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Quarterly Report
Note 2 - Management's Plan
On February 17, 2012, the Company sold substantially all of the assets of its Pharmacy segment to Medication Adherence Solutions, LLC ("MAS"), a subsidiary of The Walgreen Co. The cash proceeds of $2.0 million were paid by MAS directly to H.D. Smith Wholesale Drug Co. ("H.D. Smith") pursuant to the terms of the Secured Creditor Assignment and Release Agreement dated as of December 6, 2011 (the "Secured Creditor Agreement"). In addition, MAS assumed or paid at closing trade payables of the Pharmacy segment of approximately $1.5 million. The Company received no cash proceeds from this transaction. For a further description of the terms of the sale of the Pharmacy segment assets, see "Note 3
- Discontinued Operations".
As a result of this transaction, the Company no longer operates the Pharmacy segment as of February 17, 2012. The Pharmacy segment was previously reported as a discontinued operation.
The Company's sole remaining line of business is its Services segment, which consists of its Home Care and Medical Staffing business. The Company's Board of Directors continues to consider options with respect to the Services segment. The costs associated with being a public company are significant, and the Company is likely to have negative cash flow in the near term with no immediate access to additional equity or debt funding.
In addition, the Company has approximately $40.0 million in debt that matures April 1, 2012, which as of December 31, 2011 included approximately $9.5 million due to Comerica Bank under the line of credit agreement (the "Comerica Credit Line") that funds the operations of the Services segment (the "Comerica Debt") and approximately $30.5 million in unsecured promissory notes of Arcadia Resources, Inc. ("the ARI Debt"). The Company does not anticipate that it will be able to repay or refinance the ARI Debt at maturity and, therefore, the holders of the ARI Debt may declare the debt to be in default. For a further description of the outstanding debt of the Company, see "Note 7 - Long Term Obligations".
As a result of the above, the Company is continuing to pursue the sale of the Services business and is in on-going discussions with a number of parties regarding the potential sale.
While the Services segment is not in compliance with certain covenants under the Comerica Credit Line, the Comerica Debt has not been accelerated and Comerica continues to provide funding for the Services segment operations. The Company anticipates that Comerica will continue to provide funding to the Services segment until the business is sold. However, at any time Comerica has the right to accelerate the maturity of the Comerica Debt and declare the outstanding principal amount to be immediately due and payable. In addition, the indebtedness under the Comerica Credit Line matures and becomes due and payable on April 1, 2012. For a further description of the status of the Comerica Credit Line, see "Note 6 - Line of Credit".
If the Services segment is sold, the Company anticipates that the Comerica Debt will be assumed by the purchaser of the Services segment or repaid by the purchaser at closing. While the Company may realize sale proceeds in excess of the Comerica Debt from the sale of the Services segment, such proceeds are not expected to be sufficient to repay or refinance the ARI Debt. In such event, the Company would no longer have any operating businesses, would not be a going concern, and its liabilities would substantially exceed its tangible assets.
If the Services segment is not sold, the Company will need to renegotiate and extend the maturity of the Comerica Debt and the ARI Debt. There can be no assurances that the Company would be able to renegotiate and extend the maturity of this debt. Moreover, the Company would need to significantly improve its cash flow through increased revenue, additional cost reductions and operational improvements.
For these reasons, investors are strongly discouraged from trading in the Company's common stock because it is highly unlikely that there is any equity value related to the common shares.
