to estimating fair value of the Companys reporting units using the income approach,
the Company also estimates fair value using a market-based approach which relies on values based on
market multiples derived from comparable public companies. The Company uses the estimated fair
value of the reporting units under the market-based approach to validate the estimated fair value
of the reporting units under the income approach.
Intangible Assets
Acquired finite-lived intangible assets are amortized using the economic benefit method when
reliable information regarding future cash flows is available and the straight-line method when
this information is unavailable. The estimated useful lives are as follows:
|
|
|
|
|
Trade name |
|
30 years |
Customer relationships (depending on the type of business purchased) |
|
5 to 15 years |
Impairment of Long-Lived Assets
The Company reviews its depreciable and amortizable 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. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset,
generally determined by discounting the estimated future cash flows.
Deferred Financing Costs
Deferred financing costs include cash and equity-based fees paid for services provided in
conjunction with securing and negotiating debt arrangements. These costs are amortized to interest
expense over the life of the related debt.
Income Taxes
The Company provides for 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
are expected to reverse and tax credit carryforwards are expected to be utilized. 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.
Revenue Recognition and Concentration of Credit Risk
Revenues for services are recorded in the period the services are rendered. Revenues for products
are recorded in the period delivered based on sales prices established with the client or its
insurer prior to delivery.
F-10
Revenues recognized under arrangements with Medicare, Medicaid and other governmental-funded
organizations were approximately 35%, 36%, and 29% of total revenues from continuing operations for
the years ended March 31, 2011, 2010 and 2009, respectively. No customer represents more than 10%
of the Companys revenues for the years presented.
Earnings (Loss) Per Share
Basic earnings (loss) 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 (loss) 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. Shares
held in escrow that are contingently issuable upon a future outcome are not included in earnings
per share until they are released. Outstanding stock options, unvested restricted stock, warrants
to acquire common shares and escrowed shares have not been considered in the computation of
dilutive losses per share since their effect would be anti-dilutive for all applicable periods
shown. As of March 31, 2011, 2010, and 2009, there were approximately 21,123,000, 20,365,000, and
11,769,000 potentially dilutive share equivalents outstanding, respectively.
Fair Value of Financial Instruments
The carrying amounts of the Companys financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses, approximate their fair values due to
their short maturities. Based on borrowing rates currently available to the Company for similar
terms, the carrying value of the lines of credit, capital lease obligations, and long-term
obligations approximate fair value.
Advertising Expense
Advertising costs are expensed as incurred. For the years ended March 31, 2011, 2010 and 2009,
advertising expenses for continuing operations were $675,000, $691,000, and $704,000, respectively.
Reclassifications
Certain amounts presented in prior years have been reclassified to conform to current year
presentations including the reflection of newly discontinued operations separately from continuing
operations.
Recent Accounting Pronouncements
In August 2010, the FASB issued Accounting Standards Update (ASU) 2010-24, Health Care Entities
(Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries which clarifies for
medical malpractice claims or similar contingent liabilities, a health care entity should not net
insurance recoveries against a related claim liability. The amendments in this ASU are effective
for fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2010. The adoption of this ASU did not have a material impact on its consolidated financial
statements.
In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-29, Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business
Combinations a consensus of the FASB Emerging Issues Task Force (EITF). ASU No. 2010-29
amends accounting guidance concerning disclosure of supplemental pro forma information for business
combinations. If an entity presents comparative financial statements, the entity should disclose
revenue and earnings of the combined entity as though the business combination that occurred in the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
The accounting guidance also requires additional disclosures to describe the nature and amount of
material, nonrecurring pro forma adjustments. ASU No. 2010-29 is effective for fiscal years
beginning on or after
December 15, 2010 and will apply prospectively to business combinations completed on or after that
date. We do not expect the adoption of this pronouncement to have a significant impact on our
financial statements. The future impact of adopting this pronouncement will depend on the future
business combinations that we may pursue.
F-11
In December 2010, the FASB issued ASU No. 2010-28, Intangibles Goodwill and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts. ASU No. 2010-28 modifies Step 1 of the goodwill impairment test so that for
those reporting units with zero or negative carrying amounts, an entity is required to perform Step
2 of the goodwill impairment test if it is more likely than not based on an assessment of
qualitative indicators that a goodwill
impairment exists. In determining whether it is more likely than not that goodwill impairment
exists, an entity should consider whether there are any adverse qualitative factors indicating that
an impairment may exist. ASU No. 2010-28 will be effective for annual and interim reporting periods
beginning after December 15, 2010, and any impairment identified at the time of adoption will be
recognized as a cumulative-effect adjustment to beginning retained earnings. The adoption of this
pronouncement did not have a significant impact on our financial statements.
In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition Milestone Method (Topic
605): Milestone Method of Revenue Recognition a consensus of the FASB EITF. ASU No. 2010-17 is
limited to research or development arrangements and requires that this ASU be met for an entity to
apply the milestone method (record the milestone payment in its entirety in the period received) of
recognizing revenue. However, the FASB clarified that, even if the requirements in this ASU are
met, entities would not be precluded from making an accounting policy election to apply another
appropriate policy that results in the deferral of some portion of the arrangement consideration.
The guidance in this ASU will apply to milestones in both single-deliverable and
multiple-deliverable arrangements involving research or development transactions. ASU No. 2010-17
will be effective prospectively for milestones achieved in fiscal years, and interim periods within
those years, beginning on or after June 15, 2010. Early adoption is permitted. We do not anticipate
that ASU No. 2010-17 will have an impact on our financial statements.
Note 2 Managements Plan
The Company currently operates in two business segments, Services and Pharmacy. Over the past
three years the Company has primarily focused on expanding its DailyMedTM Pharmacy
business. The Company has divested non-strategic businesses and assets and used the proceeds of
these sales to reduce debt and fund the Pharmacy business growth.
The Pharmacy business has incurred significant operating losses as it has invested to support
future growth. The earnings being generated by the Services segment have not been sufficient to
cover the operating losses generated in the Pharmacy segment and to pay corporate selling, general
and administrative expense; and therefore, the Company has incurred significant operating losses in
each of the last three fiscal years. In addition, the Company has generated negative cash flows
from operations of $11.2 million and $5.9 million in fiscal 2011 and 2010, respectively, and has
approximately $39.5 million in debt, of which $34.9 million is due in April 2012. The Company had
stockholders deficits of $20.0 million and $11.8 million as of March 31, 2011 and 2010,
respectively.
At the present time, the Company does not believe that it is feasible to raise sufficient capital
to fund operations and repay its existing indebtedness solely by accessing traditional equity or
debt markets. As a result, the Company is pursuing various financial restructuring alternatives,
including a divestiture of the Services segment. The Company has engaged an investment bank,
Lazard Middle Market LLC, to advise the Board of Directors on these restructuring alternatives.
The divestiture process is substantially underway and, if approved by shareholders and completed,
the proceeds of this sale will be used for general corporate purposes, including funding of the
remaining Pharmacy operations, capital expenditures and repayment of debt, as determined
appropriate by the Companys Board of Directors. It is also anticipated that approximately $8.0
million of debt associated with the Services segment will be transferred along with the sale of the
business, thereby reducing the Companys long-term indebtedness.
If completed, the divestiture of the Services segment will not provide sufficient cash to fund the
operations of the Pharmacy segment and address the Companys remaining debt obligations.
Therefore, the Company is also evaluating alternatives to obtain additional financing. This
additional financing, if obtained, will enable the Company to take further steps to reduce and
restructure its long-term debt and to provide funding for the expansion of the Pharmacy business.
Management expects to see improvement in the operating results in the Pharmacy segment through
increased revenue, improved gross margins and lower expenses as a percentage of revenue, which it
believes will position the Company to obtain this financing. There can be no assurances that these
improved operating results will be achieved or that additional capital investment in the Pharmacy
segment will be secured. However, the sale of the Services segment will provide near term
liquidity to allow the Company to implement its plans to profitably expand the Pharmacy segment.
F-12
Note 3 Discontinued Operations
Services Segment
On May 29, 2009, the Company finalized the sale of substantially all of the assets of its
industrial and non-medical staffing business, which had been part of the Services segment, for cash
proceeds of $250,000, which were paid in five equal installments through September 2009.
Additionally, the Company is to receive 50% of the future earnings of the business until the total
payments equal $1,600,000. During fiscal 2011 and 2010, the Company received $686,000 and $72,000,
respectively, in earn out payments and recorded these amount as additional gain on the transaction.
The Company retained all accounts receivable for services provided prior to May 29, 2009.
Based on the original sales price, the Company recorded an impairment charge of $2,403,000 in the
fourth quarter of fiscal 2009.
Pharmacy Segment
In March 2011, the Company ceased the majority of its operations at its Minnesota pharmacy and
began reflecting the ceased operations as discontinued operations in the consolidated financial
statements. A portion of the business and the majority of the Minnesota assets were transferred to
the Indianapolis, Indiana pharmacy location. The cost to close the Minnesota facility was
immaterial.
On June 11, 2009, the Company entered into an Asset Purchase Agreement with a leading pharmacy
management company to sell substantially all of the assets of JASCORP, LLC (JASCORP) for proceeds
of $2,200,000, less fees of $185,000. $220,000 of the purchase price was held back by the buyer in
order to cover the Companys contingent obligations. In January 2011, the Company received
$190,000 of the original amount held back and recorded this amount as additional gain on the
transaction. JASCORP operated the retail pharmacy software business that the Company acquired in
July 2007. As part of the divestiture, the Company entered into a License and Services Agreement
with the buyer which provides the Company the right to continue to use the software for internal
purposes.
