Summary of ARCADIA RESOURCES, INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements The MD&A should be read in conjunction with the other sections of this report on Form 10-Q, including the consolidated financial statements and notes thereto beginning on page 2 of this report. Historical results set forth in the Financial Statements beginning on page 2 and this section should not be taken as indicative of our future operations.
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 debt or equity financing and/or to restructure existing indebtedness, which may be difficult due to our history of operating losses and negative cash flows; although management believes that the Company's short-term cash needs can be adequately sourced, we cannot assure that such additional sources of financing will be available on acceptable terms, if at all, and an inability to raise sufficient capital to fund our operations would have a material adverse affect on our business and would raise doubts about our ability to continue as a going concern; (3) the ability of our affiliated agencies to effectively market and sell our services and products; (4) our ability to procure product inventory for resale; (5) our ability to recruit and retain temporary workers for placement with our customers; (6) the timely collection of our accounts receivable; (7) our ability to attract and retain key management employees; (8) our ability to timely develop new services and products and enhance existing services and products; (9) our ability to execute and implement our growth strategy; (10) the impact of governmental regulations; (11) marketing risks; (12) our ability to adapt to economic, political and regulatory conditions affecting the health care industry; (13) other unforeseen events that may impact our business; (14) our ability to successfully integrate acquisitions; and (15) the ability of our new management team to successfully pursue its business plan and the risk that the Company may be required to enact restructuring measures in addition to those announced on March 30, 2007 and thereafter.
Overview
Arcadia Resources, Inc. ("Arcadia" or the "Company") is a national provider of in-home health care and retail / employer health care services. During the three-months ended June 30, 2007, the Company reorganized its operations into four segments: In-Home Health Care Services ("Services"); Durable Medical Equipment ("DME"); Retailer and Employer Services; and Clinics. The In-Home Health Care segment is a national provider of medical staffing services, including home healthcare and medical staffing, as well as light industrial, clerical and technical staffing services. Based in Southfield, Michigan, the In-Home Health Care segment provides its staffing services through a network of affiliate and company-owned offices throughout the United States. The Durable Medical Equipment segment markets, rents and

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sells products and equipment across the United States. The DME segment also sells various medical equipment offerings through a catalog out-sourcing and product fulfillment business. The Retailer and Employer Services segment primarily includes the operations of PrairieStone Pharmacy, LLC ("PrairieStone") period PrairieStone provides pharmacy services to grocery pharmacy retailers nationally and offers DailyMed™, the patented and patent pending compliance packaging medication system, to at-home patients and senior living communities. In addition, PrairieStone offers pharmacy services to employers through a contracted relationship with a large pharmacy benefits manager. Services offered to grocers and employers include staffing, pharmacy management, DailyMed™, an exclusive retail pharmacy benefit network and a 420 square foot automated pharmacy footprint that allows its customers to reduce space needs and improve labor efficiencies. The Clinics segment includes the operations of Care Clinics, Inc. ("CCI"). CCI was a new business venture launched in fiscal 2007 focused on establishing non-emergency medical care facilities in retail location host sites. In August 2007, management decided to exit the ownership of certain clinics. Going forward, management intends to sell such services to retailers under a licensed service model on a fee for service basis.
The Company generated the following tabular progression of net sales by quarter. There were no material changes in sales prices from the quarter ended June 30, 2005 to the quarter ended June 30, 2007 to contribute to the changes in revenues. See Results of Operations and Liquidity and Capital Resources.

                                                                                Increase (decrease)          Increase (decrease)
                                                                                     from prior                   from same
                                                          (in millions)               quarter                quarter prior year

Net sales by quarter:
First quarter ended June 30, 2005                          $      30.7                     7.4 %                         33.0 %
Second quarter ended September 30, 2005                           32.7                     6.5 %                         28.2 %
Third quarter ended December 31, 2005                             33.3                     1.8 %                         18.5 %
Fourth quarter ended March 31, 2006                               34.2                     2.7 %                         19.6 %
First quarter ended June 30, 2006                                 37.6                     9.9 %                         22.5 %
Second quarter ended September 30, 2006                           41.4                    10.3 %                         26.8 %
Third quarter ended December 31, 2006                             41.0                    (0.9 )%                        23.2 %
Fourth quarter ended March 31, 2007                               38.4                    (6.8 )%                        10.9 %
First quarter ended June 30, 2007                                 42.4                    10.4 %                         12.8 %

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 "Note 1 - Description of Company and Significant Accounting Policies" in the notes to consolidated financial statements.
Revenue Recognition
In general, the Company recognizes revenue when all revenue recognition criteria are met,which typically is when:
• Evidence of an arrangement exists

• Services have been provided or goods have been delivered

• The price is fix or determinable

• Collection is reasonably assured.

