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Arcadia: Don't buy our stock

March 5, 2012

Arcadia Resources Inc. is telling shareholders not to buy its stock because it is out of cash and faces a $40 million pile of debt that comes due on April 1.

The Indianapolis-based health care company completed the sale of its DailyMed pharmacy business on Feb. 17 to a subsidiary of Illinois-based Walgreen Co. But the $2 million in proceeds from the sale went entirely to satisfy a debt to one of DailyMed’s suppliers.

That leaves Arcadia with its home health care and medical staffing businesses, which are being funded right now by an $11 million line of credit from Dallas-based Comerica Bank.

As of Dec. 31, Arcadia already had drawn nearly $9.5 million on that line, which is part of the debt due on April 1. The rest of the debt is owed to unsecured investment funds and likely will not be repaid, according to a quarterly securities filing issed by Arcadia in February. So Arcadia is continuing to look for a buyer for its staffing businesses, as it has unsuccessfully for the past year.

The company stated in its securities filing that it is having “ongoing discussions with several parties regarding the potential sale.”

Arcadia officials, in the securities filing, say they expect a buyer to either repay or assume the debt owed to Comerica. But the remaining debts are unlikely to be paid off. If Arcadia cannot sell its staffing businesses, its only hope will be to negotiate for more time to pay off its debts—and then see a significant improvement in its business performance.

That hasn’t been happening recently. The staffing businesses saw their revenues decline 1.5 percent during the nine months ended Dec. 31, compared with the same period in the previous year. During that period, the businesses pulled in $61.5 million and posted a loss of $13.5 million.

“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,” Arcadia officials stated in the securities filing.

Arcadia had staked its future on the DailyMed pharmacy business, a service that packages all prescription drugs a patient is taking into convenient pouches marked by the time of day or meal at which they are to be taken. But the business didn’t grow fast enough to outrun Arcadia’s massive debts. The company put the business up for sale in October.

In December, Arcadia struck a deal with Walgreen, which will pay Arcadia $25,000 a month to manage DailyMed on its behalf and committed to eventually hiring Arcadia CEO Marvin Richardson. Richardson invented the DailyMed concept when he was CEO of Minnesota-based PrairieStone Pharmacy Inc., which he later sold to Arcadia.

Many Arcadia investors criticized the deal as self-serving on Richardson’s behalf. Many had hoped there might be a larger agreement between Arcadia and Walgreen, which pushed Arcadia's stock price up to 5 cents per share until Feb. 17. Since then, the shares have plunged to just 1 cent apiece.
 

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