HHE Segment
On May 19, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P. to
sell the assets of its Midwest region of the Companys HHE business. Total proceeds were
$4,000,000, less fees of $150,000. $1,000,000 of the purchase price was held by the buyer to cover
the Companys contingent obligations. The Company retained all accounts receivable for services
provided prior to May 2009. Subsequent to the transaction date, the buyer made certain claims,
and in fiscal 2011, the buyer and the Company settled these claims and the final payment relating
to this transaction of $500,000 was released to the Company and recorded as additional gain on the
transaction.
On May 18, 2009, the Company completed the sale of its ownership interest in Lovell Medical Supply,
Inc., Beacon Respiratory Services of Georgia, Inc., and Trinity Healthcare of Winston-Salem, Inc.
to Aerocare Holdings, Inc. for total proceeds of $4,750,000, less fees of $150,000. At the time of
closing, $475,000 of the purchase price was held by the buyer to cover the Companys contingent
obligations. During fiscal 2010, the buyer released $267,000 of this amount, which was recognized
as an additional gain on the sale. During fiscal 2011, the Company received the final payment of
$155,000, which was recorded as additional gain on the transaction. A total of $53,000 was
retained by the buyer to cover certain obligations of the Company. The entities sold represented
the Southeast region of the Companys HHE business.
Based on the combined sales price of the HHE businesses sold in May 2009, the Company recorded an
impairment charge of $541,000 in the fourth quarter of fiscal 2009.
On January 5, 2009, the Company entered into an Asset Purchase Agreement with Braden Partners, L.P.
to sell the assets of its HHE business in San Fernando, California. Total proceeds were originally
estimated to be $503,000, less fees of $24,000. The Company retained all accounts receivables for
services provided prior to January 2009. Total proceeds included $126,000 that was held back by
the buyer to cover certain contingent obligations of the Company. During fiscal 2010, the Company
and the buyer resolved certain claims, and the entire holdback amount was forfeited by the Company.
F-13
In October 2008, the Company recognized $696,000 in additional loss on the sale of its ownership
interest in Beacon Respiratory
Services, Inc. (Beacon), which was divested of in September 2007. See Note 9 Stockholders
Deficit for a more detailed discussion of this transaction.
As of May 2009, the Company had sold all of its HHE operations.
Catalog Segment
On October 1, 2010, the Company completed the sale of its ownership interest in Rite at Home Health
Care Products, LLC to Home Health Depot, Inc. The Company is to receive 50% of future earnings of
the business until total payments equal $375,000. 40% of these proceeds are to be paid to a third
party. No earn-out payments will be payable after the quarter ending September 30, 2013. The
Company recorded a loss of $68,000 during fiscal 2011 in conjunction with this disposal. This
entity represented the Companys Catalog segment.
The Company recorded $892,000 of impairment charges relating to the Catalog segments goodwill and
customer relationship costs during the fiscal fourth quarter 2009.
Prior to their actual disposal, the assets and liabilities associated with these discontinued
business operations have been classified as assets and liabilities of discontinued operations in
the accompanying consolidated balance sheets. The results of the above businesses are reported in
discontinued operations in the accompanying consolidated statements of operations, and the prior
period consolidated statements of operations have been recast to conform to this presentation. The
segment results in Note 16 also reflect the reclassification of the discontinued operations. The
discontinued operations do not reflect the costs of certain services provided to these operations
by the Company. Such costs, which were not allocated by the Company to the various operations,
included internal employee costs associated with administrative functions, including accounting,
information technology, human resources, compliance and contracting as well as external costs for
legal fees, insurance, audit fees, payroll processing, and various public-company expenses. The
Company uses a centralized approach to cash management and financing of its operations, and,
accordingly, debt and the related interest expense were also not allocated specifically to these
operations. The consolidated statements of cash flows do not separately report the cash flows of
the discontinued operations.
There were no assets or liabilities of the discontinued operations at March 31, 2011. The
components of the assets and liabilities of the discontinued operations by segment as of March 31,
2010 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy |
|
|
Catalog |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
330 |
|
|
$ |
76 |
|
|
$ |
406 |
|
Inventories, net |
|
|
214 |
|
|
|
17 |
|
|
|
231 |
|
Prepaid expenses and other current assets |
|
|
83 |
|
|
|
81 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets of discontinued operations |
|
|
627 |
|
|
|
174 |
|
|
|
801 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
262 |
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets of discontinued operations |
|
|
262 |
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations |
|
$ |
889 |
|
|
$ |
174 |
|
|
$ |
1,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
27 |
|
|
$ |
300 |
|
|
$ |
327 |
|
Accrued compensation and related taxes |
|
|
39 |
|
|
|
8 |
|
|
|
47 |
|
Capital lease obligations, current portion |
|
|
35 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities of discontinued operations |
|
$ |
101 |
|
|
$ |
308 |
|
|
$ |
409 |
|
|
|
|
|
|
|
|
|
|
|
F-14
The components of the earnings/(loss) from discontinued operations by segment are presented
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net: |
|
$ |
|
|
|
$ |
3,194 |
|
|
$ |
|
|
|
$ |
660 |
|
|
$ |
3,854 |
|
Cost of revenue |
|
|
|
|
|
|
2,541 |
|
|
|
|
|
|
|
397 |
|
|
|
2,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
653 |
|
|
|
|
|
|
|
263 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
372 |
|
|
|
1,295 |
|
Depreciation and amortization |
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
1,008 |
|
|
|
|
|
|
|
372 |
|
|
|
1,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
|
|
|
|
(355 |
) |
|
|
|
|
|
|
(109 |
) |
|
|
(464 |
) |
Net gain (loss) on disposal |
|
|
686 |
|
|
|
127 |
|
|
|
655 |
|
|
|
(68 |
) |
|
|
1,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations |
|
$ |
686 |
|
|
$ |
(228 |
) |
|
$ |
655 |
|
|
$ |
(177 |
) |
|
$ |
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
1,223 |
|
|
$ |
4,054 |
|
|
$ |
1,423 |
|
|
$ |
1,813 |
|
|
$ |
8,513 |
|
Cost of revenue |
|
|
979 |
|
|
|
3,078 |
|
|
|
511 |
|
|
|
1,095 |
|
|
|
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
244 |
|
|
|
976 |
|
|
|
912 |
|
|
|
718 |
|
|
|
2,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
290 |
|
|
|
1,426 |
|
|
|
2,251 |
|
|
|
795 |
|
|
|
4,762 |
|
Depreciation and amortization |
|
|
3 |
|
|
|
600 |
|
|
|
88 |
|
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
293 |
|
|
|
2,026 |
|
|
|
2,339 |
|
|
|
795 |
|
|
|
5,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(49 |
) |
|
|
(1,050 |
) |
|
|
(1,427 |
) |
|
|
(77 |
) |
|
|
(2,603 |
) |
Net gain (loss) on disposal |
|
|
201 |
|
|
|
(30 |
) |
|
|
386 |
|
|
|
|
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations |
|
$ |
152 |
|
|
$ |
(1,080 |
) |
|
$ |
(1,041 |
) |
|
$ |
(77 |
) |
|
$ |
(2,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Home Health |
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Equipment |
|
|
Catalog |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
15,842 |
|
|
$ |
4,690 |
|
|
$ |
17,643 |
|
|
$ |
2,576 |
|
|
$ |
40,751 |
|
Cost of revenue |
|
|
12,675 |
|
|
|
2,463 |
|
|
|
5,266 |
|
|
|
1,594 |
|
|
|
21,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
3,167 |
|
|
|
2,227 |
|
|
|
12,377 |
|
|
|
982 |
|
|
|
18,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
2,155 |
|
|
|
2,436 |
|
|
|
11,158 |
|
|
|
1,130 |
|
|
|
16,879 |
|
Depreciation and amortization |
|
|
277 |
|
|
|
686 |
|
|
|
1,031 |
|
|
|
53 |
|
|
|
2,047 |
|
Goodwill and intangible asset impairment |
|
|
2,403 |
|
|
|
|
|
|
|
541 |
|
|
|
892 |
|
|
|
3,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,835 |
|
|
|
3,122 |
|
|
|
12,730 |
|
|
|
2,075 |
|
|
|
22,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(1,668 |
) |
|
|
(895 |
) |
|
|
(353 |
) |
|
|
(1,093 |
) |
|
|
(4,009 |
) |
Net loss on disposal |
|
|
|
|
|
|
|
|
|
|
(1,258 |
) |
|
|
|
|
|
|
(1,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(1,668 |
) |
|
$ |
(895 |
) |
|
$ |
(1,611 |
) |
|
$ |
(1,093 |
) |
|
$ |
(5,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4 Business Acquisitions
Fiscal 2011
During the year ended March 31, 2011, the Company paid a total of $164,000 relating to various
business acquisitions within the Services segment in prior years.
Fiscal 2010
During the year ended March 31, 2010, the Company paid a total of $281,000 relating to various
business acquisitions within the Services segment, of which $50,000 was for an acquisition in
December 2009 and $231,000 represented installment payments for prior year acquisitions.
Fiscal 2009
On April 25, 2008, the Company acquired substantially all of the assets of Carolina Care, LLC
(Carolina Care). Carolina Care is a provider of home health care services in North Carolina.
The total purchase price was $400,000, of which $274,000 was paid in cash during fiscal 2009 and
the remainder was paid in installments during fiscal 2010 and 2011.
