There is no established market for our Classes A, B-1 and B-2 Warrants. The Company’s respective warrants are not quoted on the OTC Bulletin Board, nor are they listed on any exchange. We do not expect our warrants to be quoted on the OTC Bulletin Board 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 approximately 1,800 record holders of our Common Stock as of June 26, 2006. 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 26 million shares. The transfer agent and registrar for our Common Stock is National City Bank, 629 Euclid Avenue, Suite 635, Cleveland, Ohio 44114 (216-222-2537).

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any 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 and other factors as our Board may deem relevant at that time.

The information presented in Item 9B pertaining to sales of unregistered equity securities is incorporated herein by this reference. The information presented in Item 12 regarding compensation plans under which equity securities of the Company are authorized for issuance is incorporated herein by this reference.

Item 6. Selected Consolidated Financial Data.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated summary financial data is set forth in the table below. Results for the period from April 1, 2004 to May 9, 2004 and the years ended March 31, 2004, 2003, 2002 and 2001 are those of Arcadia Services, Inc. and its subsidiaries presented on a consolidated basis (i.e., the Predecessor entity). Results for the year ended March 31, 2006 and for the period from May 10, 2004 to March 31, 2005 are those of the Successor entity as described below subsequent to the reverse merger transaction. We derived the statement of operations data for the year ended March 31, 2001 and the balance sheet data as of March 31, 2001 from unaudited financial statements. 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.

The “Predecessor” entity is Arcadia Services, Inc. and its subsidiaries. On May 7, 2004, RKDA acquired Arcadia Services, Inc. This acquisition, which preceded the RKDA reverse merger, was accounted for as a purchase transaction. The “Successor” entity is the combined company resulting from the RKDA reverse merger, including “old” Critical Home Care, Inc., RKDA, Arcadia Services and its subsidiaries, Arcadia RX and all other entities purchased subsequent to the reverse merger through March 31, 2005. Results for the period from April 1, 2004 to May 9, 2004 are those of Arcadia Services, Inc. and its subsidiaries presented on a consolidated basis (i.e., the Predecessor entity). Results for the period from May 10, 2004 to March 31, 2005 are those of the Successor entity as described above subsequent to the reverse merger transaction. A reclassification of commissions paid to affiliated agencies from cost of sales to general and administrative expenses is reflected herein to be more comparable with our peers in the staffing industry.

(Results shown in thousands)		Successor								Predecessor
		Year Ended				Period from				Period from				Year Ended				Year Ended				Year Ended
		March 31,				May 10, 2004 to				April 1, 2004 to				March 31,				March 31,				March 31,
		2006				March 31, 2005				May 9, 2004				2004				2003				2002
Net Sales		$	130,929			$	95,855			$	9,487			$	78,359			$	76,276			$	75,848
Cost of Sales			87,564				67,050				6,906				56,205				53,822				53,134
Gross Profit			43,365				28,805				2,581				22,154				22,454				22,714
General and Administrative Expenses			43,174				32,264				2,102				18,424				18,172				18,824
Impairment of Goodwill			—				707				16				—				—				—
Depreciation and Amortization			2,326				1,458				—				—				—				—
Operating Income (Loss)			(2,135	)			(5,624	)			463				3,730				4,282				3,890
Other Expenses Other (Income)			—				(87	)			—				—				—				—
Interest Expense (Income), Net			1,524				946				—				(2	)			(1	)			(4	)
Amortization of Debt Discount			933				1,228				—				—				—				—
Total Other Expenses (Income)			2,457				2,087				—				(2	)			(1	)			(4	)
Net Income (Loss) Before Income Tax Expense (Benefit)			(4,592	)			(7,711	)			463				3,732				4,283				3,894
Income Tax Expense			119				186				—				—				—				—
Net Income (Loss)		$	(4,711	)		$	(7,897	)		$	463			$	3,732			$	4,283			$	3,894
Pro Forma Income Tax expense from tax status change											158				1,269				1,456				1,324
Pro Forma Income after Income Tax from tax status change										$	305			$	2,463			$	2,827			$	2,570
Income (Loss) per Share:
Basic		$	(0.06	)		$	(0.11	)		$	0.49			$	3.94			$	4.52			$	4.11
Fully diluted		$	(0.06	)		$	(0.11	)		$	0.49			$	3.94			$	4.52			$	4.11
Pro Forma Income (Loss) per Share:
Basic										$	0.32			$	2.60			$	2.98			$	2.71
Fully diluted										$	0.32			$	2.60			$	2.98			$	2.71
Weighted average number of shares (in thousands):
Basic			83,834				72,456				948				948				948				948
Fully diluted			83,834				72,456				948				948				948				948

		Successor								Predecessor
		March 31,				March 31,				March 31,				March 31,				March 31,
		2006				2005				2004				2003				2002
										(In thousands)
Balance Sheet Data:
Total Current Assets		$	32,322			$	24,536			$	13,612			$	12,325			$	12,498
Working Capital		$	19,734			$	10,032			$	9,069			$	8,874			$	8,254
Total Assets		$	85,151			$	55,593			$	17,203			$	14,999			$	15,094
Total Long-Term Debt, including current maturities		$	19,772			$	22,825			$	430			$	2			$	113
Total Liabilities		$	28,107			$	30,071			$	4,973			$	3,453			$	4,357
Total Stockholders’ Equity		$	57,044			$	25,522			$	12,230			$	11,546			$	10,737

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 “Statements Regarding Forward-Looking Information” above. Historical results set forth in Selected Consolidated Financial Information and the Financial Statements beginning on page F-1 and this section should not be taken as indicative of our future operations.

