e424b2
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-140227
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 8, 2007)
100,000 Shares of Common Stock
Pursuant to this prospectus supplement, we are offering 100,000 shares of our common stock (the
Shares) to Anna Maria Nekoranec, pursuant to the agreement as detailed below. The Company will
not receive any of the proceeds from sales of the shares of Common Stock by the security holder.
We expect
to issue the Shares to the above-named person on or about
December 10, 2007 contingent on
the Companys receipt of listing approval from the American Stock Exchange. Our Common Stock is
listed on the American Stock Exchange (AMEX) under the trading symbol KAD. The last reported
sale price of our Common Stock on December 6, 2007 was $0.87 per share.
Please read this prospectus supplement and the base prospectus carefully before you invest. Both
documents contain information you should carefully consider before making your investment decision.
Investing in Arcadia Resources, Inc. Common Stock involves risks. See Risk Factors beginning on
page S-3.
Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus supplement and the base prospectus
are truthful or complete. Any representation to the contrary is a criminal offense.
No dealer, salesperson or other person has been authorized to give any information or to make any
representations other than those contained in this prospectus supplement and the accompanying
prospectus, and if given or made, such information or representations must not be relied upon as
having been authorized by us, the selling security holders or any underwriter. You should rely only
on the information contained in this prospectus supplement and the accompanying prospectus. This
prospectus supplement does not constitute an offer to sell or the solicitation of an offer to buy
any security other than the Common Stock offered by this prospectus supplement, or an offer to sell
or a solicitation of an offer to buy any security by any person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this prospectus supplement nor any
sale made hereunder shall, under any circumstances, imply that the information in this prospectus
supplement is correct as of any time subsequent to the date of this prospectus supplement.
The
date of this prospectus supplement is December 10, 2007.
TABLE OF CONTENTS
Prospectus Supplement
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement is part of a registration statement that we have filed with the
Securities and Exchange Commission utilizing a shelf registration process. Under this shelf
process, we are offering to sell shares of our common stock using this prospectus supplement and
the accompanying prospectus. The prospectus supplement describes the specific terms of the common
stock offering. The accompanying base prospectus gives more general information, some of which may
not apply to this offering. You should read both this prospectus supplement and the accompanying
prospectus. If the description of the offering varies between the prospectus supplement and the
accompanying prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have not authorized any other person to provide you
with different information. If anyone provides you with different or inconsistent information, you
should not rely on it. We are not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information appearing in this
prospectus supplement, the accompanying prospectus and the documents incorporated by reference is
accurate only as of their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
As used in this prospectus supplement, the terms Arcadia, we, our or us mean Arcadia
Resources, Inc., a Nevada corporation, and its predecessors and subsidiaries, unless the context
indicates otherwise.
THE OFFERING
|
|
|
Common stock offered by Arcadia |
|
|
|
|
|
Anna Maria Nekoranec
|
|
100,000 shares Consideration for
Settlement and
Release Agreement. |
|
|
|
Common stock outstanding before the offering
|
|
126,214,000 shares, as of December 6, 2007 |
|
|
|
Common stock outstanding after the offering
|
|
126,314,000 shares |
|
|
|
American Stock Exchange (AMEX) symbol
|
|
KAD |
RISK FACTORS
You should carefully consider the risks described below, in addition to the other information in
this prospectus supplement and the related prospectus, including the information incorporated by
reference herein, before making an investment decision. The risks and uncertainties described below
are all of the material risks facing our company.
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.
Risks Related to this Offering
We recently became a public company and have a limited operating history as a public company upon
which you can base an investment decision.
The shares of our common stock were quoted on the OTC Bulletin Board from August 2, 2002 through
June 30, 2006 and began trading on the American Stock Exchange on July 3, 2006. We have a limited
operating history as a public company upon which you can make an investment decision, or upon which
we can accurately forecast future sales. You should, therefore, consider us subject to all of the
business risks associated with a new business. The likelihood of our success must be considered in
light of the expenses, difficulties and delays frequently encountered in connection with the
formation and initial operations of a new and unproven business.
To finance the numerous acquisitions made as part of our growth strategy, the Company incurred
significant debt which must be repaid. Our debt level could adversely affect our financial health
and affect our ability to run our business.
We acquired Arcadia Services and Arcadia Rx on May 10, 2004 and have acquired approximately 30
additional companies since that time. We incurred substantial debt to finance these acquisitions.