F-16
Note 5 Fair Value
Effective April 1, 2008, the Company adopted accounting guidance that established a framework for
measuring fair value and expanded disclosures about fair value measurements. Fair value is an exit
price, representing the amount that would be received to sell an asset, or paid to transfer a
liability, in an orderly transaction between market participants. Fair value is to be determined
based on assumptions that market participants would use in pricing an asset or liability. Current
authoritative accounting guidance uses a three-tier hierarchy that classifies assets and
liabilities based on the inputs used in the valuation methodologies. In accordance with this
guidance, the Company measures its warrant liability at fair value. Management classified these
as Level 3 liabilities, as they are based on unobservable inputs and involve management judgement.
The following table presents a reconciliation of warrant liabilities measured at fair value on a
recurring basis at March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
Fair Value |
|
|
|
Measurements |
|
|
|
Using Significant |
|
|
|
Unobservable |
|
|
|
Inputs (Level 3) |
|
|
|
Warrant Liability |
|
Balance at April 1, 2009 |
|
$ |
|
|
Warrants issued |
|
|
2,478 |
|
Decrease in market value |
|
|
(979 |
) |
|
|
|
|
Balance at March 31, 2010 |
|
|
1,499 |
|
Warrants issued |
|
|
273 |
|
Reclassification to permanent equity |
|
|
(35 |
) |
Decrease in market value |
|
|
(1,452 |
) |
|
|
|
|
Balance at March 31, 2011 |
|
$ |
285 |
|
|
|
|
|
In fiscal 2011, the Company recognized an impairment charge of $2,500,000 for the remaining
goodwill associated with the Pharmacy segment. In fiscal 2010, the Company recognized an
impairment charge of $14,599,000 for the remaining goodwill associated with the Services segment.
In fiscal 2009, the Company wrote down the fair value of its Pharmacy goodwill to $2,500,000,
resulting in an impairment charge of $13,217,000. In conjunction with the goodwill impairment, the
Company recognized an impairment expense relating to Pharmacy segments customer relationships of
$9,402,000. Each assets fair value was determined based on a Level 3 income approach but also
considered a market-based approach to validate the estimated fair value.
F-17
Note 6 Property and Equipment
Property and equipment consists of the following at March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Depreciation/ |
|
|
|
|
|
|
Depreciation/ |
|
|
|
Cost |
|
|
Amortization |
|
|
Cost |
|
|
Amortization |
|
Equipment |
|
$ |
1,737 |
|
|
$ |
1,086 |
|
|
$ |
1,484 |
|
|
$ |
827 |
|
Software |
|
|
2,196 |
|
|
|
1,848 |
|
|
|
1,947 |
|
|
|
1,357 |
|
Vehicles |
|
|
49 |
|
|
|
39 |
|
|
|
49 |
|
|
|
33 |
|
Furniture and fixtures |
|
|
915 |
|
|
|
725 |
|
|
|
834 |
|
|
|
648 |
|
Leasehold improvements |
|
|
94 |
|
|
|
40 |
|
|
|
55 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,991 |
|
|
$ |
3,738 |
|
|
|
4,369 |
|
|
$ |
2,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization |
|
|
(3,738 |
) |
|
|
|
|
|
|
(2,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
$ |
1,253 |
|
|
|
|
|
|
$ |
1,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense for property and equipment included in continuing
operations was $808,000, $666,000, and $601,000 for the years ended March 31, 2011, 2010 and 2009,
respectively.
Note 7 Goodwill and Acquired Intangible Assets
The following table presents the detail of the changes in goodwill by segment for the years ended
March 31, 2011, 2010 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
Pharmacy |
|
|
Total |
|
Goodwill at April 1, 2008 |
|
$ |
13,996 |
|
|
$ |
15,717 |
|
|
$ |
29,713 |
|
Acquisitions during the year |
|
|
557 |
|
|
|
|
|
|
|
557 |
|
Impairment expense |
|
|
|
|
|
|
(13,217 |
) |
|
|
(13,217 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill at March 31, 2009 |
|
|
14,553 |
|
|
|
2,500 |
|
|
|
17,053 |
|
Acquisitions during the year |
|
|
46 |
|
|
|
|
|
|
|
46 |
|
Impairment expense |
|
|
(14,599 |
) |
|
|
|
|
|
|
(14,599 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill at March 31, 2010 |
|
|
|
|
|
|
2,500 |
|
|
|
2,500 |
|
Impairment expense |
|
|
|
|
|
|
(2,500 |
) |
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill at March 31, 2011 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
For tax purposes, goodwill of approximately $16.4 million is amortizable over 15 years while the
remainder of the Companys goodwill is not amortizable as the acquisitions related to the purchase
of common stock rather than of assets or net assets.
F-18
Acquired intangible assets consist of the following at March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
|
|
Cost |
|
|
Amortization |
|
|
Cost |
|
|
Amortization |
|
Trade name |
|
$ |
6,664 |
|
|
$ |
1,016 |
|
|
$ |
6,664 |
|
|
$ |
847 |
|
Customer relationships |
|
|
4,720 |
|
|
|
3,270 |
|
|
|
4,720 |
|
|
|
2,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,384 |
|
|
$ |
4,286 |
|
|
|
11,384 |
|
|
$ |
3,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated
amortization |
|
|
(4,286 |
) |
|
|
|
|
|
|
(3,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquired
intangible assets |
|
$ |
7,098 |
|
|
|
|
|
|
$ |
7,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for acquired intangible assets included in continuing operations was $572,000,
$634,000, and $912,000 for the years ended March 31, 2011, 2010 and 2009, respectively.
The estimated amortization expense related to acquired intangible assets in existence as of March
31, 2011 is as follows (in thousands):
|
|
|
|
|
Fiscal 2012 |
|
$ |
518 |
|
Fiscal 2013 |
|
|
476 |
|
Fiscal 2014 |
|
|
382 |
|
Fiscal 2015 |
|
|
350 |
|
Fiscal 2016 |
|
|
329 |
|
Thereafter |
|
|
5,043 |
|
|
|
|
|
Total |
|
$ |
7,098 |
|
|
|
|
|
Impairment Expense
The following table summarizes goodwill and intangible asset impairment charges for the fiscal
years ended March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
|
$ |
14,599 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,500 |
|
|
|
|
|
|
|
13,217 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
9,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
22,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,500 |
|
|
$ |
14,599 |
|
|
$ |
22,619 |
|
|
|
|
|
|
|
|
|
|
|
F-19
In accordance with our policy, the Company performs its annual impairment review during the fiscal
fourth quarter.
Fiscal 2011
As part of the fourth quarter fiscal 2011 Pharmacy goodwill impairment analysis, the Company
recognized that the anticipated growth from the DailyMed program continued to be slower than
anticipated and that there continues to be uncertainty surrounding the timing and amount of future
revenue and cash flow streams. The Company determined that it was appropriate to write off the
remaining goodwill balance and recorded a $2,500,000 impairment charge.
Fiscal 2010
During fiscal 2009 and 2010, the Services segment as a whole had seen declining revenue, and the
decline was primarily driven by a decline in the medical staffing and travel staffing businesses.
Many of the Services segments locations provided both home care and medical staffing services.
During fiscal 2010, home care accounted for 79% of total segment revenue and medical staffing and
travel staffing, in the aggregate, accounted for the remaining 21% of revenue. The medical
staffing and travel staffing business experienced a 46% decline in revenue from fiscal 2008 to
fiscal 2010. During the same period, home care revenue increased by 9%, but fiscal 2010 revenue
was approximately 1% lower than fiscal 2009. Managements ability to predict the timing and extent
of the segments recovery was subject to some uncertainty. Therefore, management focused on more
recent trends in its annual impairment analysis, which resulted in lower future cash flow
projections than in prior years analysis. The impairment analysis resulted in a $14,599,000
goodwill impairment charge for fiscal 2010, and subsequent to this charge, there was no remaining
goodwill associated with the Services segment.
In conjunction with the fiscal 2009 goodwill impairment analysis (as described below), the Company
recognized a $13,217,000 goodwill impairment charge in the Pharmacy reporting unit. As evidenced
by the annual revenue growth in fiscal 2010, the Pharmacy segment continued to advance its DailyMed
business during the year, but it continued to be in the early stages of development. In performing
the goodwill impairment analysis for the Pharmacy reporting unit during the fiscal fourth quarter
2010, management relied on recent trends and future expectations based on these trends and on
industry experience to project future operating results. The fiscal 2011 revenue estimates were
based on payer relationships that existed as of the time of the analysis. The revenue estimates in
the future years assumed new payer relationships similar to the WellPoint relationship, which was
originally established in June 2009. Additionally, management assumed margin improvement over the
next five years due to increased volume, operational improvements and additional revenue from
medication adherence services, which would generate higher margins than drug revenue. Management
also estimated that the selling, general and administrative expenses as a percentage of revenue
would improve due to software and technological enhancements as well as efficiencies gained through
volume and experience. As of March 31, 2010, the Pharmacy goodwill reporting unit analysis
indicated that its fair value was in excess of it carrying value by approximately 40% so the second
step of the goodwill analysis was not considered necessary.
Fiscal 2009
In the impairment analysis of the Services reporting unit performed as of March 31, 2009,
management assumed an annual revenue growth rate of approximately 5%. Additionally, management
assumed that margins over the next five years would remain consistent at between 30.0% and 30.5%
compared to margins of 30.5% for the year ended March 31, 2009. With regards to total SG&A for the
Services reporting unit, management assumed that it would decrease by approximately 2% for the year
ended March 31, 2010 and then modestly increase in the years thereafter. The decrease in SG&A
expenses in the first year of the projections reflects the impact of certain charges taken in the
year ended March 31, 2009 as well as the benefits of various cost reduction initiatives. In the
projections, the total SG&A was impacted by the amount of corporate allocation charged to the
Services segment. At the time, the Company believed that the Pharmacy segment would grow
significantly over the next several years, and as growth occurred, the amount of fixed corporate
overhead allocated to the Pharmacy would increase with a corresponding decrease to the Services
segment. As of March 31, 2009, the Services reporting unit analysis indicated that its fair value
was in excess of it carrying value by approximately 5% so the second step of the goodwill analysis
was not considered necessary.