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Revenues for services are recorded in the period the services are rendered. 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. Net patient service revenues are recorded at net realizable amounts estimated to be paid by the customers and third-party payers. A provision for contractual adjustments is recorded as a reduction to net patient services revenues and consists of: a) the difference between the payer's allowable amount and the customary billing rate; and b) services for which payment is denied by governmental or third-party payors or otherwise deemed non-billable. The Company records the provision for contractual adjustments based on a percentage of revenue using historical data. Due to the complexity of many third-party billing arrangements, adjustments are sometimes made to amounts originally recorded. These adjustments are typically identified and recorded upon cash receipts or claim denial.
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. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Goodwill and Intangible Assets
Goodwill is assessed for impairment on an annual basis, or more frequently if circumstances warrant, in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"("SFAS No. 142"). We assess goodwill related to reporting units for impairment and write down the carrying amount of goodwill as required.
SFAS No. 142 requires that a two-step impairment test be performed on goodwill. In the first step, we compare the estimated fair value of each reporting unit to its carrying value. We determine the estimated fair value of each reporting unit using a combination of the income approach and the market approach. Under the income approach, we estimate 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 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. Intangible assets with finite lives are amortized using the estimated economic benefit method over the useful life. The income approach, which we use to estimate the fair value of our reporting units and 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

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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, as well as for tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our deferred tax assets and review the amount of such allowance periodically. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. Internal Revenue Code Section 382 rules limit the utilization of net operating losses following a change in control of a company. It has been determined that a change in control of Arcadia has taken place. Therefore, Arcadia's ability to utilize certain net operating losses generated by Critical Home Care will be subject to severe limitations in future periods, which could have an effect of eliminating substantially all the future income tax benefits of the respective net operating losses. Tax benefits from the utilization of net operating loss carryforwards will be recorded at such time as they are considered more likely than not to be realized.

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Results of Operations - Three-Month Period Ended June 30, 2007 Compared to

Three-Month Period Ended June 30, 2006

                                                                            Three-Month Period
                                                                              Ended June 30,
                                                                        2007                  2006

Revenues, net                                                      $ 42,360,000          $ 37,555,000
Cost of revenues                                                     28,110,000            24,373,000

Gross profit                                                         14,250,000            13,182,000


Selling, general and administrative expenses                         17,226,000            12,327,000
Depreciation and amortization                                         1,377,000               569,000
Impairment of long-lived assets                                       1,900,000                     -

Total operating expenses                                             20,503,000            12,896,000


Operating loss                                                       (6,253,000 )             286,000

Interest expense, net                                                 1,159,000               405,000

                                                                      1,159,000               405,000


Net loss before income tax expense                                   (7,412,000 )            (119,000 )
Income tax expense                                                       16,000                39,000


Net loss                                                           $ (7,428,000 )        $   (158,000 )


Weighted average number of shares - basic and diluted (in
thousands)                                                              114,997                86,837
Net loss per share - basic and diluted                             $      (0.07 )        $      (0.00 )

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Revenues, Cost of Revenues and Gross Profits The following summarizes revenues, cost of revenues and gross profits by segment for the three-month periods ended June 30:

                                                   % of Total                      % of Total
                                      2007          Revenue           2006           Revenue

Revenues, net:
In-Home Health Services          $ 31,214,000          73.7 %    $ 29,918,000            79.7 %
Durable Medical Equipment           8,060,000          19.0 %       6,851,000            18.2 %
Retailer and Employer Services      2,948,000           7.0 %         786,000             2.1 %
Clinics                               138,000           0.3 %               -               -

                                   42,360,000         100.0 %      37,555,000           100.0 %

Cost of revenues:
In-Home Health Services            22,791,000                      21,952,000
Durable Medical Equipment           2,339,000                       1,763,000
Retailer and Employer Services      2,103,000                         658,000
Clinics                               877,000                               -

                                   28,110,000                      24,373,000

                                                     Gross                            Gross
                                                    Margin %                        Margin %

Gross margins:
In-Home Health Services             8,423,000          27.0 %       7,966,000            26.6 %
Durable Medical Equipment           5,721,000          71.0 %       5,088,000            74.3 %
Retailer and Employer Services        845,000          28.7 %         128,000            16.3 %
Clinics                              (739,000 )      (535.5 )%              -               -

                                 $ 14,250,000          33.6 %    $ 13,182,000            35.1 %

Net revenue was $42,360,000 for the three-month period ended June 30, 2007 compared to $37,555,000 for the three-month period ended June 30, 2006, an increase of $4,805,000 or 12.8%. Cost of revenues for the three-month period ended June 30, 2007 was $28,110,000 resulting in a gross profit of $14,250,000 or 33.6% of revenues. Cost of revenues for the three-month period ended June 30, 2006 was $24,373,000 resulting in a gross profit of $13,182,000 or 35.1% of revenues. With the expansion of the DME operations and the pharmacy operations, the revenue mix continues to change, but the In-Home Health Services segment revenue remains the largest revenue source for the Company and totals approximately 74% of total revenue. The cost of revenues in the In-Home Health Service and clinics operations are primarily employee costs. The costs of revenue in the DME and pharmacy operations are largely the cost of products