     As previously stated, we caution you that statements contained in this report (including our documents incorporated herein by reference) include forward-looking statements. The Company claims all safe harbor and other legal protections provided to it by law for all of its forward-looking statements. Forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors about our Company, which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Such forward-looking statements generally are based on our reasonable estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements are also based on economic and market factors and the industry in which we do business, among other things. Forward-looking statements are not guaranties of future performance. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “can,” “will,” “could,” “should,” “project,” “expect,” “plan,” “predict,” “believe,” “estimate,” “aim,” “anticipate,” “intend,” “continue,” “potential,” “opportunity” or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions.

     Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Important factors that could cause actual results to differ materially include, but are not limited to (1) our ability to compete with our competitors; (2) our ability to obtain additional financing; (3) the ability of our affiliated agencies to effectively market and sell our services and products; (4) our ability to procure product inventory for resale; (5) our ability to recruit and retain temporary workers for placement with our customers; (6) the timely collection of our accounts receivable; (7) our ability to attract and retain key management employees; (8) our ability to timely develop new services and products and enhance existing services and products; (9) our ability to execute and implement our growth strategy; (10) the impact of governmental regulations; (11) marketing risks; (12) our ability to be listed on a national securities exchange or quotation system; (13) our ability to adapt to economic, political and regulatory conditions affecting the health care industry; and (14) other unforeseen events that may impact our business.

Overview

     The Company has undergone substantial changes in its financial position and business operations since May 10, 2004. Before the RKDA merger, we had continuing losses, cash flow problems and faced going concern issues. We had annual sales of approximately $4 million. The Company entered into the merger agreement with RKDA in order to expand product and service offerings, increase geographic markets served, and to spread its cost structure over a wider base of customers, products and service offerings. The net effect of the RKDA merger was to considerably expand the Company’s base of business and to alleviate its financial problems. From the time of the merger through March 31, 2006, the Company raised $48 million in equity funding and completed 21 acquisitions.

     Arcadia Resources, Inc. provides home health care services and products through its subsidiaries’ 108 operating locations in 24 states. Arcadia Services, a wholly-owned subsidiary of Arcadia Resources, Inc., is a national provider of home care and staffing services currently operating in 19 states through its 76 locations, referred to herein as the Services Division. The Products Division includes Arcadia HOME (home oxygen and medical equipment), which provides respiratory and durable medical equipment to patients in 11 states through its 25 locations, including a full-service mail-order pharmacy operated for the benefit of all of our patients. Our Retail Division consists of six retail operations, a home health-oriented mail order catalog and a related retail website

The Company’s assets and net sales increased substantially during the period from May 10, 2004 to March 31, 2006. As of March 31, 2006, we reported total assets of approximately $85.2 million, on a consolidated basis, compared to $17.2 million as of March 31, 2004 reported by Arcadia Services, Inc., the entity treated as the acquirer for accounting purposes in the RKDA merger. See below for more information on the reverse merger accounting treatment of the RKDA merger.

The Company generated the following tabular progression of net sales by quarter since the merger. There were no material changes in sales prices from the quarter ended March 31, 2005 to the quarter ended March 31, 2006 to contribute to the improvement in revenues. See Results of Operations and Liquidity and Capital Resources .

Growth Strategy. We have pursued a strategy of growth internally and externally through acquisitions. Our internal growth strategy is to capitalize on customer demand for a larger array of integrated home care services by obtaining greater penetration within existing markets and to expand service offerings by cross selling home care patients with personal services, mail order pharmacy and home oxygen and medical equipment products. In addition, we intend to proactively remind customers to reorder and replace their supplies. To this end, we have hired a director of business development in mid-2004 to spearhead the development of internal growth. During the year ended March 31, 2005, we generated internal growth of 15.5%, principally within our home care and staffing business, due to a continued trend in economic recovery and expanded marketing efforts. During the year ended March 31, 2006, we generated internal growth of 10.2% as we continued to increase our product offerings, in spite of some downward pressure on margins in the staffing business and reductions in reimbursement of services provided to Medicare beneficiaries receiving pharmaceuticals and certain durable medical equipment products and services. We continue to challenge our sales and marketing strategies and our delivery of products and services to achieve better customer satisfaction, market share and operating results. See Results of Operations .

Our growth strategy also encompasses expansion of our business by acquisition. There are many small local competitors currently serving the marketplace, each of which has a complete infrastructure in place to support its existing business. We hope to capitalize on the consolidation opportunities that we believe exist within the fragmented home care and staffing industries by becoming a larger provider of comprehensive national home care and staffing services through greater economies of scale. We intend to implement this strategy by smaller companies joining our affiliate network and by acquiring other home care, staffing and durable medical equipment businesses.