The Pharmacy segment goodwill was originally recognized during fiscal 2007 in conjunction with the
PrairieStone Pharmacy, LLC acquisition in February 2007. As of March 31, 2007, the Company
recognized $15,717,000 in goodwill. Goodwill remained at that amount as of March 31, 2008. As
part of the fourth quarter fiscal 2009 goodwill impairment analysis, the Company recognized that
there had been a slower than anticipated growth from the DailyMed program and that there was
uncertainty surrounding the timing and amount of future revenue and cash flow streams. The analysis
resulted in a $13,217,000 impairment charge for fiscal 2009 resulting in $2,500,000 of Pharmacy
goodwill remaining at March 31, 2009. Additionally, the Company recognized a $9,720,000 impairment
charge for fiscal 2009 to write off the balance of its customer relationship intangible asset.
F-20
Note 8 Lines of Credit
The following table summarizes the lines of credit for the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available |
|
|
|
|
|
|
March 31, |
|
|
|
|
Lending Institution |
|
Maturity date |
|
|
Borrowing |
|
|
Balance |
|
|
2010 |
|
|
Interest rate |
|
Comerica Bank |
|
April 1, 2012 |
|
$ |
9,163 |
|
|
$ |
7,130 |
|
|
$ |
7,774 |
|
|
Prime plus 2.75 |
% |
H.D. Smith |
|
April 23, 2013 |
|
|
4,777 |
|
|
|
4,777 |
|
|
|
|
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lines of credit obligations |
|
|
|
|
|
$ |
13,940 |
|
|
|
11,907 |
|
|
|
7,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.D. Smith unamortized debt discount |
|
|
|
|
|
|
|
|
|
|
(403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,504 |
|
|
$ |
7,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comerica Bank
Arcadia Services, Inc. (ASI), a wholly-owned subsidiary of the Company, and three of ASIs
wholly-owned subsidiaries have an outstanding line of credit agreement with Comerica Bank. As of
March 31, 2011, advances under the line of credit agreement cannot exceed the revolving credit
commitment amount of $11 million or the aggregate principal amount of indebtedness permitted under
the advance formula amount at any one time. The advance formula base is 85% of the eligible
accounts receivable, plus the lesser of 85% of eligible unbilled accounts or $3,000,000. The line
of credit agreement contains a subjective acceleration clause and requires the Company to maintain
a lockbox. However, the Company has the ability to control the funds in the deposit account and to
determine the amount used to pay down the line of credit balance. As such, the line of credit is
not automatically classified as a current obligation. Arcadia Services, Inc. agreed to various
financial covenant ratios (as described below), to have any person who acquires Arcadia Services,
Inc.s capital stock to pledge such stock to Comerica Bank, and to customary negative covenants.
The line of credit agreement also requires the Company to maintain a deposit account with a minimum
balance, and this amount is classified as restricted cash on the Companys consolidated balance
sheet. If an event of default occurs, Comerica Bank may, at its option, accelerate the maturity of
the debt and exercise its right to foreclose on the issued and outstanding capital stock of Arcadia
Services, Inc. and on all of the assets of Arcadia Services, Inc. and its subsidiaries. On March
31, 2011, the interest rate on this line of credit agreement was the banks prime rate plus 2.75%
(6.0%), and the availability under the line was $2,033,000.
RKDA, Inc. (RKDA), a wholly-owned subsidiary of the Company and the holding company of Arcadia
Services, Inc., granted Comerica Bank a first priority security interest in all of the issued and
outstanding capital stock of Arcadia Services, Inc. Arcadia Services, Inc. granted Comerica Bank a
first priority security interest in all of its assets. The subsidiaries of Arcadia Services, Inc.
granted the bank security interests in all of their assets. RDKA is restricted from paying
dividends to the Company. RKDA executed a guaranty to Comerica Bank for all indebtedness of Arcadia
Services, Inc. and its subsidiaries. Any such default and resulting foreclosure would have a
material adverse effect on the Companys financial condition.
On October 31, 2010, the Company and the bank entered into an amendment and waiver agreement. The
amendment reduced the revolving credit commitment amount from $14 million to $11 million and
extended the maturity date to April 1, 2012. As of September 30, 2010, the Company was not in
compliance with two financial covenants. The amendment waived these covenant violations and
established new covenant requirements. Specifically, subsequent to this amendment, the following
financial covenants apply: tangible effective net worth of $750,000 as of December 31, 2010 and
gradually increasing on a quarterly basis to $1.25 million by March 31, 2012; minimum quarterly net
income of $400,000; and, minimum subordination of indebtedness to Arcadia Resources, Inc. of $9.15
million. Finally, the amendment increased the required restricted cash balance from $500,000 to
$1,000,000. As of March 31, 2011, the ASI was in compliance with the loan covenants.
F-21
The outstanding balance on the Comerica Bank line of credit will be paid in full or assumed by the
buyer as part of the anticipated divestiture of the Services segment.
H.D. Smith Wholesale Drug Co.
On April 23, 2010, the Company executed a Line of Credit and Security Agreement with H.D. Smith
Wholesale Drug Co. (H.D. Smith), its primary supplier of pharmaceutical products. Under terms of
the agreement, the Company can borrow up to $5,000,000, including amounts payable under normal
product purchasing terms. Beginning April 1, 2011, additional borrowings under the agreement are
limited based upon a borrowing base of the assets. The debt accrues interest at the greater of 7%
and the prime rate plus 3%, and it matures on April 23, 2013. Interest during the first 12 months
of the agreement was added to the debt balance. Interest only payments are required from May 2011
through April 2012. Beginning in May 2012, the Company will make monthly payments of $75,000 plus
interest. Borrowings may be prepaid at any time without penalty. The debt is secured by all of
the tangible and intangible assets of PrairieStone Pharmacy, LLC, which operates the Companys
Pharmacy segment. The agreement includes certain financial covenants for the Pharmacy segment
beginning with the fiscal fourth quarter 2012. Specifically, the financial covenants are as
follows: positive quarterly earnings before income tax, depreciation and amortization and current
assets divided by current liabilities of greater than .75. As of March 31, 2011, there was no
additional availability under the line.
In conjunction with the credit agreement, the Company issued H.D. Smith certain warrants to
purchase common stock (see Note 10 Stockholders Deficit for more details) and incurred
certain professional fees. These costs, which originally totaled $561,000, were recorded as a debt
discount and are being amortized over the term of the debt agreement.
F-22
Note 9 Long-Term Obligations
Long-term obligations consist of the following at March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Note payable to JANA Master Fund, Ltd.
(JANA) in the original amount of $18.0 million,
dated March 25, 2009 bearing an effective interest
rate of 10% with unpaid accrued interest and
principal due in full on April 1, 2012. Cash
interest that would otherwise be payable on such
quarterly interest payment dates may be added to
the principal balance of the note payable at the
Companys option. The note payable is unsecured. |
|
$ |
19,406 |
|
|
$ |
17,581 |
|
|
|
|
|
|
|
|
|
|
Note payable to Vicis Capital Master Fund (Vicis)
in the original amount of $7.8 million, dated March
25, 2009 bearing an effective interest rate of 10%
with unpaid accrued interest and principal due in
full on April 1, 2012. Cash interest that would
otherwise be payable on such quarterly interest
payment dates may be added to the principal balance
of the note payable at the Companys option. The
note payable is unsecured. |
|
|
7,181 |
|
|
|
6,505 |
|
|
|
|
|
|
|
|
|
|
Note payable to LSP Partners, LP (LSP) in the
amount of $1.0 million, dated March 25, 2009
bearing an effective interest rate of 10% with
unpaid accrued interest and principal due in full
on April 1, 2012. Cash interest that would
otherwise be payable on such quarterly interest
payment dates may be added to the principal balance
of the note payable at the Companys option. The
note payable is unsecured. |
|
|
1,220 |
|
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
Payable due to AmerisourceBergen Drug Corporation
bearing an effective interest rate of 8.0%. The
unpaid accrued interest and principal was paid in
full in April 2010. The debt was secured. |
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
189 |
|
|
|
189 |
|
|
|
|
|
|
|
|
Total long-term obligations |
|
|
27,996 |
|
|
|
26,131 |
|
Less current portion of long-term obligations |
|
|
(189 |
) |
|
|
(939 |
) |
|
|
|
|
|
|
|
Long-term obligations, less current portion |
|
$ |
27,807 |
|
|
$ |
25,192 |
|
|
|
|
|
|
|
|
On September 10, 2009, the Company entered into note payable agreements in the aggregate amount of
$2,400,000 with an original maturity date of April 1, 2012. The notes included a mandatory
repayment provision whereby if the Company raised in excess of $5,000,000 in a debt or equity
transaction, the notes would be paid in full. In November 2009, the Company finalized an equity
transaction with gross proceeds of $11,100,000. Consistent with the terms of the debt agreements,
the Company used a portion of the proceeds to pay off the $2,400,000 balance.