This debt has been reduced periodically through capital infusions. As of September 30, 2007, the
current portion of our debt, including lines of credit and capital lease obligations, totals
approximately $18.5 million, while the long-term portion of our debt totals approximately $16.9
million, for a total of approximately $35.4 million. This level of debt could have consequences to
holders of our common stock. Below are some of the material potential consequences resulting from
this amount of debt:
|
|
|
We may be unable to obtain additional financing for working capital, capital
expenditures, |
|
|
|
acquisitions and general corporate purposes. |
|
|
|
Our ability to adapt to changing market conditions may be hampered. We may be more
vulnerable in a volatile market and at a competitive disadvantage to our competitors that
have less debt. |
|
|
|
|
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. |
|
|
|
|
We are subject to the risks that interest rates and our interest expense will increase. |
|
|
|
|
Our ability to plan for, or react to, changes in our business is more limited. |
Under certain circumstances, we may be able to incur additional indebtedness in the future. If we
add new debt, the related risks that we now face could intensify. In order to repay our debt
obligations timely, we must maintain adequate cash flow from operations or raise additional capital
from equity investment or other sources. Cash, which we must use to repay these obligations, will
reduce cash available for other purposes, such as payment of operating expenses, investment in new
products and services offered by the Company, self-financing of acquisitions to grow the Companys
business, or distribution to our shareholders as a return on investment.
Due to our debt level, 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 or acquisitions.
As of September 30, 2007, we have total outstanding long-term obligations (lines of credit, notes
payable and capital lease obligations) of $35.4 million. Due to our debt level, 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 working capital or other
purposes. This development could result in various consequences to the Company, ranging from
implementation of cost reductions, which could impact our product and service offerings, to the
modification or abandonment of our present business strategy.
The terms of our Credit Agreements with Comerica Bank subject us to the risk of foreclosure on
certain property.
RKDA granted Comerica Bank a first priority security interest in all of the issued and outstanding
capital stock of Arcadia Services, Inc. Arcadia Services, Inc. and its subsidiaries granted the
bank security interests in all of their assets. The credit agreement provides that the debt will
mature on October 1, 2008. 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. Any such default and resulting foreclosure would have a material adverse
effect on our financial condition.
In order to repay our short-term debt obligations, as well as to pursue our growth strategy, we may
seek additional equity financing, which could result in dilution to our security holders.
The Company may continue to raise additional financing through the equity markets to repay debt
obligations and to fund operations. Further, because of the capital requirements needed to pursue
our growth strategy, 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. The Company also plans to continue to expand product and service offerings. Cash flow from
operations is not expected to entirely fund these efforts, and the scope of these plans may be
determined by the Companys ability to generate cash flow or to secure additional new funding. 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.
The Company has completed approximately 30 acquisitions since the reverse merger in May 2004. The
licensure and credentialing process under the new ownership must be satisfied timely in order to
bill and collect for services rendered to beneficiaries of government-based health care programs
and other insurance carriers. Cash flow related to these transitions can be impaired sufficient to
require additional external financing in the form of debt or equity.
The Company has made several recent acquisitions of durable medical and respiratory equipment
businesses, the transitional credentialing of which has taken longer than expected, which has
slowed the billing and collections process, resulting in a negative impact to the timing of cash in
flows from the respective entities or in the worst case scenario, resulting in uncollectible fees
for services provided. Management has recently brought additional resources to these efforts. The
Companys experience in ultimately billing and collecting for services provided in the transition
period in question has been somewhat inconsistent. The inability to collect receivables timely or
not at all could have a negative impact on its ability to meet its current obligations timely. This
delay in collecting cash from normal operations could force the Company to pursue outside financing
that it would not otherwise need to pursue.
To the extent we do not raise adequate funds from the equity markets or possible business
divestitures to satisfy short-term debt obligations, we would need to seek debt financing or modify
or abandon our growth strategy or product and service offerings.
Although we raised $13.1 million in equity financing in May 2007, these funds, in combination with
funds generated from operations and the divestiture of certain business operations, may not be
adequate to satisfy short-term cash needs. To the extent that we are unsuccessfully in raising
funds from the equity markets or through the possible additional divestitures of certain
businesses, we will need to seek debt financing. In this event, we may need to modify or abandon
our growth strategy or may need to eliminate certain product or service offerings, because debt
financing is generally at a higher cost than financing through equity investment. Higher financing
costs, modification or abandonment of our growth strategy, or the elimination of product or service
offerings could negatively impact our profitability and financial position, which in turn could
negatively impact the price of our common stock.