In line with this strategy, during the period from May 10, 2004 to March 31, 2006, we completed 21 acquisitions. During the year ended March 31, 2006, the Company purchased the operations of 15 entities, as more fully described below in the footnotes to the financial statements. The total amounts assigned to assets and liabilities for those operations purchased during the year ended March 31, 2006 are as follows:

		(in thousands)
Description of assets and (liabilities) purchased:
Current Assets		$	1,889
Property and Equipment			1,972
Intangibles			5,390
Liabilities			(5,154	)
Goodwill			13,312
Total assets and liabilities acquired		$	17,409

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 Arcadia in preparing the accompanying consolidated financial statements. For further discussion of our accounting policies see “Summary of Accounting Policies” of the Notes to Consolidated Financial Statements.

Revenue Recognition

Revenues for services are recorded in the period the services are rendered at rates established contractually or by other agreement made with the institution or patient prior to the services being delivered. Revenues for products are recorded in the period delivered based on rental or sales prices established with the client or their insurer prior to delivery. Insurance entities generally determine their pricing schedules based on the regional usual and customary charges or based on contractual arrangements with their insureds. Federally-based Medicare and state-based Medicaid programs publish their pricing schedules periodically for covered products and services. Revenues reimbursed under arrangements with Medicare, Medicaid and other governmental-funded organizations were approximately 28%, 24% and 19% for the years ended March 31, 2006, 2005 and 2004, respectively. No customers represent more than 10% of the Company’s revenues for the periods presented. Revenues are recorded based on the expected amount to be realized by the Company.

Allowance for Doubtful Accounts

The Company reviews all accounts receivable balances and provides for an allowance for doubtful accounts based on historical analysis of its records. The analysis is based on patient and institutional client payment histories, the aging of the accounts receivable, and specific review of patient and institutional client records. As actual collection experience changes, revisions to the allowance may be required. Any unanticipated change in customers’ credit worthiness or other matters affecting the collectibility 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. See Revenue Recognition above for credit concentrations within payor sources. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Goodwill

Prior to 2002, Arcadia amortized its goodwill using the straight-line method over periods ranging from seven to fifteen years. In 2002, Arcadia adopted SFAS No. 142 “Goodwill and Other Intangible Assets.” Accordingly, amortization of goodwill ceased as of December 31, 2002. Goodwill is now tested for impairment annually by comparing the fair value of each reporting unit to its carrying value.

We review goodwill and other intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. Our reporting units are consistent with the reportable segments identified in Note (7) of the consolidated financial statements. We determine the fair value of our reporting units using a combination of the income approach and the market approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenues or earnings for comparable companies. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing.

If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we are required to perform the second step to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill . If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we must record an impairment loss equal to the difference.

SFAS No. 142 also requires that the fair value of the purchased intangible assets with indefinite lives be estimated and compared to the carrying value. We estimate the fair value of these intangible assets using the income approach. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value.

The income approach, which we use to estimate the fair value of our reporting units and purchased intangible assets, is dependent on a number of factors including estimates of future market growth and trends, forecasted revenue and costs, expected periods the assets will be utilized, appropriate discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments about the selection of comparable companies used in the market approach in valuing our reporting units, as well as certain assumptions to allocate shared assets and liabilities to calculate the carrying values for each of our reporting units.

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. 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 annually. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly.

We have provided a valuation allowance for the net deferred tax assets including the asset related to the net operating loss carryover of approximately $7.2 million generated post-merger, expiring through 2026. 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 Arcadia has taken place. Therefore, Arcadia’s ability to utilize $1.2 million net operating losses generated by Critical 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 carryforwards will be recorded at such time as they are considered more likely than not to be realized.

Prior to May 10, 2004, Arcadia Services elected to be taxed as a Subchapter S corporation with the individual shareholders reporting their respective share of income on their income tax return. Accordingly, the Company has no deferred tax assets or liabilities recorded in prior periods.

Results of Operations

Year Ended March 31, 2006 Compared to Year Ended March 31, 2005

The table below showing results of operations of April 1, 2004 to May 9, 2004 are those of Arcadia Services, Inc. and its subsidiaries presented on a consolidated basis (i.e., the Predecessor entity). Results for the period from May 10, 2004 to March 31, 2005 and for the year ended March 31, 2006 are those of the combined Company resulting from the RKDA reverse merger, and other entities purchased subsequent to the reverse merger, presented on a consolidated basis (i.e., the Successor entity). The two companies, Predecessor and Successor, are combined to accommodate discussion and comparability between the years ended March 31, 2006 and 2005.

Arcadia Resources, Inc.
Consolidated Statements of Income
(In thousands)

Net sales were $130.9 million for the year ended March 31, 2006 compared to $105.3 million for the year ended March 31, 2006, representing a increase of 24%. The Company generated revenues from operations acquired since March 31, 2005 totaling 58% of the increase in sales, while internal growth of existing operations represented 10.2% of the increase in sales compared to the year ended March 31, 2005. There were no material changes in sales prices from the year ended March 31, 2005 to the year ended March 31, 2006, net of pharmacy-related pricing reductions, to contribute to the improvement in revenues.