On March 25, 2009, the Company entered into a Master Exchange Agreement with JANA (related entity),
Vicis (related entity) and LSP. Pursuant to the agreement, Vicis purchased $2,000,000 of the
principal balance of promissory note held by JANA. Additionally, JANA and LSP advanced the Company
$2,000,000 and $1,000,000 of cash, respectively. JANA and Vicis then exchanged their previously
outstanding promissory notes for new notes with terms as described above. The new promissory notes
due to JANA, Vicis, and LSP include covenants relating to, among other items, limitations of
additional indebtedness, issuance of new equity securities and the application of proceeds from
future asset sales. Specifically, the notes provide that the first $2,000,000 in proceeds would be
retained by the Company. Additional proceeds are then paid to JANA, Vicis and LSP as provided in
the promissory notes. After these promissory note prepayments are made, proceeds up to $20,000,000
are split 50% to the Company and 50% to be paid pro-rata to these three lenders. Thereafter,
proceeds are split 25% to the Company and 75% to the lenders. As of March 31, 2011, the Company
owes these lenders $833,000 before additional proceeds are split between the Company and the
lenders.
F-23
As of March 31, 2011 future maturities of long-term obligations are as follows (in thousands):
|
|
|
|
|
Fiscal 2012 |
|
$ |
189 |
|
Fiscal 2013 |
|
|
27,807 |
|
|
|
|
|
Total |
|
$ |
27,996 |
|
|
|
|
|
The weighted average interest rate of outstanding long-term obligations as of March 31, 2011 and
2010 was 10.0% for both years.
Note 10 Stockholders Deficit
General
On October 14, 2009, the Companys shareholders approved an amendment to the Companys Articles of
Incorporation to increase the number of authorized shares of the Companys common stock to
300,000,000, $0.001 par value per share, from 200,000,000, $0.001 par value per share.
Escrow Shares
In conjunction with the PrairieStone Pharmacy, LLC (PrairieStone) acquisition on February 15,
2007, the purchase agreement provided for a potential earn out for two continuing employees of up
to an aggregate of 600,000 shares of common stock. The earn out was based on PrairieStones
earnings before interest, taxes depreciation and amortization for periods through March 31, 2010.
The earn out targets were not met, and the shares were returned to the Company and canceled during
fiscal 2011.
Common Stock Transactions Fiscal 2011
On November 2, 2010, the Company finalized an equity financing transaction whereby it raised
$4,994,000 in gross proceeds. Under the terms of the agreements with the investors, the Company
sold 15,606,250 shares of common stock for $0.32 per share. Expenses associated with the
transaction, which included a 7.0% placement fee, totaled $564,000 resulting in net proceeds of
$4,430,000.
Common Stock Transactions Fiscal 2010
On November 17, 2009, the Company finalized an equity financing transaction whereby it raised
$11,100,000 in gross proceeds. Under the terms of the agreements with the investors, the Company
sold 15,857,141 units for $0.70 per unit. Each unit consists of one share of common stock and a
warrant to purchase 0.45 shares of common stock. The Company issued an aggregate of 15,857,141
shares of common stock and 7,135,713 warrants to purchase common stock.
Total expenses associated with the transaction, which included a 6.5% placement agent fee, were
$902,000. $857,000 of these expenses were paid in cash resulting in net cash proceeds of
$10,243,000. Consistent with the terms of the debt agreements entered into in September 2009, the
Company used $2,400,000 of the net proceeds to pay off certain outstanding debt.
Common Stock Transactions Fiscal 2009
In July 2007, the Company acquired 100% of the membership interest of JASCORP, LLC. As partial
consideration, the Company issued 1,814,883 shares of common stock. The Company guaranteed the
share price of $0.99 per share at the one-year anniversary date of the acquisition. In July 2008,
the Company issued 1,512,402 shares of common stock to the former owner of JASCORP in order to
satisfy the guaranteed stock price obligation. Because the share price guarantee was contemplated
and accounted for at the time of the acquisition, the issuance of additional shares of common stock
did not impact the original purchase price allocation.
In September 2007 and simultaneous with the Companys sale of its Florida and Colorado home health
equipment businesses, the Company released 1,068,140 shares of common stock to the former owners of
Alliance Oxygen & Medical Equipment, Inc. (Alliance), an entity acquired by the Company in July
2006. The release of the shares was consistent with the terms of an Escrow Release Agreement
entered into on July 19, 2007. In the agreement, the Company guaranteed the share price of $0.70
per share. In October 2008, the Company issued 1,804,491 shares of common stock to the former
owners of Alliance in order to satisfy the guaranteed stock price obligation. The value of these
shares was determined to be $695,000. This amount was recognized as an additional loss on the
disposal of the Florida HHE divestiture and is included in discontinued operations for the year
ended March 31, 2009 (see Note 4 Discontinued Operations).
F-24
On March 25, 2009 and in conjunction with the debt refinancing described in Note 8, the Company
issued 6,056,499 shares of common stock valued at $2,059,000 to the lenders as consideration for
providing the additional financing and extending the maturity date of the previously existing debt.
The Company also exchanged 4,683,111 warrants held by two of the lenders (Vicis and JANA) for
5,616,444 shares of common stock with an incremental fair value of $1,145,000. Finally, a total of
8,545,833 warrants with a strike price of $.001 per share held by these two lenders were exercised
on a cashless basis, and an additional 1,555,555 warrants held by one of the lenders were canceled.
The aggregate amount of $3,204,000 is included in Loss on Extinguishment of Debt.
Concurrent with the March 25, 2009 debt refinancing, the holders of the warrants issued in
conjunction with the May 2007 private placement transaction agreed to exchange a total of 2,754,726
warrants for 2,754,726 shares of common stock with an incremental fair value of $566,000, which is
also included in Loss on Extinguishment of Debt. The Company also issued 50,000 shares of common
stock valued at $17,000 to a financial advisor as compensation for assistance in the communication
with the warrant holders.
As partial consideration for the assistance with the debt refinancing from an investment bank, the
Company exchanged 636,000 Class A warrants held by an affiliate of the investment bank for 636,000
shares of common stock with an incremental fair value of $107,000. As further consideration, the
Company repriced 1,070,796 Class A warrants, and the incremental fair value was immaterial.
On March 31, 2009, the Company issued 409,287 shares of common stock valued at $172,000 to its
Board of Directors as partial consideration for their fees for the period October 1, 2008 through
September 30, 2009.
Warrants
The following represents warrants outstanding as of March 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price |
|
|
Granted |
|
Expiration |
|
2011 |
|
|
2010 |
|
$ |
0.13 |
|
|
March 2011 |
|
March 2016 |
|
|
500,000 |
|
|
|
|
|
$ |
0.40 |
|
|
April 2010 |
|
April 2015 |
|
|
500,000 |
|
|
|
|
|
$ |
0.41 |
|
|
April 2009 |
|
April 2014 |
|
|
52,800 |
|
|
|
52,800 |
|
$ |
0.50 |
|
|
various |
|
May 2011 |
|
|
2,301,774 |
|
|
|
2,301,774 |
|
$ |
0.50 |
|
|
May 2004 |
|
March 2014 |
|
|
1,070,796 |
|
|
|
1,070,796 |
|
$ |
0.75 |
|
|
June 2008 |
|
June 2015 |
|
|
490,000 |
|
|
|
490,000 |
|
$ |
0.95 |
|
|
November 2009 |
|
May 2015 |
|
|
7,135,713 |
|
|
|
7,135,713 |
|
$ |
2.25 |
|
|
September 2005 |
|
September 2010 |
|
|
|
|
|
|
44,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,051,083 |
|
|
|
11,095,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding warrants have no voting rights and provide the holder with the right to convert one
warrant for one share of the Companys common stock at the stated exercise price. The majority of
the outstanding warrants have a cashless exercise feature.
The 7,135,713 warrants issued in November 2009 in conjunction with the equity financing transaction
did not meet all of the criteria for equity classification. As a result, on November 17, 2009, the
Company recorded the warrants in accordance with ASC Topic 815-40, Derivatives and Hedging, as a
warrant liability at their then fair value of $2,478,000. The Company will mark the warrant
liability to market at the end of each period until the Company complies with the requirements of
equity classification of the warrant, at which time the warrant liability will be reclassified to
equity. As a result, the Company recorded $1,213,000 and $979,000 as other income from the
change in the fair value of these warrants for fiscal 2011 and 2010, respectively.
The fair value of warrant liability was calculated under the Black-Scholes pricing model using the
Companys stock price on the date of the warrant grant, the warrant exercise price, the Companys
expected volatility, and the risk free interest rate matched to the warrants expected life. The
Company does not anticipate paying dividends during the term of the warrants. The Company uses
historical data to estimate volatility assumptions used in the valuation model. The expected term
of warrants is equal to the contract life. The risk-free rate for periods within the contractual
life of the warrant is based on the U.S. Treasury yield curve in effect at the time of grant.
F-25
The specific assumptions used to determine the fair value of the warrants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
November 17, 2009 |
|
Expected volatility |
|
|
99 |
% |
|
|
84 |
% |
|
|
86 |
% |
Expected dividend yields |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected terms (in years) |
|
|
4.1 |
|
|
|
5.1 |
|
|
|
5.5 |
|
Risk-free interest rate |
|
|
1.80 |
% |
|
|
2.69 |
% |
|
|
2.19 |
% |
On April 23, 2010 and in conjunction with the H.D. Smith line of credit agreement (see Note 8
Lines of Credit), the Company granted H. D. Smith 500,000 warrants to purchase common stock at an
exercise price of $0.40 per share. The warrants expire on April 23, 2015. The Company also
granted H.D. Smith up to an additional 500,000 warrants to purchase common stock. Consistent with
the terms of the agreement, all of these warrants vested on March 31, 2011 because the value of the
borrowing base supporting the line of credit did not exceed certain thresholds. The exercise price
of $0.13 was computed consistent with the terms of the agreement as the lower of $0.40 and the
preceding 10-day average of the closing prices per shares on March 31, 2011. The warrants have a
5-year life.