Because the Company is dependent on key management and advisors, the loss of the services or advice
of any of these persons could have a material adverse effect on our business and prospects. We also
face certain risks as a result of the recent changes to our management team.
The success of the Company is dependent on its 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 the Company will be able to attract and retain
key personnel in the future, and the Companys inability to do so could have a material adverse
effect on us. We have recently made significant changes in our senior management team. In addition,
the Company has experienced several changes in key accounting personnel as part of its
restructuring initiatives, as well as the transition of certain accounting functions from Orlando,
Florida to Southfield, Michigan. 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 new management team is
unable to achieve these goals, our ability to grow our business and successfully meet operational
challenges could be impaired.
A decline in the rate of growth of the staffing and home care industries, or negative growth, could
adversely affect us by reducing sales, thereby resulting in less cash being available for the
payment of operating expenses, debt obligations and to pursue our strategic plans.
We believe the staffing industry, including both medical and non-medical staffing, is a large and
growing market. The growth in medical staffing is being driven by the shrinkage in the number of
healthcare
professionals at the same time as the demand for their services is increasing. Healthcare providers
are increasingly using temporary staffing to manage fluctuations in demand for their services.
Growth in non-medical staffing is driven by companies seeking to control personnel costs by
increasingly using temporary employees to meet fluctuating personnel needs. Our business strategy
within our Services segment is premised on the continued and consistent growth of the staffing and
home care industries. A decline in the rate of growth of the staffing and home care industries, or
negative growth, could adversely affect us by reducing sales, resulting in lower cash collections.
Even if we were to pursue cost reductions in this event, there is a risk that less cash would be
available to us to pay operating expenses, in which case we may have to contract our existing
businesses by abandoning selected product or service offerings or geographic markets served, as
well as to modify or abandon our present business strategy. We could have less cash available to
pay our short and long-term debt obligations as they become due, in which event we could default on
our obligations. Even if none of these events occurred following a negative change in the growth of
the staffing and home care industries, the market for our shares of common stock could react
negatively to a decline in growth or negative growth of these industries, potentially resulting in
the diminished value of our Companys common stock.
Sales of certain of our services and products are largely dependent upon payments from governmental
programs and private insurance, and cost containment initiatives may reduce our revenues, thereby
harming our performance.
We have a number of contractual arrangements with governmental programs and private insurers,
although no individual arrangement accounted for more than 10% of our net revenues for the fiscal
years ended March 31, 2007, 2006, or 2005. Nevertheless, sales of certain of our services and
products are largely dependent upon payments from governmental programs and private insurance, and
cost containment initiatives may reduce our revenues, thereby harming our performance.
In the U.S., healthcare providers and consumers who purchase durable medical equipment,
prescription drug products and related products generally rely on third party payers to reimburse
all or part of the cost of the healthcare product. Such third party payers include Medicare,
Medicaid and other health insurance and managed care plans. Reimbursement by third party payers may
depend on a number of factors, including the payers determination that the use of our products is
clinically useful and cost-effective, medically necessary and not experimental or investigational.
Also, third party payers are increasingly challenging the prices charged for medical products and
services. Since reimbursement approval is required from each payer individually, seeking such
approvals can be a time consuming and costly process. In the future, this could require us to
provide supporting scientific, clinical and cost-effectiveness data for the use of our products to
each payer separately. Significant uncertainty exists as to the reimbursement status of newly
approved healthcare products. Third party payers are increasingly attempting to contain the costs
of healthcare products and services by limiting both coverage and the level of reimbursement for
new and existing products and services. There can be no assurance that third party reimbursement
coverage will be available or adequate for any products or services that we develop.
In addition to the potential negative impact on our revenue due to future cost containment efforts,
if Medicare reimbursement rates for certain durable medical equipment are reduced for the calendar
year 2008 or 2009, the Company will be obligated to repay a portion of the proceeds received from
its sale of the Florida and Colorado durable medical equipment operations in September 2007. The
potential purchase price adjustment depends on in what calendar year the legislation is enacted and
the number of months that the new legislation would provide for reimbursement. The maximum amount
will be $1,000,000 if the number of months is reduced to 18 months or lower during 2008.