The Company had the following component increases in net sales for the period from April 1, 2005 through March 31, 2006*:

The Company’s consolidated gross profit margin was 33.1% for the year ended March 31, 2006 compared to 29.8% for the year ended March 31, 2005. The Company’s acquisition and expansion into pharmacy and durable medical equipment operations in May 2004, addition of a mail-order catalog operation in May 2005 and initiation of its retail store concept in September 2005 has and is expected to continue to drive changes to the consolidated gross profit margin of the Company. The Services’ Division revenues for the year ended March 31, 2006 were $110.1 million and yielded a gross margin of 27.1% compared to $97.2 million at a gross margin of 27.1% for the year ended March 31, 2005. The Products’ Divisional revenues for the year ended March 31, 2006 were $17.1 million at a gross margin of 73.4% compared to revenues for the year ended March 31, 2005 of $8.1 million at a gross margin of 61.8%. Cost of sales for Services are primarily employee costs, while cost of sales for Products represents the cost of products and medications sold to patients and supplies used in the delivery of other rental products and services to patients, including the related depreciation of the equipment rented to patients. The components of the Retail Division were acquired or opened during the year ended March 31, 2006 and generated revenues of $3.7 million at a 56.0% gross margin.

General and administrative expenses for the year ended March 31, 2006 were $43.4 million or 33.1% of revenues versus $34.4 million or 32.6% of revenues for the year ended March 31, 2005. The 26.2% increase is due primarily to changes in the Company’s mix of business. The general and administrative expenses for the Services, Products and Retail Divisions were 22.0%, 66.7% and 84.4% of revenues for the year ended March 31, 2006, respectively as compared to 22.3%, 75.5% and 0% (no Retail Division in this period) for the year ended March 31, 2005). The Company recorded $4.6 million in non-cash expenses during the year ended March 31, 2006, of which $1.1 million are included in general and administrative expenses compared to total non-cash expenses of $802,000 for the year ended March 31, 2005. The Company continues to incur expenses toward building an infrastructure for the Products Division and bolstering the existing Services Division infrastructure to accommodate recent and expected acquisitions, most of which are personnel and information systems related. The Company’s investment in its retail store concept incurred general and administrative expenses of $1.1 million during the year ended March 31, 2006, compared to none for the same period in the prior year.

Total depreciation and amortization expense was approximately $3.4 million for the year ended March 31, 2006 compared to $1.5 million for the year ended March 31, 2005. Depreciation expense related to equipment rented to patients of approximately $1.1 million is included as a component of cost of sales for the year ended March 31, 2006 compared to none in the year ended March 31, 2005. The increase in depreciation expense relates primarily to the increase in the Company’s fleet of vehicles and equipment held for rental to patients, additional information systems technology and equipment benefiting the entire Company. Other intangibles were

amortized based on their expected useful lives (3 to 30 years) which resulted in amortization expense of $1.5 million for the year ended March 31, 2006 compared to $782,000 recorded in the year ended March 31, 2005. Amortizable net intangibles, other than goodwill, were $46.6 million at March 31, 2006 compared to $13.0 million at March 31, 2005.

Interest expense was $1.5 million for the year ended March 31, 2006 compared to $946,000 for the year ended March 31, 2005. Even though the Company paid down $22.8 million in interest-bearing debt during the quarter ended September 30, 2005, the increase in interest expense is a result of borrowings resulting from the expansion of the Products Division along with acquisitions of the various entities as discussed in the Notes to the Consolidated Financial Statements. Total interest-bearing borrowings were $19.8 million at March 31, 2006 at rates ranging from 7.75% to 8.25% per annum compared to $22.8 million at higher interest rates at rates ranging from 6.25% to 12% at March 31, 2005.

Amortization of deferred debt discount was $933,000 for the year ended March 31, 2006 compared to $1.2 million for the year ended March 31, 2005. These discounts were generated by the attachment of warrants to two notes payable and a conversion feature attached to a third note payable as explained in Notes to the Consolidated Financial Statements. The Company fully amortized all of its outstanding debt discounts as of September 30, 2005 upon repayment of the related instruments, therefore, there was no related amortization expense during the two quarter ended March 31, 2006. The deferred debt discounts have been amortized over the lives of the respective promissory notes, all of which were paid in full as of September 30, 2005.

The Company had income tax expense of $119,000 for the year ended March 31, 2006 compared to $186,000 for the year ended March 31, 2005, primarily related to state income tax expenses. The Company has total net operating loss carryforwards for tax purposes of $7.2 million that expire at various dates through 2026.