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and medication sold to patients, as well as, to a lesser extend, the services provided to patients and supplies used in the delivery of other rental products. The DME cost of revenues includes the depreciation of patient rental equipment (discussed in "Depreciation and Amortization" section).
The In-Home Health Services ("Services") segment revenues for the three-month period ended June 30, 2007 was $31,214,000 compared to $29,918,000 for the three-month period ended June 30, 2006, an increase of $1,296,000 or 4.3%. The increase in Services revenues was due to organic growth, and the growth trend is consistent with prior periods. The Services revenues as a percentage of total Company revenues decreased from 79.7% for the three-month period ended June 30, 2006 to 73.7% for the three-month period ended June 30, 2007. This decrease reflects the Company's emphasis on growing various other segments, which have, or are anticipated to have, higher profit margins. The Services gross profit percentage remained fairly consistent for the three-month period ended June 30, 2007 at 27.0% compared to 26.7% for the three-month period ended June 30, 2006. The DME segment revenues for the three-month period ended June 30, 2007 were $8,060,000 compared to $6,851,000 for the three-month period ended June 30, 2006, an increase of $1,209,000 or 17.6%. Within the segment, revenue from the standalone locations represented the largest portion with revenues of $7,225,000 for the three-month period ended June 30, 2007 compared to $5,871,000 for the three-month period ended June 30, 2006, an increase of $1,354,000 or 23.1%. The increase is primarily due to the acquisitions of Alliance Oxygen and Medical Equipment, Inc. (July 12, 2006) and Lovell Medical Equipment, Inc. (August 25, 2006) during fiscal 2007. The three-month period ended June 30, 2007 includes a full three months of revenue from both of these acquisitions whereas the three-month period ended June 30, 2006 includes none. Revenues from the Catalog and Retail operations accounted for a total of $835,000 during the three-month period ended June 30, 2007 compared to $980,000 during the three-month period ended June 30, 2006, a decrease of $145,000 or 14.8%. This decrease was primarily due to decrease in spending on lead generation in the Catalog business, which resulted in a decrease in sales. The DME gross profit percentage remained fairly consistent at approximately 71.0% for the three-month period ended June 30, 2007 compared to 74.3% for the three-month period ended June 30, 2006.
The Retailer and Employer Services segment revenues for the three-month period ended June 30, 2007 were $2,948,000 compared to $786,000 for the three-month period ended June 30, 2006, an increase of $2,162,000 or 275.1%. This segment primarily includes the pharmacy operations. The increase in Pharmacy revenues is due to the acquisitions of Wellscripts, LLC on June 30, 2006 and PrairieStone Pharmacy, LLC on February 16, 2007. The Pharmacy gross margin for the three-month period ended June 30, 2007 was $846,000 and the gross margin percentage was 28.7%. This compares to a gross margin of $128,000 for the three-month period ended June 30, 2006 and the gross margin percentage was 16.3%. The increase in the cost of revenues reflects the addition of Wellscripts and PrairieStone. The increase in the gross margin percentage also reflects the fact that subsequent to the PrairieStone acquisition, the pharmacy division began generating revenue from its licensed service model as well as the more traditional pharmacy-type revenues. The licensed service model generates higher margins.
The Clinics segment revenues for the three-months ended June 30, 2007 were $138,000. The clinics initiative began during the three-month period ended September 30, 2006 and did not begin generating revenue until late in fiscal 2007. The Company made a significant investment in this initiative, including the staffing of the newly opened clinics before the number of patient visits fully materialized. This resulted in a negative gross margin of $739,000 for the three-month period ended June 30, 2007. In August 2007, management decided to exit the ownership of certain clinics. Going forward, management intends to sell such services to employers and retailers under a licensed service model on a fee for service basis.

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Selling, General and Administrative
The following summarizes selling, general and administrative expenses by segment
for the three-month periods ended June 30:

                                                                       % of Total                                % of Total
                                                     2007                 SG&A                 2006                 SG&A

In-Home Health Services                         $  7,018,000                40.7 %        $  6,569,000                53.3 %
Durable Medical Equipment                          5,705,000                33.1 %           4,341,000                35.2 %
Retailer and Employer Services                     1,078,000                 6.3 %             274,000                 2.2 %
Clinics                                            1,108,000                 6.4 %                   -                   -
Corporate                                          2,317,000                13.5 %           1,143,000                 9.3 %

                                                $ 17,226,000               100.0 %        $ 12,327,000               100.0 %

Selling, general and administrative expenses for the three-month period ended June 30, 2007 were $17,226,000, or 40.7% of revenues, compared to $12,327,000, or 32.8% of revenues, for the three-month period ended June 30, 2006, which represents a $4,899,000 or 39.7% increase in total selling, general and administrative expenses. The increase in selling, general and administrative expenses was primarily due to the following four items:
• Within the Durable Medical Equipment segment, expenses incurred subsequent to the Alliance Oxygen and Medical Equipment, Inc. and Lovell Medical Equipment, Inc. acquisitions on July 12, 2006 and August 25, 2006, respectively, contributed $1,137,000 in selling, general and administrative expenses during the three-month period ended June 30, 2007 compared to no expenses in the . . .