We could be subject to severe fines and possible exclusion from participation in federal and state
healthcare programs if we fail to comply with the laws and regulations applicable to our business
or if those laws and regulations change.
Certain of the healthcare-related products and services offered by the Company are subject to
stringent laws and regulations at both the federal and state levels, requiring compliance with
burdensome and complex billing, substantiation and record-keeping requirements. Financial
relationships between our Company and
physicians and other referral sources are subject to governmental regulation. Government officials
and the public will continue to debate healthcare reform and regulation. Changes in healthcare law,
new interpretations of existing laws, or changes in payment methodology may have a material impact
on our business and results of operations.
The markets in which the Company operates are highly competitive and the Company may be unable to
compete successfully against competitors with greater resources.
The Company competes 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 harm our net revenue and results of operations. Many of
the Companys competitors and potential competitors relative to the Companys products and services
in the areas of durable medical equipment, and oxygen and respiratory services, have more capital,
substantial marketing, and technical resources and expertise in specialized financial services than
does the Company. These competitors include: 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 the Company to emerging market changes or changes in customer
needs. In addition, certain of our competitors may have or may obtain significantly greater
financial and marketing resources than we may have. 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 durable medical equipment, mail order pharmacy and related businesses.
We may not be able to successfully integrate acquired businesses, which could result in our failure
to increase revenues or to avoid duplication of costs among acquired businesses, thereby adversely
affecting our financial results and profitability.
The successful integration of an acquired business is dependent on various factors including the
size of the acquired business, the assets and liabilities of the acquired business, the complexity
of system conversions, the scheduling of multiple acquisitions in a given geographic area and
managements execution of the integration plan. In the past, our business plan was primarily
premised upon increasing our revenues by leveraging the strengths of our staffing and home care
network to cross sell our other products and services. Our business plan is also premised on
avoiding duplication of cost among our existing and acquired businesses where possible. If we fail
to successfully integrate in these key areas, our Companys financial results and profitability
will be adversely affected, due to the failure to capitalize on the economies of scale presented by
spreading our cost structure over a wider revenue base.
The failure to implement the Companys business strategy may result in our inability to be
profitable and adversely impact the value of our common stock.
We anticipate that the Company will continue to pursue an aggressive internal growth strategy,
which will depend, in large part, upon our ability to develop and expand the Companys businesses.
We believe that the failure to implement an aggressive growth strategy, or a failure to
successfully integrate recently acquired businesses, may result in our inability to be profitable,
because our business plan is premised on, among other things, capitalizing on the economies of
scale presented by spreading our cost structure over a wider revenue base. Our inability to achieve
profitability could adversely impact the value of our common stock.
We cannot predict the impact that the registration of the shares may have on the price of the
Companys shares of common stock.
We cannot predict the effect, if any, that sales of, or the availability for sale of, shares of our
common stock by the 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
effect 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 Company.
The market price of our common stock, like that of the securities of many other companies with
limited operating history and public float, has fluctuated over a wide range, and it is likely that
the price of our common stock will fluctuate in the future. Since the reverse merger on May 10,
2004, the closing price of our common stock, as quoted by the OTC Bulletin Board and the American
Stock Exchange (AMEX) beginning July 3, 2006, has
fluctuated from a low of $0.40 to a high of
$3.49. From October 1, 2006 through December 7, 2007, our common stock has fluctuated from a low of
$0.64 to a high of $3.38. Slow demand for our common stock has resulted in limited liquidity, and
it may be difficult to dispose of the Companys securities. Due to the volatility of the price 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
Company or earn a return on 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, our Company 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 and your investment in our
Company.
The issuance of our preferred stock could materially impact the price of common stock and the
rights of holders of our common stock.
The Company is 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 the Companys Board of Directors. Except as otherwise provided in the Companys
Articles of Incorporation, the Board of Directors has 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 and other rights, and the qualifications,
limitations, and restrictions. The issuance of our preferred stock could materially impact the
price of 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 shares of 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.
The exercise of common stock warrants may depress our stock price and may result in dilution to our
common security holders.