The Company’s net loss for the year ended March 31, 2006 was $4.7 million compared to a net loss of $7.4 million for the year ended March 31, 2005. The Company incurred total non-cash expenses of $5.7 million in the year ended March 31, 2006 compared to $7.7 million for the year ended March 31, 2005. The other costs responsible for the net loss for the year ended March 31, 2006 are: debt discount amortization and related interest expense, costs related to the Company’s investment in its retail store concept, costs related to stock options pursuant to FAS 123R, acquisition related amortization and depreciation, infrastructure building, higher workers’ compensation costs, and those costs related to public offering registration expenses.

Year Ended March 31, 2005 Compared to Year Ended March 31, 2004

The Company had the following component increases in net sales for the period from April 1, 2004 through March 31, 2005*:

There were no significant changes in sales prices during the period May 10, 2004 through March 31, 2005 until an approximate 30% pricing reduction on reimbursement from the Medicare program on certain respiratory medications was effective on January 1, 2005, primarily affecting the Company’s Arcadia RX pharmacy operation and certain acquired home respiratory care operations.

Gross profit margin for the period from May 10, 2004 to March 31, 2005 increased to 30% of sales. Gross profit margin for the period from April 1, 2004 to May 9, 2004 was 27% of sales. The combined gross profit margin for the year ended March 31, 2005 was 30% compared with the year ended March 31, 2004 at 28%. The Company’s expansion into home care in May 2004 has and will continue to drive changes to the consolidated gross profit margin of the Company. Staffing revenues for the period ended March 31, 2005 were $88.1 million and yielded a gross margin of 27.1%, while the home care revenues were $7.8 million at a gross margin of 63.6%. Cost of sales for staffing are primarily employee costs, while cost of sales for home care represents the cost of products and medications sold to patients and supplies used in the delivery of other rental products and services to patients. The staffing business’ gross margins were negatively affected in the year ended March 31, 2005 than the same period of the prior year due to the business and client mix of institutional customers, increases in workers’ compensation insurance costs and a lower margin service staffing demand in the facilities.

General and administrative expenses for the period from May 10, 2004 to March 31, 2005 were $32.3 million and for the period from April 1, 2004 to May 9, 2004 were $2.1 million. Combined general and administrative expenses totaled $34.4 million for the year ended March 31, 2005 compared to $18.4 million for the year ended March 31, 2004. The 87% increase is due to the changes in the Company’s mix of business, costs related to being a separate publicly-held company rather than a subsidiary of a privately-held company and additional general and administrative expenses related to the merged entities as discussed in the notes to the consolidated financial statements. Of the $7.7 million in non-cash expenses incurred by the Company during the period ended March 31, 2005, $4.2 million are included in general and administrative expenses with no corresponding comparable items in the prior year except for bad debt expense of $42,000. The Company incurred expenses of approximately $755,000 in the year ended March 31, 2005 toward building a home care infrastructure and bolstering its existing services infrastructure to accommodate recent and expected acquisitions, most of which is personnel and information systems related. The post-transaction costs of registering securities issued in the offering are considered an expense for accounting purposes. Due to the complex nature of the business combination and the time schedule required, those costs have been significant to the Company for the year ended March 31, 2005. Such related costs include primarily external professional fees for legal, accounting and auditing services along with internal costs of preparing and filing the required documents with the Securities and Exchange Commission. The Company estimates its external costs were $660,000 for the year ended March 31, 2005. Additional costs will be incurred until the registration is completed.

The Company recognized an impairment of goodwill of $707,000 for the period from May 10, 2004 to March 31, 2005 compared to $16,000 for the period from April 1, 2004 to May 9, 2004. The decline in value was quantified primarily related to a business acquired as a byproduct of the reverse acquisition on May 10, 2004. The specific operating subsidiary is in a specific product line which is very dependent on its employees’ expertise and relationships. Many of its employees exited the operation subsequent to the acquisition, resulting in a decline in revenues and profitability and ultimate closure of 1 of the 3 locations acquired. Total net intangible assets were $28.8 million of which $15.7 million was goodwill as of March 31, 2005.

Depreciation and amortization expense was $1.5 million for the year ended March 31, 2005 yet the Company had none in the prior year ended March 31, 2004. The increase consists primarily of depreciation expense of the home care component associated with the fleet of vehicles, equipment held for rental to patients, pharmacy equipment and office furnishings and equipment required to service the patients and additional information systems technology and equipment benefiting the entire Company. The base of depreciable assets increased from $75,000 at March 31, 2004 to $3.1 million at March 31, 2005. Other intangibles were amortized based on their expected useful lives which resulted in amortization expense of $782,000. Amortizable net intangibles, other than goodwill, were $13 million at March 31, 2005.

Interest expense was $946,000 for the year ended March 31, 2005. There was no interest expense for the year ended March 31, 2004 as the company had no interest-bearing borrowings. Interest expense incurred in the year ended March 31, 2005 included $630,000 to banks and $316,000 to note holders. Total interest-bearing borrowings were $22.9 million at March 31, 2005 at rates ranging from 6.25% to 12% per annum compared to no interest-bearing borrowings at March 31, 2004. The increase in interest expense is a result of borrowings resulting from the acquisitions of the various merged entities as discussed in the Notes to the Consolidated Financial Statements.