The fair value of the initial 500,000 warrants issued to H.D. Smith was estimated using the
Black-Scholes pricing model and was determined to be $260,000. This was recorded as a debt
discount and will be amortized over the term of the H.D. Smith line of credit. The assumptions
used in the fair value calculation were as follows: risk free interest rate of 2.6%, expected
dividend yield of 0%, expected volatility of 86%, and expected life of 5 years.
The original fair value of the 500,000 warrants issued to H.D. Smith that vested on March 31, 2011
was estimated using the Black-Scholes pricing model and was determined to be $273,000. This was
recorded as a debt discount and will be amortized over the term of the H.D. Smith line of credit.
The assumptions used in the fair value calculation were as follows: risk free interest rate of
3.0%, expected dividend yield of 0%, expected volatility of 87%, and expected life of 6 years.
Because the vesting of these warrants was contingent on a future event, the fair value of the
warrants was originally classified as a liability until they vested on March 31, 2011, at which
time they were reclassified to permanent equity as all the criteria for equity treatment were met
at that point in time. Prior to the reclassification to permanent equity, the fair value of
liability was adjusted on a quarterly basis. During fiscal 2011, the Company recorded $239,000 of
other income, and these amounts represent the change in the fair value of the warrant liability
during the year.
No warrants were exercised during the fiscal year ended March 31, 2011.
During the year ended March 31, 2010, 581,055 warrants were exercised on a cashless basis resulting
in the issuance of 510,738 shares of common stock. Additionally, in April 2009, the Company
accounted for 22,489 shares of common stock forfeited to the Company as part of the cashless
exercise of 8,545,833 warrants.
On March 25, 2009, and in conjunction with the debt refinancing described in Note 8, certain
warrants were exercised, canceled, repriced and/or exchanged for shares of common stock as more
fully described above.
On March 31, 2008 and in conjunction with the note payable entered into with Vicis Capital Master
Fund, the Company amended a warrant agreement held by Vicis. The amendment reduced the exercise
price and extended the maturity date. The value associated with the re-pricing of the 3,111,111
warrants was determined to be $1,202,000 and was recorded as a debt discount on March 31, 2008. On
March 25, 2009, and in conjunction with the debt refinancing described in Note 8, these warrants
were exchanged for shares of common stock.
In June 2008 and as partial consideration for an amendment to a pre-existing line of credit
agreement, the Company issued 490,000 warrants to purchase common stock at an exercise price of
$0.75 per share. The fair value of the warrants was estimated using the Black-Scholes pricing model
and was determined to be $248,000. This was recorded as a loss on extinguishment of debt in the
accompanying Consolidated Statements of Operations. The assumptions used were as follows: risk free
interest rate of 3.63%, expected dividend yield of 0%, expected volatility of 76%, and expected
life of 7 years.
F-26
Note 11 Commitments and Contingencies
Lease Commitments
The Company leases office space under several operating lease agreements, which expire through
2014. Rent expense for continuing operations relating to these leases amounted to approximately
$1,175,000, $999,000, and $1,003,000 for the years ended March 31, 2011, 2010 and 2009,
respectively.
The following is a schedule of approximate future minimum lease payments, exclusive of real estate
taxes and other operating expenses, required under operating and capital leases that have initial
or remaining non-cancelable lease terms in excess of one year (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Operating |
|
|
|
Leases |
|
|
Leases |
|
Year ending March 31: |
|
|
|
|
|
|
|
|
2012 |
|
$ |
27 |
|
|
$ |
976 |
|
2013 |
|
|
|
|
|
|
840 |
|
2014 |
|
|
|
|
|
|
700 |
|
2015 |
|
|
|
|
|
|
441 |
|
2016 |
|
|
|
|
|
|
335 |
|
Thereafter |
|
|
|
|
|
|
519 |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
27 |
|
|
$ |
3,811 |
|
|
|
|
|
|
|
|
|
Less amount representing interest |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total principal payments |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies
As a health care provider, the Company is subject to extensive federal and state government
regulation, including numerous laws directed at preventing fraud and abuse and laws regulating
reimbursement under various government programs. The marketing, billing, documenting and other
practices of health care companies are all subject to government scrutiny. To ensure compliance
with Medicare and other regulations, audits may be conducted, with requests for patient records and
other documents to support claims submitted for payment of services rendered to customers,
beneficiaries of the government programs. Violations of federal and state regulations can result in
severe criminal, civil and administrative penalties and sanctions, including disqualification from
Medicare and other reimbursement programs.
The Company is subject to various legal proceedings and claims which arise in the ordinary course
of business. The Company does not believe that the resolution of such actions will materially
affect the Companys business, results of operations or financial condition.
Note 12 Stock-Based Compensation
On August 18, 2006, the Board of Directors unanimously approved the Arcadia Resources, Inc. 2006
Equity Incentive Plan (the 2006 Plan), which was subsequently approved by the stockholders on
September 26, 2006. The 2006 Plan provides for grants of incentive stock options, non-qualified
stock options, stock appreciation rights and restricted shares (collectively Awards). The 2006
Plan will terminate and no more Awards will be granted after August 2, 2016, unless terminated by
the Board of Directors sooner. The termination of the 2006 Plan will not affect previously granted
Awards. All non-employee directors, executive officers and employees of the Company and its
subsidiaries are eligible to receive Awards under the 2006 Plan.
F-27
On January 27, 2009, the Board of Directors approved and adopted the Second Amendment (the
Amendment) to the 2006 Plan, and the Amendment was approved by the stockholders on October 14,
2009. The Amendment increased the number of shares available to be issued under the Plan to 5% of
the Companys authorized shares of common stock, or 15 million shares.
As of March 31, 2011, approximately 4.2 million shares were available for grant under the amended
2006 Plan.
Following are the specific valuation assumptions used for each respective years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
2011 |
|
|
2010 |
|
|
2009 |
|
Expected volatility |
|
|
84 |
% |
|
|
92 |
% |
|
|
77 |
% |
Expected dividend yields |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected terms (in years) |
|
|
6.86 |
|
|
|
4.38 |
|
|
|
4.65 |
|
Risk-free interest rate |
|
|
1.83 |
% |
|
|
1.81 |
% |
|
|
2.67 |
% |
Stock option activity for the years ended March 31, 2011 and 2010 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
Options |
|
Shares |
|
|
Price |
|
|
Term (Years) |
|
|
(thousands) |
|
Outstanding at April 1, 2009 |
|
|
3,771,225 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
4,961,572 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(396,613 |
) |
|
|
1.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
8,336,184 |
|
|
|
0.65 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,097,465 |
|
|
|
0.37 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(10,750 |
) |
|
|
0.25 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(496,062 |
) |
|
|
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
8,926,837 |
|
|
$ |
0.60 |
|
|
|
5.0 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011 |
|
|
8,263,792 |
|
|
$ |
0.62 |
|
|
|
4.9 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2009, the Board determined that certain members of executive management would be granted
an aggregate of 3,380,001 options which would vest over three years. On April 3, 2008, the Board
authorized the issuance of one-third of this total, or 1,126,667 options, for executive management
(such portion which vested quarterly over fiscal 2009) and determined that the remaining two-thirds
were to be issued as soon as the Company had option shares available in its equity incentive plan
to do so. Following approval of the Amendment of the Plan as described above, on January 27, 2009,
the Board of Directors granted the remaining two-thirds of these options to the executives (an
aggregate of 2,253,334 options), such options. At the annual meeting on October 14, 2009, the
shareholders approved the Amendment to the Plan. Therefore, the 2,253,334 options were granted for
accounting purposes in fiscal 2010 and are so included in the above table.
F-28
The following table summarizes information about stock options outstanding at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Number |
|
|
Contractual |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
Range of Exercise Prices |
|
Outstanding |
|
|
Life |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
$0.18 $0.42 |
|
|
4,251,109 |
|
|
|
5.6 |
|
|
$ |
0.38 |
|
|
|
3,595,876 |
|
|
$ |
0.38 |
|
$0.43 $0.72 |
|
|
3,550,501 |
|
|
|
4.4 |
|
|
$ |
0.72 |
|
|
|
3,548,939 |
|
|
$ |
0.72 |
|
$0.73 $1.07 |
|
|
756,647 |
|
|
|
4.7 |
|
|
$ |
0.79 |
|
|
|
750,397 |
|
|
$ |
0.79 |
|
$1.08 $1.50 |
|
|
250,967 |
|
|
|
3.1 |
|
|
$ |
1.25 |
|
|
|
250,967 |
|
|
$ |
1.25 |
|
$1.51 $2.25 |
|
|
43,000 |
|
|
|
2.1 |
|
|
$ |
2.22 |
|
|
|
43,000 |
|
|
$ |
2.22 |
|
$2.92 |
|
|
74,613 |
|
|
|
2.3 |
|
|
$ |
2.92 |
|
|
|
74,613 |
|
|
$ |
2.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
8,926,837 |
|
|
|
|
|
|
$ |
0.60 |
|
|
|
8,263,792 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted during the years ended March 31, 2011
and 2010 was $0.28 and $0.43, respectively. The total intrinsic value of options exercised during
the year ended March 31, 2011 was $2,000. No stock options were exercised during the years ended
March 31, 2010 and 2009.
The Company recognized $1,008,000, $1,354,000, and $766,000 in stock-based compensation expense
from all operations relating to stock options during the years ended March 31, 2011, 2010, and
2009, respectively.
As of March 31, 2011, total unrecognized stock-based compensation expense related to stock options
was $185,000, which is expected to be expensed through November 2012.