Approximately 22.2 million warrants to purchase 22.2 million shares of our common stock are issued
and outstanding as of September 30, 2007. The market price of our common stock is above the
exercise price of some of the outstanding warrants; therefore, holders of those securities are
likely to exercise their warrants
and sell the common stock acquired upon exercise of such warrants in the open market. Sales of a
substantial number of shares of our common stock in the public market by holders of warrants 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 incur dilution. The
exercise price of all common stock warrants, including Classes A, B-1 and B-2 Warrants, 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 have granted stock options to certain management employees and directors as compensation, which
may depress our stock price and result in dilution to our common security holders.
As of September 30, 2007, options to purchase approximately 6.5 million shares of our common stock
were issued and outstanding. On August 18, 2006, the Board of Directors approved the Arcadia
Resources, Inc. 2006 Equity Incentive Plan (the Plan), which was subsequently approved by the
security holders on September 26, 2006. The Plan allows for the granting of additional incentive
stock options, non-qualified stock options, stock appreciation rights and restricted shares up to 5
million shares (2.5% of the Companys authorized shares of common stock as of the date the Plan was
approved). The market price of our common stock is above the exercise price of some of the
outstanding options; therefore, holders of those securities are likely to exercise their options
and sell the common stock acquired upon exercise of such options in the open market. Sales of a
substantial number of shares of our common stock in the public market by holders of options 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 options exercise those options, our common security holders will incur dilution. The
exercise price of all common stock options is subject to adjustment upon stock dividends, splits
and combinations, as well as anti-dilution adjustments as set forth in the option agreement.
As of December 7, 2007, the former Chief Operating Officer has 3,000,000 options at an exercise
price of $0.25 per share, which expire on February 28, 2008. In addition, the former Chief
Executive Officer has 2,000,000 options at an exercise price of $0.25 per share, which expire on
March 15, 2008. The exercising of these options and the subsequent sale of the common stock in the
open market could depress the prevailing market price for our common stock.
The Company has entered into several agreements whereby it has guaranteed the stock price at
certain times in the future. If the future stock price is below the guaranteed stock price, the
Company is obligated to true up the difference in either common stock or cash. The issuance of
common stock would result in dilution to our common stock holders, and the settlement of the
liability with cash would decrease cash available for other purpose, such as funding operations,
paying down debt or investing in growth initiatives.
Pursuant to the purchase agreements relating to the PrairieStone Pharmacy, LLC and JASCORP, LLC
acquisitions entered into in February 2007 and July 2007, respectively, the Company guaranteed the
stock price at the one-year anniversary dates of the acquisitions. If our future stock price at
these future dates is below the guaranteed price, then the Company is obligated to true up the
difference in either common stock or cash or a combination thereof, at the Companys sole
discretion.
In addition, in order to induce certain individuals to accept common stock in lieu of cash relating
to several transactions, the Company guaranteed that these individuals would receive a certain
price per share of common stock if and when they sell their shares through certain dates, the last
of which is December 15, 2008. If these individuals do not receive the guaranteed price and if
certain other defined conditions are satisfied, then the Company is obligated to true up the
difference in either common stock or cash or a combination thereof, at the Companys sole
discretion.
The amount of the Companys aggregate true up obligation is dependent on the closing price of the
Companys common stock on the various future dates specified in the referenced agreements. Based
on the lowest and highest closing prices of the Companys common stock in the fiscal quarter ended
September
30, 2007, $0.64 and $1.17 per share, respectively, the Companys total aggregate obligation would
range from $3,772,484 (5,894,506 shares at $0.64 per share) to $2,747,840 (2,348,581 shares at
$1.17 per share).
The issuance of common stock in the future to settle these true up liabilities would result in
dilution to our common stock holders. The payment of the true up liabilities with cash would use
cash that could otherwise be used to fund operations, to pay down debt or to invest in growth
initiatives.
We are dependent 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 heavily upon our affiliated agencies to sell our staffing and home care services and on our
internal sales force to sell our durable medical equipment and pharmacy products. Arcadia Services
affiliated agencies are owner-operated businesses. The office locations maintained by our
affiliated agencies are listed on the Companys website. 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 state performance requirements of the affiliated agencies. Our affiliated agencies and
internal sales force operate in particular defined geographic regions. 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.