Amortization of deferred debt discount was $1.2 million for the year ended March 31, 2005 generated by the attachment of warrants to two notes payable, while there were no such arrangements for the same period in the prior year. The deferred debt discount is the fair value of stock options and warrants granted to certain note holders as explained in Notes to the Consolidated Financial Statements. The deferred debt discount is being amortized over the life of the respective promissory notes.

The Company reported no income tax expense for the period from April 1, 2004 to May 9, 2004 as it was a Subchapter S taxpayer. The Company had income tax expense of $185,000 for the period from May 10, 2004 to March 31, 2005, primarily related to state income tax expenses. The Company had significant temporary differences between book income and taxable income resulting in combined net deferred tax assets of $2.7 million 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 of $4.0 million that expires at various dates through 2025.

Net income was $463,000 for the period from April 1, 2004 to May 9, 2004 combined with a net loss of $7.9 million for the period from May 10, 2004 to March 31, 2005, resulting in a net loss for the year ended March 31, 2005 of $7.4 million. The Company had net income of $3.7 million for the year ended March 31, 2004. The costs responsible for this reduction in net income are: those costs related to being a separate publicly-held entity versus a subsidiary of a privately-held entity, debt discount amortization and related interest expense, public offering registration expenses, infrastructure building and related improvements, higher workers’ compensation costs, costs related to the release of escrowed shares and the impairment of goodwill.

Liquidity and Capital Resources

The Company’s primary needs for liquidity and capital resources are the funding of operating and administrative expenses related to the management of the Company and its subsidiaries. Secondarily, the Company began executing its long-term strategic growth plan in May 2004, which includes plans for complementary acquisitions, internal growth at existing locations, expanded product offerings and synergistic integration of the Company’s types of businesses.

Prior to undertaking the Company’s long-term strategic growth plan, the operating company was generating significant cash flows from operations and pre-tax income of 5% of revenues. Management has shown the ability to raise funds sufficient to provide for the cash flow needs of the Company in pursuit of its long-term strategic growth plan, as evidenced by the $48 million raised in equity instruments after the merger through March 31, 2006 (including the conversion of notes payable into common stock). The Company also has in place a long-term line of credit, a short-term line of credit and has used notes payable to sellers and shares of its common stock as a means of financing some acquisitions.

On September 29, 2005, the Company completed a warrant offering. With the $29.2 million of net proceeds from this offering, the Company reduced its interest-bearing debt as of September 30, 2005. Most of the debt was generated by the reverse merger transaction of May 2004 and subsequent acquisitions.

During the year ended March 31, 2006, the Company made 15 acquisitions with a combination of cash of $12.9 million, $3.9 million in notes or escrows payable, assumption of certain liabilities totaling $1.3 million and 1.8 million shares of its common stock valued at $3.8 million. The Company had $5.3 million available as of March 31, 2006 through its various lines of credit with the potential of an additional $758,000 million available, based on borrowing base calculations.

The Company has been successful in using notes payable and common stock as part of its consideration paid for acquisitions. In the event the Company is unable to continue to obtain financing through the sale of additional common stock or increased borrowings, management will reduce the amount of acquisitions and investments in related infrastructure and focus on the performance of the operations of the Company, until it can once again resume its strategic plans.

The Company’s cash position as of March 31, 2006 was $530,000. The Company’s total debt to equity ratio was 0.49 to 1 and its current ratio was 2.57 to 1 at March 31, 2006.

Gross accounts receivable at March 31, 2006 of approximately $27.1 million represent accounts receivable from operations and from acquired entities. As of March 31, 2006, the Company’s net accounts receivable represented 64 days sales outstanding, consistent with the 67 days sales outstanding as of March 31, 2005. By type of revenue, as of March 31, 2006, the days sales outstanding for Services Division revenues were 60 and the days sales outstanding on Products Division revenues were 83 days. The Retail Division has minimal accounts receivable as its sales are primarily via charges to customers’ credit cards. The integration of billing related to acquisitions of Products Division operations during the year ended March 31, 2006 has affected the related collection process due to the required reworking of licensure and account statuses with payors after a change in ownership. Additional support has been added to improve the results in fiscal 2007. The Company was not in the Products business until August 2004 and opened a regional billing center in January 2005 to consolidate the billing of the local operations. The Company calculates its days sales outstanding as accounts receivable less acquired accounts receivable, net of the related allowance for doubtful accounts, divided by the average daily net sales for the preceding three months. The Company has a limited number of customers with individually large amounts due at any given balance sheet date. The Company’s payor mix for the year ended March 31, 2006 was as follows:

Financing Transactions

On April 26, 2005, the Company sold an aggregate 1,212,121 shares of its common stock valued at $1.65 per share, for net aggregate consideration of $1.86 million, in a private transaction to an accredited investor as defined in Rule 501(a) of Regulation D.

On April 27, 2005, the Company issued Jana Master Fund, LTD (“Jana”) a $5.0 million Convertible Promissory Note with a term due May 1, 2006 and providing for quarterly interest payments at 12% annual interest. Under the terms of the Note, Jana may convert the outstanding balance into shares of the Company’s common stock at the rate of one (1) share of common stock per $2.25 of outstanding debt. The debt was repaid on September 30, 2005 with proceeds from our Class B-1 Warrant Offering and therefore, the conversion rights were extinguished.