Restricted Stock
Restricted stock is measured at fair value on the date of the grant, based on the number of shares
granted and the quoted price of the Companys common stock. The value is recognized as compensation
expense ratably over the corresponding employees specified service period. Restricted stock vests
upon the employees fulfillment of specified performance and service-based conditions.
The following table summarizes the activity for restricted stock awards during the years ended
March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
Fair Value |
|
|
|
Shares |
|
|
per Share |
|
Unvested at April 1, 2009 |
|
|
476,092 |
|
|
$ |
1.45 |
|
Granted |
|
|
100,000 |
|
|
|
0.52 |
|
Vested |
|
|
(233,125 |
) |
|
|
1.67 |
|
Forfeited |
|
|
(10,000 |
) |
|
|
1.48 |
|
|
|
|
|
|
|
|
Unvested at March 31, 2010 |
|
|
332,967 |
|
|
|
1.45 |
|
Vested |
|
|
(187,500 |
) |
|
|
1.42 |
|
|
|
|
|
|
|
|
Unvested at March 31, 2011 |
|
|
145,467 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
During the years ended March 31, 2011, 2010 and 2009, the Company recognized $297,000, $360,000,
and $565,000, respectively, of stock-based compensation expense from all operations related to
restricted stock.
F-29
During the years ended March 31, 2011, 2010, and 2009, the total fair value of restricted stock
vested was $267,000, $595,000, and $701,000, respectively.
As of March 31, 2011, total unrecognized stock-based compensation expense related to unvested
restricted stock awards was $64,000, which is expected to be expensed over a weighted-average
period of approximately less than one year.
Note 13 Income Taxes
The Company incurred $33,000, $29,000, and $122,000 of state and local income tax expense during
the years ended March 31, 2011, 2010, and 2009, respectively.
Our provision for income taxes differs from the amount computed by applying the statutory federal
income tax rate to net loss before taxes. The sources of the tax effects of the differences are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Income tax benefit at 34% |
|
|
-34.0 |
% |
|
|
-34.0 |
% |
|
|
-34.0 |
% |
State and local income taxes |
|
|
-5.0 |
% |
|
|
-3.3 |
% |
|
|
-2.6 |
% |
Goodwill amortization/impairment |
|
|
0.0 |
% |
|
|
9.1 |
% |
|
|
1.1 |
% |
Permanent deductions not recorded on books |
|
|
-3.6 |
% |
|
|
-0.8 |
% |
|
|
0.1 |
% |
Other |
|
|
1.8 |
% |
|
|
0.4 |
% |
|
|
7.5 |
% |
Change in valuation allowance |
|
|
40.8 |
% |
|
|
28.7 |
% |
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred income tax assets and liabilities are comprised of
the following at March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Net operating losses |
|
$ |
28,216 |
|
|
$ |
28,477 |
|
Allowance for doubtful accounts |
|
|
730 |
|
|
|
1,096 |
|
Depreciation and amortization |
|
|
5,299 |
|
|
|
4,659 |
|
Other temporary differences |
|
|
2,679 |
|
|
|
2,644 |
|
|
|
|
|
|
|
|
Total |
|
|
36,924 |
|
|
|
36,876 |
|
Valuation allowance |
|
|
(36,924 |
) |
|
|
(36,876 |
) |
|
|
|
|
|
|
|
Net deferred income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Federal NOLs that will be available to offset future taxable income as of March 31, 2011 through
the dates shown below are as follows (in thousands):
|
|
|
|
|
September 30, 2022 |
|
$ |
58 |
|
September 30, 2023 |
|
|
1,066 |
|
September 30, 2024 |
|
|
114 |
|
March 31, 2025 |
|
|
1,944 |
|
March 31, 2026 |
|
|
2,080 |
|
March 31, 2027 |
|
|
8,946 |
|
March 31, 2028 |
|
|
18,868 |
|
March 31, 2029 |
|
|
13,553 |
|
March 31, 2030 |
|
|
16,554 |
|
March 31, 2031 |
|
|
15,203 |
|
|
|
|
|
|
|
$ |
78,386 |
|
|
|
|
|
F-30
Goodwill related to asset purchases is amortized over 15 years for tax purposes, and goodwill
related to the purchase of stock of corporations is not amortized for tax purposes.
As a result of certain realization requirements of ASC Topic 718, the table of deferred tax assets
and liabilities shown above does not include certain deferred tax assets at March 31, 2011 and 2010
that arose directly from tax deductions related to equity compensation in excess of compensation
recognized for financial reporting. Equity will be increased by $789,000 if and when such deferred
tax assets are ultimately realized. The Company uses tax law ordering for purposes of determining
when excess tax benefits have been realized.
ASC Topic 740 requires that a valuation allowance be established when it is more likely than
not that all or a portion of deferred income tax assets will not be realized. A review of all
available positive and negative evidence needs to be considered, including a companys performance,
the market environment in which the company operates, the length of carryback and carryforward
periods, and expectation of future profits. The relevant guidance further states, that forming a
conclusion that a valuation allowance is not needed is difficult when there is negative evidence
such as the cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the
overall assessment. The Company will provide a full valuation allowance on future tax benefits
until it can sustain a level of profitability that demonstrates its ability to utilize the assets,
or other significant positive evidence arises that suggests the Companys ability to utilize such
assets.
Effective April 1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes
(codified primarily in FASB ASC Topic 740, Income Taxes). Upon adoption and the conclusion of the
initial evaluation of the Companys uncertain tax positions (UTPs) under FIN 48, no adjustments
were recorded in the accounts. Consistent with past practice, the Company recognizes interest and
penalties related to unrecognized tax benefits through interest and operating expenses,
respectively. No amounts were accrued as of March 31, 2010 and there was no current year activity
related to unrecognized tax benefits. In the major jurisdictions in which the Company operates,
which includes the United States and various individual states therein, returns for various tax
years from 2006 forward remain subject to audit. The Company is not currently under examination for
federal or state income tax purposes. The Company does not expect a significant increase or
decrease in unrecognized tax benefits during the next 12 months.
Management judgment is required in determining the provision for income taxes, the deferred tax
assets and liabilities and any valuation allowance recorded against deferred tax assets. Management
judgment is also required in evaluating whether tax benefits meet the more-likely-than-not
threshold for recognition under ASC Topic 740.
Note 14 Employee Benefit Plans
The Company has a 401(K) defined contribution plan, whereby eligible employees may defer a
percentage of compensation up to Internal Revenue Services limits. The Company may make
discretionary employer contributions. The Company made no contributions on the employees behalf
for any of the years ended March 31, 2011, 2010 and 2009.
Note 15 Related Party Transactions
On March 31, 2011, the Company had an outstanding balance of $19,406,000 related to a note payable
with JANA dated March 25, 2009. JANA held approximately 15% of the outstanding shares of Company
common stock on March 31, 2011. The Company incurred interest expense relating to the debt due JANA
in the amounts of $1,825,000, $1,682,000, and $1,688,000 during the years ended March 31, 2011,
2010 and 2009. See Note 9 Long-term Obligations for additional information pertaining to the
balances of these debt instruments.
On March 31, 2011, the Company had an outstanding balance of $7,181,000 related to a note payable
with Vicis Capital Master Fund dated March 25, 2009. Vicis held approximately 15% of the
outstanding shares of Company common stock on March 31, 2011. The Company incurred interest expense
relating to the debt in the amount of $675,000, $610,000, and $1,753,000 during the years ended
March 31, 2011, 2010 and 2009, respectively. See Note 9 Long-term Obligations for additional
information pertaining to the balances of this debt instrument.
F-31
Prior to April 4, 2011, the Companys Chief Operating Officer had a beneficial ownership interest
in an affiliated agency and thereby had an interest in the affiliates transactions with the
Company, including the payments of commissions to the affiliate based on a specified percentage of
gross margin. The terms of these transactions were consistent with the affiliate agreement, which
was entered into on August 13, 2006. The affiliate is responsible to pay its selling, general and
administrative expenses. Commissions totaled $763,000, $844,000, and $1,361,000 for fiscal 2011,
2010 and 2009, respectively. On April 4, 2011, the Company finalized the purchase of
substantially all of the assets of the affiliate as required by the affiliate agreement for total
consideration of $890,000 pursuant to the purchase price formula contained in the agreement. Of
the purchase price, $297,000 was paid in cash at the closing, and the Company entered into a
promissory note for the remaining $593,000. The note bears interest at a rate of 10% per annum,
payable monthly, and is due April 1, 2012, subject to acceleration if the Company sells its
Services segment or consummates a financing transaction for proceeds in excess of $5 million.
Note 16 Segment Information
The Company reports net revenue from continuing operations and operating income/(loss) from
continuing operations by reportable segment. Reportable segments are components of the Company for
which separate financial information is available that is evaluated on a regular basis by the chief
operating decision maker in deciding how to allocate resources and in assessing performance.
The Companys continuing operations include two segments: Services and Pharmacy. Segments include
operations engaged in similar lines of business and in some cases, may utilize common back office
support services.
The Services segment is a national provider of home care services, including skilled and personal
care, and medical staffing services (per diem and travel nursing) to numerous types of acute care
and sub-acute care medical facilities. In May 2009, the Company sold its industrial staffing
business, which has since been included in discontinued operations. As described earlier, the
Companys Board of Directors has committed to a plan to sell this segment.
The Pharmacy segment includes the Companys proprietary medication management system called
DailyMed. The Company operates pharmacies in Indiana and California, which dispense patients
prescriptions, over-the-counter medications and vitamins, and organize them into pre-sorted packets
clearly marked with the date and time they should be taken. The DailyMed approach is designed to
improve the safety and efficacy of the medications being dispensed. In March 2011, the Company
closed its Minnesota facility, and in June 2009, the Company sold its pharmacy dispensing and
billing software business, both of which have since been included in discontinued operations.