Our recurring losses from operations have caused us to receive 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, 2007, 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 recurring losses from operations, which could adversely impact our ability to raise
additional capital. 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. The Company has
raised additional cash through equity and debt financing and the sale of certain non-strategic
businesses during the first six months of fiscal 2008, but management anticipates that the Company
may require additional financing to fund operating activities during the remainder of the year. The
Companys new management team is exploring various alternatives for raising additional capital,
including potential divestitures of additional non-strategic businesses, seeking new debt or equity
financing, and pursuing joint venture arrangements. To the extent that these alternatives are
insufficient to fund operating activities over the next year, management anticipates raising
capital through offering equity securities in private or public offerings or through subordinated
debt. If the Company is unable to obtain 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. Additionally, the Company must continue to satisfy
the listing standards of the American Stock Exchange. Although the Company has received no
notification of any adverse action, the American Stock Exchange, as a matter of policy, will
consider the suspension or delisting of any security when, in the opinion of the Exchange the
financial condition and/or operating results of the issuer appear to be unsatisfactory.
In connection with our evaluation of internal controls over financial reporting as required by
Section 404 under the Sarbanes-Oxley Act of 2002, we identified certain material weaknesses, which
could impact our ability to provide reliable and accurate financial reports and prevent fraud. We
could fail to meet our financial reporting responsibilities in future reporting periods if these
weaknesses are not remediated timely, or if any future failures by us to maintain adequate internal
controls over financial reporting result in additional material weaknesses.
Section 404 of the Sarbanes-Oxley Act of 2002 requires detailed review, documentation and testing
of our internal controls over financial reporting. This detailed review, documentation and testing
includes the assessment of the risks that could adversely affect the timely and accurate
preparation of our financial
statements and the identification of internal controls that are currently in place to mitigate the
risks of untimely or inaccurate preparation of these financial statements. The Company was required
to comply with the requirements of Section 404 for the first time in fiscal 2007. As part of this
first-year review, management identified several control deficiencies that represent material
weaknesses at March 31, 2007. The Public Company Accounting Oversight Board has defined material
weakness as a significant deficiency or combination of significant deficiencies, that results in
more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Although the Company is implementing remedial
controls, if we fail to remedy these material weaknesses in a timely manner, or if we fail in the
future to maintain adequate internal controls over financial reporting which result in additional
material weaknesses, it could cause us to improperly record our financial and operating results and
could result in us failing to meet our financial reporting responsibilities in future reporting
periods.
We may not be able to secure the additional financing to fund operating activities through the end
of fiscal year 2008, which would raise substantial doubt about our ability to continue as a going
concern and would have a material adverse effect on our business and prospects.
Management anticipates that we may require additional financing to fund operating activities during
the remainder of fiscal 2008 as described under the section entitled Liquidity and Capital
Resources. The Companys new management team has developed a business plan that addresses
operations, the expectation of positive cash flow and alternatives for raising additional capital,
including potential divestitures of non-strategic businesses, restructuring existing short-term
indebtedness and/or seeking new debt or equity financing, and pursuing joint venture arrangements.
To the extent that restructuring existing short-term indebtedness, seeking new debt, restructuring
operations or selling non-strategic businesses are insufficient to fund operating activities over
the next year, management anticipates raising capital through offering equity securities in private
or public offerings or through subordinated debt. Our ability to secure additional financing in
this time period may be difficult due to our history of operating losses and negative cash flows,
and we cannot guarantee that such additional sources of financing will be available on acceptable
terms, if at all. An inability to raise sufficient capital to fund our operations would have a
material adverse affect on our business and would raise substantial doubt about our ability to
continue as a going concern, which would have a material adverse effect on our businesses and
prospects.
Our financial results could suffer as a result of a goodwill and/or intangible asset impairment
expense being recognized.
As of March 31, 2007, a goodwill impairment expense of $17,197,000 was recognized in the Durable
Medical Equipment segment and an additional customer relationships impairment expense of $1,457,000
was recognized in the Durable Medical Equipment segment, for total impairment expense in the
Durable Medical Equipment segment of $18,654,000. Depending on the Companys financial performance,
the carrying values of goodwill and other intangible assets could continue to be negatively
impacted. We will perform impairment tests periodically, and at least annually, in the future.
Whenever we perform impairment tests, the carrying value of goodwill or other intangible assets
could exceed their implied fair value and would, therefore, require adjustment. Such adjustment
would result in a non-cash charge to our operating income in that period, which could harm our
financial results.
Our financial results could suffer if the goodwill and other intangible assets we acquired in our
acquisition of PrairieStone Pharmacy, LLC become impaired, or as a result of costs associated with
the acquisition.