The Company received $306,000 from the exercise of stock options and warrants during the year ended March 31, 2006.

On November 28, 2005, the Company agreed to sell for placement with two European bank SICAV funds an aggregate of 2,222,222 shares of common stock for aggregate consideration totaling $5,000,000. Due to the delays experienced, the funds agreed on March 7, 2006 to increase the price per share to $2.55, therefore increasing the total subscription to $5.7 million. The transactions were terminated on June 20, 2006 by the Company for failure of the SICAV funds to fund the transactions.

Management believes that cash from operations will be sufficient to repay short-term debt obligations. The Company generated net cash from operating activities of $855,000 during the quarter ended March 31, 2006, compared to negative net cash from operations in each of the preceeding three quarters. However, cash from operations alone may not be sufficient to pursue management’s strategy of growth through acquisition. Management anticipates that the sources of funds for the reduction of long-term debt obligations and for acquisitions will be primarily from the equity market. As of March 31, 2006, the Company’s interest-bearing debt totals approximately $4.4 million classified as current and approximately $15.5 million classified as long-term for a total of approximately $19.9 million. During fiscal years 2005 and 2006, the Company raised $48 million from the equity markets (including the conversion of notes payable into common stock) in accordance with its plan and has retired short term debt, reduced borrowings on its lines of credit, funded internal growth and financed 21 acquisitions. In the short term, the Company anticipates raising additional debt or

equity funding for selected acquisitions. Raising capital through equity will result in dilution to our holders of Common Stock. The Company expects to incur additional debt to fund the growth of its durable medical equipment and respiratory business. Vendor-based financing is available in the form of short term notes payable or capital leases for medical and information systems equipment. The Company does not have any material commitments for capital expenditures, but does intend to spend up to $1 million related to information systems technology.

The Company also plans to expand into certain new start-up locations related to retail DME and walk-in medical clinics, as well as to continue to expand product and service offerings in its existing sites. Cash flow from operations is expected to fund these efforts, the scope of which may be determined by the Company’s ability to generate cash flow or to secure additional new funding.

To the extent that we do not successfully raise funds from the equity markets to finance new acquisitions, we may seek debt financing, which reduces available cash for operations by the amount of interest expense and repayments. Alternatively, we may choose to modify or postpone our strategy to grow through acquisition or may choose to eliminate certain product or service offerings. Higher financing costs, modification of our growth strategy, or the elimination of product or service offerings could negatively impact our profitability and financial position. Given the Company’s net proceeds from financing activities during the twenty-one months ended March 31, 2006, the changes in the Company’s operational and financial position that have occurred during this period, and assuming no material decline in our revenues, management does not anticipate that the Company will be unsuccessful in its efforts to raise funds from the equity markets, although there is no guarantee that the Company will successfully raise such funds.

The revolving credit commitment amount on the original Comerica Bank credit facility has been increased four times since its May 7, 2004 inception. In August 2005, the credit agreement was amended to in the credit commitment amount to $19 million and to extend the maturity date to September 1, 2007. The Company is permitted to draw on the revolving credit facility to finance working capital or staffing business acquisitions. Factors that have bearing on whether we may require additional credit include our ability to assimilate our acquired businesses by reducing operating costs through economies of scale, our ability to increase revenues through internal growth based on our existing cost structure, and our ability to generate cash from operations sufficient to service our debt level and operating costs. There is always the risk that Comerica Bank or other sources of credit may decline to increase the amount we are permitted to draw on the revolving credit facility or to lend additional funds for working capital or acquisition purposes. This development could result in various consequences to the Company, ranging from implementation of cost reductions which could impact our product and service offerings, to the modification or abandonment of our present business strategy.

Contractual Obligations and Commercial Commitments

As of March 31, 2006, the Company had contractual obligations, in the form of non-cancelable operating leases and employment agreements as follows, in thousands:

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

     The Board of Directors of Arcadia Resources, Inc., with the approval of the Audit Committee of the Board of Directors, engaged BDO Seidman, LLP as the Company’s new independent accountants as of June 22, 2004. BDO Seidman, LLP performed the audits of Arcadia Services, Inc. for the years ended March 31, 2004, 2003 and 2002.

     Prior to the RKDA reverse merger with Critical Home Care, Inc., the Board of Directors and Audit Committee of Critical Home Care, Inc. adopted resolutions on June 22, 2004 dismissing Critical Home Care, Inc.’s independent accountant, Marcum & Kliegman LLP. Marcum & Kliegman LLP was notified of its dismissal on June 30, 2004. The reports of Marcum & Kliegman LLP on the consolidated financial statements of Critical Home Care, Inc. as of September 30, 2003, and the year then ended, contained a qualified opinion as to substantial doubt about the ability of Critical Home Care, Inc. to continue as a going concern.

     None of the events described in Regulation S-K 304(a)(1)(v) occurred during the two most recent fiscal years and the subsequent period through and including June 26, 2006.