F-32
The accounting policies of each of the reportable segments are the same as those described in the
Summary of Significant Accounting Policies. Management evaluates performance based on profit or
loss from operations, excluding corporate, general and administrative expenses, as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Revenue, net: |
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
83,328 |
|
|
$ |
86,635 |
|
|
$ |
97,537 |
|
Pharmacy |
|
|
16,713 |
|
|
|
11,449 |
|
|
|
3,462 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
100,041 |
|
|
$ |
98,084 |
|
|
$ |
100,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
4,286 |
|
|
$ |
(10,973 |
) |
|
$ |
3,583 |
|
Pharmacy |
|
|
(8,370 |
) |
|
|
(5,765 |
) |
|
|
(26,019 |
) |
Unallocated corporate overhead |
|
|
(8,794 |
) |
|
|
(9,851 |
) |
|
|
(10,011 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating loss |
|
|
(12,878 |
) |
|
|
(26,589 |
) |
|
|
(32,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
3,799 |
|
|
|
3,371 |
|
|
|
4,072 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
4,487 |
|
Change in fair value of warrant liability |
|
|
(1,423 |
) |
|
|
(979 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
30 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
Net loss before income tax expense |
|
|
(15,254 |
) |
|
|
(29,011 |
) |
|
|
(41,081 |
) |
Income tax expense |
|
|
33 |
|
|
|
29 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(15,287 |
) |
|
$ |
(29,040 |
) |
|
$ |
(41,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
657 |
|
|
$ |
758 |
|
|
$ |
859 |
|
Pharmacy |
|
|
209 |
|
|
|
118 |
|
|
|
280 |
|
Corporate |
|
|
514 |
|
|
|
424 |
|
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
1,380 |
|
|
$ |
1,300 |
|
|
$ |
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible asset impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
|
|
|
$ |
14,599 |
|
|
$ |
|
|
Pharmacy |
|
|
2,500 |
|
|
|
|
|
|
|
22,619 |
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible asset
impairment |
|
$ |
2,500 |
|
|
$ |
14,599 |
|
|
$ |
22,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
58 |
|
|
$ |
63 |
|
|
$ |
75 |
|
Pharmacy |
|
|
288 |
|
|
|
457 |
|
|
|
850 |
|
Corporate |
|
|
125 |
|
|
|
54 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
471 |
|
|
$ |
574 |
|
|
$ |
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Assets: |
|
|
|
|
|
|
|
|
Services |
|
$ |
21,164 |
|
|
$ |
25,007 |
|
Pharmacy |
|
|
4,177 |
|
|
|
4,990 |
|
Unallocated corporate assets |
|
|
790 |
|
|
|
2,136 |
|
Assets of discontinued operations |
|
|
|
|
|
|
1,063 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
26,131 |
|
|
$ |
33,196 |
|
|
|
|
|
|
|
|
F-33
Note 17 Quarterly Results
(Unaudited)
The following table summarizes selected quarterly data of the Company for the years ended March 31,
2011 and 2010 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
Revenues, net |
|
$ |
24,406 |
|
|
$ |
24,848 |
|
|
$ |
25,359 |
|
|
$ |
25,428 |
|
Gross profit |
|
|
6,592 |
|
|
|
6,844 |
|
|
|
7,031 |
|
|
|
6,938 |
|
Loss from continuing operations |
|
|
(4,731 |
) |
|
|
(3,070 |
) |
|
|
(2,454 |
) |
|
|
(5,032 |
) |
Income (loss) from discontinued operations |
|
|
691 |
|
|
|
176 |
|
|
|
135 |
|
|
|
(66 |
) |
Net loss |
|
|
(4,040 |
) |
|
|
(2,894 |
) |
|
|
(2,319 |
) |
|
|
(5,098 |
) |
Basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Loss from continuing operations |
|
|
(0.03 |
) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
(1) Loss from discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
Revenues, net |
|
$ |
24,930 |
|
|
$ |
24,227 |
|
|
$ |
24,784 |
|
|
$ |
24,143 |
|
Gross profit |
|
|
7,152 |
|
|
|
6,988 |
|
|
|
7,082 |
|
|
|
6,588 |
|
Loss from continuing operations |
|
|
(3,304 |
) |
|
|
(3,775 |
) |
|
|
(2,840 |
) |
|
|
(19,121 |
) |
Income (loss) from discontinued operations |
|
|
(1,269 |
) |
|
|
(371 |
) |
|
|
(313 |
) |
|
|
(93 |
) |
Net loss |
|
|
(4,573 |
) |
|
|
(4,146 |
) |
|
|
(3,153 |
) |
|
|
(19,214 |
) |
Basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Loss from continuing operations |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.12 |
) |
(1) Income (loss) from discontinued
operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Because of the method used in calculating per share data, the quarterly per share data
may not necessarily total to the per share data as computed for the entire year. |
The increase in the loss from continuing operations in the fiscal fourth quarter 2011 compared
to the three previous quarters was due to the following:
|
|
|
Total goodwill impairment expense recognized in the fiscal fourth quarter 2011 of
$2,500,000. |
The increase in the loss from continuing operations in the fiscal fourth quarter 2010 compared to
the three previous quarters was due to the following:
|
|
|
Total goodwill impairment expense recognized in the fiscal fourth quarter 2010 of
$14,599,000. |
F-34
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE I CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED PARENT COMPANY BALANCE SHEETS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
300 |
|
Prepaid expenses and other current assets |
|
|
472 |
|
|
|
574 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
472 |
|
|
|
874 |
|
Property and equipment, net |
|
|
207 |
|
|
|
596 |
|
Other assets |
|
|
204 |
|
|
|
412 |
|
Investment in subsidiaries |
|
|
8,627 |
|
|
|
15,367 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,510 |
|
|
$ |
17,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
619 |
|
|
$ |
1,099 |
|
Accrued expenses |
|
|
855 |
|
|
|
1,234 |
|
Fair value of warrant liability |
|
|
285 |
|
|
|
1,499 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,759 |
|
|
|
3,832 |
|
Long-term obligations |
|
|
27,807 |
|
|
|
25,192 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
29,566 |
|
|
|
29,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(20,056 |
) |
|
|
(11,775 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
9,510 |
|
|
$ |
17,249 |
|
|
|
|
|
|
|
|
See accompanying note to these financial statements.
F-35
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE I CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED PARENT COMPANY STATEMENTS OF OPERATIONS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(8,793 |
) |
|
$ |
(9,852 |
) |
|
$ |
(10,011 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
2,819 |
|
|
|
2,760 |
|
|
|
3,146 |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
4,239 |
|
Change in fair value of warrant liability |
|
|
(1,423 |
) |
|
|
(979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in consolidated subsidiaries |
|
|
(10,189 |
) |
|
|
(11,633 |
) |
|
|
(17,396 |
) |
Equity in consolidated subsidiaries |
|
|
(4,162 |
) |
|
|
(19,453 |
) |
|
|
(29,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(14,351 |
) |
|
$ |
(31,086 |
) |
|
$ |
(46,470 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying note to these financial statements.
F-36
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE I CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED PARENT CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(4,604 |
) |
|
$ |
(6,529 |
) |
|
$ |
(6,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(126 |
) |
|
|
(54 |
) |
|
|
(440 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(126 |
) |
|
|
(54 |
) |
|
|
(440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of notes payable / line of
credit, net of fees |
|
|
|
|
|
|
2,142 |
|
|
|
2,800 |
|
Payments on notes payable |
|
|
|
|
|
|
(6,524 |
) |
|
|
|
|
Proceeds from the issuance of common stock, net of fees |
|
|
4,430 |
|
|
|
10,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
4,430 |
|
|
|
5,861 |
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(300 |
) |
|
|
(722 |
) |
|
|
(3,679 |
) |
Cash and cash equivalents, beginning of year |
|
|
300 |
|
|
|
1,022 |
|
|
|
4,701 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
|
|
|
$ |
300 |
|
|
$ |
1,022 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to these financial statements.
F-37
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
NOTE TO CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
These condensed parent company financial statements have been prepared in accordance with Rule
12-04, Schedule 1 of Regulation S-X and included herein because the restricted net assets of the
consolidated subsidiaries of Arcadia Resources, Inc. (the Parent Company) exceed 25% of
consolidated net assets. In order to repay its obligations, the Parent Company is dependent upon
cash flows from certain subsidiaries without restrictions or through a refinancing or equity
transaction. The Parent Companys 100% investment in its subsidiaries has been recorded using the
equity basis of accounting in the accompanying condensed Parent Company financial statements.
F-38
ARCADIA RESOURCES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
The following table summarizes the activity and ending balances in the allowance for doubtful
accounts from continuing operations (amounts in thousands) for the years ended March 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
Costs and |
|
|
|
|
|
|
|
|
|
|
End |
|
|
|
of Period |
|
|
Expenses |
|
|
Recoveries |
|
|
Deductions |
|
|
of Period |
|
2011 |
|
$ |
2,614 |
|
|
$ |
610 |
|
|
|
470 |
|
|
|
(1,797 |
) |
|
$ |
1,897 |
|
2010 |
|
|
3,386 |
|
|
|
1,145 |
|
|
|
22 |
|
|
|
(1,939 |
) |
|
|
2,614 |
|
2009 |
|
|
2,492 |
|
|
|
1,442 |
|
|
|
228 |
|
|
|
(776 |
) |
|
|
3,386 |
|
F-39