Primarily as a result of our acquisition of PrairieStone Pharmacy, LLC in February 2007,
approximately 56% of our total assets are goodwill and other intangibles as of September 30, 2007,
of which approximately $33.9 million is goodwill and $25.7 million is other intangibles. In
accordance with the Financial Accounting Standards Boards Statement No. 142, Goodwill and Other
Intangible Assets, goodwill is not amortized but is reviewed for impairment annually, or more
frequently if impairment indicators arise. Other intangibles are also reviewed at least annually or
more frequently, if certain conditions exist, and may be amortized. Management is contemplating
cost reduction initiatives that may result in the closure or sale of certain non-strategic
businesses. Depending upon the outcome of such initiatives, the carrying values of goodwill and
other intangible assets could be negatively impacted. When
we perform impairment tests, the carrying value of goodwill or other intangible assets could exceed
its implied fair value and would, therefore, require adjustment. Such adjustment would result in a
charge to our operating income in that period, which would likely harm our financial results. In
addition, we believe that we may incur charges to operations, which are not currently reasonably
estimable, in subsequent quarters after the acquisition was completed, to reflect costs associated
with integrating PrairieStone. It is possible that we will incur additional material charges in
subsequent quarters to reflect additional costs associated with the acquisition.
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 could adversely affect our ability to meet the financial covenants
contained in our credit agreement with our financial institution. Further, if we continue to incur
operating losses and negative cash flow we may have to implement significant cost cutting measures,
which could include a substantial reduction in work force, location closures, and/or the sale or
disposition of certain subsidiaries. We cannot assure that any of the cost cutting measures we
implement will be effective or result in profitability or positive cash flow. Our acquisitions may
not create the benefits and results we expect, adversely affecting our strategy to achieve
profitability. To achieve profitability, we will also need to, among other things, effectively
integrate our acquisitions, 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.
We may not be able to meet the financial covenants contained in our credit facility, and we may not
be able to obtain a waiver for such violations.
Under our existing credit facility, we are required to adhere to certain financial covenants. As of
March 31, 2007, the Company was not in compliance with certain covenants and received a waiver from
the lender. As of September 30, 2007, the Company was in compliance with these financial covenants.
If there are future covenant violations and we do not receive a waiver for such future covenant
violations, then our lender could declare a default under the credit facility and, among other
actions, increase our borrowing costs and demand the immediate repayment of the credit facility. If
such demand is made and we are unable to refinance the credit facility or obtain an alternative
source of financing, such demand for repayment would 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 or obtain alternative financing.
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 at a higher interest rate.
The disposition of businesses that do not fit with our evolving strategy can be highly uncertain.
In September 2007, we sold our Florida and Colorado durable medical equipment businesses. We will
continue to evaluate the potential disposition of additional assets and businesses that are not
profitable or are no longer consistent with our strategic objectives. When we decide to sell assets
or a business, we may encounter difficulty in finding buyers or alternative exit strategies on
acceptable terms in a timely manner, which could delay the accomplishment of our strategic
objectives, or we may dispose of a business at a price or on terms which are less than we had
anticipated. There is also a risk that we sell a business whose subsequent performance exceeds our
expectations, in which case our decision would have potentially sacrificed enterprise value.
Conversely, we may be too optimistic about a particular businesss prospects, in which case we may
be unable to find a buyer at a price acceptable to us and, therefore, may have potentially
sacrificed enterprise value.
The Centers for Medicare and Medicaid Services (CMS) recently announced a competitive bidding
program related to durable medical equipment. The program will operate within the ten largest
metropolitan areas during 2008 and then be expanded to 70 additional areas in 2009. As a durable
medical equipment vendor, the competitive bidding program could result in loss of revenue due to
over-bidding by the Company and will increase the compliance costs.