Item 9A. Controls and Procedures.

      Disclosure Controls and Procedures. Our chief executive officer and our chief financial officer, after evaluating our “disclosure controls and procedures” (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) have concluded that as of March 31, 2006, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

      Changes in Internal Controls . During our fiscal quarter ended March 31, 2006, there was no change in our internal control over financial reporting (as defined in Rule 13a–15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Additional resources in the accounting, finance and information technology departments of the Company have been added to accommodate the Company’s growth through acquisitions. The Company has acquired and has begun the process to implement a comprehensive management information system during the next 12 months to bolster timeliness and standardization of internal information processing as well as continuing to improve existing systems currently in use.

Item 9B. Other Information.

     During our fiscal quarter ended March 31, 2006, there was no information required to be disclosed in a report on Form 8-K that was not reported on Form 8-K.

     Since the Company last filed a Current Report on Form 8-K, Item 3.02, on March 27, 2006, the Company has not been required per Item 3.02(b) to report unregistered sales of equity securities which in the aggregate constitute less than one (1%) percent of the number of securities of the same class outstanding. Notwithstanding, the Company hereby reports that from March 28, 2006 to June 26, 2006, the Company issued shares of its common stock pursuant to the following transactions:

     In April 2006, the Company issued 15,000 shares of its common stock valued at $44,000 to a contracted entity for achievement of a specific, contractually agreed upon, performance goal.

     In April 2006, 29,582 shares of common stock valued at $73,000 vested in compliance with outstanding restricted stock grant agreements as more fully described in Note 9 of the audited financial statements included herein.

     On May 2, 2006, the Company issued 54,034 shares of its common stock valued at $151,000 in lieu of a cash payment of the same amount on an outstanding note payable.

     On June 7, 2006, the Company issued 73,388 shares of its common stock valued at $188,000 and cash of $183,000, provided from operations, to pay its obligation to the shareholders of Home Health Professionals under the earnout provision of the respective purchase agreement dated April 29, 2005 as more fully described in Note 4 of the audited financial statements included herein.

     On June 22, 2006, the Company granted a total of 225,000 restricted shares of the Company’s common stock to three officers. The individual grants were as follows: Rebecca Irish, Chief Financial Officer, 125,000 shares; James E. Haifley, Executive Vice President, 50,000 shares; and, Cathy Sparling, Vice President of Administration, 50,000 shares. The granted shares vest ratably each quarter over four years, contain registration rights, are subject to acceleration upon certain events occurring and contingent upon continued employment through each vesting date. Pursuant to these agreements, 14,062 shares valued at $32,000 vested on June 22, 2006. The form of stock grant agreement is attached as Exhibit 10.64.

  Each of the above referenced issuances of shares of common stock were issued in private placement transactions exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act of 1933 and/or Regulation D because the transactions did not involve any public offering. The sales of these securities were made without general solicitation or advertising. There was no underwriter, and no underwriting commissions or discounts were paid. Further, each securities certificate issued in each transaction bears a legend providing, in substance, that the securities have been acquired for investment only and may not be sold, transferred or assigned in the absence of an effective registration statement or opinion of the Company’s counsel that registration is not required under the Securities Act of 1933. The shares issued in the referenced transactions carry registration rights.

     On June 16, 2006, the Company’s Board of Directors appointed Peter Anthony Brusca, M.D., and Anna Maria Nekoranec to the Board of Directors effective July 1, 2006, to fill vacant director positions. The Board appointed Dr. Brusca and Ms. Nekoranec as members of the Board’s Audit Committee, commencing July 1, 2006. The Board determined that Dr. Brusca and Ms. Nekoranec each are independent within the meaning of the Sarbanes-Oxley Act of 2002, its implementing regulations, and the Charter of the Board’s Audit Committee. Director and Audit Committee Chairman John T. Thornton, whom the Board previously determined qualifies as independent, will continue as Chairman of the Audit Committee. So that the Company’s Audit Committee will consist solely of three independent directors, Director and Audit Committee member Lawrence R. Kuhnert, who is also the Company’s President and Chief Operating Officer, will conclude his term of service as a member of the Audit Committee as of June 30, 2006. Dr. Brusca and Ms. Nekoranec will each be compensated for service on the Board of Directors and the Audit Committee per the Company’s compensation arrangement for independent directors which consists of an annual retainer of $25,000, payable at the individual’s election in cash, options to purchase shares of the Company’s common stock or a combination thereof; and $1,000 per each Board meeting attended and $500 per each committee meeting attended, payable in shares of the Company’s common stock. The forms of director compensation and stock option agreements are attached as Exhibits 10.62 and 10.63, respectively.

      On November 28, 2005, the Company agreed to sell for placement with two European bank SICAV funds an aggregate of 2,222,222 shares of common stock for aggregate consideration totaling $5,000,000. Due to the delays experienced, the funds agreed on March 7, 2006 to increase the price per share to $2.55, therefore increasing the total subscription to $5.7 million. The transactions were terminated on June 20, 2006 by the Company for failure of the SICAV funds to fund the transactions.