Starting in 2007, Medicare is scheduled to begin to phase in a nationwide competitive bidding
program to replace the existing fee schedule payment methodology. The program is to begin in 10
high-population metropolitan statistical areas, or MSAs, expanding to 80 MSAs in 2009 and
additional areas thereafter. Under competitive bidding, suppliers compete for the right to provide
items to beneficiaries in a defined region. Only a limited number of suppliers will be selected in
any given MSA, resulting in restricted supplier choices for beneficiaries. The Medicare
Modernization Act of 2003 permits certain exemptions from competitive bidding, including exemptions
for rural areas and areas with low population density within urban areas that are not competitive,
unless there is a significant national market through mail-order for the particular item. On April
24, 2006, CMS issued proposed regulations regarding the implementation of competitive bidding. The
proposed regulations include, among other things, proposals regarding how CMS will determine in
which MSAs to initiate the program, conditions to be met for awarding contracts, and the
grandfathering of existing oxygen and other HME agreements with beneficiaries if a supplier is
not selected. The proposed regulations also would revise the methodology CMS would use to price new
products not included in competitive bidding. The proposed regulations do not provide many of the
details needed to assess the impact that competitive bidding and other elements of the rule will
have on our business. Until the regulations are finalized, significant uncertainty remains as to
how the competitive bidding program will be implemented. At this time, we do not know which of our
products will be subject to competitive bidding, nor can we predict the impact that it will have on
our business.
Several anti-takeover measures under Nevada law could delay or prevent a change of our control,
despite such change of control being in the best interest of the holders of our shares of Common
Stock.
Several anti-takeover measures under Nevada law could delay or prevent a change of our control,
despite such change of control being in the best interest of the holders of our shares of 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 Company, by discouraging a potential suitor who may otherwise be willing to offer
a premium for shares of the Companys common stock.
USE OF PROCEEDS
The shares of common stock are being offered as consideration pursuant to a settlement agreement
between Anna Maria Nekoranec and the Company as described more fully below. We will not receive
any cash proceeds from the sale of shares of our common stock by the security holder. The security
holder will pay any underwriting discounts and commissions and expenses incurred by the security
holder for brokerage, accounting, tax or legal services or any other expenses incurred by the
security holder in connection with sales by her. We will bear all other costs, fees and expenses
incurred in effecting the registration of the shares covered by this prospectus supplement,
including, but not limited to, all registration and filing fees and fees and expenses of our
counsel and our accountants.
Pursuant to the Settlement and Release Agreement dated December 5, 2007 between the Company and
Anna Maria Nekoranec, a total of 100,000 shares are to be issued to Ms. Nekoranec as a final
settlement for consulting services previously provided by Ms. Nekoranec to the Company contingent
on the Companys receipt of listing approval from the American Stock Exchange.
DILUTION
The net tangible book value per share represents the amount of our total tangible assets, less our
total liabilities and the aggregate liquidation preference of our preferred stock outstanding,
divided by the total
number of shares of our common stock outstanding. The number of shares of our common stock
outstanding may be increased by shares issued upon conversion of preferred stock, payment of
dividends and exercise of warrants or options, and, to the extent warrants and options are
exercised for cash, the net tangible book value of our common stock may increase. The Company
currently has no preferred stock outstanding. Because the shares of common stock being offered by
this prospectus supplement will be used to settle certain liabilities, it will decrease total
liabilities and, correspondingly, increase net tangible book value. There will be no dilution of
net tangible book value per share due to the issuance of these shares.
WHERE YOU CAN FIND MORE INFORMATION
Our SEC filings are available to the public over the SECs website at www.sec.gov. You may also
read and copy any document we file at the SECs public reference room at 100 F. Street, N.E.,
Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the
operating rules, copy charges and procedures for the public reference room.
We have filed with the SEC a registration statement on Form S-3 (the Registration Statement)
under the Securities Act of 1933, as amended (the Securities Act), with respect to the securities
offered hereby. This Prospectus Supplement and the accompanying Prospectus do not contain all of
the information contained in the Registration Statement. Copies of the Registration Statement and
the exhibits thereto are on file at the offices of the SEC and may be obtained upon payment of a
prescribed fee or may be examined without charge at the SECs public reference facility in
Washington D.C. or copied without charge from its website.
Our SEC filings are available to the public at no cost over the Internet at
www.ArcadiaResourcesInc.com, including our annual reports on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K and any amendments to those reports. Information on our
website is not incorporated by reference in this prospectus. Access to those electronic filings is
available as soon as practical after filing with the SEC. You may also request a copy of those
filings, excluding exhibits, at no cost by writing or telephoning our principal executive office,
which is:
Arcadia Resources, Inc.
9229 Delegates Row, Ste. 260
Indianapolis, IN 46240
Attention: Corporate Secretary
(317) 569-8234
PLAN OF DISTRIBUTION
Please see the information set forth under the caption Plan of Distribution in the accompanying
prospectus. For more information, please see the section entitled Where You Can Find More
Information in this prospectus supplement.